In the late mid-to-late ’90s, the early days of collaboration brought visibility to organizations from their supply base. This level of visibility was usually in the form of basic information, such as quantity of components needed (high tech), amount of ingredients needed (consumer goods), feedstock required (chemicals), amount of active pharmaceutical ingredients needed (life sciences). Moving from fax machines to email was the first generation of supplier visibility. Remember “e-business”? The advent of email provided transactional efficiency and some level of process automation.
Figure 1: E-business circa 2000. Business and supplier with (a) simple lines of communication, (b) disparate business processes, and (c) limited information exchanged.
A McKinsey study reveals organizations that collaborate on innovation with suppliers achieve higher growth than organizations that fail to do so. Innovation with suppliers can take many forms, including migrating from the buyer’s process efficiency to overall supply chain alignment – process efficiency between buyers and their supply base. If the figure above represents basic visibility, then the figure below represents increasing levels of supply base alignment between buyer/supplier (left side), or supply chain alignment among members of a supply chain (right side). Rather than a distinct line between buyer and supplier, there is a union between the buyer and supply base.
Figure 2: Supply chain alignment is a union of business processes and information within an ecosystem.
The metaphor? Reduce the lines and integrate processes using richer data. Examples of richer data include the sharing of capacities, manufacturing information, sales data, and quality data. Naturally, some data is confidential and cannot be shared, but more sharing results in greater efficiency, typically resulting in lower costs, faster response to customers, less waste, and a variety of other improved performance metrics.
In an earlier blog post, I discussed How Manufacturing Organizations Can Regain Control Of Their Supply Chain; the concepts reviewed in this post can be applied to supply chain alignment. Examples of transforming from simple communication to more of a union in the supply chain vary by industry:
- Semiconductor: The chip in your smartphone is usually made by contract manufacturing organizations where quality and yield information are shared among members of the ecosystem in near real-time in order to make decisions about yield or quality in response to supply and demand.
- Life sciences: Most pharmaceutical ingredients are developed for use in multiple countries, but associated documentation and other regulatory requirements vary across jurisdictions. Aligning the production of documentation with that of ingredients can reduce approval time, thus reducing time to market. Much the same holds true for medical device supply chains.
- Automotive: Products recalls are a natural way of life in this industry. The ability to quickly trace components, sub-components, and sub-sub-components all the way down to commodities such as polycarbonate, aluminum, and other basic materials can help to assess which end products (automobiles) require a recall and whether a specific manufacturing line needs to switch one or more suppliers.
Digital transformations require consideration of the supply base and discussions about aligning supply chains by sharing more information than ever. Think about removing lines and providing more of a union of business to improve profitability, flexibility, and agility – for all members of the ecosystem.
To learn more about how digital transformation can impact your supply chain operation, link to our value calculator and analyze the impact and generate your own customized reports.