Archive for April, 2006

Today’s brand owners face daunting challenges in managing the virtual enterprises they now have. Gone are the days of vertical integration. The trend towards outsourcing key operations to specialists who can provide unique value and drive down costs shows no signs of abating. But longer-distance contract manufacturing relationships are making the supply network less responsive to volatile demand.

In December 2005, Electronics Supply Chain Association (ESCA) and Industry Directions surveyed 121 leading brand owners and reported that “69 percent of brand owners say they now have less control over at least five key supply chain processes, including order promising, analyzing and managing risk, inventory liability, and forecast sharing.”

Before outsourcing, if something went wrong, management could walk down the hall and work it out with their manufacturing staff. This is no longer a viable option. Nor can companies throw things over the wall with an attitude of “we’ve outsourced that; that’s their job.” The reality is, brand owners are still ultimately accountable for their brand, quality, compliance, and every other aspect of their performance.

What’s needed is a balance where operations are managed by contract manufacturers (CMs) and suppliers, but brand owners actively coordinate activities across the virtual enterprise to ensure the desired outcome. With constant demand changes, new product introductions, and engineering revisions, the brand owner must play an active role in orchestrating the supply network.

Greater collaboration with brand owner customers benefits contract manufacturers as well, counteracting the “bullwhip effect” that many face when frequent changes are propagated through the system. Contract manufacturers are better at providing a responsive and efficient supply network when more information is shared and brand owners are equally focused on responding to changes.

The complexity of today’s manufacturing environment—and the need to respond rapidly and effectively to changes throughout the virtual enterprise—make it crucial for both parties to stay laser-focused on their specific roles while working together to coordinate activities.

I’ve already seen leading brand owners and contract manufacturers increase their level of information sharing and coordination to respond more effectively to change. I predict that market leaders will make this a requirement, where brand owners play a more active role and demand more information and greater involvement across their supply networks to drive the outcome they require. It’s essential to be competitive - you do it or die.

The folks over at the McKinsey Quarterly have written a piece entitled “Recapturing your supply chain data” (free subscription required). This is a great article for anyone that’s outsourced manufacturing.

The emphasis of this article is consistent with our new RapidResponse Glass Pipeline capabilities that enable brand owners, manufacturers and suppliers to tap into the data throughout their extended supply chain in order to facilitate more rapid response to change using our on-demand RapidResponse service. Unique to these Glass Pipeline capabilities is a new RapidResponse-to-RapidResponse connection that can be setup by users and allows a brand owner, for example, to tap into data at their contract manufacturers that are also running RapidResponse.

The end result is that all parties can now look at a common set of facts and have the right detail of information to act accordingly in response to highly volatile businesses. This supply chain visibility helps deliver greater supply chain collaboration to increase the effectiveness of demand management, new product introductions and engineering changes, manage inventory liability, etc.

Here’s another take on the same article over at TechTaxi.

According to a new report by Merrill Lynch, on-demand and service oriented architectures (SOA) will reshape the enterprise applications market. In the report, detailed here in this IndustryWeek article, Merrill Lynch says “the percentage of IT budgets allocated toward software on an average is estimated to increase from 30% this year to 35% in 2008, driven in part by software on demand and Web services.”

Merrill Lynch goes on to say that applications must be designed for the masses. We agree and believe Response Management, by its very nature, is an application for the masses. It is used today by hundreds and thousands of users in many organizations. This is just another reason we chose to embrace on-demand and Web Services technologies to further the adoption of Response Management capabilities by the masses. Doing so enables Response Management to support initiatives like lean manufacturing, demand management, supply chain agility, supply chain collaboration and supply chain visibility–which all help organizations become more responsive to change.

Today, we announced a new on-demand RapidResponse service. As we talk to prospects in the marketplace, we continue to enjoy great success with business users who see tremendous value in Response Management capabilities. We also announced that we’re partnering with IBM Global Services to provide the secure, high-availability hosting environment.

By making RapidResponse an on-demand service, we provide customers several significant benefits:

• Lower Total Cost of Ownership and No Capital Investment
• Global Access, Any Time, Anywhere
• Rapid Time-to-Value
• World Class Security and Availability

Many of the leading analysts have done research showing the strong interest in on-demand solutions. Why? Because IT organizations continue to look for ways to outsource operations and reduce their overall costs, and on-demand provides such an avenue. It offers companies the opportunity to solve critical business problems without taking on additional software applications that require setup, ongoing management, upgrade management, etc. All of this is included in the service.

Lora Cecere at AMR Research has written an article (paid subscription required) entitled “Rethink demand management” talking about the challenges organizations have dealing with demand changes.

In it, she says “Supply chain planning demand management technologies and processes were built to predict future demand on normal demand patterns, but they are a poor fit for random or erratic demand patterns.”

This is a sweet spot for us and the way virtually all of our customers utilize our software. I heard a presenter recently say that forecasts are one of two things - lucky or wrong. All of our customers work to have a good forecast, but they also realize that it will never be completely accurate. So, they have to be really good at dealing with it when it’s wrong, or when it changes since frequently order drop-ins and changes happen after the forecast.

Here’s a really interesting article at Manufacturing Business Technology citing research done by SAP on what executives view as the keys to competitiveness and success for the next several years.

The article says:

“Because [companies] will find it more difficult to differentiate themselves through products alone,” says the report, “the ability to swiftly adapt to change represents the greatest challenge manufacturers face in creating long-term value.”

Given our value proposition–helping brand owners and contract manufacturers respond to change with speed and confidence–this is obviously an interesting report and one that aligns very well with the value we deliver to our customers. As I’ve written here in the past, this is clearly the trend we’re seeing. There is so much change going on in today’s market, that developing a competency and excellence in responding to that change truly is going to a hallmark of the leaders going forward. We’re fortunate enough to work with a lot of world class companies that are already demonstrating their leadership in this area.