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Global Business Community Management

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  • 1. WHITE PAPER: GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain White Paper GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain Introduction Supply chains looked vastly different as little as one generation ago than they do today. It is true that, back then, “made in USA” and “made in Japan” labels were commonplace around the world. Nonetheless, globalization had not yet attained anywhere close to the proportions that it has today. Now, the country on the label is just as likely to be India, China, Sri Lanka, the Philippines, Costa Rica or any of a host of others. In addition, even for a seemingly simple product, regardless of what country’s name follows the words “made in,” the product’s components may have been sourced from a number of countries; a situation that was much rarer in “the good old days.” The title of Thomas L. Friedman’s popular book, The World is Flat, not withstanding, the world may not yet be entirely level, but there is no doubt that the spikes in the business topology are considerably more geographically dispersed than they were when our parents were in their youths. Effectively managing business communities in this flatter world requires different strategies and tactics. Whereas a one-to-one, ad hoc supply chain management methodology was adequate when dealing with a small number of local suppliers, the same methodology can bog down activity in today’s more dispersed global business communities. Consequently, companies require a new set of tactics and, equally important, a new set of capabilities to enable those tactics. The new landscape provides numerous benefits, but simplifying supply chain operations is not one of them; quite the opposite. Today, manufacturing that was formerly performed in- house is being outsourced. In addition, suppliers of both these newly outsourced goods and, for both retailers and manufacturers, of the products that have always been bought from outside vendors are located farther afield than ever. Consequently, logistics is much more complex than it used to be. To simplify the complexity, companies are looking for a holistic approach to managing their global business communities; an approach that will integrate transactions across trading partners and logistics providers. Recognizing the inherent complexity of the solutions, best practice companies are turning to third-party managed services providers to meet the new requirements. This paper examines these issues and discusses some of the prerequisites for operating effectively in a global business community. The topics included in this white paper are: I. Challenges II. Benefits III. Requirements © 2008 Inovis, Inc. All rights reserved. 1
  • 2. WHITE PAPER: GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain Challenges As is discussed below, making the world your oyster can provide many benefits, but there are also challenges that must be overcome. As the number of partners in your business community grows, you will experience greater than linear growth in the complexity of managing your relations with those partners and of maintaining the quality of supply chain processes, regardless of where on that chain you operate. Figure 1: To go What’s more, lengthened supply chains introduce new logistics global you have to requirements and possible chokepoints. And now that your business jump some hurdles. partners are no longer your neighbors, they likely no longer speak the same language, follow the same business practices or use the same systems and protocols as you do. Finally, there’s the question of the legacy systems in your organization that were designed to facilitate the much simpler business community interactions of the past and may not be up to the task of managing today’s global relationships. These challenges are discussed in more detail below. Partner Proliferation In the past, business communities typically consisted of suppliers, distributors, retailers and shippers all located in the same country. When business communities extended to cover the world, in addition to the original cast of characters becoming globally dispersed, the total number of players grew significantly as the community came to rely also on multi-mode shippers, customs brokers and customs inspectors, among others. In this globalized environment, it is typically very difficult or even impossible to solve a supply chain problem by simply picking up the phone, calling one person, saying, “Our stuff hasn’t arrived yet; what are you going to do about it?” and expecting an immediate answer. Now it’s necessary to integrate information from a wide variety of business community participants to answer the question and solve the problem. Lengthened Links When business communities go global, the number of partners doesn’t just grow in aggregate, but the number of links in the chain and the length of the chain necessary to move goods from where they are (at suppliers’ factories) to where they need to be (on retailers’ shelves) also grows. As you lengthen and add links to the chain, you also introduce more possible points of failure. Human errors, local disasters, labor disruptions, a supplier’s manufacturing interruptions, traffic jams and truck breakdowns were pretty much the only things that could prevent the on-time delivery of an order when a customer and its supplier were in the same city or even the same country. That might sound like a lamentably long list, but it pales in comparison to the problems that can arise when you rely on a global supply chain. For example, consider just the process of shipping goods from an overseas supplier. The on- time delivery of your goods now depends on much more than the progress of just one truck. Now you have to be concerned about the truck that takes your goods from your supplier’s warehouse to the docks, the ship that caries them across the ocean and the truck that © 2008 Inovis, Inc. All rights reserved. 2
