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There used to be a commercial (with Orson Welles for Paul Masson wines) on television back in the 1970’s advertising that they would “sell no wine before its time.” This implied that they wouldn’t release any wine until it reached full maturity and perfection. I thought this would be a good analogy for the concept of time phased release of supply orders to the supply chain. Shouldn’t we want to release orders only when they reach full maturity and perfection?

The temptation is usually there to release supply orders as far out into the planning horizon as possible so as to give suppliers more time to deliver. But what actually happens when we do that in an MRP planning environment? It artificially lengthens lead times, and consequently, we are releasing more supply orders into an already overloaded supply chain. It seems to me that we should build a recovery reschedule of the past due purchase orders and cut the lead times to the bone, only releasing new supply orders in the near term when the master production schedule is more mature and firm.

The APICS definition of Time Phasing is:

The technique of expressing future demand, supply and inventories by time period. Time phasing is one of the key elements of material requirements planning.

This definition to me appears to be overly simplistic and deserves further expansion into specific scenarios and benefits. The definition doesn’t say anything about the benefits of time phased release of supply orders in small bites. It should also include the benefits of time phasing the release of supply orders, based on precisely defined lead times in the near term, resulting in greater ‘maturity’ and ‘perfection’ of quantities and due dates.

I think the old adage, “How do you eat an elephant? One bite at a time,” applies here. The time phased releasing of supply orders at the latest possible release date that would satisfy the minimal lead time requirement would result in only releasing supply orders when the production schedule is firm. This enables better accuracy in release quantities and due dates, and less disruption in the master production schedule.

We can look at our entire planning horizon pictured above as a time phased funnel depicting firmed or released supply orders at lead time (dark shading), unreleased or planned supply orders (light shading), and gross demand and forecasts input and the resulting shipments to the customer. This planning horizon is funnel shaped because forecasts are generally more optimistic further out into the future and then start to lean out when approaching lead time due to forecast consumption by actual demand, capacity limitations of the master production schedule, and actual customer shipments.

If we take a closer look at the dark shaded area (firmed or released orders), we can probably say that a large portion of our planning horizon for customer delivery has, in effect, been relinquished to the mercy of our suppliers. So shouldn’t we want to limit that dark shaded area so that we can maintain as much control of our planning horizon as possible?

Another thing that can be said for this dark shaded area is that it is the labor intensive portion of your total planning horizon because of near term supply chain volatility.  Suppliers that can’t deliver, lack of capacity, acts of God such as the earthquake in Japan, all of these and more can contribute to near term fluctuations to your master production schedule,which result in overtime throughout the company in order to resolve the issues quickly.  Buyer/planners in particular, perform lots of work expediting and rescheduling released purchase orders. Despite the temptation to artificially increase lead times and therefore release more supply orders earlier, this can ultimately result in the buyer/planners increasing their own maintenance workload… sometimes beyond their means. Most buyer/planners I know are responsible for three or four thousand parts.

In the light shaded area (unreleased or planned orders), your suppliers have no control over your master production schedule. You do. In this area of the funnel, volatility, resulting in additional laborious tasks is not a problem. The MRP software handles it automatically. All planned orders are automatically rescheduled during every MRP run. So shouldn’t we want most of our time phased funnel to be light shaded? In this area, we can also favor and easily maintain the formal system over the informal system of order launch and expedite hotlists.

Think about this the next time an overloaded supplier asks you for more lead time to dig himself out of a backlogged hole. You just might be supplying him with a bigger shovel.

So, what does this have to do with supply chain you ask?  Many companies have major installation projects required to recognize revenue for their products; solar farms, cell phone towers, major equipment installation, etc.  They don’t receive full payment until the project is complete and running.  Typically, these companies will have a system that manages their supply chain and another system for project management. What is surprising is that these systems will often run independently of one another. If information flows between these systems, it is a manual update performed by the project manager or master scheduler depending of which way the information is flowing.

But isn’t there a relationship between the supply chain and the project that drives the requirements?  If a project moves out by six months, doesn’t that impact the supply chain?  If a major component on the critical path for the project is going to be late, doesn’t that impact the project? Project managers and supply chain managers are like those people in the commercial; walking along, doing their thing, eating their chocolate and peanut not realizing that there is a better way.

