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Cloud-based Platform Helps Product Manufacturers Maximize Supply Chain Advantage
Product manufacturers today operate in a time-sensitive environment of increased global competition and risk, a situation that highlights the need for visibility and collaboration across their supply chains. But it's not enough to just call it "collaboration," according to Rich Becks, general manager of the high technology segment at E2open. To hear Becks tell it, the future belongs to companies that pursue supply chain excellence through collaborative business networks.
"In 2013, I think we're going to see a major change," Becks said recently in an interview with Design-2-Part Magazine. "The evolution of supply chain excellence is going to come through business networks, and networks that have process execution platforms that are already in place. I think we are going to see an unparalleled level of collaboration actually come to fruition. We've been using that word— collaboration— for 20 years, and, in some cases, it just means sharing a schedule, and it needs to be more than that. It needs to be, really, a two-way communication and collaboration about the real tradeoffs that exist.
"You can't just push liability and cost down the supply chain to get it off your books, and, just because you share that information, call it collaboration," Becks continued. "That was a pretty first generation, superficial view of what collaboration really is. But I think we are now at the stage where companies start to realize that their brand is only as good as the weakest link in their supply chain, which could be any partner anywhere, and that they'd better form strategic relationships with their partners. And these strategic relationships have to be founded on a win-win value proposition. We need to understand what drives cost and drives waste in the supply chain, even though we may not own those assets. And that is a deep level of collaboration that hasn't happened up until now, and I think that a business network is the way to do it.
"What we're seeing among our customers is these kinds of conversations occurring with strategic suppliers up and down their supply chain, and that brand owners are helping their suppliers be more successful," he added." The suppliers in turn are responding by giving them preferential service levels, and we really see supply chains competing now, more than ever, as business networks."
E2open (www.e2open.com), headquartered in Foster City, California, provides cloud-based, on-demand software solutions that are said to enable enterprises to procure, manufacture, sell, and distribute products more efficiently through collaborative execution across global trading networks. Brand owners use E2open to gain visibility into and control over their trading networks through the real-time information, integrated business processes, and advanced analytics that E2open provides.
Design-2-Part Magazine spoke with Rich Becks recently about the E2open business network and how it can help manufacturers orchestrate their supply chains to better advantage.
D2P: Your website mentions that E2open "helps integrate and automate a company's most critical supply chain processes across multiple tiers of trading partners." Can you tell us how that works?
RB: As companies have become more global, and as the number of trading partners has increased, the complexity of their supply chain has also increased. And at the root of supply chain performance, really, is information. We often hear about companies who are pursuing lean goals of substituting information for inventory. And what we find is that as companies stretch across the globe and serve all these markets with more partners involved than ever, if they don't have a good foundation in terms of being able to manage information and substitute it for inventory, working capital is severely depleted because they're having to finance flexibility and responsiveness expectations from their customers using staged inventory around the world. And so, that working capital gets consumed that could have been deployed developing new products or new markets or increasing their brand, but instead, it's being used to just service customers with the flexibility they desire.
So at the foundation of everything, now, is information visibility and the ability, then, not only to see assets as they exist around the globe, but to be able to do something about it. And I think that's what we do best: helping our customers understand where these assets are and how they can deploy them most effectively, in order to meet customers' increasingly demanding expectations about flexibility and responsiveness.
D2P: How does E2open help product manufacturers address and minimize the risks that are inherent in their supply chains?
RB: I think we all have seen lots of events happen to supply chains around the world. Sometimes they're natural disasters; sometimes they're man made in origin, and we have witnessed how it impacts companies. It can have significant impact not only on their ability to service their customers, but also really on their valuation. Many companies have gotten their stock hit severely because they've not been able to really manage their way through a crisis. We saw the floods in Thailand, for example, basically take out a lot of camera manufacturers, hard drive manufacturers, and it took them months and months to be able to recover. Some of those companies lost significant share to other companies. And some of those companies lost that share because they were just not able to understand the magnitude of the disaster and how it impacted them, and what their choices were in order to recover.
One of the things I told a lot of companies is that a disaster is a horrible thing, but it's also a moment of opportunity, and the opportunity is ‘How fast can you respond?' And what we find is that there are significant market share shifts that occur immediately after a disaster happens because customers need to turn to someone. And it's those companies that can secure vital components quickly, understand really what their constraints are, and be able to marshal new resources in order to satisfy customer demand. Customers that may not even be using them turn to them and need help, and that is a time when you can prove yourself to be a strategic partner, and that's why supply chain is now being viewed as a competitive weapon.
D2P: Dr. Hau Lee, co-author of the Chief Supply Chain Officer (CSCO) Report released last October, has said that those who "still view supply chain management as a supporting function, or see it only as a way to reduce operating costs, have a lot of catching up to do" and "are missing great opportunities." But capitalizing on these opportunities, he said, requires "close alignment between supply chain activities and business objectives." How does E2open help companies achieve this close alignment between supply chain activities and business objectives?
RB: The core of what I see happening in most successful companies today is a renewed focus on product innovation and on market development and awareness. To do that requires millions of dollars of investment in order to make those successful. And if you think about it, if you can't deliver the product after you've made those investments, first of all, it's a misuse of capital, but secondly, it's a huge missed opportunity. I think what's happening is that companies are starting to realize that if that's how they're going to compete, they absolutely must have a supply chain that is capable of being responsive, able to deliver to customer expectations, and able to deliver on their promises. And so I think that there's just a new awareness about how new products and innovation have to be delivered to a customer. It ultimately has to arrive at a buying decision around the world, and that takes supply chain. So supply chain is really becoming an extension, I think, of the product innovation process and delivery process into the hands of customers. And I think the leaders in many of the most successful companies are starting to realize that.
