From Static to Dynamic

Forrester: Adaptive supply networks will let companies foresee, counter supply chain disruptions

Cambridge, MA  April 23, 2002  The static supply chain of today conceals more information than it reveals, leaving companies at the mercy of supply and demand disruptions. However, new technologies are allowing manufacturers to evolve toward "adaptive supply networks" that will be more predictive, responsive and self-regulating, according to a new report from technology consultancy Forrester Research.

Over the last decade, increased outsourcing and alliance-building have made it harder for manufacturers to spot brewing supply chain glitches, Forrester's analysts argue in the report, entitled, Adapting to Supply Network Change. As a result, when unexpected supply chain events arise, manufacturers must switch to "fire fighting," a defensive mindset that carries a hefty price and often leads to more damaging outcomes.

"Today's sequential and linear approach to supply chain optimization has led to a situation where firms can't sense, let alone respond, to unplanned supply and demand variations," said Laurie Orlov, research director at Forrester. "For instance, major apparel makers have witnessed their well-planned launch efforts for hot new clothing lines go awry because of the amplified effects of a yarn producer's shop-floor problem four tiers deep within their supply network."

However, technologies are now emerging that will enable manufacturers to sense and respond proactively to unanticipated variations in supply and demand, transforming their static supply chains into what Forrester calls "adaptive supply networks." These include technologies such as Web services, extended Internet and intelligent agent software.

Forrester defines adaptive supply networks as business networks of supply chain partners that use technology to sense and respond, in a coordinated fashion, to changes in their environment. The consultancy said these supply networks boast "self-regulating" capabilities akin to today's energy and telecom transmission networks.

Supply networks will be based on a continuous, technology-enabled adaptation cycle that will help manufacturing partners proactively detect emerging risks and opportunities, expedite exception resolution and capture opportunities, and continually improve their operational processes. This cycle is composed of three iterative steps:

·        Sense and interpret. To predict future risks and opportunities, manufacturers will identify, assemble and continually track directional indicators that measure operational performance, and then alert partners when a major deviation is detected.

·        Decide and act. Upon notification, partners will decide which action plan is most appropriate under current conditions and then rally shared resources.

·        Learn and transform. Partners will turn exceptions into insights and into change, altering their organizations' underlying processes and objectives and reshuffling their coping strategies portfolio to better handle similar situations in the future.

"The 'learn-and-transform' step is key here," noted Navi Radjou, senior analyst at Forrester, "because unless you tackle the root cause of a supply network exception, you won't be able to prevent its reoccurrence. To eradicate their supply network woes, manufacturers must learn to correct exceptions in ways that involve modifying their organizations' underlying processes, policies and objectives."

For instance, PC makers today tend to respond with a knee-jerk reaction when faced with an unexpected demand swing: They ramp up capacity and expedite shipments. But in adaptive supply networks, a PC maker will be able to detect and resolve the root cause of its demand spike: miscommunication between its marketing department and its production staff.

When will this supply chain revolution hit? Judging by the technologies that Forrester said will help drive the transformation the revolution may be more of an evolution lasting over the next several years.

Take Web services, for example. Forrester said this software  which other software, via Internet protocols and formats, designed to use  is going to strengthen the weakest links in manufacturers' supply networks and cost-effectively connect with a dynamic array of partners. Forrester expects "hypergrowth" in Web services by 2003.

The "extended Internet," an integral part of what Forrester calls the "X Internet," involves Internet devices and applications that sense, analyze and control the real world. Manufacturers will tap the extended Internet to raise their supply network processes' real-world awareness through the use of sensors and smart tags attached to physical assets, the consultants say. Forrester predicts hypergrowth for the extended Internet by 2004.

Finally, intelligent agents, which are due for hypergrowth by 2006, will automate the resolution of supply network exceptions and improve learning.

Forrester expects enterprise software suppliers to rise to the challenge of adaptive supply networks by tapping these three emerging technologies to develop new applications and services that let manufacturers sense and interpret unplanned events, improvise action plans and learn to transform exceptions into insights into change.