Let’s imagine the following scenario; you are a project manager managing the installation of a large piece of medical equipment at a hospital.  The contract has been signed, and the project plan has been approved.  But all is not rosy.  The schedule is aggressive and there are significant penalties if the project comes in late.

So, a few weeks have gone by, and things are progressing well; the supply chain has gone to work building the equipment and work has started at the hospital to prepare the site.  Then, one of the suppliers several levels down in the supply chain has pushed out their delivery date on a key component that goes into a critical piece of equipment needed for the project.  This lateness is propagated up through the supply chain and is now reflected in the delivery date of this assembly.  Traditionally, the project manager might never be made aware of this critical shortage, because traditionally, the project manager doesn’t have visibility into the supply chain.

In this new world, however, supply chain and project management are both part of the same system and are linked together. So, when the project manager comes in, he immediately gets an alert that the project is going to miss its date including the impact on revenues and additional penalty costs.  A few clicks later, the project manager sees that the lateness is due to a late assembly coming from the supply chain. With this information, he project manager can collaborate with the supply chain to resolve the issue.

Integrating supply chain with project management is like sticking chocolate in peanut butter.  Once you put it together, you realize that they are better together than on their own.   If you’ve been following posts in this blog about Control Tower, you may have realized that this is just one of the ways that Kinaxis is bringing various aspects of the company together into an integrated new way to solve problems across the enterprise.  However, you might not have thought about some of the practical applications of what we are proposing.   Do you manage projects as a regular part of your business?  How do you tie the project plan back to the realities of the supply chain?  Comment back and let us know!

Recently I came across this post where the author has given a very good perspective of supply chain issues, mainly infrastructure (unpaved roads), taxation (tax on movement of goods) and has an interesting takeaway in the end, “Traditional methods of supply chain design and management do not always apply,” and I fully agree with that statement.

Let’s look at couple of success stories. In spite of challenges, there exist very good examples of six sigma supply chain setups in India, like Dabbawalas, which operates in the most populous city of India, Mumbai. Dabbawalas is a company which picks up and delivers fresh and home cooked lunch to office goers. It’s a highly specialized business service that involves various lunch box carriers throughout the city and they do close to 200K deliveries a day with less than one error in 6-million (if you are vegetarian you can be assured you never end up with chicken curry lunch). Readers may refer to Wikipedia for more details on their business and for more technical insight they may read the Harvard Business Review case study on in its success, and how FedEx learnt from it for better operations of its Indian BU.

Another good example of success in setting up a supply chain is major auto manufacturer, Maruti. By establishing close collaboration with its suppliers, it overcame typical challenges posed in the country.  Here’s a very interesting article in CIO India titled: How Maruti Identified a Smart Supply Chain System

Lack of a good infrastructure makes getting the raw materials and carrying out the finished goods distribution very complex ― there is more than an average number of distribution points or warehouses a product has to go through before reaching the end user. The current state of infrastructure in India forces companies to use several modes of transportation in the value delivery process. The highways and rail systems do not reach major portion of the country, and a product has to travel on train, truck, or auto/cycle rickshaw before landing into the end customer’s hands. Every time the mode of transportation changes, there is handling, sorting, and storage involved – this make the supply chain very complex and decreases the reliability of whole chain.

In my opinion, to have more reliable and successful supply chain setups in India corporations should keep these things in mind:

1. Visibility –   As the number of warehouses and distribution points grow, better visibility into your network becomes more necessary for customer service and a competitive edge. If youknow what is where, then you can control it.  Systems should be able to do all kinds of simulation for exceptions, so decisions can be made quickly.
2. Collaboration – As cited in Maruti example, the way to beat the supply chain challenges was to collaborate with suppliers and distributors. This makes the supply chain issue not a company issue, but an issue of the entire value chain – from supplier to end product distributor – and everyone tries to overcome it.
3. Simplification – Keep it simple, in fact, very simple. Use a system which is clear to understand, not only by your employees, but also by your customers and suppliers. India is a country of several languages and several cultures. There is huge risk of “lost in translation” if anything is complex. Use visual tools as much as possible.
4. Flexibility – Pick a supply chain solution which can work with several applications. When collaborating with local suppliers and distributors, it should be no surprise to discover that some of them still operate on dated custom-built systems. The supply chain solution should be flexible enough to work with all of them.
5. Mobile Phones – This is one technology that almost everyone has access to. Access to them is very inexpensive, and most people have them (over 800 million out of 1.2 billion in India).  Any supply chain strategy should leverage this, similar to how Marketing firms have used mobile phones very effectively with SMS campaigns.

