Extended Enterprise – Supply Chain

BEST PRACTICES FOR TECHNOLOGY PROFESSIONALS

Logistics/Supply- Chain Management: The Hub of the Extended Enterprise

Logistics/supply-chain management is the synchronized movement of inputs and outputs in the production and delivery of goods and services to the customer. In this integrative approach, a cross-functional senior management group coordinates physical and informational resources to optimize efficiency and effectiveness. It manages both the purchasing (or inputs) side of the resource stream, and the distribution (or outputs) side of the stream as a single integrated flow. This flow typically encompasses customer service, physical distribution, materials management, information management, and their related, highly complex sub processes: order processing and order tracking,  supplier management, purchasing, warehousing, transportation, and electronic supply-chain communications/payment systems. As per various studies a typical supply chain encompassing the activities stated above can consume about 7 to 12 percent of corporate annual revenue across all industries. Many of these organizations have come to recognize that corporate capability in supply-chain management is an important lever of enterprise transformation. And help the whole enterprise to contain costs through more efficient utilization of assets and greater overall productivity. As a result,

Integrated supply-chain management is now at the epicenter of business transformation.

In the current economic climate where company top line is relatively flat,  supply chain provide a mean to improve business performance. It’s similar to age old phenomena where if family income is not growing but family is growing the COO of the house cut the cost of running the house, where most of saving again comes from.

Next generation of Supply Chain is breaking down walls between internal functions or departments, as well as between the enterprise itself and key partners in the value chain (e.g., customers, distributors, suppliers, and carriers). The very term “extended enterprise” refers to breaking down a company’s outer wall and extending its strategy, structure, and processes to its core partners. The goal is to get everyone in the extended enterprise onto a common platform of logistics transactions and information systems for greater benefits.

EVOLUTION AND CHARACTERISTICS OF THE EXTENDED ENTERPRISE

While the extended enterprise model may seem revolutionary, major elements of it are not new at all. They back over a century to another time of radical technological and economic change. The role of logistics promoted a commercial revolution in business organization. As traders could get

goods swiftly and with absolute certainty, they no longer kept such huge stocks. They therefore needed less warehousing space and were able to carry on business more economically. As far as IT involvement goes ,it goes back to 1800’s when telegraph-enabled extended supply chains of the late 1800s sounds much like today’s emerging WWW-enabled extended supply chains:

In the modern era, we can track the genesis of extended enterprise logistics to the early 1980s, when a new model of organization more appropriate for the hypercompetitive international marketplace began to surface. In the manufacturing sector, Japanese automobile makers began building factories with flexible automation capable of producing multiple types of products on the same production line. Instead of pushing large-volume, standardized production runs to reap economies of scale as was the common industrial practice in the West, Japanese firms engineered a lean and just-in-time manufacturing paradigm that sought big gains from economies of scope. The Japanese built fast-response production and logistics systems that could satisfy the pull of diverse and highly fluctuating international consumer demands.

By the early 1990s, new approach of having supplier locate near to manufacturer’s was the trend which helped Japanese car manufacturers gain an edge over European and US counterparts. By end of 1990’s this new approach to management had spread well beyond Japan and beyond the manufacturing sector. Service hierarchies were also transforming themselves into flexible global networks through telecommunications and electronic links of all kinds with suppliers

and customers. By the late 1990s, a great wave of manufacturing and service businesses were moving to “network” establishing corporate logistics/supply-chain management hubs. best in class companies:

1. Enjoy an advantage in total supply chain management cost of 3–6 percent of revenue
2. Hold 50–80 percent less inventory than their competitors
3. Have a 40–65 percent advantage in cash-to-cash cycle time over average companies

The journey for a company from a Stunted to a fully integrated one is based on the organizational drive and appetite to improve and be world class.

The Evolution

Extended enterprises which provide a better streamlined management & operations giving competitive advantage to company evolved over number of years and will continue to evolve.

