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"Inovis is a leading provider of on-demand Business Community Management solutions that empower companies to transact, collaborate and optimize communications with
every facet of their business communities. By standardizing and automating mission-critical business interactions, companies can dramatically reduce the complexity and cost of supply chain communication."
Source: Inovis
Global Business Community Management
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This Isn't Your Parents' Supply Chain
Introduction
Supply chains looked vastly different as little as one generation
ago than they do today. It is true that, back then, "made in USA" and
"made in Japan" labels were commonplace around the world. Nonetheless,
globalization had not yet attained anywhere close to the proportions
that it has today. Now, the country on the label is just as likely to
be India, China, Sri Lanka, the Philippines, Costa Rica or any of a
host of others. In addition, even for a seemingly simple product,
regardless of what country's name follows the words "made in," the
product's components may have been sourced from a number of countries;
a situation that was much rarer in "the good old days."
The title of Thomas L. Friedman's popular book, The World is Flat, not
withstanding, the world may not yet be entirely level, but there is no
doubt that the spikes in the business topology are considerably more
geographically dispersed than they were when our parents were in their
youths. Effectively managing business communities in this flatter world
requires different strategies and tactics. Whereas a one-to-one, ad hoc
supply chain management methodology was adequate when dealing with a
small number of local suppliers, the same methodology can bog down
activity in today's more dispersed global business communities.
Consequently, companies require a new set of tactics and, equally
important, a new set of capabilities to enable those tactics.
The new landscape provides numerous benefits, but simplifying supply
chain operations is not one of them; quite the opposite. Today,
manufacturing that was formerly performed in-house is being outsourced.
In addition, suppliers of both these newly outsourced goods and, for
both retailers and manufacturers, of the products that have always been
bought from outside vendors are located farther afield than ever.
Consequently, logistics is much more complex than it used to be.
To simplify the complexity, companies are looking for a holistic
approach to managing their global business communities; an approach
that will integrate transactions across trading partners and logistics
providers. Recognizing the inherent complexity of the solutions, best
practice companies are turning to third-party managed services
providers to meet the new requirements.
This paper examines these issues and discusses some of the
prerequisites for operating effectively in a global business community.
The topics included in this white paper are:
- Challenges
- Benefits
- Requirements
Challenges
As is discussed below, making the world your oyster can provide many
benefits, but there are also challenges that must be overcome. As the
number of partners in your business community grows, you will
experience greater than linear growth in the complexity of managing
your relations with those partners and of maintaining the quality of
supply chain processes, regardless of where on that chain you operate.
What's more, lengthened supply chains introduce new logistics
requirements and possible chokepoints. And now that your business
partners are no longer your neighbors, they likely no longer speak the
same language, follow the same business practices or use the same
systems and protocols as you do. Finally, there's the question of the
legacy systems in your organization that were designed to facilitate
the much simpler business community interactions of the past and may
not be up to the task of managing today's global relationships.
These challenges are discussed in more detail below.
Partner Proliferation
In the past, business communities typically consisted of suppliers,
distributors, retailers and shippers all located in the same country.
When business communities extended to cover the world, in addition to
the original cast of characters becoming globally dispersed, the total
number of players grew significantly as the community came to rely also
on multi-mode shippers, customs brokers and customs inspectors, among
others.
In this globalized environment, it is typically very difficult or
even impossible to solve a supply chain problem by simply picking up
the phone, calling one person, saying, "Our stuff hasn't arrived yet;
what are you going to do about it?" and expecting an immediate answer.
Now it's necessary to integrate information from a wide variety of
business community participants to answer the question and solve the
problem.
Lengthened Links
When business communities go global, the number of partners doesn't
just grow in aggregate, but the number of links in the chain and the
length of the chain necessary to move goods from where they are (at
suppliers' factories) to where they need to be (on retailers' shelves)
also grows. As you lengthen and add links to the chain, you also
introduce more possible points of failure.
Human errors, local disasters, labor disruptions, a supplier's
manufacturing interruptions, traffic jams and truck breakdowns were
pretty much the only things that could prevent the on-time delivery of
an order when a customer and its supplier were in the same city or even
the same country. That might sound like a lamentably long list, but it
pales in comparison to the problems that can arise when you rely on a
global supply chain.
