How are outsourcing and supply chain tasks such as purchasing and inventory management tied to "network-centric operations?" What is a network-centric operation? Read this article to find out.
Organizations, finding it necessary for competitive advantage to reduce costs, improve the quality of information of direct and indirect spend, and improve efficiencies and effectiveness, are increasingly seeking business process outsourcing (BPO) and other procurement and inventory strategies. This search settles atop the management team's already full workload of maximizing the company's enterprise resource planning (ERP) system and/or upgrading and improving it; managing existing agreements and operations; and concerns regarding the capital- resource- and training-intensive nature of enterprise and asset management systems.
With all these variables and considerations, how does a company attain superiority in information, decision making and cost savings? The good news is that most organizations have already been reaching toward those goals for years. The bad news is that most of the initiatives they have directed toward those goals are short-term cost saving measures that stand alone and are rarely integrated into long-range plans.
Although each incremental step in strategic sourcing, KANBAN, point-of-service (POS), and other inventory and procurement strategies have allowed organizations to wrap their arms around the information and material requirements that are necessary to drive their operations, they all ultimately fail to take an organization to the next level. Nevertheless, in almost every respect with the measures just mentioned companies are already practicing limited "network-centric" operations to some small degree.
So what exactly is "network-centric?" When one hears the word "network-centric" one might automatically think in terms of technology-networked systems. In essence, that is only partially correct. Business and the military have borrowed heavily from each other in many areas in the past, and in this case the supply chain has already been incorporating the military's collaborative and holistic concept of "network-centric," unwittingly, for years.
A military definition of network-centric might look like this: A network-centric force is effectively linked or networked by an information infrastructure, or "infostructure." This force has the capability to share and exchange information among its geographically distributed elements: sensors, regardless of platform; shooters, regardless of service; and decision-makers and supporting organizations, regardless of location. In short, it is an interoperable force that has global access to assured information whenever and wherever it is needed.
It is easy to see how this definition can apply to any number of current global organizations by simply substituting a few words, such as "business development" for "sensors," or "staff" for "shooters."
Thus, the ability to operate as a network-centric force provides warfighters, or business professionals, with a new type of information advantage that is broadly characterized by improved capabilities for sharing and accessing information. Network-centric "warfare" enables business professionals to leverage the information advantage to increase competitive advantage through self-synchronization and other network-centric operations.
Across a broad spectrum of mission areas, evidence for the power of network-centric "warfare" is emerging from experiments and exercises. Evidence collected to date supports a strong correlation between information sharing, improved situational awareness and increased combat power. A common theme in the evidence is the critical role of modified (in some cases new) tactics, techniques and procedures. Sound familiar? It should. This is the same reason companies implement an ERP system or, if resources are limited, seek a center of excellence around some kind of procurement, inventory and supplier strategy to achieve the same things that are scalable across the divisions. Additionally, network-centric operations, even when starting small with, say, a strategic sourcing initiative, rely on the fact that the technology and processes are tools that are enabled to a higher level of long-term effectiveness through the development and practice of a few key principles.
Once again, it is easy to see how this concept is translatable to current business operations. For instance, why would an organization invest heavily in a new ERP system? Once implemented and running, why do they share inventory, storeroom, vendor or procurement visibility across the spectrum of sites and locations? Why do organizations coordinate strategic sourcing activities with the various end users and divisions? Why are the platforms integrated with supplier and customer relationship management (CRM) systems? The answer to these questions is somewhat simple: To enable the enterprise-wide system to leverage its information and gain both synchronization and synergy in effort, effect and cost savings. This same effect can be achieved through a model centered on a network-centric solution called a "center of excellence.
A center of excellence is a microcosm of a network-centric operation. For example, a portion of a department, office or division can become network-centric when applying the principles of a network-centric operation to a strategic sourcing initiative in, say, Pipes, Valves & Fittings across five manufacturing divisions; or, office supplies and chemicals and gases.