  • 3. WHITE PAPER: GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain moves them from the docks on your side of the sea to your warehouse. As if that isn’t enough for you to fret over, there may also be a railway or two, not to mention a few distribution warehouses and the necessary trucks to move goods to and from them, thrown into the mix. Or consider labor issues. It’s not just a strike at your supplier or at one shipping company that may delay your goods. A strike at the docks on either side of the ocean, at your customs broker or at any of the shipping companies involved could have the same effect. And, because your suppliers are now distant from you, it’s not just a local disaster that could disrupt the flow of goods. You also have to agonize over what’s happening in your suppliers’ locales and along the paths between you and them. Now, a disaster, whether natural or manmade, that affects any of your suppliers or supply chain intermediaries can bring your operations to a halt. This geographically increased exposure to Figure 2: Global business communities disasters is already substantial and it is increasing. include global vulnerabilities An article titled Supply Chains in a Vulnerable, Volatile World in the third quarter, 2003 issue of A.T. Kearney’s Executive Agenda reported that, “According to Munich Re, the frequency of natural disasters has increased by a factor of three since the 1960s, but their cost has increased by a factor of 10. Man-made disasters are also on the rise, from terrorist attacks and military conflicts to computer viruses.” Import Implications Then there’s the wrinkle that didn’t exist when all of your business partners were in the same country as you. Now, customs processing and security checks are also pieces of the puzzle. One wrong or missing document may result in your vital supplies being stuck in a bonded warehouse for days or weeks. Beyond the delays that can occur, when goods are shipped through customs with improper documentation fines may be imposed or higher than appropriate duties may be charged. The situation would not be as difficult to deal with if all goods were treated the same, but that is not the case. Different products are governed by different import regulations and require different documentation and labeling. And every country has its own set of import/export regulations. Keeping track of it all is challenging enough, but it doesn’t stop there. Governments change those regulations from time to time. If you don’t stay current you risk encountering roadblocks to the steady flow of goods through your supply chain. © 2008 Inovis, Inc. All rights reserved. 3
  • 4. WHITE PAPER: GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain Communications Conundrums The most obvious communication challenge that you must overcome when participating in a global business community is the need to bridge the various human languages used in the community. Yet, because modern business-to-business transactions are increasingly typified by electronic, computer-to-computer communications, that is only one, and not nearly the highest hurdle that you must jump. On September 23, 1999, the Mars Climate Orbiter, a $125- Figure 3: Relax. Those German million NASA spacecraft, failed. Why? An investigation placed tomatoes are red, not rotten. the blame on a supplier failing to convert from English measures to the metric measures that were used in the rest of the project. The consequences of failing to resolve incongruities in units of measure are normally not as severe in most business communities, but they can be costly nonetheless. Some countries use ounces and inches, while others use grams and centimeters. So, what exactly does that number in a foreign supplier’s catalog mean? Furthermore, a variety of incompatible electronic communications protocols and technologies are used even within countries. When you expand your horizons beyond your region’s boundaries the probability of encountering incompatibilities increases as the prevalent standards vary in different locales. Reconciling these disparities can be nightmarish when your global business partners number in the dozens, hundreds or possibly thousands. Then there is the issue of time zones. In a global business community, some participants are working while others are sleeping; and that doesn’t even include people who nap on the job. Nonetheless, you still need a way to interact with companies around the world without inflicting too much sleep deprivation on your employees or the employees of your business partners. Employee Turnover Even within developing countries that are typically perceived as having vast, low-wage labor pools, trained, experienced employees who know and understand the critical minutiae of complex global business community processes are frequently in short supply. As a result, the turnover of these individuals is often high as employees leave to take advantage of other job opportunities in tight labor markets. And, when an employee leaves, his or her valuable knowledge and skills leave as well. When most processes are performed manually, these high turnover rates make it difficult to continue to keep global supply chains flowing efficiently. © 2008 Inovis, Inc. All rights reserved. 4
  • 5. WHITE PAPER: GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain Antiquated Applications A politically incorrect humorist once said, “Everything is easier said than done, unless you’re a stutterer.” When your supplier is next-door, a well designed paper airplane is a sufficient communications medium. And the appearance of a sheriff to post a notice and padlock your neighbor’s premises is an immediate, tangible sign that maybe you should scramble to find another supplier. Legacy systems Figure 4: Yesterdays solutions don't work designed to manage yesterday’s supply chains are in today’s world. often analogous to those paper airplanes and peeping eyes. Systems that were sufficient when you worked with only a small, local business community—or when you built all your parts and subcomponents in-house—are usually inadequate when you depend on global supply lines and sell to customers around the world. Benefits The trials of participating in and managing global business communities may seem daunting, but there must be a reason why so many companies, large and small, are now enthusiastic members of them. There is a