World class Supply chain is the mantra for building competitive advantage; having good understanding of country specific needs and having solutions for them will enable corporation to be world class across all geographies.

Companies must look at their supply chains as having a “cause and effect” relationship with other key parts of their business. It is in the supply chain and its related areas where companies can effectively address the three key challenges of any business; financial performance, customer satisfaction, and corporate risk.

There are several key points in Doug’s statement, but the one I want to highlight is the cause and effect relationship to other key parts of business.  While gaining control of one’s own operations is important, in today’s outsourced supply chain, the cause and effect relationship often spans across multiple tiers.  This multi-tier cause and effect relationship is fairly well described and explained through concepts such as supply chain visibility, and remains an issue for many multi-national organizations, let alone multi-tier supply chains. Over five years ago, Aberdeen Group in a Benchmark report titled, “Industry Priorities for Visibility, B2B Collaboration, Trade Compliance, and Risk Management” identified many of these issues.  As late as February 2011, Aberdeen Group published another report titled “Supply Chain Visibility Excellence” in which the greatest pressure to improve supply chain visibility is “Growing global operations/complexity”.  It ain’t goin’ away any time soon.

But Doug is making a different point (I think). My interpretation of Doug’s comment is that a company’s operations functions have to operate in a coordinated or orchestrated fashion in order to drive the best financial performance.  While most of our focus is in manufacturing, where the issue is perhaps most acute, many other sectors can benefit from Doug’s advice.

As an example of the need for orchestration between functions, how many project management systems provide a mechanism to plan materials in conjunction with resource assignment and task dependencies?  And yet in many engineer-to-order (ETO) environments payment is based upon milestone achievement so any slippage because of material shortage has a big impact on the top line.  And of course on the bottom line too because while resources can be assigned new tasks, there is always lost productivity when they are reassigned.  And of course it isn’t that no orchestration between functions happens today, it’s just that very little of it is fact based and there is no opportunity to perform what-if analysis of different scenarios to evaluate the impact on financial performance, customer satisfaction, and operational risk.

So what is orchestration? Jane Barrett of Gartner wrote in a Supply Chain Brain article titled “The Secret Sauce to Supply Chain Orchestration” that:

Orchestration describes a value-driven organization that is consciously excellent. This ability to make conscious choices and to understand the trade-offs comes from advanced capabilities in information management, demand sensing and shaping, cost-to-serve analysis, end-to-end segmentation, simulation and analytics. It requires strong collaboration internally and externally.

The on-line Merriam-Webster dictionary defines “orchestrate” as:

or·ches·trate

1 .      a) to compose or arrange (music) for an orchestra

b) to provide with orchestration <orchestrate a ballet>

2.  to arrange or combine so as to achieve a desired or maximum effect

While clearly it is the second definition that is more directly relevant to the supply chain, or operations more broadly, we should not lose sight of the idiomatic value of the first definition.  A lot of the value of a control tower comes from being able to ‘arrange’ the processes and people in a harmonious whole.  The beauty of an orchestra or rock band comes from the manner in which the different instruments are played collectively. If any one part of the orchestra is out of tune or playing too loudly/quietly the sound of the entire orchestra is affected, not just of that instrument section. In order to do this, every orchestra must have a conductor.  Undoubtedly the orchestra could get through the piece without a conductor, but they do so with far less effort and with a superior outcome if they do use a conductor.  Key aspects of the conductor’s role is to interpret the piece, keep each section playing in time, and to ensure the correct sound balance across sections.

