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Differentiating through Supply Chain Innovation

As a supply chain professional, imagine being able to impact a high portion of the fixed costs of a product. It seems nearly impossible, but there is, indeed, a way to do so. By extending the purview of supply chain much earlier in the development process, the traditional 80 percent of pre-determined costs can become much more variable—allowing the supply chain significantly more leverage on the cost side.  Supply chains are traditionally viewed exclusively in fulfillment terms, with a focus on the ability to plan, build, make and deliver. And, being heavily cost-focused—living or dying by the ability to deliver high-quality products quickly at low cost—this traditional approach leaves supply chain operations with very limited scope to dramatically improve business results.

In today’s hyper-competitive market, however, supply chains are being asked to drive differentiation, as well as radical changes in cost, quality, time to market and delivery times. The key to achieving such differentiation lies in partnering with research and development (R&D) engineers and supply chain ecosystem partners, starting at the product conceptualization stage, when decisions can be most impactful on the final product design and costs.

The Power of the Development Supply Chain

MIT professor David Simchi-Levi coined the term “development supply chain," the process by which products are designed, developed and sourced. Ideally, it dramatically extends the reach of the traditional fulfillment supply chain—the process whereby physical components are collected from suppliers, assembled and distributed to customers. The development supply chain involves operations very early in the process, beginning with the start of product design, when very few costs are fixed. As a result, supply chain operations can drive innovation in sourcing, qualification and supplier invention from the very beginning of the product lifecycle. But to do so requires a very different mindset than a fulfillment-only focused operation.

This development supply chain orientation requires organizational changes with a much heavier investment in engineering talent. Supply chain organizations need to hire and develop their own engineers who become deeply involved and aligned with design engineering. These supply-oriented engineers bring their unique and extensive expertise in the areas of strategic sourcing (i.e., how and where to enable new technologies in the supply chain ecosystem prior to a product’s definition, the development of new product introduction processes and advances in test development).

By participating in the earliest stages of product conception and architecture, and working closely with partners on innovative solutions throughout the manufacturing process, companies can drive new supply chain capability investment, and leverage the latest ideas and technologies from the industry. As a result, they can affect changes in the basic economics of manufacturing, as well as fulfill customer needs for more innovative and cost-effective products that are delivered quickly and accurately with high quality and reliability.

The Keys to Driving Differentiation

This concept of the development supply chain requires a different mindset and way of working for most supply chain organizations, with its focus much earlier in the product development process, and its heavy reliance on engineering talent and emerging technologies. The five biggest keys to implementing this approach and realizing its profound benefits include:

1. Investing in Technical Talent

Infusing supply chain operations with deep technical talent is vital to realize the potential of the development supply chain concept. For example, Cisco has over 800 engineers in our supply chain organization, comprising 40 percent of the total supply chain workforce. Their engineering disciplines span test, component, quality, product and process engineering, as well as advanced technology development. We have established the Global Engineering Community, Emerging Technical Leader Program, a Distinguished Manufacturing Engineering program and clear technical career paths for supply chain engineers.

2. Tight Integration with R&D

In terms of working with engineering at Cisco, we adopted the philosophy that one plus one equals three. We co-locate our supply chain engineers within R&D, and work as one team at the point where products are being architected and defined. This arrangement leads to better partnerships and outcomes, with improved return on investment (ROI) for our strategic suppliers’ R&D investments. By working together to identify and leverage advanced technologies, as well as ensuring that product designs are adhered to, the best possible products are brought to market quickly and cost-effectively with high quality and reliability.

3. Enabling Advanced Technologies

Being able to embed new technologies into products at the earliest stages enables the release of breakthrough products.  At Cisco, we have our very best supply chain engineers working with key suppliers in advance of product launches to develop and evaluate new technology feasibility, design rules and risk areas. This enables us to drive joint investment and development of bleeding-edge technologies into early market adoption, while continuing to deliver the high quality that customers expect.

4. A Disruptive and Innovative Mindset and Culture

Developing leading-edge technology and new capabilities also can create significant risk to ensure the new technology is ready at product launch. While driving our internal culture, we also share the risk, investment and responsibility across our entire supply chain ecosystem. The combined best minds from the earliest stages and throughout the product development lifecycle means better products, faster time to market and more satisfied customers..

5. Industry and Academic Participation and Leadership

Technology sensing is one of the critical elements in the development supply chain to effectively influence new technology investment and development. Our supply chain engineers actively participate in industry conferences, university research, technology forums and consortium initiatives. In addition, to drive fast advancement of the supply chain ecosystem, our engineers lead and drive industry standards, processes, and tools for supply chain consistency and multi-sourcing capabilities.

Is It Worth the Investment?

At Cisco, our answer would be an unqualified “Yes!” Not only is the development supply chain an exciting and vital extension of the fulfillment supply chain—offering the perfect balance between creating the future and fulfilling the demands of the present—but it also drives numerous tangible benefits. Among these are: faster time to market, greater product reliability, lower costs, decreased risks and faster integration of acquisitions. Only with the development supply chain approach can supply chain operations impact a much greater share of the final product’s costs and benefits. Moving from being able to affect only 20 percent of total costs to much greater percentages changes the game in truly exciting and transformative ways.

David Ashley is the vice president of supply chain operations at Cisco Systems. Ashley leads Cisco's Technology and Quality organization, a global team responsible for delivering customer-driven quality and reliability solutions in support of Cisco's development supply chain. The team is committed to driving a competitive advantage for Cisco by ensuring innovation and excellence in manufacturing technology, test and component engineering, advanced technology development, and closed-loop quality management.

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