For example, consider just the process of shipping goods from an
overseas supplier. The on-time delivery of your goods now depends on
much more than the progress of just one truck. Now you have to be
concerned about the truck that takes your goods from your supplier's
warehouse to the docks, the ship that caries them across the ocean and
the truck that
moves them from the docks on your side of the sea to your warehouse. As
if that isn't enough for you to fret over, there may also be a railway
or two, not to mention a few distribution warehouses and the necessary
trucks to move goods to and from them, thrown into the mix.
Or consider labor issues. It's not just a strike at your supplier or
at one shipping company that may delay your goods. A strike at the
docks on either side of the ocean, at your customs broker or at any of
the shipping companies involved could have the same effect.
And, because your suppliers are now distant from you, it's not just
a local disaster that could disrupt the flow of goods. You also have to
agonize over what's happening in your suppliers' locales and along the
paths between you and them. Now, a disaster, whether natural or
manmade, that affects any of your suppliers or supply chain
intermediaries can bring your operations to a halt.
This geographically increased exposure to disasters is already
substantial and it is increasing. An article titled Supply Chains in a
Vulnerable, Volatile World in the third quarter, 2003 issue of A.T.
Kearney's Executive Agenda reported that, "According to Munich Re, the
frequency of natural disasters has increased by a factor of three since
the 1960s, but their cost has increased by a factor of 10. Man-made
disasters are also on the rise, from terrorist attacks and military
conflicts to computer viruses."
Import Implications
Then there's the wrinkle that didn't exist when all of your business
partners were in the same country as you. Now, customs processing and
security checks are also pieces of the puzzle. One wrong or missing
document may result in your vital supplies being stuck in a bonded
warehouse for days or weeks.
Beyond the delays that can occur, when goods are shipped through
customs with improper documentation fines may be imposed or higher than
appropriate duties may be charged.
The situation would not be as difficult to deal with if all goods
were treated the same, but that is not the case. Different products are
governed by different import regulations and require different
documentation and labeling. And every country has its own set of
import/export regulations. Keeping track of it all is challenging
enough, but it doesn't stop there. Governments change those regulations
from time to time. If you don't stay current you risk encountering
roadblocks to the steady flow of goods through your supply chain.
Communications Conundrums
The most obvious communication challenge that you must overcome when
participating in a global business community is the need to bridge the
various human languages used in the community. Yet, because modern
business-to-business transactions are increasingly typified by
electronic, computer-to-computer communications, that is only one, and
not nearly the highest hurdle that you must jump.
On September 23, 1999, the Mars Climate Orbiter, a $125-million NASA
spacecraft, failed. Why? An investigation placed the blame on a
supplier failing to convert from English measures to the metric
measures that were used in the rest of the project. The consequences of
failing to resolve incongruities in units of measure are normally not
as severe in most business communities, but they can be costly
nonetheless. Some countries use ounces and inches, while others use
grams and centimeters. So, what exactly does that number in a foreign
supplier's catalog mean?
Furthermore, a variety of incompatible electronic communications
protocols and technologies are used even within countries. When you
expand your horizons beyond your region's boundaries the probability of
encountering incompatibilities increases as the prevalent standards
vary in different locales. Reconciling these disparities can be
nightmarish when your global business partners number in the dozens,
hundreds or possibly thousands.
Then there is the issue of time zones. In a global business
community, some participants are working while others are sleeping; and
that doesn't even include people who nap on the job. Nonetheless, you
still need a way to interact with companies around the world without
inflicting too much sleep deprivation on your employees or the
employees of your business partners.
Employee Turnover
Even within developing countries that are typically perceived as
having vast, low-wage labor pools, trained, experienced employees who
know and understand the critical minutiae of complex global business
community processes are frequently in short supply. As a result, the
turnover of these individuals is often high as employees leave to take
advantage of other job opportunities in tight labor markets. And, when
an employee leaves, his or her valuable knowledge and skills leave as
well.
When most processes are performed manually, these high turnover
rates make it difficult to continue to keep global supply chains
flowing efficiently.
Antiquated Applications
A politically incorrect humorist once said, "Everything is easier said than done, unless you're a stutterer."
When your supplier is next-door, a well designed paper airplane is a
sufficient communications medium. And the appearance of a sheriff to
post a notice and padlock your neighbor's premises is an immediate,
tangible sign that maybe you should scramble to find another supplier.
Legacy systems designed to manage yesterday's supply chains are often
analogous to those paper airplanes and peeping eyes. Systems that were
sufficient when you worked with only a small, local business
community or when you built all your parts and subcomponents
in-house are usually inadequate when you depend on global supply lines
and sell to customers around the world.
