The modern supply chain must resolve the
tension between the competing priorities of
efficiency and adaptability. Clearly, faster,
leaner, and more productive supply chain management
lends tremendous leverage. SAP customers are
seeing inventory-days-of-supply drop by nearly
40%, cash-to-cash cycle times drop by nearly
50%, and order fulfillment lead time drop by
more than 45%.
But these efficiencies — the result of good planning and execution
— can take you only so far. Every business inevitably must contend
with the unpredictable, and this requires adaptability. Shipments get
delayed, customers change orders, quality problems arise, and countless
other problems can crop up. Moreover, supply-driven networks are giving
way to more competitive demand-driven networks. So if the business networks
you have forged with partners and suppliers are not adaptive, you leave
yourself exposed to risk.
The Adaptive Business Network is the strategy that creates the right
balance between efficiency and adaptability. Networks constructed according
to this strategy can sense customer signals; provide real-time awareness
across the network; facilitate timely sharing of information, updates,
and requirements; and ensure high-performance, coordinated, and adaptive
operations among network participants.
Creating such a network is a two-phase process
that builds on the foundation of mySAP Business
Suite applications, but adds adaptability using
SAP NetWeaver and Enterprise Services Architecture
to support adaptive business processes. It
takes the combined elements of planning, executing,
sensing, responding, and learning (see Figure
Planning and executing is the first step. An adaptive business network
starts with a solid plan for efficient execution based on what is known
— usually forecasts, calendar cycles, and a deep understanding of
how capacity and resources will be used. SAP customers already have a
solid foundation for efficiency. Your SAP R/3 and SAP APO systems, for
example, provide for robust planning and execution.
|Dimensions of the Adaptive
The second step is to design adaptive processes that sense and rapidly
respond to the real world. Such adaptability requires several things:
Analytics (the process by which companies learn) are integral to every
SAP solution nowadays. Support for real-time awareness technologies such
as RFID, sensors, and smart tags is part of SAP NetWeaver. And as an open,
services-based technology platform, SAP NetWeaver enables networks to
be formed easily across lots of different systems and environments, which
is a fundamental tenet of any adaptive network.
New Networks and 8 New Rules of Engagement
The Adaptive Business Network is an excellent
approach to how businesses should work together.
In building such a network, you and your suppliers
or customers can start with just a few Web
pages that afford each of you better visibility
into one another’s processes. Incremental steps
such as this are the ideal way to infuse adaptive measures into your current
operations. They don’t get built in one fell swoop. It’s
a methodical transformation of capabilities.
Toward this end, I offer the following advice:
- Establish clear, shared objectives that allow the supply network
to work for the benefit of all participants, and design your business
practices to meet these shared objectives.
- Predicate your business relationships on the idea that they will evolve, and design them accordingly. Business today, in many industry
settings, is run at a far more rapid clock speed than just a year or
- In your policies, procedures, and service-level agreements, detail
how information will be shared, what responsibilities each participant
has, and how processes will flow from one participant to the next. Governance
of the network should be shared.
- Craft contractual arrangements that can be evolved based on mutual
agreement of the participants.
- A key priority should be the ability to sense customer demand signals
— and have them flow across organizational borders to supply network
participants — to trigger a coordinated response. Rather than
push products into the channel, an adaptive, demand-driven network allows
demand to initiate supply network processes.
- Define your real-world aware (RWA) strategy, instead of focusing
just on one technology like RFID. Identify where sensors — whether
they are sensors on the shop floor, RFID readers, or mobile devices
— can add value, and focus on those that provide the fastest ROI.
Be aware that the return is always in your ability to respond to what
Often shop floor integration can bring a much faster ROI than every
other RWA technology, since in most cases the sensors are already there.
