Better collaboration lets businesses take back the supply chain

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Viewpoint by Alastair Sorbie Chief executive, IFS

You don't need to be a leading business guru to have noticed the changes that have affected the global manufacturing sector and the international supply chain behind so many of the products we all own.

The West's traditional manufacturing base had already been in gradual decline for decades - but five to 10 years ago the rate of that decline began to quicken as manufacturing really took off in the East, particularly in China.

This new world of manufacturing is perhaps best illustrated by Apple, which no longer manufactures. Its products are famously branded as having been designed in California, but made in China.

But for all the enormity of these changes, there are signs of yet more changes to come.

And what's remarkable about these most recent changes is that they have the potential to usher in a new industrial revolution in parts of the world that had lost their manufacturing base.

Specialist skills

What we are starting to see are more organisations looking local for manufacturing and other supply-chain partners - using technology to build collaborative networks that will grow and maintain specialist skills.

Where once there were savings to be made by closing your factories in Europe and sending all that activity to China, those cost differences are noticeably smaller now than they were 10 years ago.

As those financial advantages decrease, there are more reasons to shrink your supply chain and enjoy extra control - especially where communication is concerned.

After all, everything in business has a monetary value and once the value of the cost savings fall to a point where the disrupted supply chain is simply not worth it, the tide begins to turn, albeit slowly.

Received wisdom tells us that it is impossible for very small organisations to do business with very large ones. There is too much bureaucracy. Conversely, large organisations can find working with smaller firms to be time-consuming and unprofitable.

Once unthinkable

Funny old thing, received wisdom. It's not always as wise at it might appear at first glance.

Technology helps us break these barriers and we are beginning to see a trend in very large businesses partnering with much smaller local firms - service provision and maintenance contracts being two key areas where this is happening.

It was once unthinkable that a well-respected brand would put any of its front-line, public-facing activities in the hands of a small local concern. But these days, enterprise software systems can allow a large business to extend its reach in a virtual manner and collaborate with others to produce a value chain, not just a supply chain.

These developments are being driven by mobile devices, and the apps that sit on them, which have begun to change forever the notion that you can only be 100% productive in your regular place of work.

Cutting cost and complexity

By rolling out its internal processes and policies to its subcontractors, the larger organisation gets all the benefits of having feet on the street when it needs them without compromising its standards or identity.

This allows large and small businesses to work together because technology can cut through the cost, complexity and administrative burden associated with the challenges businesses of mismatched sizes have in working together.

It may even lead to the development of new industrial clusters as partners in the value chain start to form sustainable, geo-specific ecosystems.

Firms will hope to recouple the knowledge lost to the manufacturing supply chain through many previous years of outsourcing activity.

Knowledge which was lost during the phase of outsourcing things to the East may never be recovered in full, but there are skills that manufacturers need to hang on to in the supply chains and we are increasingly seeing this happen.

Tighter control

Naturally, for this to work, project management is vital.

Production runs and project life cycles have become shorter and smaller. There needs to be a much tighter control on production and project costs, as one slip can all too easily be amplified into an expensive mistake or delay.

The ability to track project costs at any stage, and assess profitability, is another way technology is redefining the rules of the supply chain.

Manufacturers in particular are increasingly using collaboration tools, not just in terms of social media and communication but to actively collaborate with their partners in the supply chain and with their customers too.

By using it as a mechanism for garnering feedback on product design and development, or on support and logistics, it is becoming an increasingly important part of the global value chain for the successful business of the future.

<em>Alastair Sorbie is chief executive of IFS, one of the world's largest enterprise applications specialists. His firm currently provides software to companies in approximately 60 countries.</em>