Benefits
The trials of participating in and managing global business
communities may seem daunting, but there must be a reason why so many
companies, large and small, are now enthusiastic members of them. There
is a reason. The value that globalization delivers typically vastly
outweighs the challenges it imposes. Among the most significant
benefits are lower costs, improved quality, greater supply choice and
diversification of risk.
Cost
There are a number of reasons why it can be less expensive to source
a product on the other side of the planet despite high transportation
costs. If you are in a developed country, high labor costs are the most
obvious cause of comparatively high prices. Simply stated, all other
things being equal, if the manufacture of a product requires one hour
of labor, that product will cost $35 more to make in a country where
wages, benefits (including healthcare costs) and payroll taxes total
$40/hour than in a country where labor-related costs total $5/hour.
Furthermore, direct manufacturing labor costs are only part of the
story. Because the cost of living and the labor costs of all workers
tend to be lower in low-wage countries, many of the other
costs administration, business services, supplies, etc. that companies
in those countries incur may also be lower, allowing companies to
reduce yet further the prices they charge for their wares while still
earning a profit.
Quality
Price is not the only justification for global sourcing. Quality may
be another. In a globalized world, the only way to ensure that the
products you offer your customers are of the highest
possible quality is to seek out the highest quality producers in the
world not just in your local market. For example, a retailer that uses
quality, not price, as its primary market differentiator will buy from
high-end suppliers even if they operate in high-wage countries and
charge more than vendors in other regions.
Depth and Breadth of Choice
No one company, country or continent has a monopoly on creativity
and innovation. Therefore, to offer their customers products that are
the most ingenious, innovative and valuable, not to mention the least
expensive of their class, retailers must source goods globally.
Likewise, companies that want to use parts, subcomponents and other
business inputs that will afford them the greatest possible competitive
advantage must expand their supply horizons as well.
Supply Diversification
It is an unfortunate fact of life that disasters large and small
happen. Earthquakes shake and hurricanes blow. And lesser, but equally
disruptive crises, such as strikes and civil disobedience, might also
stop the flow of goods from a particular supplier. By plugging into a
global business community you can geographically diversify your supply
sources. Then, when one supplier is shut down due to a local disaster
you still have other viable options that will allow you to keep your
operations running.
There are also times when economics, rather than disruptions, make
it preferable to find suppliers located in a different part of the
world than your current sources of goods. For example, with the
dramatic increase in the price of oil, transportation costs are now a
much bigger factor in supply chain economics. Whereas, in the days of
lower cost oil, it might have made sense to source supplies in a
low-wage country on the other side of the globe, it might now be more
financially prudent to find a supplier in a somewhat higher-wage
country closer to home.
It should be noted that receiving this potential benefit requires
overcoming yet another hurdle. Using diversification as a way to avoid
supply chain disruptions implies that you are able to swap suppliers at
will. To do that, you need processes and technologies that will allow
you to bring companies into your business community and certify their
systems rapidly and with minimal administrative overhead, but that is
the topic of the next section.
Requirements
The benefits of globalization might outweigh the costs, but as
suggested in the Challenges section of this paper, effective global
business community management doesn't just happen.
New Processes and Approaches
As noted in the introduction, this is not your parent's business community. Successfully addressing global business
circumstances and concerns requires new processes and approaches.
Consider the evolution to-date of business community operations:
- In the first phase, business-to-business interactions were
mostly of the human-to-human variety and typically paper-based. Even
when email allowed companies to eliminate the physical movement of
paper, transactions were still initiated manually. The use of email
changed the communication medium, but it introduced few changes to the
structure of the order-to-payment processes.
- In the second
phase, companies began doing business electronically, removing the
manual element from many processes. Electronic transactions, primarily
facilitated through EDI, became the chief method for the buying and
selling of goods and services. This is where most companies are today.
- In
the next phase, which many companies are moving into and a few are
already in, businesses no longer simply manage the transactions between
them and individual business community partners. Instead, they and
their partners jointly manage shared business processes across the
entire order-to-payment lifecycle, a lifecycle that may touch a variety
of business partners.
This new paradigm, coupled with the complexity of global supply
chains, demands approaches and technologies that provide far greater
visibility into the data and processes of all business partners.
