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The Economy and Outsourced Manufacturing, B2B, EDI and Complexity

It is common now days for manufacturing companies to be researching the merits of outsourcing more of their manufacturing to contract manufacturers. Part of this research is understanding how to actually exchange data, in real time, with contract manufacturers. Adding more fax machines, administrative staff and spreadsheets is not a good way to reduce costs and ensure quality and efficiency. Let’s discuss some of the challenges with contracting manufacturing to distant shores:

  • Distance
  • Time zones
  • Languages
  • Cultures
  • Holiday schedules
  • Visibility
  • Quality
  • Currency exchange rates
  • Different international B2B and EDI standards
  • Work ethic
  • Political environments
  • Security
  • Lack of business process automation
  • Lack of EDI/B2B capabilities
  • Logistics
  • Government tax and regulatory compliance

It is critical that companies that use contract manufacturing automate the exchange of data as much as possible to avoid the introduction of more human errors that are the results of data entry mistakes and language misunderstandings. There are enough challenges already without adding more complexity.

When manufacturing was down the corridor or across the parking lot, the sales team could meet directly with the operations, procurement, supply chain and logistics teams in a conference room and plan production. If the production is on the other side of the world, these discussions need to be in the form of automated machine-to-machine data exchanges (i.e. EDI/B2B messages) that precisely communicate all requirements.

In addition to accurate communications, the manufacturer must have visibility into the extended supply chain of the contract/outsourced manufacturer. Can the contractor get all the parts, at the right time, to fulfill the order? Can all the logistics be arranged to deliver the products in the right place at the right time?

With all of this complexity it is mandatory that good supply chain systems like SAP’s Supplier Network Collaboration be in place to manage it. It is also necessary to have a very good and solid EDI and B2B system in place to manage the data exchanges with your business network or trading partner community. Don’t underestimate this challenge. If a manufacturer asked their EDI Manager what it would take to support the communications with contact manufacturers they would likely answer like this:

  • I need more EDI staff
  • I need more training
  • I need more servers
  • I need more customer service
  • I need more help desk folks
  • I need more testers
  • I need more EDI mappers
  • I need to rewrite many of our integration scripts to make them more reliable
  • I need more DBAs to help with integration
  • I need more communications and security staff
  • etc

The idea of contract manufacturing is to find ways to reduce manufacturing expenses. Greatly expanding your IT and EDI staff is not helpful to this cause.

There are new paradigms of delivering B2B services that SAP is working on today. SAP’s BPO (business process outsourcing) organization also has some recommendations as do the SAP Netweaver PI team. In order to recognize the benefits of contract manufacturing and extended supply chains there needs to be a different strategy and cost model than traditional EDI implementations afforded.

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