Advocates of the federated model assert that it is less complex and more efficient than the utopian approach. In a federated supply chain, trading partners will evaluate the costs and tradeoffs of doing business with each of their suppliers and customers on a continuous basis, and they will seek out new partnerships beyond the constraints of existing relationships when necessary to meet their own strategic goals. Over time, the theory goes, supply chains will become increasingly efficient as companies swap trading partners in response to perceived potential gains in efficiency or to changes in market conditions.
Hugh Baker, also of Booz Allen & Hamilton, argues that it is the rise of e-business that is making the federated planning model possible. With e,' it is much easier to do federated planning than it was in the ERP [enterprise resource planning] era, Baker says. With e' coming along, you can build an architecture that reduces the barriers to swapping people out because all you're doing is defining the interfaces for communication. You enable the competition inherent in the threat to switch [to a different trading partner] to be played out while optimizing the supply chain.
Once a company practicing federated planning has optimized its supply chain - and its value chain - and enabled competition within those chains, the next step is to move on to what Baker calls product specifications and the whole innovation agenda. On the one hand, this involves getting the procurement department and suppliers involved in new product development to ensure design for manufacturability and assemblability. The federated approach also allows companies to think about how they can change existing products to take advantage of new technologies or new suppliers that offer innovative ways to solve a design problem in an existing product, since this model provides for the relatively easy switching of suppliers in and out of a supply chain.
Perhaps most interesting, Baker says the federated model has the potential to allow companies to design competition between their suppliers into a product by allowing substitute materials to be used as prices fluctuate between the substitutes. You can use the competitive pressure of the substitutes themselves, Baker says. A simple example: design a product so it can be packaged either in shrink-wrap trays or in cardboard boxes, and then alternate between the two as oil and pulp prices fluctuate.
Three Solid Strategies
Let's say you buy into one vision or another of what the next-generation supply chain will look like. What now? What steps can you contemplate to prepare your supply chain for the future? Here again analysts and consultants differ, although some consensus has formed around a few basic steps forward.
The first step, says Gartner's Cecere, is to have a vision, a strategy for where the company wants to take its supply chain. Sounds basic, but as Cecere explains, Supply chain management brings the strategy to life, and if you aren't clear on what that strategy is, you may bring the wrong strategy to life. In fact, Gartner predicts that 5 percent of supply chain planning projects will fail by 2003 due to a lack of a clear vision. IBM's Ptak adds that having a vision in place helps to ensure that any technologies a company adopts get applied to the particular pain points in the supply chain that the organization is experiencing.
Second, before looking outward to your supply chain, make sure your own house is in order. It's important to do a complete analysis of your business and how it needs to interact with your supply chain, says Simon Walls, vice president of consulting strategy for solution provider PeopleSoft. AMR's Newton advises breaking down internal barriers within the enterprise, including integrating internal systems and providing for a consistent view, across different functions, of what is occurring inside the company. Make sure your internal systems are operating as a whole rather than in individual silos, and make sure the systems underlying those operations are connected, Newton says.