The perfectly synchronized supply chain is the Holy Grail of supply chain management. In this utopian vision, consumption of an end product directly spurs all supply chain activities in real time. A man finishing a carton of milk causes the immediate milking of a cow. Gasoline drawn from a pump causes an extra barrel to be drawn from an oil well.

The value of such perfect synchronization is clear. Minimal work-in-progress and elimination of the bullwhip effect would dramatically reduce costs and increase service. Of course, there is one problem: Perfect synchronization is exceptionally difficult to achieve. This is because demand must immediately be made visible throughout the supply chain and because all stages in the supply chain then must respond almost immediately to demand, which means no capacity constraints. Moreover, lead times between each stage in the supply chain must be very short. And finally, reliability through all stages of the supply chain must be exceptional, since a single failure will bring the whole supply chain to a halt.

The bottom line is that perfect synchronization is rare. Capacity is expensive and finite. Lead times cannot be eliminated, only reduced. Reliability is not perfect. In the real world, supply chains are complex networks of constraints and costs that need to be optimized. Organizations make tradeoffs among stock, capacity, and service in order to deliver a competitive level of customer service at the best possible cost.

But significant improvements in synchronization are attainable. In fact, most companies could do a better job of the following:

• Knowing which decisions are most critical in driving down costs and optimizing service.
• Accessing the right information upon which to base decisions.
• Processing this information and making better decisions as a result.
• Executing those decisions swiftly and effectively.

Not surprisingly, technology is key to making these improvements happen. Thanks to the Internet, for example, the opportunity to acquire and leverage unprecedented quantities of data and the ability to shop the world for the best service and price are accepted realities. The trade-off, of course, is that the universal competitive bar has been raised as a result: Technology in general, and the Internet specifically, has created a bountiful speeding train from which no company can afford to jump. Myriad opportunities to improve, that is, synchronize, supply chain operations exist because of the Internet. But choosing not to take advantage of those opportunities is not an option. The only competitively advantageous choice is to leverage the opportunity more effectively than one's competitors. To our way of thinking, that means eSynchronization.

eSynchronization uses new technologies and new ways of organizing and managing the supply chain to create capabilities that weren't possible previously. Think of it as the technology-enabled ability to concurrently manage high levels of complexity and multiple external relationships (see Exhibit 1).

A good example of managing (that is, leveraging) complexity might be building enhanced planning and decision-making capabilities from the platforms of integrated ERP systems. Advanced planning solutions, such as Manugistics, i2, and SAP-APO, use the information available in ERP systems and present it to decision makers. These planning tools then are complemented by innovative planning and decision-making processes.

Managing relationships speaks to the combined expertise of external partners. For years, outsourcing of distribution has been popular. Now, outsourcing manufacturing, customer service, and technology administration is becoming common. Developing and managing relationships with key customers, suppliers, and business partners—the extended enterprise—is the soul of an eSynchronized world.

Clearly, the value proposition for developing an eSynchronized supply chain is compelling: at least $100 million for a typical multinational company. Principally, this is a function of the following:

• Having the lowest operating costs across the most competitive geographies and companies.
• Gaining preferred access to the most profitable customers on a global basis, that is, by creating more compelling, value-based relationships than other value chain networks or companies.
• Acquiring preferred access to the best suppliers on a global basis, for example, by locking in the best supplier base around an identified customer value proposition.
• Obtaining high levels of flexibility around new sources of value, for example, by changing course more swiftly and less obtrusively in response to shifting customer demands or supply side shocks.

The typical supply chain improvements associated with an eSynchronized supply chain are shown in Exhibit 2.

Internally, the development of eSynchronized capabilities requires executive leadership around a shared direction. Without this level of sponsorship and support, opportunities do not lead to action, and change programs fail to make a significant impact. Externally, the principal capability is building and growing relationships with the right partners. Ultimately, these two linchpins are summarized in five operational requirements:

Own your core competencies. Companies must develop and sustain differentiating core competencies, which means minimizing resources and management attention in noncore areas. The result is a highly beneficial circle: As more opportunities become available to buy or borrow noncore activities, more attention can be focused on developing and consolidating core ones. This makes the company an increasingly attractive partner in an eSynchronized supply chain.

Integrate organizational structures, business processes, IT, and physical infrastructures with those of supply chain collaborators. After integrating internal operations across the organization, companies must develop common standards that abet integration and collaboration with other organizations. This requires a shared direction for common processes and information systems. It also requires that employees understand their organizations' role in the extended supply chains and can work across organizations to drive improvements. This is not a simple task. Many forward-thinking companies are only starting to learn the nuances of this approach.