A control tower is equivalent to the conductor in operations orchestration, which ensures that all the functions are operating in harmony. This is what Doug is referring to in his blog: Making sure that not only are the functions sharing information, but that they are operating in unison to achieve common goals.  And this is where Jane Barrett’s capabilities of simulation and analytics come into play.  While undoubtedly on concert night the orchestra needs to play flawlessly by following the conductors lead, it is the practice sessions in which the conductor will have experimented, sometimes with individual sections of the orchestra, and even during the dress rehearsal.  This experimentation is vital for the conductor to achieve the right sound.

Without the equivalent “what-if” capabilities in supply chain, and operations more generally, it is extremely difficult to gain actionable insights and to reduce corporate risk.  Without a doubt cross-functional visibility, formal meetings, and standard reports are foundational requirements, the real value to operations is the ability to evaluate alternative scenarios quickly and collaboratively.

Generally, IT organizations aggressively discourage this approach of groups within the business that are outside of IT creating applications. There are significant drawbacks with this type of approach:

1. The support, reliability, and scalability are dubious
2. Data is outside the formal IT managed systems
3. Incorrect or outdated versions can be used – to name just a few drawbacks

IT may be unaware of these user applications until they break and the business comes to them for help. The systems in which companies run their businesses on, need to be robust and reliable, requiring careful management and support to ensure accuracy and continuity.

Why within our current state of maturity with technology and expensive ERP systems, do these offline systems and processes continue to exist?

I think there are several key reasons why supply chain applications created by users commonly exist:

• The supply chain organization wants (needs) to be agile, to continuously improve and adapt processes to changing requirements and situations.
• Business users understand their requirements more deeply and coherently then IT business analysts, and when a few develop the required technical skills, they can create applications that fit their needs more closely than IT.
• The modern, mature IT organization is structured and formal and will implement sound and robust improvements to systems, but in many cases at a pace slower (and more expensive) than the supply chain expectations.

In the spirit of continuous improvement or because of changing priorities and requirements, new and modified processes or techniques are required by the supply chain organization. Implementing these new supply chain processes in most cases requires the support of IT to make modifications or changes in configuration to the formal MRP system. Generally, in larger organizations, changing the MRP system requires a formal process that includes advanced planning and competition with a lot of other projects and demands that are placed on the IT organization.  For what seems to be straight forward supply chain process changes, it can take several or even many months to get the projects chartered and then actually executed, where the requirements and priorities may have actually changed in the mean time.  It is therefore somewhat frustrating to the supply chain professionals and the result is the use of spreadsheets or other means to implement processes outside of the formal MRP system.

If you are in the “business” – a.k.a. the supply chain organization – you may think these applications are great; they are flexible, quickly modified, and they tend to support very closely the intended functionality. If you are in IT, these applications are inherently bad as they are not formally controlled and supported. It seems that there needs to be a middle ground where the platform is reliable and stable, the data has integrity and ties to the formal systems, but the functionality can be quickly adjusted to new processes and priorities. There are some systems are available and in wide use within industry that support this middle ground - some data warehousing solutions come close but generally lack the deep analytics associated with planning and supply chain execution and management. A step beyond are the advanced planning and response management systems that do contain the supply chain centric analytics and also allow the users to configure and develop reporting and more complex solutions.

I feel that to be an agile supply chain organization, and maybe to develop some tactical or even strategic advantage, the extension of supply chain applications needs to be supported by a platform where:

1. The system is managed and maintained by IT to ensure continuity and scalability.
2. The system is central and has accurate, consistent, and timely data
3. Supply chain professionals who have the fundamental and clear understanding of the business requirements are in control of configuring the applications and reporting

I would be interested to know if you have any similar perspectives on end user developed applications and also if your organization has dealt with this in some way?

First let’s examine why companies create a revenue or sales forecast.  It is intuitively obvious that they do so to determine how much of their product they believe the market will purchase. But this is only the 10 percent of the iceberg that floats above the water.  The other 90 percent of the story  is that the forecast is used to drive investment plans in marketing, engineering, manufacturing capacity, inventory planning, and strategic sourcing.  In other words, if the forecast is inaccurate there are a whole bunch of consequences beyond just getting the revenue forecast incorrect.  Of course here I am referring to the longer term forecast used to drive the S&OP process or even the annual operating plan/budget and the principal forecast is investment.

