Altogether now ibm collaboration

IBM Global Services

All together now: Supply chain
collaboration in the electronics
value chain
Intense competition, rapidly declining prices, unpredictable customer demand,
and constrained material supplies are facts of life in the global electronics supply
Success through synchronization chain. The pursuit of higher prices and margins leads to a continuous stream of
in fast-changing markets new products, each able to command a premium price for a short period of time
before becoming commoditized. This challenging cycle is faced every day by IBM
as well as hundreds of other companies operating in virtually every segment of the
electronics industry.

At a strategic level, the electronics industry has also evolved dramatically since the
early 1980s. Vertically integrated companies have restructured themselves, focus-
ing on core competencies, slashing costs and building networks of suppliers and
partners that are also specialized and cost competitive. Cutting-edge products
now come together not solely from individual companies but from networks of
companies, each contributing a specialized, high-value aspect of the total solution.
In this complex manufacturing environment, with the challenging product introduc-
tion cycles of the industry, collaboration across the supply chain has become a
crucial element in the creation of business value.

Supply chain collaboration in the electronics value chain

Fabless design and
Service provider System design house
IP house

Raw material
Distributor Reseller
supplier

Capital equipment Semiconductor Component
System OEM End user
manufacturer manufacturer manufacturer

Indirect supplier Distributor

Foundry Assembly and test Contract manufacturer

1985
2002

Figure 1. Increasing complexity in the industry is driving the need for collaboration.
Source: IBM Business Consulting Services.

For an electronics manufacturer, the operational challenges companies must also keep capacity utilization high to
of running a successful business are enormous. Rapid spread fixed development and manufacturing costs across
and continual declines in selling prices for products make a high volume of product. Further, more electronics prod-
inventory ownership extraordinarily costly. At the same time, ucts today no longer enjoy a period of stable demand
continually improving products requires the introduction of between introduction and end-of-life, as promotions and
new components, many of which face ramp-up complexi- market conditions can lead to dramatic short-run changes
ties and low yields in the early phases, which any rational in end-customer demand.
supply chain planner would like to buffer with additional
inventories. Already facing a difficult situation, electronics

2


The combination of strategic industry change — specializa- Based on a detailed study of collaboration in the network-
tion and the creation of extended enterprise networks — ing, computer, consumer electronics and instruments
with the operational challenges of keeping inventories low industries, Professor Naren Agrawal of the Leavey School
but not disrupting the continuous cycle of new product of Business, Santa Clara University, found that the level
introductions — has given new importance to an old prob- of collaboration with external supply chain partners was
lem: how to work effectively with your business partners. extremely low for most supply chain processes. Further,
Waves of change have already washed across these rela- the penetration of collaboration software solutions is low.
tionships as electronics companies have restructured their For most supply chain processes, most external partners
procurement organizations around commodity councils to have no direct access to the hub firms’ IT systems: fewer
wring cost savings out of suppliers and experimented with than a third of the companies in his study allowed their
bypassing their distribution partners and going directly to partners direct access to their systems. Most importantly,
the customer. Now, the focus has to shift again, to smooth- he found that although higher levels of collaboration have
ing and accelerating the operational and planning not translated into higher profit margins or uniformly supe-
collaboration among enterprises. rior supply chain performance, they have led to shorter
1
product development times.
After a decade of strategic reorganization, procurement
transformation and supply chain management investment,
extended enterprise collaboration (EEC) with customers
and suppliers may appear to be the “20” in an “80/20”
solution: nice but not necessary.

3


Value chain management: A clear business case

Typical electronics companies spend between 65 and 85 Extended enterprise collaboration defined:
percent of their revenues on procured materials — activi- the act of connecting customers and sup-
ties that depend on partners outside the traditional “four
pliers across an entire value chain, with
walls” perspective.2 Despite this, industry analyst firm
AMR Research found that “although an impressive 96
the objective of working with multiple,
percent of companies have collaborative relationships
independent enterprises to serve the end
with customers, only 67 percent of transacted customer customer in the value chain with the con-
demand is supported by electronic means, 33 percent by sistency of a single integrated enterprise
information-sharing, and a scant 10 percent by joint plan- and the speed and efficiency of a nimble,
ning and forecasting.”3 This represents a big gap between independent specialist.
the business model and the supply chain reality.

