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Connect your Business Network to Manage Operational Complexity

July 20, 2012
Manufacturers need to manage their entire business network of subsidiaries, suppliers and distributors to stay ahead of their competition.

Manufacturing organizations have never faced so much complexity in their operations before. In response to global opportunities, these organizations continue to open new sales and distribution offices in various countries across the globe, set up joint ventures, relocate manufacturing to cost optimal regions and acquire other companies. Their supply chains also continue to become more loosely coupled and complex. Factors include outsourcing manufacturing to partners in lower cost countries that makes the supply chain long; short product lifecycles which require quicker ramp up and ramp down of suppliers; and a faster pace of innovation in the industry from new entrants, which requires rapid reconfiguration of the supply base on an ongoing basis.

As a result of these major structural changes, best-performing organizations realize that it is not enough to manage just their first tier of suppliers and customers; they need to manage their entire business network—the network of subsidiaries, suppliers, distributors and more—to stay ahead of their competition. As a result, business network management has assumed a sharper focus in the past few years.

Due to the sprawl and complexity of its business network, it is challenging for an organization to manage its end-to-end operations smoothly. These challenges are exponentially increased due to the external factors that place significant pressure on the supply chain. While over the past three years there has been a single-minded focus on weathering the financial crisis, recent external factors such as the tsunami in Japan, floods in Thailand and volcanic eruption in Europe, as well as fluctuations in oil and commodity prices, have sent shockwaves throughout the global supply chain. Automotive, computer, consumer electronics and packaged goods supply chains have been significantly affected by these factors. A recent report by consulting firm McKinsey identified the key operational challenges facing executives today include:

•Increasing unpredictability in customer demand

•Increasing cost pressure in logistics/transportation

•Increasing volatility of commodity prices

•Global competitors

•Currency fluctuations

•Rising wage rates in lower cost countries

•Growing exposure to regulatory requirements in countries of operations, as well as increase in environmental concerns

•Increasing complexity in supplier landscape

•Exposure due to geopolitical instability and natural disasters.

In order to respond to these challenges, the report identifies top priorities that the executives are embracing:

1) Reducing operating costs and inventory levels

2) Improving the product, service and delivery quality

3) Getting new products to market faster

4) Reducing supply risk

5) Improving the carbon footprint, i.e., greener supply chains.

Implementing these priorities requires organizations to more closely coordinate their activities within their business network.

We believe that a key requirement for successful implementation of these priorities is for organizations to easily manage and synchronize activities within their rapidly growing and constantly evolving business network. Their answer lies in creating a connected business network so all partners can rapidly share information and use it to get coordinated and synchronized.

Connected Business Networks

Business networks that are electronically connected not only collaborate more effectively to better coordinate and synchronize their activities, but they also become more responsive to any changes in demand or any disruptions in supply. In addition, as a result of electronic connectivity, they collect data that enable business network participants to gain deeper insights that can help reduce risk and improve performance.

Let’s discuss the various types of technology layers in a fully connected business network. The more the number of technology layers that the participants in a connected business network use for interactions and transactions, the better is the coordination and synchronization between them.

Core Connectivity:At the core of any connected network is the ability to provide ubiquitous connectivity to every partner in the network. Some supply chain vendors provide a cloud-based solution to provide this connectivity, so when a company connects to this network, it gives them instant connectivity to thousands of organizations across the world already connected to this open network. These may include many of their current partners, including suppliers and customers. With a large number of existing network partners already electronically connected via the open network, a company can now focus on on-boarding the remaining suppliers, subsidiaries and distributors/customers.

Inter-company Transactions:Once connectivity is established with the business network partners, companies can now electronically transact with their business partners. Such transactions (which include intercompany processes such as supply and demand planning/execution, customer order management, direct procurement, VMI, demand forecasting, shipment notifications and invoicing) not only reduce the cost of transactions, but they also reduce errors and increase the velocity of information flow. These intercompany transactions and notifications are also critical to gaining visibility and control over an outsourced manufacturing and logistics environment.

Inter-company Collaboration:In addition to the structured transactions described above, companies also collaborate with their business network partners on a wide range of activitie,s such as product design, marketing launch and issue resolution. Such activities involve exchange of unstructured data including documents, charts and graphics. Collaboration using unstructured data and people-centric methods (i.e., social media) is a key part of a B2B business network framework.

Content and Analytics:As participants transact and collaborate using the network, it accumulates data (content), which can provide significant value to all participants. This content includes a) benchmarks created from aggregation from various transaction activities on the network, b) analytics that provide insights into the performance of processes that span company boundaries, and c) externally sourced content that adds rich contextual information to existing data to help users continuously compare and improve the performance of the business network.

A comprehensive business network connectivity technology should address all four layers in its solution.

Key Requirements for a Business Network Connectivity Technology

The value of a connected business network increases exponentially if it can provide the content (i.e., benchmarks, syndicated market data, performance/risk analytics, etc.) to its participants, so they can benchmark against best-in-class and use it to continually improve their performance. A solution provider can enable it by collecting and aggregating the data for all the transactions occurring across the entire network over time to provide you with useful benchmarks to help you continuously improve your operations over time. This benchmarking and analytics capability is the key to the five key priorities listed earlier.

An open business network technology should also provide customers with the flexibility to initiate their journey from multiple starting points. For example, one customer could start with connectivity and transactions with key partners in selected functional areas and, over time, extend the scope to cover transactions and collaboration over all functional areas across the supply chain. Another customer should be able to start with connectivity and people-to-people centric collaboration first and then implement transactions over time.

Finally, the open business network should ideally be deployed in a cloud-based architecture so organizations can deploy them cost effectively, without purchasing and implementing additional software, as well as easily utilize existing connections to the open network for faster onboarding.

Related Articles:

Integrating Strategic Suppliers Using a Two-Tier ERP Model

10 Guidelines for Supply Chain Network Infrastructure Planning

Three Secrets for Sustaining Fast Growth

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