reason. The value that globalization delivers typically vastly outweighs the challenges it imposes. Among the most significant benefits are lower costs, improved quality, greater supply choice and diversification of risk. Figure 5: When you join a global business community the world is Cost thine oyster. There are a number of reasons why it can be less expensive to source a product on the other side of the planet despite high transportation costs. If you are in a developed country, high labor costs are the most obvious cause of comparatively high prices. Simply stated, all other things being equal, if the manufacture of a product requires one hour of labor, that product will cost $35 more to make in a country where wages, benefits (including healthcare costs) and payroll taxes total $40/hour than in a country where labor-related costs total $5/hour. Furthermore, direct manufacturing labor costs are only part of the story. Because the cost of living and the labor costs of all workers tend to be lower in low-wage countries, many of the other costs—administration, business services, supplies, etc.—that companies in those countries incur may also be lower, allowing companies to reduce yet further the prices they charge for their wares while still earning a profit. Quality Price is not the only justification for global sourcing. Quality may be another. In a globalized world, the only way to ensure that the products you offer your customers are of the highest © 2008 Inovis, Inc. All rights reserved. 5
  • 6. WHITE PAPER: GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain possible quality is to seek out the highest quality producers in the world—not just in your local market. For example, a retailer that uses quality, not price, as its primary market differentiator will buy from high-end suppliers even if they operate in high-wage countries and charge more than vendors in other regions. Depth and Breadth of Choice No one company, country or continent has a monopoly on creativity and innovation. Therefore, to offer their customers products that are the most ingenious, innovative and valuable, not to mention the least expensive of their class, retailers must source goods globally. Likewise, companies that want to use parts, subcomponents and other business inputs that will afford them the greatest possible competitive advantage must expand their supply horizons as well. Supply Diversification It is an unfortunate fact of life that disasters large and small happen. Earthquakes shake and hurricanes blow. And lesser, but equally disruptive crises, such as strikes and civil disobedience, might also stop the flow of goods from a particular supplier. By plugging into a global business community you can geographically diversify your supply sources. Then, when one supplier is shut down due to a local disaster you still have other viable options that will allow you to keep your operations running. There are also times when economics, rather than disruptions, make it preferable to find suppliers located in a different part of the world than your current sources of goods. For example, with the dramatic increase in the price of oil, transportation costs are now a much bigger factor in supply chain economics. Whereas, in the days of lower cost oil, it might have made sense to source supplies in a low-wage country on the other side of the globe, it might now be more financially prudent to find a supplier in a somewhat higher-wage country closer to home. It should be noted that receiving this potential benefit requires overcoming yet another hurdle. Using diversification as a way to avoid supply chain disruptions implies that you are able to swap suppliers at will. To do that, you need processes and technologies that will allow you to bring companies into your business community and certify their systems rapidly and with minimal administrative overhead, but that is the topic of the next section. Requirements The benefits of globalization might outweigh the costs, but as suggested in the Challenges section of this paper, effective global business community management doesn’t just happen. New Processes and Approaches As noted in the introduction, this is not your parent’s business community. Successfully addressing global business Figure 6: Global business communities require global integration. © 2008 Inovis, Inc. All rights reserved. 6
  • 7. WHITE PAPER: GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain circumstances and concerns requires new processes and approaches. Consider the evolution to-date of business community operations: In the first phase, business-to-business interactions were mostly of the human-to- human variety and typically paper-based. Even when email allowed companies to eliminate the physical movement of paper, transactions were still initiated manually. The use of email changed the communication medium, but it introduced few changes to the structure of the order-to-payment processes. In the second phase, companies began doing business electronically, removing the manual element from many processes. Electronic transactions, primarily facilitated through EDI, became the chief method for the buying and selling of goods and services. This is where most companies are today. In the next phase, which many companies are moving into and a few are already in, businesses no longer simply manage the transactions between them and individual business community partners. Instead, they and their partners jointly manage shared business processes across the entire order-to-payment lifecycle, a lifecycle that may touch a variety of business partners. This new paradigm, coupled with the complexity of global supply chains, demands approaches and technologies that provide far greater visibility into the data and processes of all business partners. Because of the longer supply chains, there are more opportunities for costly delays to affect shipments. As a result, you need to be able to monitor and manage all aspects of supply chain operations scrupulously—regardless of whether those processes are under your control or under the control of one of your business partners—in order to spot and deal with issues the instant they arise. You also need systems and process that