Innovation is one of the defining characteristics of market leaders in the high-tech sector. There’s a tremendous advantage that comes from being at the head of the pack and the first to market with something new. It allows a company to set a competitive agenda. It helps establish a brand and create a foundation for a rich and memorable experience that today’s consumers want.
One element that’s critical in helping deliver this innovation is a company’s supply chain. And like the products that a high-tech company creates, the high-tech supply chain is undergoing its own innovation cycles as companies scramble to lock up the supply of critical components to gain the edge on their competitors.
You can see this in the way that the global supply networks for high-tech products are growing more complex and competitive. Companies that once acted solely as component suppliers are now developing products of their own — making them both partners and competitors with their traditional supply chain allies and OEMs. More competition means downward pressure on prices. Thanks to Moore’s law, the public expects that the price they pay for technology products will continue to drop, and many are willing to wait until it does. Customers are also growing less interested in a product’s bells and whistles and instead favor relationships with brands that offer them rich, relevant, and personalized experiences. Tech companies are learning how to address this fundamental shift.
How do these changes affect the supply chain? First, the more sophisticated a technology product becomes, the more complex the supply chain behind it and the greater the pressures for efficiency. The traditional paradigm of a linear supply chain isn’t always up to rigors of this new market. It offers only limited visibility into the availability and location of components at a given time. The linear supply chain also tends to get bogged down by manual processes as shipments move from Point A to Point B. Paper-based methods and the incompatibility of information systems across supply chains inhibit the timely exchange of information. As a result, costs go up, innovation takes longer, and companies jeopardize their competitive edge.
So it’s probably no surprise that the market leaders in high tech tend to favor a network-based collaboration model rather than a linear supply chain. In this approach, partners aren’t links in a sequential chain. They’re nodes in a network. Real-time information flows freely and is accessible across the network. Planning happens on a continuous basis. There’s a deeper collaboration because partners have visibility into the forecasts, schedules, and plans of other partners. Companies in a networked model can better anticipate trends, respond to disruption, and automate shared processes for greater efficiency.
In a linear supply chain, companies are always waiting on a supplier for information. By the time the needed information moves from link to link, it’s often outdated or inaccurate. That’s why companies in linear supply chains tend to pad their inventory levels to manage the uncertainty — which drives up costs and eats into profitability. In the networked model, companies access, update, and share the same information. They have more flexibility and predictability. They can see their suppliers’ inventory, forecasts, and schedules, so they can adjust their own plans. And just as important, their suppliers can see their partners’ orders, inventory, and forecasts, so they can better collaborate. Information flows both ways.
What’s the average cost of service per customer order? What’s the impact on revenue due to shortages and shipping delays? What is the manufacturing capacity of contract suppliers, and how much of that could be devoted to our orders? What is our own inventory status, and how does the workload of any key supplier affect it? What is the bottom line on our inventory carrying costs?
These are the types of questions that high-tech manufacturers have always asked. But with a more collaborative, more networked approach to supply chain relationships, the answers will be more reliable and business cycles will be more predictable — even as markets become more crowded and customers become more demanding.
For more on how digitalization boosts business results, see “Design To Operate: Delivering The Goods With Better Logistics.”