Because of the longer supply chains, there are more opportunities
for costly delays to affect shipments. As a result, you need to be able
to monitor and manage all aspects of supply chain operations
scrupulously regardless of whether those processes are under your
control or under the control of one of your business partners in order
to spot and deal with issues the instant they arise.
You also need systems and process that allow much greater
flexibility of action than you ever had before. For example, if the
there is a strike or backlog at the intended port of arrival for your
shipment, you need to learn about the problem immediately and have the
ability to demand that the shipment be rerouted to another port. Or if
any unexpected holdup occurs at the supplier or en route you have to be
made aware of that situation instantly or, better yet, have the
potential problem forecast in advance when possible. The systems you
use should then offer the flexibility to switch suppliers or switch to
a more expensive, but faster transportation mode if the cost that the
delay will impose justifies the switch.
By automating many of the required processes, these systems also
help to overcome one of the challenges of today's global supply
chains high employee turnover. After transforming formerly manual
processes into system-facilitated or fully automated processes,
knowledge and skills will no longer walk out the door along with
employees. Instead, the systems will ensure that even new employees
follow business community best practices.
Open Technology Platform
Because global business communities encompass considerable
technological and procedural diversity, the effective monitoring and
management of their operations requires an open community management
platform. Companies using the whole host of available document formats,
data interchange protocols and communications technologies must be able
to plug into the platform quickly, easily and seamlessly.
Once its systems gain access to the platform, each business partner
should, subject to proper authorizations, be able to electronically
exchange the entire range of documents required throughout the entire
order-to-payment cycle. And the platform should, again subject to
proper authorizations, also provide each participant with complete
visibility into all supply chain activity relevant to the viewer,
regardless of whether the activity was performed by the viewer's
employer or by a business partner.
Exception Management
If you try to focus on everything you will end up focusing on
nothing. Most supply chain activity happens according to plan and
requires no extraordinary intervention. It's only in that small
percentage of cases where things go wrong that immediate attention is
required to rectify a problem before it becomes a crisis or calamity.
Reports that detail all activity, normal and abnormal, will make it
difficult for you to easily spot any problems that arise as the mass of
satisfactory activity will obscure the exceptions. Instead, your
business community management systems need to provide exception
reporting and automated alerts that will highlight incidents that
demand your immediate attention.
Global Managed Services Team
Accommodating the diversity of business partners and their
protocols, procedures and technologies, while ensuring 24x7
problem-free availability of a global information exchange platform,
requires a wide variety of skills and technologies skills and
technologies that are likely not part of your business' core
competence. A better approach is to use a third-party global managed
services team whose core competence and, in fact, its very business is
managing business community platforms.
An outsourced global managed services team probably already works
with many of your business partners. And, even if it does not have
existing relationships with some of your partners, because the firm
works with so many different companies, it likely does have extensive
experience with the technologies
and protocols they use. The firm can, therefore, bring your partners
onto the business community management platform quickly and easily.
In addition, because business community management is its business
and it does it for so many companies, a managed services firm can bring
to the table the scale, cost structure and domain expertise needed to
manage your day-to-day trading partner operations cost-effectively.
About Inovis
Inovis is a leading provider of supply chain communication solutions
that help businesses improve the flow of information across their
trading communities regardless of whether those communities are
primarily local or they span the globe. Our industry-leading,
integrated solutions standardize, synchronize and streamline
communication to increase the percentage of perfect orders and expedite
the order-to-payment lifecycle. With more than 20 years of expertise,
Inovis delivers its products and services to more than 20,000 companies
over a wide range of industries and markets across the globe.
Inovis was recently named a "Company on the Move" by Consumer Goods
Technology, and was included in Supply & Demand Chain Executive's
"2006 Supply & Demand Chain Executive 100," Inbound Logistics
Magazine's "Top 100 Logistics IT Providers" and Apparel Magazine's
annual "Software Scorecard." In 2006, IDC ranked Inovis
15 on its list
of top Supplier Relationship Management Application Vendor table and
3
in the Worldwide Supplier Collaboration Application market. In
addition, Inovis successfully completed the Statement on Auditing
Standards (SAS) No. 70, Service Organizations, Type II compliance
audit. Independent, third-party auditors awarded the company with an
unqualified opinion, meaning there were no material instances of
noncompliance.
With a proven track record for enabling retail supply chain
automation, Inovis ensures fast, reliable product data synchronization
setup and support to reduce time to market and drive increased sales
immediately.
Inovis Global Headquarters
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Email: info@inovis.com
Website: www.inovis.com