The Supply Chain Challenge

Integration with partners presents many challenges in the high-technology industry. Information technology, electronic component, semiconductor manufacturing, and telecommunications companies all face challenges in their supply chain.

Companies compete based on their capabilities and their supply chain. Because partners frequently have a major role in a company's supply chain, many companies also compete based on their partner's capabilities and supply chain. Many companies outsource functions that are not their core competencies. Partners frequently hold and manage inventory. Therefore, companies frequently differentiate themselves by how they connect and collaborate with their partners.

If a high-technology company does not have an integration solution, the following issues can pose significant challenges.

Supply Chain Complexity

Many high-technology manufacturers have long and complex supply chains. These supply chains may involve a number of partners, suppliers, and buyers. This can mean a complex set of transactions and a diverse set of interactions. A manufacturer may have to set up communications based on what they have used previously, what their or their partner's capabilities are, and what their partners require. That can mean creating business processes customized to each specific partner. It can also mean that partners use a variety of communication devices to exchange data, instead of typically relying on a single, primary data connection. The following figure shows an example of two partners who must contend with many different communication devices in their supply chain.

The manufacturer may exchange a Request Price message through a fax with one partner and through EDI with another. They may exchange a partial cancellation message through telephone with one partner, and through e-mail with an attached Microsoft Excel spreadsheet with another. Communications may be manual, such as by telephone, fax, regular mail, or e-mail with Excel spreadsheets. Alternatively, they may be automated, using EDI, FTP, or binary files.

This diversity increases the complexity of the supply chain, and frequently increases the amount of manual processing and custom programming. This can make development, deployment, maintenance, and upgrading of the supply chain very difficult. It makes it difficult for companies and their partners to adapt to new developments, because change management is difficult. Making a change to a single trading partner connection can mean lots of work. Applying that change to the complete supply chain can be overwhelming.

Response Time

One key to managing a supply chain is to know what the customer demand is, and what partner supplies are. However, it can be difficult for a high-tech company to assess supply and demand. A company may not have a single unified, real-time view into their business processes. This can occur both because of the complexity of those processes, and because manual processes, or automated processes that are not integrated, frequently do not lend themselves to visibility. The more manual steps and customized connections that there are in a supply-chain system, the longer it takes to transact business.

Without that visibility, it can be difficult for a company to respond quickly to changes in customer demand. Demand can quickly increase or decrease. Either scenario requires a rapid response. The situation is even more difficult if you do not know that demand has changed.

Lack of visibility can also create problems with supply and inventory. If a company has too much inventory during a downturn in demand, the company can have difficulty reducing their supply if their supply chains are complex and not well connected. For the same reasons, a company may have difficulties making sure that their suppliers reduce or increase their supply.

Cost

For many high-technology companies, margins are being squeezed, forcing them to find ways to take costs out of their business. High inventory levels and high freight costs are difficult to reduce, particularly when it is difficult to understand the nature of those costs. Many manufacturing companies are plagued by high employee costs resulting from complex and manual business processes. Additionally, one-off communications solutions, customized for each partner, can be inefficient and costly.

Some interactions are simple, for example, a company making a single change to an order. However, some changes are very complex, for example, a company making a thousand changes to an order. Transacting those changes over the telephone or in e-mail could be time-consuming and expensive. Even when companies have integration solutions, such as EDI, the solutions can be costly, especially to change.

See Also

The Supply Chain Solution
The Need for Trading Partner Integration