The Extended Supply Chain
The Asian Supply Chain is vastly different from the traditional concepts of Supply Chains in other regions of the world. Asia, as a continent is physically different from places such as Europe and the United States. The cultural and business landscapes are also very different from country to country as compared to the homogeneity of other continents around the world.
With this in mind, Supply Chain Solutions must deliver internal efficiencies and enhance external relationships for Asian businesses. This means complete end-to-end solutions for your enterprise, strengthening relationships internally within your organization and externally with your trading partners.
Essential Functionalities
The traditional approach to Supply Chain Management involves the implementation of a collection of “point solutions”. Collectively these provide the back-office functionality required to optimize a company’s distribution efficiency. A comprehensive “mix” of these point solutions could include all or some of the following:
1. Warehouse Management Systems
2. Demand Forecasting
3. Logistics
4. Financials
5. Decision Support and Business Intelligence
6. Order Management and Fulfillment
7. Supply Chain Planning
However, even if a business implements all of the functionality of these solutions, the single most important component is still missing. These back office systems are designed to create maximum internal efficiency, but do not address the imperative to manage external relationships with trading partners.
Many logistic companies and 3PL’s lose visibility of their supply chain once the goods have left the dock of the warehouse or distribution center. Once you lose visibility, you lose control. If you lose control, you compromise your service levels. If you compromise your service levels, you risk losing margin or worse, losing customers. These types of risks are bad business. Focus on collaboration and automating external relationships will avoid these risks. This is how we define the extended supply chain. This is also sometimes referred to as the virtual enterprise.
Extended supply chain electronically integrates all the steps in the supply chain right through to proof of delivery at the customer site. Importantly, visibility is provided throughout all of the steps of the supply chain. This means that you can see where shipments are, wherever they are in the supply chain. This enables your business to be proactive and manage problems as soon as they arise rather than reacting to customer complaints and queries. It is no secret that all companies now operate on thin margins. The long-term survivors will be those that pick up the largest market share. It will also be those who maximize their return on that share.
Winners will be those that differentiate themselves. The key to differentiation is collaboration. Collaboration provides total visibility across the supply chain. This is pertinent to companies all over the world. However, it is even more pertinent here in Asia. Asian companies face challenges of geography, language and culture that are not faced in other regions of the globe. These challenges definitely reduce visibility across the supply chain.
Extending Control
To gain visibility, you need access to all data on the supply chain. This does not only mean your own back office. It also means data that your trading partners possess for their part in your supply chain. You need to be able to integrate all this data in one consolidated view. Only then do you have the whole picture. Organisations can only hope to differentiate themselves when they can see and comprehend all pieces of the puzzle. To make good decisions an organisation must have all the facts. Anything less leaves room for error. Accepting less will not do for organizations seeking leadership.
The importance of total visibility is the subject of many white papers and editorial commentaries. It cannot be under-stated. The reality is that only a handful of supply chain software companies actually understand this concept. Even fewer have delivered upon it. The ability to deliver practical and economic real-world solutions for this concept is rare. Few vendors can deliver the tight integration that such an approach requires. Let’s take a look at what we mean by integration:
This diagram shows the typical back office systems, collectively referred to as Enterprise Management Systems (EMS). It also shows the electronic interfaces to trading partners, collectively referred to as Extended Relationship Management (XRM). Gartner and many other analysts have been preaching these solutions for a number of years.
As can be clearly seen a collection of solution components are needed to build the complete end-to-end solution. It is an almost endless task for a single organisation to evaluate all component candidates. It is even more difficult to adopt traditional methods of ensuring that they can all be tightly integrated with each other.
Local Challenges
Companies in either Europe or America write most of these components. The people developing these systems have little or no knowledge of Asian conditions. The challenge for companies in Asia is to find components that work in our environment. The second challenge is to find a way to integrate these components. The third challenge is to find a solution that delivers end-to-end visibility of supply chains in Asia.
