As the WorldWide Director of our Supply Chain Solution Areas, I’m glad to welcome you to Microsoft’s Supply Chain blog. You’ll see from the Bios of many of our contributors, that I’ve enrolled some very experienced supply chain professionals to discuss how Microsoft technologies and applications, and our Partners solutions can help you address your supply chain challenges. In the current economic climate, the supply chain discipline is more important than ever – right balance between supply chain cost and customer service will mean short term survival, and long term growth awaits those with supply chain smarts to get the right balance between supply chain cost and customer service, while those that don’t will succumb (‘crash and burn’, seems a bit harsh, but perhaps a more apt description).
In this inaugural blog, I’ll share 10 Supply Chain Megatrends that we’ve compiled from discussions with our key customers, ISV and SI partners, and the Industry Analysts. I’d encourage feedback as we believe that each one of these Megatrends has an implication on Enterprise Architecture – or without giving away too much about future blog entries, “Multi-Enterprise” Architecture – and shape our investments in enabling the supply chain technology to address them.
The Challenges Facing People, Processes and Technology
First, a summary of the supply chain challenges that customers tell us they are struggling to address with their current people, processes and technology:
· Increased pace of Flat-World operations. In a global, networked economy, and ‘Flat-World’ operations. Supply chain cycle times continue to decrease, while the pace of business change continues to increase.
· Shorter product lifecycles. Global competition and increased customer demands are forcing manufacturers to bring products to market faster and cheaper.
· Product proliferation and complexity. Product differentiation strategies have led to increasingly complex products, produced in numerous configurations, often engineered assembled or manufactured ‘to order’.
· Global, networked supply chain. To deal with product proliferation and complexity, today’s manufacturers outsource much of their production and logistics and participate in a multi-enterprise networked supply chain that requires constant communication and collaboration with their supply chain partners.
· Risk created by increased demand and supply volatility. Today’s ‘Flat-World’ provides consumers with transparency of availability and costs that can create massive fluctuations in demand for products, while extended global supply chains can often be less responsive, creating supply shortfalls..
· Increased regulatory oversight. Manufacturers face escalating regulatory compliance requirements that include full auditability of the source, content, movement, use and disposal of their products, across their increasingly complex and distributed multi-enterprise supply chains.
· Focus on cost reduction and increased efficiency. Despite the increased complexity and reduced cycle times in today’s supply chains, continued cost reduction and constant improvements in operational efficiency are certain for today’s manufacturers.
Ten Supply Chain MegaTrends
Given these challenges, executives (thankfully) no longer equate the Supply Chain Management discipline as simply sourcing materials at the lowest cost. Microsoft Industry and Supply Chain Solution Management teams, in surveying its customers, ISV and SI partners, and consulting with independent Industry Analysts has identified the following Supply Chain investment Megatrends:
1. Supply Chain Performance has become synonymous with business performance as most CEOs recognize the strategic value of supply chain. Supply chain dashboards are being created that provide real-time visibility of end to end supply chain performance, assembling data from internal and trading partner systems
2. Multi-Enterprise collaboration in real-time is becoming a necessity as end-to-end cycle times continue to compress, and partner performance increases supply chain risk. Demand, cost, quality, compliance, delivery and capacity data is being shared through multi-enterprise portals, and aided by unified communications for real-time collaboration on operational events
3. Sensor Enabled Supply Chain, whether through barcodes, mobile devices or RFID, is critical to providing real-time visibility of end-to-end supply chain compliance and performance. Automated data collection is no longer driven by customer mandates. Manufacturers are instrumenting their supply chains in the same way that they automated their production facilities, to increase productivity, flexibility, accuracy, and real-time visibility, that yield positive ROI.
4. Demand Driven Supply Chain leaders are achieving superior financial performance by sensing, shaping and responding to demand faster than their competitors. While there are many cultural and architectural steps to becoming ‘demand-driven’, one of the most prominent are new 360 degree, event driven Sales, inventory and Operations Planning processes that provides multi-enterprise collaboration that facilitates joint value creation with supply chain partners in dealing with inevitable demand and supply spikes
5. Lean Supply Chain thinking is being modified as traditional lean thinking creates increasingly brittle supply chains in today’s complex and highly volatile demand-driven economy. Technology is being adopted to scale lean practices across the enterprise, and adapted to leverage smart math to deal with the complexities introduced by high product mix, high volume manufacturing and highly distributed supply chains. Mobile technologies, RFID, supply network design and modeling, and lean planning and execution are helping achieve the balance between lean and agile supply chains.
6. Supply Chain Business Continuity is being put into sharp focus as outsourcing, talent shortage and increasing demand volatility increase supply chain risk. Supply network design and inventory optimization tools are now run routinely to tune supply chain configuration and operating parameters. Supply chain ‘War Rooms’ are providing highly visual and interactive monitoring of overall supply chain performance and early warning of risks.
7. Low Cost Country Sourcing continues to rise, but decisions are increasingly balanced by consideration of associated increased lead times, poor product quality, and increased supply chain risk. Manufacturers are implementing more rigorous SLAs that require suppliers/contract manufacturers to electronically provide real-time performance data that is monitored on Supplier Scorecards that provide early warning of potential risks.
8. Supply Chain Outsourcing continues to rise. Over 92% of companies surveyed already outsource some aspect of their production, and over 40% intend to expand their supply chain outsourcing, particularly as the complexity of logistics increases, and the supply chain talent shortage grows. Collaboration between trading partners and their outsourced service providers is driving B2B integration between on-premise back office systems and hosted or cloud-based supply chain services.
9. Shifting Demographics are forcing a major redesign of global supply chains. Across all industries, there’s whole-scale redesign of supply chains to balance low cost sourcing opportunities with new regions of high growth. Beyond investment in supply network design tools, the scarcity of supply chain talent is driving investment in global dashboards to maximize productivity of scarce experts, while new intuitive people ready supply chain planning and execution applications are required to guide the workforce through increasingly complex supply chain operational decision making.
10.Green Supply Chain designs are becoming a reality as fuel costs and increased consumer focus on sustainability allow alignment of corporate social and fiscal responsibilities. Manufacturers and Retailers have been quick to recognize the financial benefits that can be achieved from reductions in fuel costs from supply network re-design and more efficient supply chain execution. Some are integrating supply chain design with their product design and carbon footprint reporting, driving the need for enhanced collaboration and reporting from their supply chain partners.
A(nother) Call to Action
I’ll dig deeper into each of the Megatrends in subsequent articles, but I think I’ve provided enough hints in this introduction, that I don’t believe these Megatrends will be well addressed by legacy ERP systems designed for streamlining processes within a single enterprise; or Advanced Planning systems that can’t keep pace with the continuous adaptation and compressed cycle times of today’s supply chains. While we can leave and leverage those investments with the Microsoft Supply Chain Platform (which we’ll also describe in future blogs), there’s a real need for a new class of “Multi-Enterprise Business Applications (MEBA)”, which is where Cloud Computing, Software plus Services and Windows Azure provide some exciting new opportunities. Let’s not fall into the trap of allowing Enterprise Architects (and that usually means ERP Architects), to dictate how we meet the critical real-time multi-enterprise supply chain collaboration needs of our businesses.