Success in synchronized value chains can deliver faster
Yet several early adopters have proven that effective col-
time to market, higher margins, greater capital productivity
laboration with business partners can create value: a large
and significantly lower costs. The strategic rationale and
telecom original equipment manufacturer (OEM) used
business case for extended enterprise collaboration is as
a common infrastructure to collaborate on forecast and
strong as the case was a decade ago for procurement
orders with vendors and increased its order fill-rate by five
transformation or supply chain planning.
points.4 A consumer electronics company deployed a fore-
cast collaboration process and reduced planning cycles
For more and more electronics companies, managing
from four weeks to one.5 Our experience has shown that
extended relations with a wide network of business part-
the business case for investment in extended enterprise
ners is at the core of their businesses. As an electronics
collaboration in electronics companies often provides
executive told us five years ago, “We are in the business of
positive returns.
managing our customers and suppliers efficiently using
superior information.”6

4


Investment in extended enterprise collaboration represents Results varied significantly depending on the business
one of the key opportunities for companies to level the environment for the enterprise being modeled. Inventory
playing field with industry leaders. The competitive battle- reductions typically represented the most reliable element
ground is shifting from purely internal optimization to value of benefits in the business models, showing reductions of
chains that function well together. Recent work done by 5 percent to 30 percent. In the case where supplier col-
the Financial & Accounting Research Group at the IBM laboration included a vendor-managed inventory process,
Thomas J. Watson Research Center shows that electronics a large portion of those savings benefited suppliers. For
companies can base return on investment (ROI) expecta- businesses with capacity constraints, such as semicon-
tions around the following major areas: ductors, improved capital productivity was the second
major source of benefit, with effective capacity rising by
• Inventory reduction — Keep supply chains operating an estimated 1 percent to 7 percent.7 However, added
smoothly without buffering unreliable component supplies. capacity will do little to help some business models until
the economy improves again.
• Capital and staff productivity — Reduce the cost of plan-
ning and managing the supply chain by shifting staff
IBM experience, as well as customer experience in solution
work from data entry and routine operations to problem
implementation and business transformation, has shown
solving. Increase uptime in capital-intensive operations
that payback from investments in extended enterprise
with more-reliable raw materials supply.
collaboration solutions often occurs between nine and
• Sales and margin uplift — Get new products to market twenty-four months from initial investment.
sooner and operate at higher capacities with reliable
supplies. Replan operations based on information about
supply and demand shifts instead of reacting to inventory
pile-ups, redirecting work toward profitable products and
available supplies.

5


Easier said than done

Designing a collaborative supply chain is far simpler in the Putting extended enterprise collaboration on track and
lab than it is in reality. Process change involves multiple keeping it there means staying focused on different and
organizations that both compete and collaborate, as well critical sets of activities:
as multiple technology standards and business processes.
Internal politics may seem to be a relaxing pastime after • Governance and metrics
getting half a dozen major electronics companies to agree
• Process and roadmap design
on a collaborative business process. And these challenges
are going to grow as enterprises find themselves on the • Internal process change

sending and receiving ends of numerous collaboration • External process change
requests, each of which may run on a different schedule
• Collaborative infrastructure.
and use different formats or technical standards.

Gaining the agreement of all collaborators When these different activities work together effectively,

— including some that are competitors as extended enterprise value chains work together hon-
estly and efficiently. Success means getting on a path of
well — can be difficult.
continually improving trust, speed and efficiency, where
customers provide accurate forecasts and planners use
that information along with reliable supply data to gener-
ate feasible and accurate plans. On the downside, poor
forecasts and infeasible plans lead to a destructive cycle of
manipulation and dishonesty in the network (see Figure 2).

