I was very pleased to read the Supply & Demand Chain Executive article entitled “AT&T Readies Its Supply Chain for the Future” because its central theme is the benefits of working more closely with suppliers. AT&T, as we all know, used be the behemoth in the telecoms space until the US government decided in the 1984 that it constituted a monopoly and should be broken up. There was, and continues to be, a great deal of discussion about the benefits, costs, and risks of the break up. For example, in his blog post on Network World, Brad Reed stated that:
But while technological innovation has made the old world of local landline carriers increasingly less relevant to modern telecommunications, there is still a question about whether breaking up Ma Bell has helped or hampered innovation in the telecommunications market. A. Michael Noll, a professor emeritus at the Annenberg School for Communication at the University of Southern California and a former researcher at Bell Labs, says that breaking up AT&T has actually been detrimental to the advancement of technology in the United States. In particular, he cites the negative impact that the breakup had on his former employer Bell Labs and its ability to innovate.
I think it is fair to say that a very similar debate can be had in terms of outsourcing and off-shoring. Much of the article focused on the design process and AT&T’s access to intellectual property and the latest technologies. However, it is very clear that the total value to AT&T includes manufacturing and other supply chain processes. Nothing exemplifies this better than the statement from AT&T, with my emphasis, that
“The Domain Supplier program will facilitate a more collaborative relationship with our network technology suppliers,” Harden said. “It also enables AT&T to minimize risk to our supply chain, improve supplier performance, and increase the speed of introduction of new products and services while offering AT&T the best technologies to serve our customers.”
What is great about this statement that it captures the benefits of closer collaboration to all the participants in the value chain, most of which are supply chain related even though the strategic need is to get the latest technology into AT&T’s customers hands. There are any number of companies which would echo these benefits. But many companies struggle with the level of commitment required to establish and maintain this level of collaboration with suppliers.
What are your experiences with outsourcing and off-shoring? Has this reduced your companies visibility and flexibility? What are your experiences with collaboration?
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Tags: Collaboration, Value chain
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My experience as a consultant is that clients go to outsourcing or offshore when they buy into the philosophy that a) someone else can do the manufacturing better than they can, b) it will reduce the complexity of their process, and c) this is going to save them a boatload of money and they need to do it to survive.
Does it reduce the visibility of their supply chain? Of course. It is like placing an order into a black box and then waiting to see what will come out. That is what we do with raw materials, of course, but generally the raw material process is much simpler and less error prone than the manufacturing process. And most raw material suppliers are relatively close. Add in trucking this stuff across international borders or oceans and you have a much different scenario.
As with most major business trends we fail to really think it through and analyze the good and the bad up front. We get caught up in one thing (lower cost, apparent simplicity, whatever) and then put on the blinders and make the analysis fit our conclusion.
I guess we are not going to see outsourcing and off-shoring decrease. The current recession is likely to accelerate this trend. The financial arguments are too strong. And the operational consequences are all too evident.
The question is what should companies do to reduce the operational risk while capturing as much of the financial benefit as possible?