The medium term forecast is used to drive how an existing infrastructure, particularly the supply chain infrastructure, can be used to meet market demand.  This is the period in which investments are not going to make a difference.  As one colleague told me, nine woman are not going to be able to produce a baby in one month, no matter how hard they try.  But it is important to realize that even within this period the significance of forecasting varies by industry, as is reflected in the diagram to the left from an Aberdeen report titled “Demand Management – Bridging External Market Inputs with Internal Statistical Forecasting” published in June 2011.  In this context it is important to understand how the difference between demand lead time and supply lead time varies across industries.  Airplane manufacturers typically have a 3-5 year lead time from a firm order to delivery date, with a manufacturing lead time of about six months.  A diaper manufacturer has between a one day to one week demand lead time, and about a three week supply lead time.  On the other hand, an airplane is highly customized to a specific customer’s order, whereas  a diaper is a diaper, even though there are variations.  The complexity in a plane is in how bought materials are coordinated to assembly a customer specific product.  The complexity in a diaper is in how it is distributed with hundreds, in some cases, thousands, of distribution locations through a multi-tier distribution network.

The combination of the difference between demand and supply lead time and degree of final product configurability determines the extent to which a company can use postponement as a strategy to mitigate the risks associated with forecasting incorrectly.  CPG companies, such as diaper manufacturers, typically have little opportunity to postpone at the manufacturing stage, and therefore will use a make-to-stock supply model. However, CPG companies can postpone distribution through their multi-level distribution network. On the other had an airplane manufacturer will seldom order components before they have a firm order, which is a “build-to-order “ postponement strategy.  Imagine the financial risk that an airplane manufacturer would be taking on if they built an airplane and then tried to find someone to buy it.  In reality a diaper manufacturer is taking on similar risk, but the risk is distributed over millions of diapers and many thousands of consumers, so their risk per item is much smaller.

And yet a semiconductor company takes on the same level of risk when they commit $3B-$5B to build a new factory over the next 24-36 months that an airplane manufacturer would be taking on if they used a “build-to-stock” supply chain model.  It is an equivalent risk when a company decides to invest in penetrating a new market and needs to invest in establishing a local legal entity, office rentals, marketing, and hiring and training local staff.  These are big commitments of funds that are based upon the anticipated behavior of the market, a forecast, and once in execution they take a lot unwind.

Terra Technology, one of the leading forecasting technology companies focusing on the CPG space, where statistical forecasting is very prevalent, published a study on forecast accuracy titled “2011Forecasting Performance Benchmark Study” in which they study best practice demand forecasting in leading CPG companies.  The reason that statistical forecasting is so prevalent in CPG is that demand is relatively stable – when compared with other industries – and products have fairly long life cycles so there is a lot of history to rely on.  And yet in the introduction the authors note that:

• Promotional volume jumped about 75 percent in 2010 as companies looked to drive sales by offering consumers additional value. Contrary to conventional wisdom, promotional periods are actually forecast as accurately as non-promotional periods for the same items. Perhaps this is due to the extra time demand planners spend on promotions. Not surprisingly, the bias is considerably higher during promotions.
• New products remain hard to forecast with weekly item/location error rates of 65 percent, compared to 46 percent for existing products
• Demand Sensing continues to provide a consistent step change in forecast accuracy for all scenarios, including promotions and new products. For the combined 2009-2010 period, Demand Sensing reduces average weekly error by 40 percent.
• Outdated mathematics and optimistic marketing departments continue to undermine the performance of Demand Planning. This highlights the opportunity for a structured approach to forecasting based on additional demand signals and new mathematics.
• MAPE is the correct measure for supply chain performance since it is the error that Product Supply contends with. However, insight from the report raises questions regarding MAPE as the proper metric to evaluate the performance of Demand Planning because it may not properly reflect the value add by planners. Using the dataset as a resource, Terra plans to evaluate a number of different metrics in the future editions of the study.