Understand what to buy, build, and borrow and with which partners. The ability to define the right relationships with the right partners is a critical success factor. Each member of an eSynchronized supply chain depends on the performance of others. This requires the ability to define which activities should be bought, built, or borrowed as well as the ability to identify potential collaborators and assess their ability to deliver maximum value across the supply chain.

Consider activity sharing. Activity sharing is an attractive option if the activity is being carried out on a suboptimal scale and there are no attractive outsourcing options. It also is desirable if the activity is not a competitive differentiator or if a market-level solution cannot be developed with competitors. It also may be viable if the activity is a core competency and additional revenue can be gained by providing the service to a noncompetitor.

Manage a portfolio of critical relationships. As organizations focus more on their core competencies, their need for a portfolio of relationships increases. The ability to do this can be a key differentiator.

The eSynchronized world is built on operational excellence: a state that many more companies actually have achieved. For example, companies in a wide variety of industries have reached high levels of process consistency and data integrity, the foundations of cross-company collaboration. Others have implemented leading supply chain planning packages, ERP systems, and common databases. Still more have built results-driven performance management frameworks, for example, supply chain key performance indicators (KPIs) and employee rewards linked to supply chain outcome metrics (for example, inventory levels, working capital, order fulfillment).

But operational excellence and eSynchronized supply chains are not synonymous. As noted earlier the key differences are the extent to which high levels of complexity are proactively managed and (even more important) the extent to which a portfolio of relationships supports growth and sustains competitive advantage (see Exhibit 3).

Collaborative planning, forecasting, and replenishment illustrate the power of an eSynchronized supply chain. Traditionally, companies—and even departments within companies—squirreled planning, forecasting, and replenishment information away in their own databases, and their own staff manipulated it with applications that they themselves owned. The predictable result was multiple and competing forecasts, minimal use of supplier and customer data, and consistent misalignment with demand.

By contrast, planning in collaboration with suppliers, customers, and channel partners through open sharing of relevant consumer sales data and material availability produces a single forecast that is shared by all supply chain participants. A leading apostle of this approach is Sun Microsystems, which, via the Web, exchanges forecast and product-status information with customers on orders, shipments, and promotions. This (unusually high) level of trust, innovation, and collaboration has helped Sun slash lead times, enhance forecast availability, improve inventory turns, increase customer satisfaction, and create more efficient supply chain operations.

But look for eSynchronization to push the envelope further. As corporate collaborations deepen, participants will move beyond passing information back and forth. The concept of a shared, Internet-based repository of data will prevail. In turn, this will inspire two important questions.

First, why should the business partners own the applications that manipulate the data? After all, collaborating with business partners across a common technical platform using common applications would alleviate most of the confusion over standards and version control. It also would inspire huge information technology cost savings and build greater flexibility into the information technology infrastructure.

Second, if the data, technical infrastructure, and applications don't have to be owned, why not have a specialized third party assume some of the planning activities? The third party would provide and manage a common business solution over an electronic network, coordinating entire business processes or application solution sets using the Internet as the medium. A Web host would provide the network services and the hardware and software infrastructure, while application service providers would provide applications and content. Business solution providers will provide the aggregation.

A real-life example of this new-age model is the partnership between Manugistics Group, Inc., and Freightwise, Inc., a new eCommerce initiative of the Burlington Northern Santa Fe Corporation. Powered by Manugistics' transportation solution, Freightwise offers an online marketplace for buyers and sellers of transportation services and information. In effect, Freightwise reviews and selects the most effective and efficient transportation services across a virtual enterprise. With this tool, trading partners view, share, and jointly execute decisions based on real-time information.

Another example is i2 Technologies' TradeMatrix, a dynamic Internet marketplace that provides one-stop shopping for online collaboration and dynamic trading, electronic procurement, spot buying, selling, order fulfillment, logistics services, and product design services. TradeMatrix provides an open digital community where customers, partners, suppliers, and service providers gather to conduct supply chain business in real-time.

Because every company—and, more important, every relationship—is different, there is limited value in prescribing one-size-fits-all states of eSynchronization. However, there is great value in identifying the characteristics that comprise an eSynchronized world and the extent to which aspiring companies are positioned to acquire those characteristics (Exhibit 4).

As Exhibit 4 shows, eSynchronization basically is the optimal state of technology-enabled information management: Web-based sharing of planning information allows supply chain participants to create a virtual store of inventory that each participant can access to satisfy customer needs from any available source. Comprehensive information about availability across the supply chain allows participants to reduce costs, lower stocks, and plan shipments more efficiently. By sharing information about production, inventory, products, and shipments, companies gain competitive advantage by beating others to new customers and markets.