6


Infeasible
production plan
Manipulated
customer forecast Inaccurate
supply commit

Accurate Accurate
production plan supply commit

Accurate Improved
Customer forecast customer forecast supply stability

Reliable
customer fulfillment
Reduced
supply stability

Unreliable
customer fulfillment

Figure 2. Productive and destructive cycles of customer forecasts.
Source: IBM Business Consulting Services.

7


Governance and metrics single initiative all possible opportunities to collaborate
Successful extended enterprise collaboration starts with a with business partners. To create a governance perspec-
strong governance and measurement model. Enterprises tive, enterprises must identify their most immediate pain
must set priorities and understand both their own capa- point, determine whether it is customer or supplier facing,
bilities and those of their business partners. The setting and whether it is around tactical activities or more stra-
of priorities supporting a staged implementation is most tegic forecasting activities. Starting with a well-focused
essential, as success in collaborative environments is project does not preclude the deployment of a solution
incremental — starting with one or two business processes, architecture for collaboration that can be reused for future,
building trust, and expanding both the base of partners additional collaboration initiatives; to the contrary, it is the
and the number of collaborative activities. At a consumer opportunity to validate the architecture in the context of a
electronics company, the forecasting collaborative process project with well-controlled scope. This approach proved
was first tested with one individual business partner before helpful for a telecommunication OEM. After a success-
being rolled out to a larger group representing over 70 per- ful collaboration project with logistics providers, the firm
8
cent of sales. decided to use the same infrastructure to enable order col-
laboration and visibility with contract manufacturers.
Different types of collaboration yield different results and
operate in different time frames. In our view, collaboration In addition to prioritizing processes, enterprises should
may be divided into two basic areas: customer facing also prioritize their partner relationships. This means focus-
and supplier facing. On the customer-facing side, an OEM ing initial collaborative activity with business partners that
will collaborate with a customer by sharing forecasts and are deemed to have the best combination of overall supply
supply commitments or by reserving capacity for a specific chain impact and technical and process readiness for col-
anticipated demand. On the supplier-facing side, buyers laboration. For example, a large computer OEM company
are most often concerned about two different operational decided to start its vendor collaboration project with only
time frames: the strategic sharing of sales forecasts and seven anchored suppliers9 (considered to be leaders in
the tactical management of inventory levels and invoicing. their segments) on the basis that they would be technically
In the electronics industry at the operational level, “stra- ready and process capable, but also because they would
tegic” often means anywhere from 2 to 20 weeks in the set up a dynamic in the industry that the company felt
future, whereas “tactical” is measured in days and hours. would result in other vendors wanting to join the collabora-
tion program.
Our experience shows that collaboration projects are most
successful when they are in line with a clearly defined
business objective without trying to incorporate into a

8


Although the end goal of any collaborative investment may Measuring the success of a collaboration initiative can be
be near realtime system-to-system integration with busi- difficult. Often, internally-focused metrics cannot capture
ness partners, that reality is some way off. The engine of the the progress made by both business partners through col-
electronics industry is a vast network of suppliers across laboration. For example, although improving inventory turn
the globe, particularly in Asia, with an enormous range of is a valid objective for a collaboration project, one needs to
size as well as technical and process sophistication. Critical make sure that inventory-turn increases are measured for
components are often supplied and integrated by family- the entire value chain (at both the supplier and customer).
owned firms, some of which have only recently gained Based on our experience, the main issues with measuring
access to dial-up Internet service. For example, for a large the progress of collaboration are: first, the agreement on
Asian electronics company, IBM found that although 100 metrics that track progress for all parties; second, the col-
percent of its suppliers have Internet connectivity, only 50 lection of data over a large group of business partners; and
percent use materials resource planning (MRP), 22 percent third, the management of data often considered confidential.
have an advanced planning and scheduling (APS) system,
and 0 percent use Extensible Markup Language (XML).