Although we may expound the principles of agility, adaptability and alignment for a cost effective supply chain, these principles are directly interdependent on technology, culture and human skills. In essence, a person may be good at collecting and integrating data, but actually getting that data out and getting others to collaborate on what it means, and the resulting effect, will directly impact the company's ability to be agile and adaptable. This, in turn, effects and affects compliance and agreement management, return on investment (ROI), competitive intelligence and lost business development opportunities.
Assuming that the key element is technology and that technology enables information, then it's easy to see how some organizations have come to believe that technology is the panacea for all its troubles. They believe that if a company can implement this new technology, then it can also wrap its arms around all the necessary information, which in turn drives better, and faster, cost savings and decision making. But in some respects this is a failed test of rational logic, because a host of other variables also play a significant role in the network-centric operation, such as integration between systems, skill of implementation, effectiveness of change management, agreement management, skill sets, and, most importantly, decision making and speed of decision making. In essence, the technology may provide us with increased amounts of information and speed to communicate that information, but does the information actually become usable knowledge and does, or can, someone act on the information?
With this mind, solution providers that provide network-centric components both within a networked-centric operation, and/or an organization that desires to start to become a network-centric operation, allow the focus to fall back on the strategic aspects of business and provide the necessary oversight for the less strategic, which simultaneously allows management to reach time, decision, resource and cost goals. These solutions are focused on a center of excellence model that may have many elements and project components that are incrementally implemented, yet reach an ultimate long-term objective of becoming increasingly network-centric.
The network-centric operation follows some basic principles and tenets. For instance, a solution provider's collaborative methods and technological toolbox might allow a company to reach higher levels of information superiority, decision-making superiority and cost savings without being capital- or resource-intensive, and without requiring a company to invest in new technological platforms. The emphasis here is on the soul and intangibles of management and leadership, specifically morale, culture, training and the related skill sets that describe the characteristics of collaborative teams and organizations.
Solutions should also enable information superiority and touch on the multiple, simultaneous actions of analysis, decision points, decision making and execution, which help to ensure a rapid and accurate ROI. Solutions should also compliment the entire supply chain and every range of possibility in between, from strategic sourcing and asset management to on-site operations that manage procurement, inventory, storerooms, mailrooms and a host of other services.
Realizing that the supply chain is both inter- and co-dependant on a host of variables, solutions should ultimately help a company grasp and manage those variables. Some components that should be part of the planning phase and subsequent implementation to ensure a successful networked-centric operation are:
- No one department/site/organization is a "stand alone."
- Connectivity may be linear, but impact and planning are holistic.
- All the internal departments' weaknesses are overcome by the combined strengths of all the departments within that network.
- Collective synchronization and strength are now "business multipliers."
- Networks are vulnerable when disconnected in any way.
- Networks are vulnerable when rules of engagement and intent are not defined.
- Networks are vulnerable when elements operate independently outside the network or intent.
- Networks, by nature require an exponential amount of connectivity, planning, communication, implementation, follow-up and sustainment.
- Networks by nature require an exponential increase in collaboration, skill sets and team work.
- Networks assume, imply and explicitly require centralized collaborative planning and decentralization of execution within the parameters set by the planning/governance committee.
Networks exponentially increase awareness, but that awareness does not necessarily mean execution or action by an element or a networked action unless the leadership intangibles and skill sets are in place and functional.
Information awareness or superiority does not necessarily translate to automatic, timely and accurate decision making.
Networks assume and require a self discipline that operates within both the strict and broad parameters established as the intent and rules of engagement.
In closing, the real effort and spade work continues well beyond the initial planning and acceptance phase of a company's intent to conduct a strategic sourcing or outsourcing initiative. True cost savings, to be effective, must consider more than short-term gains. Effective supply chains consider the specified, implied and essential sub-tasks and sub-sets that make up the broad categories of agility, adaptability and alignment. For instance, if a company spends six months analyzing and evaluating several vendors and commodities for an outsourcing initiative, then the effort will have been wasted unless there is also effective and ongoing management of those agreements. The priority of selecting the right solution partner that can enable technology and information, and equally manage the intangibles of the project, should be given the heaviest weight in any evaluation and selection process as a company moves toward a more network-centric operation.
About the Author: Terry Tucker is the director of Materials, Logistics and Planning at Prosero Inc.