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How Does Your Company Measure Supply Chain Complexity?

Today’s supply chains are very complex with suppliers having to service customers in different industries, across many different countries around the world, with many different B2B standards and support many different business processes within a customer’s supply chain.

Globalization of the manufacturing industry has only served to increase supply chain complexity still further with a need to work across different time zones, support different languages and work across different cultures. Have you ever sat down for ten minutes and tried to map out on a piece of paper how many different standards and processes your customers are asking you to support and more importantly how and who manages this complexity within your company?  On the surface things may appear straightforward, but underneath, process and technology complexity can increase significantly, very quickly.

Supply chain complexity can be measured in many different ways and in some ways I am surprised that there does not seem to be a standard way to measure supply chain complexity.  If there was a way to measure this and you had visibility of everything that was happening across your supply chain then surely you could take steps to simplify business processes, consolidate technologies and introduce improved efficiencies right across your downstream supply chain?

One of the key mandates of any company is to improve customer satisfaction levels, now does ‘improve customer satisfaction’ mean that you have to support new B2B standards and supply chain processes outlined by a supplier’s customer?, in short yes. Suppliers typically work with many customers and each of these customers has a unique set of business processes and rules that the supplier must adhere to. Now I have spent four years at GXS working across the automotive, high tech and general manufacturing industries and I guess if I am being biased here I would say that companies working across these value chains have to utilize some of the most diverse set of standards and business processes of any industry sector.

Let me try and explain this through a simple example, OK it may start simple but as you will see things get complex very quickly.  A supplier in the high tech industry based in Europe manufactures in-car infotainment systems for OEM1 and OEM2.  OEM1 is a car manufacturer based in Tokyo, Japan and OEM2 is based in Detroit, North America.  So this looks at first glance to be fairly straight forward, one supplier supplying two customers, but the demands of these customers is very different.  What I have tried to do in the diagram below is to map out the complexity of the supplier’s sell side value chain, but for the purposes of keeping things simple for this blog entry I have only focused on three degrees of complexity, regional, technology/standard and industry/process.

OEM 1 has recently replaced their inhouse ERP system with a system from SAP. They have asked all their suppliers to exchange business documents using either the HULFT file transfer standard, (this is unique to Japan) or HTTPS.  OEM1 is connected to the Japanese Network Exchange (JNX), a private network for automotive companies based in Japan. OEM1 is a high volume car manufacturer and they  use Just-In-Time (JIT) production techniques which means that supplies must be delivered to their plants within a specified time slot and they require ASNs to be sent through to notify them that goods are enroute to the plant. The OEM needs to send and receive documents in both EDIFACT and XML.

OEM2 has slightly more complicated requirements due to the fact that they have manufacturing plants in North America, Mexico and Europe. They have just standardized their global ERP platform on Oracle and they have recently implemented Oracle’s Transport Management System. As OEM2 has additional plants in both Mexico and Europe, there is complexity around supporting invoices and tax compliance in these regions. This company uses the Evaluated Receipt Settlement (ERS) process with their North American operations in order to speed up payments to suppliers. OEM2 is a high end premium car manufacturer and most of their vehicles tend to be built to order. This means that different vehicles need to be assembled on the same production line. They use Supply In Line Sequence (SILS) production techniques to supply components at the right time to the production line depending on which type of vehicle is coming down the line. All major parts or sub-systems are tagged with an RFID tag so that they can keep track of parts movements within their plants.

All goods entering North America must now meet the new 10+2 customs compliance standard.  OEM2’s  plants in North America are connected to the American Network Exchange (ANX) and in Europe their plants are connected to the European Network Exchange (ENX).  In North America they would prefer payments to be made through the SWIFT banking network and they are thinking of adopting the EBICS standard for bank payments in Europe. OEM2 has been using OFTP communications in Europe and AS2 in North America but they would like to consolidate on to the new OFTP2 internet standard across all their plants in the near future. Finally, EDI documents should be supplied in both ANSI and EDIFACT standards as required.

Now if I was a supplier to both of these companies I would be thinking, “where do I start?”.  So many different regional, technology, process standards to adhere to and it could take a significant amount of time to establish the connections to these OEMs, let alone make sure they receive their EDI documents in the right format, at the right time and at the right location. Supply chain complexity, don’t you just love it !, So how can a supplier meet all these requirements and yet still maintain continuity of their own business and work with many other customers?  Well that will be a topic for another blog entry.

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Mark Morley

As Director, Strategic Product Marketing for Business Network, Mark leads the product marketing efforts for B2B Managed Services, drives industry and regional alignment with overall Business Network product strategy and looks at how new disruptive technologies will impact future supply chains. Mark also has over 23 years industry experience across the discrete manufacturing sector.

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