Putting together a migration plan of increasing capability
and understanding where business partners are headed
is one of the first activities in a collaborative process. This
plan lays the groundwork for a process of continuous
improvement — establishing acceptable minimums and
communicating future directions to business partners.
Signaling commitment to emerging industry standards,
such as RosettaNet, in roadmaps given to business
partners can increase participation rates in collaboration
initiatives. Business partners will have a greater expecta-
tion that their investments will be reusable with their other
customers or suppliers. For example, for the large Asian
electronics company mentioned above, the collaboration
migration plan first called for a simple spreadsheet-
based solution. After a validation period of a few months,
this simple solution was replaced by a Web-based tool.
Eventually, some of the most capable suppliers will migrate
to a server-to-server type of collaboration architecture,
while others will keep the Web-based solution.

9


Process and roadmap design Understanding in detail the process implications of collab-
Although it is possible for powerful buyers to push their oration is one of the key steps of developing the front-end
suppliers toward a particular business process and stan- agreement. At a large electronics company, IBM observed
dard of communication, the results are much more likely to the creation of an iterative test process based on exchang-
lead to a negative cycle of dishonesty and manipulation. ing spreadsheets through e-mail on a weekly basis. As the
business partners began exchanging their data, they were
Our experience leads us to recommend a more consen- surprised to find that they both defined their planning cycle
sual approach based on the development of front-end times differently — for one company, a month was always
agreements — the short, typically nonbinding documents four weeks, whereas one of their suppliers considered the
that outline roles, responsibilities and timing of activities planning horizon to be the current month and the next
between the participants. Though there is often a desire to month, a window that ranged from five weekly buckets to
make these agreements contractually binding, complete as many as nine weekly buckets. They also found that the
with penalties for nonperformance, this may not always be days of the week where they conducted planning activi-
a trust-building path. Powerful buyers can force agreement ties needed to be synchronized. A lot of effort had to be
with their suppliers. However, the process of contractual invested in rationalizing the planning cycles and agreeing
review even within the buying organization can slow the on common definitions.
implementation of collaborative processes significantly.
At a consumer electronics company, the story was similar.
More important than legal status of front-end agreements A collaboration project almost came to a halt when it was
are the responsibilities that they outline, as well as the met- realized that some customers were starting their planning
rics that are to be used for measuring success. Detailed cycles on Monday while others were doing it on Tuesday.
agreements often spell out response times and acceptable With different starting points, it was very difficult to aggre-
error rates between the parties. Preparation for front-end gate all forecasts and plan all orders in a single weekly
agreement includes both an internal process-design activity cycle. This company had to review the design of its collabo-
and an external process-review activity. Business partners ration process and solution to accommodate more flexibility.
are selected not only for their technology infrastructure, but
also their planning and operational processes.

10


Internal business transformation Managers reviewing the initial weekly schedule saw signifi-
The most common reason why extended enterprise col- cant time devoted to management of the vendor-managed
laboration activities fail to meet expectations is an inability inventory (VMI) system. On closer inspection, it seemed
to make use of the information exchanged. For example, that what was actually in place was “vendor-owned inven-
getting frequent updates of suppliers’ available capaci- tory.” The buyers were planning the daily deliveries for the
ties will be of little value to an OEM if it cannot replan to vendors into the warehouse, providing the “management”
take advantage of spare supplier capacity. Although it may that was supposed to be vendor-provided. Because the
be tempting to ask for more information than absolutely collaboration solution included realtime visibility into VMI
necessary, over time, business partners come to realize levels and forecasts, the vendors could easily manage their
that although they are taking time to provide the data, it is own inventory levels at the hub, eliminating unnecessary
not being used. Ultimately, this erodes the credibility of the planning time.
whole process.
For the electronics industry, process change is an oppor-
Alignment of internal process capability with the process tunity to leverage emerging industry standards such as
requirement resulting from the collaboration initiative is RosettaNet and, by doing so, converge on process defini-
paramount. In some cases, the need to improve inter- tions with which business partners can easily integrate. The
nal process capability may not be apparent initially. For benefit of process standardization is twofold. First, it will
example, at a communication OEM, the business conse- increase business partners’ acceptance of the collabora-
quences of a lack of forecast accuracy became obvious tion as the proposed process will be more likely to fit their
when this company outsourced part of its manufacturing own processes. Second, it will greatly facilitate the ongoing
process and had to collaborate with the contact manufac- maintenance of the collaboration solution because only
turing company, which, in turn, had to make purchasing one unique process instance needs to be maintained and
decisions based on that forecast. When the forecasting upgraded over time.
and procurement functions were reporting into the same
organization, process inaccuracies could be masked with
inventory. This was not possible with business partners
contractually committed to target inventory levels based
on the agreed forecast. In order to transition successfully
to an outsourced model, this company had to upgrade its
forecasting capabilities significantly.

