Envision: Lessons in Supply Chain Survival

Last spring, when faced with up to $4.5 billion of immovable inventory, the electronics industry realized that competition is no longer company versus company; it's supply chain versus supply chain.

[From iSource Business, November 2001] Whether you realize it or not, chances are that your company is part of some other company's supply chain within the $1 trillion electronics industry, even if it's not immediately obvious. From coffeemakers to cars, which now have an average of 30 embedded processors, products are becoming increasingly digital. And although your product lifecycles may be counted in years, the pricing and availability of the electronic components within them are subject to the volatility of markets where lifecycles are measured in months or even weeks.

By turning the microscope inward on the electronics industry's supply chain experiences, it's possible to extrapolate lessons that apply to your business. Among the most critical of these lessons, and possibly even the most simplistic, is what savvy electronics companies are now realizing about their supply chains: you can't know everything about the future.

The acceleration of innovation, combined with shifting market trends and alliances, makes it nearly impossible to predict what the world will look like in the next quarter, let alone in 18 months. Immediate visibility and alerts are key to adapting to, and taking advantage of, market changes as they occur. Equally important is the flexibility of a supply chain management (SCM) solution to make rapid adjustments, because six weeks later may be six weeks too late.

A second lesson that electronics companies are learning is that success is tethered to the weakest link in any given supply chain. The rollout of a PC, which averages 300 to 400 components, can be stalled for weeks by the delay of a $0.01 part. In a massive domino effect, this impacts not only the PC maker, but also hundreds of other suppliers who may be asked to hold inventory until all components are available for assembly.

The implication is that SCM solutions that are focused on internal efficiencies don't solve the whole problem. A major computer maker recently announced administrative streamlining from SCM worth more than $300 million. Impressive as these savings are, they pale under the multi-billion-dollar shadow of the excess inventories that are facing some companies.

Instead, firms need solutions for quickly and easily communicating and collaborating throughout the multiple tiers of their supply chains. Additionally, inherent competitive and security issues  in the electronics industry, a competitor may be a partner, as well as a customer  demand a trusted third party that gives firms a supplier-neutral solution for working together. Unlike public exchanges, this solution must simultaneously expand companies' business processes externally while ensuring that information is shared only with authorized parties.

These demands are driving toward a new class of intelligent, neutral, hosted SCM solutions. They combine the hosted service advantages of an authorized online community, rapid adoption and high flexibility with the security, confidence and control of a four-walls application. Defined as "hosted supply chains," "extended relationship management," or "B2B [collaborative] commerce" by AMR, Forrester Research and the Gartner Group, respectively, the prediction is that these solutions will manage a majority of externally influenced SCM activities, such as demand and supply forecasting and inventory management, in the next three to five years.

The electronics industry is beginning to take advantage of these solutions. Other manufacturers who glean early lessons from electronics companies also hold the potential to reap significant gains from effective supply chain collaboration, including better operating margins, increased revenue and improved customer relations.

Hosted SCM solutions are still a relative unknown. But the greater risk may be in not harnessing their power to effectively manage what you don't know about your future.