**Source Public data	1990 Higher-Level Corporate Model	2000 Extended Enterprise Model	2010 Fully Extended Enterprise Model
Supply-chain strategic orientation	Management focus on integrated Physical distribution and customer service sides of supply chain. Interest in mapping and costing supply-chain network activities to exert real strategic control over the extended enterprise for the first time.	Management focus on building extended transactions/communications Platforms to integrate global physical, service, and information flows between key value chain actors. Interest in optimizing physical/electronic value chains based on cost/benefit analyses of total costs of asset ownership on each step of the value chain and outsourcing	Management focus on exploiting the highly intelligent ITenabled global value chain, with emphasis on continuous exchange of not only data sets but also dynamic knowledge flows about market events and customer drivers. Interest in the direct substitution of information for physical assets and the deployment of massive global bandwidth to create new global supply-chain capabilities.
Leadership structure	Higher-level executive (chief logistics officer) seeks to compress cycle times to customer and provide efficient cross-functional operational handoffs. Director of electronic commerce is creating information infrastructure for the extended enterprise and is emerging as a key corporate opinion maker in supply-chain management. Internal units aggregate purchasing, shipment, and information system requirements to lower transaction costs and gain leverage over vendors	VP for the “All Channels Supply Chain” manages internal/external assets and physical/informational transactions as one seamless web. Director of logistics (Physical Channels) and director of Ecommerce (Electronic Channels) report to VP of an “All-Channels Supply Chain An “All Channels Supply- Chain Change Group” composed of people drawn from across the extended enterprise, from distributors/ suppliers/carriers.	Chief executive officer leads formalization of knowledge capture/management systems across the extended supply chain. The Supply- Chain Change Group acts as the hub of knowledge to intelligently capture, classify, analyze, summarize, and route knowledge to its most appropriate users. Management of multichannel global customer order interfaces: e-commerce enabled Web sites/phone order systems and wholesale/retail outlets
Nature of relationships	Shift to core long-range strategic alliances with carriers, suppliers, and distributors; emphasis is on operational cost reduction. Core distributors/suppliers/carriers moving to real-time operations connectivity over private corporate networks or over emerging Internet-based networks. Extranet data backbone enables “realtime windows” on internal operations to open to core suppliers and distributors	Shift to wider sourcing of services and products; emphasis is on reliability and reduction of volatility to deliver better customer service in a globalizing marketplace. Core distributors/suppliers/ carriers moving to real-time connectivity for collaborative forecasting and planning; shift to knowledge management First use of global online bidding/sourcing systems on the Internet for both core suppliers as well as spot suppliers to slash order cycle time.	Shift to optimizing global supply chains; emphasis is on systematic evaluation of the universe of global sourcing options for products and services at every step of the supply chain. Core distributors/suppliers/carriers moving to high-level synchronization of knowledge, actions, and schedules across globally distributed supply chains. Real-time dynamic supply chain-wide coordination in response to external events. The realization of the IT-enabled supply chain.
Priority technology applications	Intelligent agents and automated “decision tools” utilize incoming data flows to evaluate inventory levels across the value chain and act to optimize held versus in-transit inventory. Attempt to make supply-chain network modelling software more dynamic, less reliant on batched, slow information transfers.	Wholesale shift to the Internet. Major integration Efforts aimed at using open Internet front ends and secure EDI backends in corporate e-commerce networks, particularly in the order management/customer service area. Electronic messaging enables real-time use of data in supplychain network modeling.	Faster switching times and greater multimedia capacity of the Internet enable faster flow-through times in supplychain pipelines,greater velocity of assets and transactions. More extensive and systematic fusing of data and information into “true” supply-chain knowledge. Increased capability to launch real-time optimizing actions across the supply chain.

FUTURE TRENDS IN SUPPLY-CHAIN MANAGEMENT

Full-spectrum visibility and real-time management of increasingly complex, high-velocity operations will be landmark practices of supply-chain management in this century. These practices are already taking shape in organizations of all kinds.

we can start to identify a whole series of converging forces and newly emerging capabilities that will surely shape the way extended-enterprise supply chains develop in the future. These include:

1.       Total real-time connectivity among extended-enterprise partners and deployment of ultrafast global information exchange networks within an increasingly open standard operating environment based on Internet protocols.

2.       The rapid rise of single-source, global third-party logistics companies that manage entire supply chains.

3.       The CLOUD….

The following sections discuss how each of these critical trends will condition the growth of  extended-enterprise logistics.

1: Total Connectivity

Information technology and telecommunications have catalysed and accelerated the shift to the fully extended enterprise.

Presumably, all companies—suppliers, customers, and third parties—can benefit from a more open

information flow by using the information to:

·         Reduce or eliminate unnecessary inventory

·         Improve their planning

·         Develop active rather than reactive operations

·         Smooth product flows

·         Trim cost

·         Improve service

These benefits will increase as the pace of the global knowledge revolution and the diffusion of technological infrastructure accelerate

2: Global Third-Party Logistics Providers

Global logistics companies are now acting as systems integrators for major corporate clients, conducting elaborate, highly sequenced “milk runs” to pick up and deliver components and products with a whole host of suppliers and vendors on an international basis. These companies are serving

as single-source logistics managers providing load pooling and freight consolidation, air and ocean freight forwarding and local drayage, customs brokerage, and warehousing and distribution. They establish real-time communications between customers, major carriers, and terminals to manage

equipment and facilities efficiently and to smooth the peaks and valleys in demand and availability. In other words, they manage the entire global supply chain stretching to the final customers.

which allows the company to:

·         Avoid sunk costs in information systems and warehousing capacity.

·         Gain greater market leverage over ocean, air, and surface transport service providers and receive volume pur-chasing discounts through aggregating its shipment base with those of the provider’s other clients.

·         Achieve greater flexibility in meeting the needs of customers through access to more diverse channels to the customer.

Such an arrangement would have been unthinkable only a few short years before. The third-party logistics industry has only recently flourished on a global basis, and moved its bases of operation far beyond the United States and Europe to other regions.

3: The Cloud:

The cloud shift will change the way supply chain has been operating and interacting with the chain one and for ever. Cloud deployment will lead into global cloud market places where a small and big company will have same strength under qualification criteria’s.

The National Institute of Standards and Technology (NIST) provide the following definition of cloud computing: “Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. This cloud model is composed of five essential characteristics, three service models, and four deployment models.”

The five characteristics are that the service must be self-service, must have broad availability across a network, must use network pooling in order to meet technical workload requirements, must have rapid elasticity in order to allocate the resource pools appropriately, and that it must provide a measured service.

A totally in-house SCM system may be possible, but will struggle to provide and maintain the flexibility required by the organisation as new compliance needs emerge, as new standards or new versions are included or as business in new geographies is targeted. It is far better to consider how to choose a platform that can underpin the B2B supply chain, and then how existing systems that are core to the business can be integrated in a manner that provides additional business value.

Cloud-based services can be ideal for providing such a platform as well as providing the ‘anything in, anything out’ capability of mapping different protocols and message standards so that no one participant in a B2B chain has to adopt the same protocols or standards as the rest of its customers and suppliers.

In fact in future we will see chain of clouds

At the end would like to only say "some food for thoughts".  Let me know if you have any feedback.