D2P: How can E2open help manufacturers respond to variable customer demand, and get visibility into lead times?
RB: What E2open really excels at, first of all, is helping a company have situational awareness of what is happening on the ground, in real time, within their supply chain. And not only assets that they control or they own, but also assets that are being committed to, on their behalf, by their trading partners, which, oftentimes, are the most critical assets that determine responsiveness to the customer. Nowadays, many products have long lead times. If you look at lead time, an interesting thing is that the lead time that most companies feel that their components really have is made up of two components. One is the actual work content time, and the second is really order administration and queuing time. And, in some cases, half is order administration and queuing time, and that's simply to deal with the complexity of trying to make connections between supply and demand up and down the supply chain.
So what E2open helps to do is to shorten that portion of the lead time, compress it, by making demand and supply visible to all parties at the same time. And therefore, companies can shrink their lead times. And then, E2open helps to create whole new innovative supply chain processes. So, if there are physical lead times that just cannot be overcome because of the physics involved in the work, what you can do is overcome the volatility by staging either partially finished product or finished product in such a way that you can buffer the volatility in the marketplace.
So those postponement activities would mean that you would add the customer-unique personalization or value at the latest possible moment, so that you give yourself the maximum flexibility to serve the most customers. And E2open, by allowing you to have visibility and control over your extended supply chain, allows you to be able to master the ability to orchestrate processes among your trading partners, to be able to influence them to help you meet your customer expectations.
D2P: Say, from the perspective of someone in procurement who's looking to understand total cost of their product, how does E2open help manufacturers understand the total landed costs of their project?
RB: Since manufacturing is so complex and so many partners are involved the process, we have to manage cost in some way, and the traditional accounting way is that we just apply a standard cost. The standard cost is really just a guess; it's a guess about a future cost structure that's going to occur when the product is in full volume production, and it's based on a bunch of assumptions about how much you're going to sell. Well, the reality is that the actual product cost is varying all the time, and we're making decisions based on these really old assumptions that aren't always true.
Really good companies are starting to understand that they need to manage total landed cost, because total landed cost really is sort of a ‘bottoms up' cost. It really takes into account what the purchase price component is of all the components in the product, as well as the logistics and transportation costs, as well as the inventory carrying costs, as well as the warehousing and warranty return costs. And by knowing that, we get a whole new window on what it really takes in order to be able to supply our product to a customer. In fact, now we can start to have insight into the cost to serve each customer. We actually know what the contribution margin coming from each customer is, based on total landed cost of the product delivered to them. And I think that the most successful companies in the world today are starting to realize that this is the way they've got to manage their supply chain.
So it implies that you now need a robust way to be able to account for the assets that are throughout your supply chain— even those that are not on your books. That's the problem with a general ledger planning approach— it tends to want to categorize everything in terms of assets and liabilities, and what you really need to know is what the total landed cost is, even for components you don't own. And the only way to drive that is to actually monitor what the costs [are] that are accruing as you create the product.
D2P: Can you talk a little bit about the analytics? Are there advanced analytics that can help, say, a procurement manager or a supply chain manager from a manufacturing company?
RB: Yes, absolutely, and this is an area that we're really excited about. We've always believed that business analytics was important, but it tended to be historical in nature. It tended to always look backwards, instead of looking forwards. You could make an analytical tool, make a prediction, but the prediction was always based on the past. And really, in order to determine what is happening in the supply chain, you've got to take it to another level.
What we do is we provide predictive analytics based on real time data. We call it concurrent computations. So what does that mean? What that means is that when you have a business network like E2open, you have a platform where you have a shared process that all the data is being fed into from your suppliers, from your logistics partners, to your contract manufacturing partners. Internal operations are feeding into that execution platform that spans your extended supply chain.
The moment something happens, a missed shipment— let's say the Port of Long Beach goes down; it looks like it's going to be down for a week. The ship is sitting in the harbor; you need those supplies. Immediately, that information has already been expressed throughout the supply chain, and it's concurrently computing all new events— missed shipments, maybe quality rejections, for a lot, a natural disaster that affects supply disruption, or perhaps even a huge new order spike that just came online. Rather than having to wait for this to trickle through planning oriented approaches from company to company to company, and cascade its way all the way down and then all the way back, losing weeks of responsive time, we are concurrently computing projected outcomes. So we call that predictive analytics, meaning that when you're looking at a dashboard, the moment that event happened, the whole supply chain has been recalculated based on that new information.
So that means that when you're looking at this dashboard, that is what is happening on the ground, and the projections into the future are what is going to happen because of those events.
D2P: Does E2open software play any role in helping a manufacturing company evaluate or assess the performance of their suppliers?
RB: Yes. I mean, if all the information is now flowing through this business network, the performance information is being stored and it's really just a simple matter of doing queries in terms of ‘What are the KPIs?' that you're interested in. So I might want to say, ‘What is my average supplier response time for all of my suppliers?' In other words, how long does it take them to acknowledge an order? Or, what is their on-time delivery performance, or perfect order performance, over a certain period of time? How many times did they commit to my request, deliver the exact quantity I ordered, with the right quality that I needed? And was it on time?
So it's a simple matter now that this data, all this transactional data is now in the platform and it can be mined in order to be able to create supplier scorecards. And by the way, it doesn't need to be a quarterly event or a yearly event when we have a review of the supplier's performance; it is a daily event. The supplier is seeing their score change as they execute on behalf of their customer, and they are self-managing themselves to a higher level of performance. So there really is no question about who are the suppliers that are performing and which ones are not.
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