Furthermore, American and European software solutions have price tags and rigidities that are a mismatch for the needs of Asian enterprises. The final challenge then becomes one of finding local components that truly do address local issues. This means that these solutions can be characterized by their cost effectiveness. They can also be characterized by their flexibility. Most importantly when you find these solutions you won’t need to be a Fortune 1000 company to participate in the game.
We know that many supply chain companies are reluctant to invest heavily in information systems capital cost. The initial expenditure is prohibitive. The return on investment is so long that it becomes unreasonable. This is where models such as hosted services (ASP) should become attractive. The ASP model is where the vendor provides the technology and IT services. This translates to a “pay as you use” service rather than an up-front capital cost. This means supply chain partnerships whereby you focus on your core competency of logistics and distribution. Your partner provides the technology services.
This is a working model for Asian companies. The ASP should provide a collaboration solution to complement the back office solutions that they offer. This provides the end-to-end solutions required to drive success here in Asia. Let’s look at how such a solution can deliver benefit to the Asian operation. To start let’s describe how we can build on the foundation of an efficient back-office solution. After this we will look at how we can generate benefits from a total solution.
Efficiency in the Back
A traditional approach usually means that orders are received into the warehouse by fax or telephone. These orders are entered into the distribution system. It is immediately apparent that there is an inherent inefficiency. Such an approach requires human intervention. It requires people to re-key the information into the distribution system. This opens up the possibility of keying errors. It also definitely introduces an unnecessary delay. Irrespective of the quality of your distribution system this method is inefficient. It is also prone to errors. Keying errors are the single largest contributor to supply errors globally.
The whole problem is caused because the system used by your customer is not electronically connected to your system. You are not collaborating. Through collaboration an electronic version of the order can be directly transferred from the customer’s system to your system. Hence, there is no delay. There are no keying errors. There is true collaboration. And most importantly, it is “real time”. Alternatively the customer might just wish to enter an order using a web page (e-Procurement). Systems today should supports such functionality. These orders will be delivered directly into your distribution system. There is no human intervention.
In other cases a customer might wish to browse a catalogue of products and then proceed to place an order. This is similar in nature to the traditional B2C applications. If you are supporting all these methods of ordering then you are already moving towards collaboration. If you are not then you are compromising your customer relationships. You are jeopardizing your long-term ability to retain customers. Without collaboration your organisation will struggle to survive.
Once a customer has placed an order your organisation has by default set expectations. The customer will be expecting an advanced shipping notification. Collaboration provides the capability to send this notification electronically. And so the story goes on and on. It’s all about fast and accurate communication. Technology that deals with the complex task of delivering information to your trading partners in whatever format they require. This is NOT Electronic Data Interchange (“EDCI”). This is not some antiquated method of two computers sharing data because they know about each other. In this scenario we are talking about sharing data without you needing to have any knowledge whatsoever of your trading partners systems.
So far we have talked about the relatively simple task of processing a single order. Soon that order will be fulfilled. You have inventory. You can pick and deliver this inventory to your customer. Eventually the goods will be placed on the dock for shipment. This is the first of many potential “hand-offs” that will occur before the product is successfully delivered to the customer. At each “hand-off” you lose visibility. Your customer does not gain visibility until the product arrives at their warehouse. Visibility has become a major problem. By connecting to these “hand-off” companies and capturing their “tracking” information, your organisation can maintain visibility. Disparate information from disparate systems can be accumulated. Accumulated information can be stored in a data warehouse. The Internet provides a vehicle for enquiry into that date warehouse from anywhere on the supply chain.
That’s visibility. That’s collaboration. That’s Extended Supply Chain. And that’s the way of the future, now.
Ross Eades is the Regional Director for Enterprise Management Systems for Infrontier Asia Pacific. Ross has thirty plus years of experience in Supply Chain. He has worked throughout Asia helping customers address their supply chain and e-business issues. He has worked to develop e-business and collaboration solutions for some of the largest organisations in Asia.