allow much greater flexibility of action than you ever had before. For example, if the there is a strike or backlog at the intended port of arrival for your shipment, you need to learn about the problem immediately and have the ability to demand that the shipment be rerouted to another port. Or if any unexpected holdup occurs at the supplier or en route you have to be made aware of that situation instantly or, better yet, have the potential problem forecast in advance when possible. The systems you use should then offer the flexibility to switch suppliers or switch to a more expensive, but faster transportation mode if the cost that the delay will impose justifies the switch. By automating many of the required processes, these systems also help to overcome one of the challenges of today’s global supply chains—high employee turnover. After transforming formerly manual processes into system-facilitated or fully automated processes, knowledge and skills will no longer walk out the door along with employees. Instead, the systems will ensure that even new employees follow business community best practices. © 2008 Inovis, Inc. All rights reserved. 7
  • 8. WHITE PAPER: GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain Open Technology Platform Because global business communities encompass considerable technological and procedural diversity, the effective monitoring and management of their operations requires an open community management platform. Companies using the whole host of available document formats, data interchange protocols and communications technologies must be able to plug into the platform quickly, easily and seamlessly. Once its systems gain access to the platform, each business partner should, subject to proper authorizations, be able to electronically exchange the entire range of documents required throughout the entire order-to-payment cycle. And the platform should, again subject to proper authorizations, also provide each participant with complete visibility into all supply chain activity relevant to the viewer, regardless of whether the activity was performed by the viewer’s employer or by a business partner. Exception Management If you try to focus on everything you will end up focusing on nothing. Most supply chain activity happens according to plan and requires no extraordinary intervention. It’s only in that small percentage of cases where things go wrong that immediate attention is required to rectify a problem before it becomes a crisis or calamity. Reports that detail all activity, normal and abnormal, will make it difficult for you to easily spot any problems that arise Figure 7: Manage what needs to as the mass of satisfactory activity will obscure the be made right, not what's already right. exceptions. Instead, your business community management systems need to provide exception reporting and automated alerts that will highlight incidents that demand your immediate attention. Global Managed Services Team Accommodating the diversity of business partners and their protocols, procedures and technologies, while ensuring 24x7 problem- free availability of a global information exchange platform, requires a wide variety of skills and technologies—skills and technologies that are likely not part of your business’ core competence. A better approach is to use a third-party global managed services team whose core competence—and, in fact, its very business—is managing business community platforms. An outsourced global managed services team Figure 8: Effective global business community probably already works with many of your management requires more skills and experience than exists in most companies. business partners. And, even if it does not have existing relationships with some of your partners, because the firm works with so many different companies, it likely does have extensive experience with the technologies © 2008 Inovis, Inc. All rights reserved. 8
  • 9. WHITE PAPER: GLOBAL BUSINESS COMMUNITY MANAGEMENT This Isn’t Your Parents’ Supply Chain and protocols they use. The firm can, therefore, bring your partners onto the business community management platform quickly and easily. In addition, because business community management is its business and it does it for so many companies, a managed services firm can bring to the table the scale, cost structure and domain expertise needed to manage your day-to-day trading partner operations cost- effectively. About Inovis Inovis is a leading provider of supply chain communication solutions that help businesses improve the flow of information across their trading communities—regardless of whether those communities are primarily local or they span the globe. Our industry-leading, integrated solutions standardize, synchronize and streamline communication to increase the percentage of perfect orders and expedite the order-to-payment lifecycle. With more than 20 years of expertise, Inovis delivers its products and services to more than 20,000 companies over a wide range of industries and markets across the globe. Inovis was recently named a "Company on the Move" by Consumer Goods Technology, and was included in Supply & Demand Chain Executive's "2006 Supply & Demand Chain Executive 100," Inbound Logistics Magazine's "Top 100 Logistics IT Providers" and Apparel Magazine’s annual “Software Scorecard.” In 2006, IDC ranked Inovis #15 on its list of top Supplier Relationship Management Application Vendor table and #3 in the Worldwide Supplier Collaboration Application market. In addition, Inovis successfully completed the Statement on Auditing Standards (SAS) No. 70, Service Organizations, Type II compliance audit. Independent, third-party auditors awarded the company with an unqualified opinion, meaning there were no material instances of noncompliance. With a proven track record for enabling retail supply chain automation, Inovis ensures fast, reliable product data synchronization setup and support to reduce time to market and drive increased sales immediately. Inovis Global Headquarters 11720 AmberPark Drive Alpharetta, GA 30004 USA Main +1 404.467.3000 Toll-free +1 877.446.6847 Fax +1 404.467.3730 Email: info@inovis.com Website: www.inovis.com © 2008 Inovis, Inc. All rights reserved. 9