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Supporting Extended Supply Chains in a Complex World

In an article by Scott R. Sykes, Principal of Supply Chain Solutions at SAP America, titled Understanding and Managing Supply Chain Risks, he writes about companies taking greater risks now days with increasingly complex and extended supply chains. Sykes describes them as follows, “Supply chains today are growing continuously more complex, interconnected, and global…” He identifies some of the issues that are the result of this trend:

  • operations become increasingly dispersed
  • longer lead times are required
  • complexity increases
  • regulatory and compliance issues increase

Extended, growing and geographically dispersed supply chains with increasing numbers of participants require a completely different way of communicating B2B /EDI(business-to-business). Traditional ways of communication involved long, complex and costly EDI implementations that often took months or years to set-up. It was hard enough when you had a handful of supply chain participants, but as supply chains become moving targets with thousands of long-term and short-term suppliers different strategies must be implemented to reduce both risk and chaos.

In most companies that I work with, the EDI department cannot keep up with the current work demand. The IT budgets are decreasing, while the need for communicating with a fast growing supply chain is increasing. Traditional EDI simply takes too long to implement, requires too many EDI staff members, and does not provide a quick enough ROI. The business demands faster responses from the EDI team to keep up with the fast growing supply chain and new “best practices” for keeping a lean production system. The pressure this puts on the EDI team makes for an unsustainable work environment and one that cannot meet the conditions demanded by the business. There needs to be a new paradigm.

The complexity that fast growing and extended supply chains involves is worth reviewing in more detail. Here are some of the issues that impact extended supply chains as detailed by Sykes:

  • fluctuations in customer demand
  • currency exchange rates
  • market pressures
  • environmental factors
  • geopolitical factors
  • weather issues
  • natural disasters
  • political instability
  • union action
  • financial factors
  • piracy (I added this)

These are all risks and complexity separate from the complexity involved with the B2B/EDI system, but I wanted to highlight all of them to give us a full picture. With the above listed issues, you don’t want the EDI/B2B system to be unavailable, unreliable or inadequate. A company needs B2B/EDI communications with all new supply chain partners to be automatic and on-demand in order to reduce or manage the issues listed above. Can you image managing all of the above factors via paper, voice, email and fax?

The complexity discussed above was in the context of your first level suppliers. Your suppliers have suppliers, and they have suppliers. This is a systemic issue, not just yours. There needs to be a macro-view of this complex issue. SAP is working on these issues at a macro-level now. Many of their recent executive interviews, investments and announcements have been related to the need to put in place an SAP centric solution for helping supply chains “interconnect” in a new paradigm. The new paradigm involves the Enterprise Services Repository and Registry, Netweaver PI, Global Data Types and managed EDI/B2B services for SAP users.

Companies need to either figure out how to ensure that the EDI/B2B quality of service required by the business exists internally or find an EDI/B2B managed services company that can provide this capability. It is rare for a company to be able to support an EDI/B2B team sufficiently to meet the business demand for their services when there is a large, fast growing and extended supply chain involved. Internal EDI/B2B departments have great difficulty achieving economies of scale on their own, so they often lack the tools, methodologies and industry expertise needed to provide a high quality service.

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