Before analyzing the numbers, let me reiterate that CPG, when compared with industrial equipment manufacturing for example, has stable demand and long product life cycles, which, in theory, means that CPG companies should be able to use statistical forecasting to predict demand fairly accurately, but, as the Terra Technology study shows, they can’t. When we consider the three month digital camera lifecycles and six months cell phone lifecycles, the relevance of the second bullet about the forecast accuracy of new products becomes very apparent.  New product launch is typically the time when the most margin is captured, an yet it is also the time when the forecast is most inaccurate, meaning that a lot of margin is not captured.  And therefore anything Terra describes in the report is significantly worse in industries with shorter product life cycles, which automatically leads to more volatile demand. In fact our anecdotal evidence from speaking to companies in consumer electronics is that their forecast accuracy is very seldom above 50 percent regardless of the life cycle stage of the product largely because the short life cycle means that the product is either being introduced or being phased out.

In the Aberdeen study referred to above, the author notes that Best in Class performance

• Average percent forecast accuracy at product family level (across a three-month time period) is 87.1 percent
• Average percent forecast accuracy at individual SKU item level (across a three-month time period) is 70.8 percent

In the Terra Technology study the author notes that

• During 2010, the average weekly error was 48 percent with a slight difference by top performers, who came in six points lower at 42 percent.
• Meanwhile, monthly error averaged 33 percent with a five point spread between top performers and the average.

With leading CPG companies struggling to get forecast error below 30-40 percent after years of trying, with product life cycles shrinking every year, and with market differentiation leading to product proliferation, what is the likelihood that forecast accuracy will improve dramatically over the next five years?  In my opinion very little.  So where do you think your next breakthrough in supply chain performance will come from?

• Learning to forecast and plan better?
• Learning to respond profitably to actual demand, or plan variance?

The third bullet from the Terra Technology report introduction states that “Demand Sensing continues to provide a consistent step change in forecast accuracy for all scenarios, including promotions and new products. For the combined 2009-2010 period, Demand Sensing reduces average weekly error by 40 percent.” hints at the importance of response management, but does not go far enough since it only indicates how to get a better understanding of demand in the short term. Response management is about satisfying that demand in the most profitable manner.  Demand sensing is about knowing sooner about demand shifts. Actually I find this standard definition of demand sensing a bit funny and it is a good illustration of how planning is seen from the wrong perspective. The term demand shift implies that the forecast is correct and somehow demand has shifted in time or location, which is of course completely wrong. The customer didn’t buy the ‘wrong’ stuff in the ‘wrong’ amount at the ‘wrong’ time. What actually happened is that we predicted incorrectly what they wanted, how much they wanted, and when they wanted it, even where they wanted it.  Nevertheless demand shift captures the concept that actual demand occurs at a time, quantity, price, and/or location that was not expected.  While demand sensing is really important, even perhaps the most important aspect of supply chain execution, it only describes part of the response management story. Response management is about knowing sooner about a broad range of supply chain disruptions and acting faster to provide a profitable response.

Stay tuned for part two of “The importance of Response Management” tomorrow!

What we are most proud of is that this is a customer-driven award – multiple nominations from our customers is what landed us on the list. We are humbled.  A very warm thank you to everyone who submitted on our behalf- whoever you may be!

You can check out the entire listing here.

And while you’re on their site…

…check out a great video called, “S&OP: What’s It Really About?” featuring Trevor Miles, director of thought leadership here at Kinaxis. In this video (free registration required to view) Trevor provides his thoughts on why so many companies seem stuck in the early stages with their S&OP efforts, and how they can move up the maturity curve to realize significant performance breakthroughs.

This incident hammers home the point that the companies we contract to build our products become extensions of our brand. If the company does something unethical, illegal or environmentally damaging, the brand owner is mired by the contractor’s actions. The problem is that as a brand owner you may feel that you have limited influence on your subcontractor as they are a separate corporate entity.

Let’s look at how you can address this;

1) It’s more than just price – Look beyond the price point and consider the total cost of contracting with this company. If they are the lowest cost, perhaps there is a reason. Perhaps they achieve their low cost through shoddy quality, through unethical business practices or through irresponsible environmental behavior.