It is not unusual to find that adding planning or col-
laboration activities results in a “time crunch,” especially
when the “hub” organization needs to collaborate with
both customers and vendors on the same weekly cycle.
Executives at one Asian electronics company treated this
as an opportunity to reengineer out unnecessary activities.

11


Collaboration infrastructure development The most critical component of the infrastructure solution
Given the global nature of the electronics industry and is the collaboration hub itself. Significant requirements are
huge variations of technical capability between enterprises, placed on the hub’s activities, including security, availability,
selecting and building infrastructure that accommodates reporting and analysis, and translation. On the security
all is no small achievement. Not only is it unusual for every side, standards must typically exceed what most enter-
partner to have advanced capabilities, it is highly unlikely prises use internally, to help assure business partners that
that, at any given time, most partners will be in agreement their confidential information will remain separate. These
about critical capabilities and direction. Consequently, a solutions should also offer high levels of uptime: it is not
degree of flexibility improves participation rates. atypical for a collaboration activity to rely on a response
from all partners within a 24-hour window to a new fore-
Internally, the large enterprises that are often driving these cast, or on the confirmation of inventory levels every 30
collaboration activities tend to have similar infrastructures: minutes. Downtime can quickly lead to infeasible plans or
Enterprise Resource Planning (ERP) systems and supply wasted planning cycles.
chain planning solutions. For these organizations, our
experience is that key aspects of infrastructure include Other key capabilities for hubs include translation—such
process modeling and middleware connectivity to leverage as from electronic data interchange (EDI) to XML or
their existing infrastructure investments. Similarly, for busi- spreadsheet template to RosettaNet format— as well as
ness partners, middleware and connectivity can enable the reporting and analysis that provides performance data
reuse of existing planning and enterprise solutions (from on all participants. Many of these capabilities and require-
flat files or a spreadsheet up to realtime ERP integration) in ments are highly standardized and therefore, frequently
the implementation of collaboration. represent a one-time investment. IBM has observed this in
the repetition of procedures to “on-board” new collabora-
tive partners into the same collaboration hub. This is also a
case where outsourced service providers can be effective
and competitive from a cost and speed standpoint.

12


IBM collaboration experience has been a key source of
Are you ready to collaborate?
insights in the area of infrastructure development. Early
• Can you relate the benefits of collaboration to your key
partners found shortcomings in system availability, and
strategic objectives?
infrastructure had to be revised to provide adequate
response times as the number of online partners grew. • Do you have an overall vision and governance model for
Another complaint voiced by partners was slow response what collaboration will bring to your organization?
times as they accessed IBM systems in North America
• Do you have a migration plan for how you want to go
from across the Pacific. To address these issues, IBM
from simple spreadsheet-driven collaboration to a com-
has conducted several important infrastructure upgrades
plex, integrated collaboration environment?
since launching collaboration activities in 1997 These have
.
resulted in significant improvement in system availability, • Do you have a process to select business partners to

which, in turn, was critical to the extension of its vendor include in a collaboration initiative?

