In a relatively short time, the Internet has evolved from a convenience into an indispensable productivity tool. From Banking and Retail to Engineering and Manufacturing, the effects of instant information access have forever changed the way products are manufactured, marketed, and sold. Yet despite its impact, it is safe to say that we are witnessing just the beginning of what is a new era in how information will impact the way we work.
"For manufacturers there are enormous advantages to be gained from having an agile, transparent and accountable raw material supply chain"
The Global Supply Chain
Supply chains vary greatly in terms of size and sophistication. Regardless of scope or complexity, a common thread is the need to coordinate production schedules, manufacturing resources, and the disparate planning and production systems found throughout. As the number of OEM subcontractors for parts and assemblies expands, the challenges are multiplied exponentially. For large manufacturers, many of whom have grown through acquisition, managing a hugely distributed supply chain comprised of sites, subcontractors, and raw material sources is a lot like herding cats. Little wonder that most OEM’s have no visibility or control beyond what happens at their Tier 1 suppliers. This leaves them vulnerable to a plethora of potential disruptions originating at lower tiers of the supply chain (tiers 2, 3, 4, etc.) and without the ability to track progress, pinpoint costs, or effectively measure supplier performance.
Fortunately, powerful yet practical collaboration technologies have emerged leveraging the widespread infrastructure and collective intelligence of the world-wide web. As a result, manufacturers are now able to transform extended supply chains into an integrated, synergized global enterprise. While the press likes to fawn on Apple or Tesla for their design prowess, an equally impressive story is how these darlings of American enterprise and innovation are using collaboration platforms to choreograph and synchronize every node in their extended supply chains. For these companies, included less obvious players like John Deere and Boeing, web-based collaborative platforms are a secret weapon that, in true “Survivor” fashion, is enabling them to outwit, outperform and outlast the competition. The implication is that because of collaborative platforms, companies no longer compete against companies, supply chains now compete against supply chains.
For manufacturers there are enormous advantages to be gained from having an agile, transparent and accountable raw material supply chain. Multiple studies (by Gartner, Capgemeni and others) show that on average, as much as 30 percent to 60 percent of most OEMs’ manufacturing costs can be attributed directly to the purchase of material-inputs for production. Surprisingly, very few manufacturers can tell you exactly how much steel, aluminum, plastic or other material is in that excavator, railcar, truck, ship, or airplane. This is because a growing number of components and sub-systems are provided by Tier 1 suppliers; many of whom have, in turn, outsourced components to their sub-tier suppliers.
The benefit of knowing just how much steel is in the excavator, tractor, or other piece of equipment, and cutting a deal with one or a few preferred raw material suppliers is obvious. There is a volume pricing benefit for sure, often in the 3-17 percent range, but equally compelling opportunities exist in other areas. With better transparency into lower tiers of the supply chain, OEMs can:
• Improve negotiations by understanding what outsourced parts and components (and the materials that go into them) should cost.
• Reduce costs by standardizing the forms, sizes or specifications of raw material that are being used (and purchased) by multiple subcontractors across the OEM supply chain.
• Monitor the timely purchase and supply of raw material by sub-contractors in some cases weeks or months before parts are due.
• Improve Requests for Quotation response rates by matching part attributes to supplier manufacturing capabilities.
• Assist distributors and their mills in optimizing the inventory levels they carry and the sizes of raw materials they produce.
• Instantly recognize and take action on problems that typically would not be discovered until a part was late.
What about Security?
No one questions the importance of data security and the vulnerability of anything that is exposed to the web to unauthorized hacks. Securing that kind of data is important irrespective of where it resides. Unlike personal data, however, the potential for nefarious persons to target and do harm with bills-of-material data tends to be fairly low. On the hierarchy of data control sensitivity, mere part numbers, forms, alloys, grades, specifications and units of measure associated with those typically do not raise the kind of alarms that other types of data might. For this reason, management of supply chain information on web-based platforms is common and fairly low risk.
Where do you Start?
Sounds great, but how can an OEM effectively measure and police activity in a supply chain that is currently fragmented and where none of the resource planning or other IT systems currently talk to one another? The answer lies in connecting two things through a collaborative, web-based, multi-enterprise platform: (1) the detailed bills-of-materials that go into your parts; and, (2) the same Master Production Schedule you use to run your factories and/or schedule deliveries from your outside part suppliers. Why not use an existing Enterprise Resource Planning (ERP) system, you might ask? First, modifying large, embedded ERP systems to accommodate such collaboration tends to be expensive and as previously mentioned, most OEMs tend to have at least one and often many systems operating independently and subscribing to vastly different data taxonomies. While it hasn’t always been this way, translating heterogeneous data from different ERP systems through a common web platform is now a cinch. Master data management and conversion technology is cheap and widely accessible and often comes standard and integrated with commercial collaboration platforms. Perhaps the most compelling reason to avoid ERP is what makes a collaborative platform so valuable its ability to enable vastly different stake holders in the supply chain to independently access and interact with the data. That is not something you typically want happening in your ERP since it often powers your financial system also.
Today’s access to information is instantaneous. Take out your cell phone and check the temperature in Sydney, Australia. Chances are you could get that information in less time than it will take to read this article. Now, imagine that with the same amount of effort, you could:
• Determine if a part supplier in Phoenix Arizona bought the required sheet metal in order to fabricate a part that may not be due on your receiving dock for another two weeks.
• Track the progress of that monster snow storm barreling towards your supplier in Buffalo, NY, and see which parts and which tier 2, 3 and 4 suppliers might be impacted if they get snowed under.
• Determine the then-in-effect market price for 321 stainless, 3” diameter bar-stock that’s needed for a machining operation and see all of the alternative sources of supply.
For OEMs to succeed, it is increasingly necessary to see, monitor, and control many aspects of outsourced production. The need to manage critical cost drivers like raw materials or to anticipate rather than react, to supply disruptions at lower tiers of the supply chain is imperative. Unfortunately most of today’s enterprise-centric systems were not designed to deal with the complexity of today’s highly distributed manufacturing environment.