Transforming global supply chains

Existing supply chains are unable to handle the high volume transactions that Internet commerce has now enabled. A new kind of supply chain network will evolve to take the place of the old one, according to two recent Forrester Research reports.

There has always been something uneven about the way e-commerce has penetrated the way business is traditionally being carried out. On the one hand, with e-commerce, transactions are done at Internet speed.

What does that mean?

For one thing, the volume that is being generated is hugely greater than non-internet channels. While a diligent salesman may bring in 5-8 transactions a day, multiply that by ten and you may get what a successful web-site is able to do… at any given time.

Compare that to the rest of the business processes, such as manufacturing and shipping, parts that continue to slog along pretty much at the same pace as it did before Internet commerce went nova.

In other words - "What about the supply chains?"

"Global manufacturers shouldn't be surprised that their supply chains are inflexible - they're held together with string and bailing wire," said Navi Radjou, analyst at Forrester.

What will happen, according to two recent reports by Forrester Research, is the development of a new kind of supply chain.

Supported by manufacturing and supply specialists, these supply chains will replace the existing network.

Processes that are barely able to handle today's US$57 billion in worldwide e-commerce trade will be paralyzed by the US$6.8 trillion expected in 2004, said the reports.

Five years down the road, today's linear manufacturing value chains will have broken down, replaced by networks of manufacturing specialists that are all cooperating at Internet speed to deliver products.

The reports foresee an Internet economy dominated by e-business networks - resilient structures of interdependent players cooperating in real time over the net.

Manufacturers will plug themselves into several of these networks while specializing in core manufacturing. And multinationals will look to add more dynamic planning into product development and manufacturing processes to meet the market's wild demand swings.

Logistic processes will also be revamped.

"Global supply chains are further hampered by today's logistics processes, which barely support the task at hand, preventing shippers from handling many more customers," said Stacie McCullough Kilgore, senior analyst at Forrester. "As international trade ramps up, today's structures will leave shippers with increasing challenges like more customer returns, increased legal risks, and greater liability."

An always-on global information pipeline incorporating open tracking system, trader collaborative engine, and applications and services to enable traders to adhere to government regulations will be deployed, according to the reports.

Information and cargo will no longer be tied together. Instead, online providers will assume new roles by 2004, and startups will begin to support procurement, track product, and match complementary shippers for cargo-space sharing.

For the Report "Manufacturing Deconstructed" Forrester conducted in-depth interviews with 50 global manufacturing executives - 40 working for US-based multinationals and 10 for European and Asian-based multinationals. For the Report "Delivering The Global Goods," Forrester interviewed 40 logistics managers in American, European, and Asian companies.