Less chain, more links

It is now a common mantra that companies must change to get the most out of e-business. But what does that mean in practice? Below, Paul Carslake reports on the death of the fixed, hierarchical supply chain, while over the next five pages, speakers from n

The imagery of the supply chain could be just about dead. The idea of a chain, with its permanent metal links, designed not to break (but with the constant risk of a weak link), and its connotations of restricted liberty, no longer fits.

There are two reasons. First, for basic commodities, links between customers and suppliers are more provisional and temporary than the notion of a chain suggests. Second, with more complex systems and services, the relationships are of negotiation and partnership, not subordinates in chains.

Of course, for many suppliers, this kind of freedom has a downside. Pressure is constantly mounting for lower costs and shorter lead times, and for more involvement on bespoke products and services. Suppliers have to get cheaper and better – but always risk being ousted by someone even cheaper and even better.

In this context, e-business is about a new way of handling supplier relationships. Certainly there are technical, legal and logistical issues (some of which are addressed in the following pages). But the biggest change needed concerns business management – often of other people’s businesses.

`In the past, companies tried to extend their control by “hard wiring” key suppliers into vertically integrated supply chains,’ says Jeremy Hammant, head of the e-business supply chain team at management consultant PA Consulting. In the future, he says, the `virtual’ supply chain, made up of loose affiliations of companies organised as a supply network, will become common.

The `hard wiring’ was in many cases a shared IT platform, which raised the entry costs for rival suppliers not already using that platform. The internet, though, acts like a universal architecture that anyone can hook into, anywhere in the world.

In reality, while the net may create global ambitions, many companies are too small or regional to serve global markets properly. Better integration between a company’s e-business `shop window’ and its physical manufacturing and logistics (commonly known as fulfilment operations, and a big area for enterprise resource planning system integrators right now) can help to extend this reach. But ultimately, it cannot shrink geographical distance or boost capacity.

Teasing out how these new global supply network relationships will operate is providing jobs for thousands of consultants. There are already plenty of examples of best practice. Through-life management (TLM), for example, is one kind of long-term project management model which is being adopted in the extended supply networks of sophisticated capital goods projects. TLM tries to clarify the relationships between supply chain partners at an early stage so that investment, risk and reward can be forecast with some accuracy over the project’s timescale for all parties involved – vital if acrimonious breakdown of the extended virtual supply chain is to be avoided.

`E-business, in this context, is a way to maximise the flexibility of relationships in the network,’ says Tony Munton, a senior consultant at IBM who specialises in TLM.

Hence more outsourcing of design and manufacture, and better real-time management as a project progresses. But the more partners, the more management is required. Companies have enough trouble getting information flowing properly in their own organisations, partly through cultural barriers, as divisional bosses fight their corner to the detriment of the business as a whole. Getting the information flows right with outsiders through an extended supply chain should be even harder.

Technology, of course, can help in all this. `It will lead to an evolution of what, in many cases, are already fairly sophisticated levels of collaboration between partners,’ says Paul Chapman, managing director of MatrixOne UK, which supplies internet business collaboration software. `But it underwrites accuracy and takes away some of the management issues.’

Some, but not all. Supply chain partners have to have one eye on retaining the business they have won, but the other eye on how much their flexibility and cooperation is going to cost their bottom line.

`The ticking taxi meter image is appropriate,’ says John Wolfenden, managing director of ERP supplier Fourth Shift Europe. `With truly collaborative partnerships, your customers can watch your taxi meter measuring the costs and see what your work rate is like. They can make direct comparisons with your rival suppliers. That’s not a comfortable position for a supplier to be in.’

Additional reporting by Helen Beasley and Diane Palframan