New links online

E-business will radically shake up the way the supply chain is organised, as firms use the internet to bypass traditional relationships with suppliers, says BRIAN DAVIS

E-business is radically changing the way supply chains are configured and managed. Undoubtedly it will promote faster and more effective transactions and greater transparency for product information, order placement, production and distribution than ever before.

But it also raises serious challenges about just how closely integrated companies within a supply chain can become: how much information you are willing to share, how you react to unexpected orders from customers and how you juggle commitments to different customers.

The web-enabled supply chain also leaves companies more open to competition, with the promise of online auctions for commodity goods. Longstanding, comfortable relationships will not last, and will be subject to increasing scrutiny.

`It will be easier to bypass traditional suppliers, identify new ones and cut out the middlemen,’ says Alex Macdonald, e-business consultant at PA Consulting Group. `To remain in the chain, companies will need to exploit the new channels better than their existing competition and new market entrants.’

Macdonald thinks manufacturing supply chains must move away from the relatively static and simple model in which the process flow is linear and predetermined, into a more complex supply chain network.

`This network will be a looser affiliation of more interchangeable relationships and alliances, which can adapt more quickly to the demands of the market.’

New supply chain network integration systems will play a fundamental role. The rapid flow of information will also demand introduction of intelligent automated decision-making capabilities to current enterprise resource planning systems, advanced planning systems and integration of e-business linkages.

Better information flows can also make customers more aware of their suppliers’ problems – such as machine breakdowns or delays while components are re-ordered. As well as this uncomfortable scrutiny, suppliers will also face their own physical limitations of capacity, however quick and open the information flows.

`Responsiveness will increase up to a point, but there is a certain level when even a world-class production line may reach a limit,’ says consultant Ralph Seeley of Cambashi.

As Macdonald puts it: `The final piece in the jigsaw will be creating a culture to support the new process, with individuals who can demonstrate the desired flexibility.’

So what do you need to make the internet-enabled supply chain work? You need very flexible manufacturing, sophisticated planning and logistics software, fast access to your suppliers, and skills to handle a sophisticated production management operation.

Brian Davis is The Engineer’s IT editor