collaboration program. In order to gain efficiency and • Do you have a process to bring on board a large number
increase availability farther, IBM is now migrating its col- of business partners after an initial pilot with a few
laboration environment to a network-delivered, outsourced selected business partners?
environment to enable the company to reach any business
• Do you have a front-end agreement in place to manage
partner around the world through the same security-rich,
your collaboration relationship?
scalable and efficient infrastructure, thus providing a con-
sistent collaboration experience. • Have you defined with your partners the metrics that you
will use to measure the success of the collaboration?

• Have you integrated your internal processes and plan-
ning capability with your collaboration process?

• Are you deploying a collaboration environment flexible
enough to support additional collaboration processes?

• Is your collaboration environment scalable enough to
accommodate a large number of business partners
across the world?

13


All together now: Synchronized supply chains

The trend toward increased supply chain complexity with a As network supply chains become the norm, traditional
greater number of critical business partners appears likely success factors in supply chain management (SCM) will
to accelerate in the coming years. The trend for companies cease to provide a competitive edge. Optimization of pro-
to focus on core skills and competencies driven by the cesses within the four walls of the enterprise is becoming
need to reduce cost will likely accelerate in the current an ever-smaller factor in enterprise success. This presents
economic downturn, resulting in a more efficient but also a new opportunity for electronics companies to reset their
more complex and interrelated electronics value chain. competitive positions by creating a solid collaboration
strategy, leveraging the strength of their partners as well as
The accumulation of empirical evidence increasingly points their own, and closing the best-in-class performance gap.
to the value and importance of supply chain collaboration
solutions. Individual enterprises have built ROI cases based
on inventory reductions, increased capital and asset pro-
ductivity, and less frequently, from logistics costs reductions.
As the evidence accumulates, the uptake of collaboration
solutions appears to be accelerating through the electron-
ics sector. It is increasingly likely that your suppliers and
customers are already collaborating with at least one of
their other partners.

14


About the authors References
1
Christophe Begue is a Principal with IBM Business Interview with Professor Naren Agrawal, Leavey School of
Consulting Services Supply Chain and Operations Business, Santa Clara University, 2002.
Solutions Practice, where he focuses on the Electronics 2
IBM Business Consulting Services analysis.
industry. Mr. Begue leads the development and deploy-
3
ment of the Electronics Value Chain Management solution Bacon, Allison, Larry Lapide and Janet Suleski. “Supply

that helps electronics companies to improve operational Chain Collaboration Today: It’s a Tactic, Not a Strategy.”

effectiveness by enabling rapid execution of business AMR Research. September 2002.

processes in today’s complex outsourced environment. 4
IBM Business Consulting Services, client project, 2001.
He has fifteen years of experience in Supply Chain 5
and Operations Management, both in consulting and
6
operational positions, in the U.S. and in Europe. Contact Kapur, Vivek and Denis Mathias. “Collaboration: Using
Christophe at beguec@us.ibm.com. eHubs to Create Value in High-tech.” IBM Business
Consulting Services, 2002.
Paul Brody is a Consultant with the Supply Chain & 7
IBM Business Consulting Services, client projects, 2002.
Operations Services sector of IBM Business Consulting
8
Services. He has seven years of experience in supply IBM Business Consulting Services, client project, 2000.

chain management, business consulting and software 9
implementations. Over the past three years, Paul has
worked extensively on inter-enterprise collaboration proj-
ects, helping companies to manage the complexity of
global, extended supply chains from both a customer and
supplier perspective. Contact Paul at pbrody@us.ibm.com.

15

© Copyright IBM Corporation 2002

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Produced in the United States of America
12-02
All Rights Reserved

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International Business Machines Corporation
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Other company, product and service names
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References in this publication to IBM products
and services do not imply that IBM intends to
make them available in all countries in which
IBM operates.

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