2) Hold the contract manufacturer to the same standards that you hold yourself. Remember, they are an extension of your brand. If you have environmental or ethical policies, make sure that your contract spells out that they are expected to follow these policies. Further, stipulate that failure to follow these policies would be considered a breach of contract.

3) If you are holding your contract manufacturers to your standards, make sure that you do periodic audits to ensure that they really are adhering to the standards you’ve set. At a minimum, go to the place where your product is being made and observe how things are done.

4) If there are environmental standards or certifications applicable to your industry, look for contractors that have achieved those certifications. This can make life much simpler as the certifying organization is now responsible for auditing.

When we close our factories and have product made for us by another company, we are giving up a lot of control. If you partner with the wrong company, it’s not just cost and delivery that can be hurt; it’s your company’s hard won reputation.

How do you ensure that your contract manufacturer is protecting the image of your brand? Comment back and let us know!

Having spent a considerable time consulting in the SME space (small to medium enterprise), I have seen firsthand how larger companies could harness the innovation and dynamism of these small businesses over here and abroad.

It’s no longer the big that eat the small, it’s the fast that eat the slow.  And small businesses have the ability to react quickly and move fast, as the decision makers are close to the customer and have little to no bureaucracy to slow things down. Larger companies can take advantage of these benefits in the following ways:

1. Data Integration: Smaller companies can be linked into the enterprise’s supply chain through the exchange of data. With the growing sophistication of Web Services, Portals, and other Internet based communication and collaboration tools, the supply chain can now be modeled in almost real-time in a bi-directional manner. However, this requires a greater commitment on the part of the customer to the supplier relationship, as a small supplier does not want to invest the time and money to connect to a customer’s virtual network, just to be dropped for a lower priced bidder. The loss of fully competitive bidding on sourcing must be weighed against the benefits of the virtual network. A connected supply chain gives the large corporation something it desperately needs: the ability to quickly react to changing customer demand  by getting the entire supply chain to work together to make the necessary directional change, and the ability respond to the customer in a timely fashion, based on the speed of the connected supply chain response.
2. Leveraging their Ideas: Smaller companies operate in a different environment than large companies, and so their business practices are different. Setting up a round table with suppliers to get their ideas on performance improvements in the supply chain can yield some significant results. Ideas to better implement virtual networks, reduce component costs through design and engineering for manufacturability, and reduce logistic costs through transportation network redesign, can all yield valuable results.
3. Leveraging Overseas Supplier: Oversea suppliers (especially in developing markets) can face radically different business and regulatory regimes, which forces them to come up with new ways of doing things in order to remain competitive. While most commonly associated with lower labor costs, the very fact they have to operate in a low cost environment can lead them to develop some innovative processes in order to compete. While some of these  practices will not work in our environment, some others may result in significant cost savings to the supply chain as a whole, or allow a faster  response to customer needs. Since the overseas supplier is generally hungry for export business, this gives the customer significant leverage to “pick their brains” for new and innovative ideas.
4. Implementing Quality Improvement Faster:
   With a connected supply chain, information can be disseminated throughout the supply network faster and more reliably. This includes feedback from customers and other links in the supply chain on quality issues. If the connected supply chain also has processes built into to it to resolve issues, quality problems can be addressed in a more timely fashion, leading to reduced costs (scrap, warranty, replacement), and better customer relations.

Of course, all these benefits are dependent on large companies who are willing to spend the time, money, and effort to integrate their supply chains, and then listening to what their supply chains have to say and acting upon it.

5. Cargo Security. Let’s take one from the article that got this list going.

4. Black (and grey) Markets. Here is another form of theft and here comes the quality issues.

3. Terrorist threats. Homeland security, border crossings, and customs issues are only going to get more challenging to deal with.

2. Regulatory delays. FDA, FAA, VUCAT (For explanation, check out this blog post.)

1. Natural disasters. Japan, volcano in Europe, extreme weather conditions, no other explanation required.

Would you add any others to this list to get it to a Top 10? Are there other issues you predict will hit hard in the future? Raise some awareness on risk management and let the community know what you think.