Supply Chain Innovation

What is a supply chain?

The term supply chain represents the sequence of processes and activities involved in the complete manufacturing and distribution cycle - this could include everything from product design through materials and component ordering through manufacturing and assembly and onto warehousing and distribution until the finished product is in the possession of the final owner.

Why innovate?

Most manufacturing companies are only too aware of the changes that are taking place in the business environment - increasing globalisation, savage price competition, increased customer demand for enhanced quality and reliability, etc. At the same time, there are changes in technology which are enabling new forms of working and trading - ecommerce being the obvious example.

Such changes mean that manufacturing organisations need to re-appraise the totality of everything they do if they are to remain competitive: they need to manage all aspects of the supply chain - to improve customer service levels and/or reduce costs.

Of course, the nature of the supply chain varies from industry to industry and from product to product. The supply chain for a stable, high-volume product will have different characteristics from that for a low-volume highly customisable product. Broadly speaking, the overall supply chain network should be engineered to be highly efficient (exploiting economies of scale, JIT, strategic inventory, etc) for the first product but highly responsive for the second.

In Type 1 manufacturing, characterised as make and sell the manufacturer determines efficient manufacturing parameters and builds, using long production runs, to create an inventory from which wholesalers and retailers may be satisfied. The emphasis is on structured planning and scheduling. The alternative, type 2 manufacturing, is sense and respond, where the manufacturer must have detailed information on current, actual demand so that products can be built to order (or to an aggregate of orders).

The rate of change in supply chain management is evidenced by the fact that the major traditional proponents of type 1 manufacturing - the car industry - are increasingly moving towards type 2. Many of the processes and characteristics of type 1 manufacturing stem from the early moves towards mass, flow production within the auto industry. The make and sell philosophy is nowhere better typified than by the phrase "any colour you like, as long as it's black". Now car makers get detailed information from their dealers on the actual models that customers have orders - and tailor their manufacturing schedules accordingly.

Supply chain management and innovation is much more important - and more difficult - for type 2 manufacturing. Synchronisation between the various players in the action is critical and supply chain management is aimed at creating a supply chain network which integrates information and action across organisational boundaries. In the auto industry example, the information from a multiplicity of dealers must be part of the decision-making process of the manufacturer; this information must be collected and aggregated quickly if it is to be of any use.

Electroni Data Interchange (EDI) has for a number of years allowed high speed, secure, communication across such boundaries. For a number of reasons, EDI has failed to be adopted by other than the largest manufacturers (and suppliers they insisted use it to communicate). It seems to have been regarded (perhaps with some justification) as being expensive and unfriendly.

Now we have the concept of the Extranet (a web-based information service also operating coherently and securely across a number of organisations) and the integrated ERP (enterprise resource planning) system.

A modern supply chain network might include a mixture of 'classic' manufacturing software packages together with, for example, a web-based catalogue, an e-commerce transaction and payment system and so on.

Examples of innovative approaches to parts of the supply chain include:

• Mass customisation The buyer (in a retail store perhaps) chooses his/her individual form of the product. The 'system' aggregates such individual orders and schedules picking, assembly or production as appropriate.
• Online bidding This is a new model of procurement in which a manufacturer sends a specification and drawing to a number of potential suppliers (perhaps worldwide) and then holds multiple bidding rounds until a mutually agreed price is reached within the parameters of the bidding process. (This was the process recently - March 2000 - used by the UK government to auction off licenses for the next generation of mobile phone services.)
• Shared distribution linked back to production The use of a shared warehouse to supply a number of retailers is common. However, the technology now allows the data acquired at the warehouse as shipments are made to retailers to be aggregated and used to generate automatic replenishment orders to the manufacturer.

Of course, some of the changes that are possible can be accelerated or retarded by a supportive national (or regional) infrastructure - where the infrastructure includes policy, regulation, legislation, etc. Governments have their part to play in encouraging and supporting supply chain innovation - in a global economy, elements of the supply chain can often be moved elsewhere.

In the UK, there is a serious debate, for example, on the influence of joining (or not) the Euro-currency, and the implications of the decision for manufacturing organisations. The jury is still out as to whether the Euro will trigger supply chain re-configuration or whether its adoption is basically a financial and political event.

Summary

Supply chain innovation is essential if manufacturing organisations are to remain competitive.

An efficient supply chain network can provide :

• an ability to source globally
• online, real-time information networked around the organisation (and perhaps wider) giving full supply chain visibility
• information management across, rather than only within, organisational boundaries
• an ability to offer 'local' products globally
• improved customer response times
• lower inventories
• shorter 'time to market' for new products.

Innovation may take place at the design level (the kind of supply chain to be adopted) or at the process level (how parts of the designed supply chain are implemented). Technology may offer opportunities for either or both to be addressed, and supply chains are changing as a result of technology adoption - though perhaps not fast enough in some countries, where over-regulation and an unsupportive infrastructure hinder rather than help.

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