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The 21st Century Supply Chain

Companies’ supply chains today are both major opportunities and major challenges. With personal wealth increasing in countries such as China and India, the emerging nations offer massive opportunities to increase a company’s reach and grow revenues.

In addition, with a huge talent pool in many disciplines, and earnings considerably lower than the developed countries, they provide the opportunity to innovate faster, lower costs and increase competitiveness.

The corollary to this is that globalisation also allows the rise of new competitors. Companies that once only operated in their own back yard are able to aggressively move into new countries and markets, often with lower cost business models, threatening the traditional customer base of existing firms.

Social responsibility
At the same time, Corporate Social Responsibility is coming under increasing scrutiny. We have already seen major multinationals attract widespread criticism and adverse consumer reaction as a result of working conditions at overseas suppliers. Specific worries about global warming are also growing, increasingly putting company’s green credentials under the microscope and forcing radical re-thinks. In February 2007, for example, the UK-based global retailer Tesco, announced its intention to assign a carbon rating to every one of its 70,000 product lines.

Such initiatives will put increasing pressure on companies to apply sustainability policies across their global supply chain. Interestingly though, according to recent research by the Economist Intelligence Unit, less than one in three executives say their company has a coherent sustainability strategy that covers the whole business and its supply chain. This is despite the fact that the same companies see adopting sustainable practices as increasing their ability to attract new customers, improve shareholder value and increase profitability.

All these factors are making today’s supply chain massively complex. Being successful in this environment will depend on having three key attributes.

Three key attributes
The first is having the ability to extend managerial reach beyond a company’s own boundaries. Effective execution will depend on having visibility into the operations of suppliers, their suppliers and customers. Without this visibility companies will not be able to see where opportunities and challenges exist and respond to them appropriately.

The second is speed of response. Monthly or even weekly reporting will not deliver the agility companies need to survive. To be as lean and efficient as possible, not to mention highly adaptable to customers’ needs, organisations will need to strip latency out of their supply chains with the ability to see events, gather information and act on a day by day, hour by hour and minute by minute basis.

A willingness to re-structure according to business conditions will be another major attribute. Traditionally, supply chains have been designed from a cost perspective – placing factories in areas of low labour costs, for example. However, as sustainability pressures bite and oil prices rise, there may be a point where it becomes more effective to shift manufacturing or assembly closer to the end customer.

Smart technology
None of these attributes will be possible without the smart application of technology. Just as transportation networks deliver the ability to move goods swiftly across countries and continents, smartly applied technology networks give companies the ability to move, share and process the information that keep their supply chains operating smoothly.

SAP is at the forefront of providing this technology. Integrated solutions like SAP Manufacturing, SAP Product Lifecycle Management, SAP Supplier Relationship Management and SAP Supply Chain Management help companies closely collaborate, forecast and plan both internally and with suppliers and customers, enabling supply chains to be as ready to meet unpredictable demand as they can be. They help companies to be able to execute plans accurately, from the furthest supplier to the customer delivery dock, while maximising efficiency and lowering costs. They also help companies gain the visibility into their supply chain they need, enabling them to see and respond faster to changing events, set new strategies and minimise risk.

Further reading:
White paper: An activity-based approach to measuring and minimising the carbon footprint
Economist Intelligence Unit report: Doing good: Business and the sustainability challenge
AMR Research: Shifting the maintenance mindset: Greening your assets