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How the Network Economy Is Revolutionizing the Supply Chain

by Hans Thalbauer | SAPinsider, Volume 16, Issue 1

January 1, 2015

The supply chain is in a state of change. With the new requirements set by consumers, such as customized products and quick delivery, companies need to ensure they have the most efficient networks. Read this article for tips on reconfiguring your supply chain and business processes to meet the demand for speed and customer centricity.

 

The importance of customer centricity and speed in today’s consumer economy is well understood. Examples are everywhere — from custom vending machines that integrate with social media to companies such as Netflix and Uber. Consumers increasingly expect products to be individualized to their unique specifications and to be delivered on demand.
 
The extended supply chain — from design and manufacturing to logistics and operations — is similarly affected. With a wealth of variants to products and their delivery being introduced, the entire extended supply chain must be reworked to accommodate the dual demands of customer centricity and speed.
 
SAP offers solutions to help organizations transform their supply chains into demand and product networks, with a focus on integrated business planning to create a real-time supply chain environment that offers end-to-end visibility. This strategy increasingly includes the Internet of Things (IoT) and machine-to-machine (M2M) communications, which for the most part have been understood in terms of their relevance for consumer products such as smart refrigerators or thermostats. 
 
Networks and networked devices, though, are just as vital to a business as they are to the end consumer product, and organizations that are serious about transforming their supply chains into demand and product networks need to consider how this new network economy affects their entire business model. To understand how this translates from a consumer to an enterprise model, consider how Uber is transforming transportation with the advent of ride-sharing mobile applications. This same business model would be enormously beneficial to any number of industries with a newfound focus on customer centricity and speed. Linking chain-of-delivery communications, for example, could optimize scheduling efficiencies in ways never considered.

Network Touch Points

As organizations explore ways to reconfigure their supply chains and rethink business processes to meet these demands, they begin to see how this transformation touches all parts of the enterprise.
 
Brand recognition, for instance, becomes so much more than just delivering an exceptional product; it’s about the response to the product, which is driven by putting the customer, the customer experience, and the customer networks at the center of design, manufacturing, and delivery. Additionally, an organization’s social responsibility is now an intricate part of its brand identity, especially with the purchasing power and social media savvy of millennials. Consider how this affects track-and-trace requirements, the need for complete end-to-end visibility, and product compliance.  
 
Another important facet of the extended supply chain is near-shoring, which is a necessity for having the flexibility to customize and produce to demand in shorter planning cycles. When manufacturing plants are near both suppliers and the target customer demographic, customized products can be delivered in hours or days as opposed to weeks or months. This is a fundamental change from when outsourcing was viewed as a primary means of controlling costs and achieving efficiency for nearly every industry and every product. 

IoT for Business

IoT for business is the glue that helps hold together these strategies in the extended network supply chain. Product sensor data can provide new, different insights into supply chain efficiency, and has important service level considerations. For example, M2M communication can provide a direct link to maintenance contracts with original equipment manufacturers (OEMs).
 
When speed and customer centricity are the drivers, it’s imperative to have instant visibility into any changes to a platform strategy. From a design standpoint, knowing which components are being used where is extremely important for shedding light on cost estimates, which in turn helps provide the most efficient way to produce products.
 
Then consider the effect of connected products for IoT as it relates to product lifecycle management (PLM). It is no longer enough that a PLM solution track a product’s life cycle in the supply chain — now it must also track how the product connects to larger financial and marketing networks. This is an important component of the extended network supply chain; connecting PLM to the demand side in addition to manufacturing. In short, no part of the enterprise goes untouched by the creation of a visible, end-to-end, real-time extended network supply chain.

A Real-Time Transformation

With an extended supply chain supported by IoT for business in a networked environment, everything is connected to the larger enterprise. Companies can now respond to real-time information, capturing opportunities and solving problems flexibly. This concept transforms supply chain silos into product and demand networks, facilitating a real-time information exchange that keeps an extended supply chain humming, driven by the focus on customer centricity and speed. In doing so, you can accomplish seven key tasks that revolutionize your extended supply chain into a business driver (see Figure 1):

  • Design for sustainable product innovation to win market share while meeting regulatory and quality requirements
  • Plan with demand-driven business processes that combine planning with strategic, financial, sales, and operational goals
  • Respond and orchestrate supply by sensing and capturing real-time demand and supply data and profitably responding in a timely manner
  • Produce through agile and automated manufacturing processes to ensure full visibility and transparency of internal and external manufacturing operations
  • Deliver through integrated logistics and order fulfillment processes to deliver the right product at the right place at the right time
  • Operate and manage all assets to lower risk, improve safety and quality, and improve return on assets
  • Monitor with real-time network insights to sense, analyze, and predict events and key performance indicators (KPIs) across the network

Figure 1 — Building the new extended supply chain value map

 

This is what the supply chain of tomorrow will look like. For some organizations that are producing innovative products, it is a reality today. SAP has the platform and solutions in place to help organizations begin this transformation. Product and demand networks, along with SAP’s partners’ knowledge and solutions, are vital components to help keep you connected to the network economy.

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Hans Thalbauer
Hans Thalbauer

Senior Vice President
Extended Supply Chain and IoT
SAP



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