The Digital Transformation: Technology and Beyond (page 3)
-- Supply Chain Management Review, 1/1/2005
Page 3 of 7
The framework in Exhibit 1 illustrates a supply chain consisting of multiple enterprises that are integrated and focused on one objective: Achieving and maintaining customer centricity. Key resources (information, products, services, and so forth) are shared from the supply base to the distribution partners. Similarly, assets and constraints are integrated and shared across that same spectrum. The resulting cross-enterprise collaboration produces value—both for the supply chain partners and, most importantly, for the customers.
Enterprise Core Processes
The heart of Exhibit 1 is the integrated enterprise. In the digital business context, departments and operating entities that have traditionally dominated organizations are subordinated and replaced by five core enterprise processes: human resource development, financial stewardship, integrated operations, customer accommodation, and measurement and metrics. These core processes represent the fundamental competencies that all organizations must incorporate to avoid stagnation and achieve sustainable profitable growth. Stagnation in this context is defined as performing at or near a given industry average. A firm's supply chain structure and logistics are intrinsic to achieving excellence in each of the five enterprise core processes. All five core processes must combine to facilitate cross-enterprise supply chain competencies and capabilities.
As the framework suggests, every business must interface with customers and suppliers. Two important insights follow from this reality. First, supply chain relationships represent a firm's strategic initiative to align suppliers and customers into collaborative relationships to gain competitive advantage. Second, each supply chain structure and strategy resulting from that strategic alignment is unique. In situations where many different suppliers simultaneously collaborate with the same customers, each supply chain relationship has a well-defined and unique structure.
Real-Time Connectivity and Responsiveness
A second important dimension of digital transformation is real-time connectivity and decision making. Web-based information connectivity is driving a major shift in the "anticipatory" model of operations that has guided businesses for the past century. The holy grail of that anticipatory structure was the forecast. Participants in the distribution channel believed that if you got the forecast right, good things would follow. But in reality, the forecast seldom presented a correct assessment of what customers actually purchased, thereby introducing variability and the resulting bullwhip effect.
Real-time information connectivity is moving us away from this traditional forecast-guided business structure—wherein all value is created in anticipation of demand—to an agile, response-based structure that reacts rapidly to demand requirements. This response-based structure is geared toward quickly and accurately identifying actual customer demand and then rapidly fulfilling that demand. Response-based supply chains exploit the full capabilities of all channel partners through the sharing of synchronized information to jointly develop complete solutions that satisfy customers.
The transformation from an anticipatory system to a response-based structure won't happen overnight—nor should it necessarily. The managerial challenge is to move the transition forward at a rate enabling the firm and its supply chain partners to fully realize the benefits of DBT without overlooking any of the potential opportunities.
The power of real-time connectivity and responsiveness is most evident in a firm's planning and scheduling capability. Technology such as advanced planning and scheduling (APS) systems facilitate responsiveness and flexibility by increasing accuracy of order commitments while simultaneously reducing production scheduling leadtimes and inventory buffers. To understand how APS can be effectively implemented to achieve these goals, consider IBM Microelectronics Division —a producer of semiconductors, related electronic packaging, and subassemblies for internal IBM divisions and external customers. Historically, the company developed, fabricated, packaged, and tested product at 12 sites around the world. The planning process was done independently at each of these sites and then the individual plans were aggregated into a combined plan. This approach resulted in long planning cycles and data inconsistencies. This, in turn, led to extended customer commitment times and even conflicts when inventory or production capacity was promised to multiple customers.
To address these issues, IBM Microelectronics Division began a transformation to reengineer the total planning and fulfillment process. The objectives were to provide instantaneous customer response through real-time order promising, on-time shipment consistency across all sites, faster inventory turnover, and electronic connectivity with customers. Continued...
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