The only problem is the integration into the business processes. If
there is a breakdown on the shop floor, it’s not just a local
plant operator’s problem. It could be indicative of a supplier,
shipper, quality, or scheduling problem. It could also become a customer
service problem. Put the information into the proper context and get
it to the right parties, and you can react quickly. Lack of shop floor
integration (a problem for many manufacturers now) will get in the way
of high-speed business networks.
- Distribute key performance indicators (KPIs) in conjunction with
notifications and triggers for automated responses to virtually every
employee — this enables rapid responses to changing conditions
on both the supply and demand side.
- Remember that Adaptive Business Networks need to be supported by
adaptive, services-oriented IT infrastructures. Businesses add, terminate,
and change partners and partner requirements with increasing speed these
days. A services-oriented architecture (SOA) provides the flexibility
to more easily modify business processes as the business changes. What
if you have to absorb a new acquisition into your business? What if
you have to source supply in a different part of the world? Adding a
new supplier need not be a new integration project. The broad capabilities
of SAP NetWeaver and an Enterprise Services Architecture enable current
and future SAP solutions to support these needs — and to support
a more adaptive business.
With an Adaptive Business Network, the leverage
you derive from a partnership — or amass across dozens and even hundreds of companies working
in a coordinated fashion — can be continually
improved. As I look ahead, I see a number
of very significant benefits accruing to
participants of an Adaptive Business Network:
- The ability to respond more quickly to customer needs, in a more
- Greater visibility into customer, partner, and supplier activities,
and as a result, greater efficiencies, savings, and productivity
- Accelerated product design to more rapidly respond to market needs
- Reduced time-to-market, time-to-volume, and time-to-value for new
- An increased ability to identify and exploit new revenue opportunities
- Greater ability to leverage services as a value-add and profitable
- Maximized return on assets (ROA) by minimizing downtime, improving
equipment reliability and throughput, and extending the life of assets
- An increase in the capital allocated to core value-creating activities,
and a better ability to outsource other processes
The concept of Adaptive Business Networks revolves around the notion
of companies working together to fill customer needs. The network is driven
by customer demand, and all activities are aligned to fulfill that demand
(see Figure 2).
|Key Processes of the Adaptive Business Network
Sense and Respond to Change
Until now, most manufacturers have focused
on improving planning and execution activities.
An Adaptive Business Network adds another dimension —
the ability to sense and respond to change. This dimension is absolutely
critical. If you are outsourcing manufacturing and don’t
have this ability, you leave yourself exposed
to tremendous risk.
Consider what happens in an out-sourcing situation: information typically
doesn’t flow as quickly, visibility is hindered, and your ability
to change is diminished. Adaptive Business Networks mitigate these risks
by providing the tools to maintain a high degree of integration across
As another example, look at how Responsive Replenishment within SAP APO
helps deal with and respond to change. Consider a consumer goods company
that cannot rely solely on the accuracy of their forecasts; for them,
Responsive Replenishment complements their forecasts by adding the ability
to sense inventories at customer sites early on and respond immediately
using subdaily replenishment runs. This allows them to reduce critical
stockouts without piling up expensive safety stocks.
Another driver for constant change in today’s economy is the need
to bring innovation to market much faster and in a much more effective
way than before. SAP’s applications are designed to better support
the mission-critical New Product Development and Introduction (NPDI) process
across functional silos within a company.
I see strong forces already at work to institutionalize Adaptive Business
Networks across all of our enterprises. In fact, I think there will be
little choice in the matter. Business networks are becoming less stable.
They have to reassemble themselves faster than in the past. It’s
not practical to have every new partner integration be a new integration
This is why SAP is investing so much in service-enabling architecture,
supporting the modeling and assembling of business processes and their
required services. It makes adding, terminating, and changing partners
easy to do. In resolving the conflict between efficiency and adaptability,
the Adaptive Business Network allows companies to stay lean but also respond
quickly, which is what today’s business environment demands. The
increased robustness of your supply chain means that you’re far
more likely to maintain these benefits — even when the unexpected
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