How The Network Effect Enables A Global Supply Chain
Back in October, about six months into lockdown, our washing machine broke down beyond repair. My wife, myself, and three(almost) adult sons, stuck at home, with no access to a washing machine. Perfect timing!
Embracing the “Direct to consumer” model, we (well, my wife) went online, researched the best model and purchased a new “smart” washing machine from a well-known brand direct from the company’s website.
About three weeks later, it was delivered and installed by a company I had never heard of. They had a contract for installing and servicing this brand in my region.
And this got me thinking, how many other companies are involved in designing, manufacturing, shipping, installing and maintaining this one washing machine, and thus representing and influencing the company’s brand.
So, with way too much time on my hands in lockdown, I did a little research.
The business economy has evolved into a networked economy
Like many companies across industries, this company had decided to focus on their core competencies and outsource the rest. In this case, they specialized in designing, marketing, and (because of the pandemic) selling top of the line “smart” products and relied on a network of partners to manufacture, distribute, install and maintain their products.
Collaborating with contract manufacturers
I found out that while my washing machine was assembled by the brand owner, most of the actual manufacturing is handled through contract manufacturers who make components for the finished products. This requires a certain level of collaboration and visibility with the equipment manufacturer (OEM). In a recent article, David Vallejo discussed the value of synchronized planning with contract manufacturers. He explained that “most companies that make high-tech devices are essentially design and brand owners who work with oversees partners to build the products they sell.”
Take for instance the making of a strategic subcomponent – like a smart display on a washing machine. The brand owner in this case might want to work with a vendor who specializes in manufacturing the touch screen. To ensure the product integrity and customer service levels required, they need the ability to:
- Share the demand plan for a given period
- Communicate changes in demand that effects that plan.
- Provide visibility into design changes that reflect what customers want
- Manage the handoff to manufacturing
- Have visibility into and even track the product during the manufacturing phase see how production is going to satisfy key orders and ensure that quality standards are met.
[ To dive deeper, register for the webinar, “Synchronized and Connected Planning as the Engine of Change for the Supply Chain” ]
Protecting your brand in a multi-tier supply chain
The Contract manufacturer collaborates with suppliers to obtain parts and packaging material. However, some key components are purchased directly by the brand owner from the touch sub-component manufacturers who then must drop ship to the contract manufacturer.
These sub-component manufacturers also need to purchase parts from companies who in turn may also purchase raw materials.
And soon you have an n-tier supply chain into which they need visibility to ensure quality, fair trade, sustainability practices to ensure that your brand does not get negatively impacted by suppliers within your network.
And in the case of a quality issue, you must have the ability to track and trace through all levels of the supply chain, all the way to the smallest part and raw material.
Managing the omni-channel sales and distribution
With this particular washing machine, there were also be several participants on the sales side. For example the washing machines need to be moved through distribution centers around the world. From where they may get shipped to distributers, retailers, or in my case, direct to the end customer, where it was installed by a service technician.
The physical movement of materials and products around the world has become complex, and rely on a network of carriers, and freight forwarders. The sheer volume of shipments has grown exponentially with the increase in “direct-to-consumer”, single piece orders during the past 12 months. This has not only changed the way we distribute goods, but who we partner with to make the delivers.
Because the Equipment Manufacturer is reliant on various partners and carriers, it makes it even more difficult to gain the real-time insight to run the business. To ensure a great customer experience, they must be in control of critical logistics processes, even if they have been outsourced. This visibility and collaboration across the network is critical to:
- Obtain the best price for transport
- Ensure that they can deliver on time
- Track the physical movement of goods in-transit,
- Ensure deliveries are on time and the quality of the goods are not hampered.
Providing that special after sales service
Lo and behold, last month I received an alert on my phone to tell me my washing machine required maintenance.
One of the IOT enabled sensors built into my “smart” washing machine had sensed that one of the key components was trending towards failure and had sent information back to our service team who can detect or even predict issues with a device.
I scheduled a maintenance call and the following week the same service technician that had installed the machine at the start of the pandemic, came back with a new part to make sure it was back to 100% once again.
He told me that now that they have visibility to a “digital twin“ of all the “smart” machines they maintain and service, they can now see:
- How they are performing.
- How are they being used and for how long.
- What maintenance strategies make the most sense.
- If they are operating in a sustainable way with regards to emissions.
- When they require maintenance.
- When it has broken down.
- What parts are required to solve the problem
- And more…
It is amazing to see the network of companies and individuals required to provide the customer service levels we as consumers now demand. From suppliers of raw materials, to manufacturers of parts, components and finished products. Through distributes, truck, ship, plane and boat operators, and of course, Joe, my service technician, it takes a network.
And that is the “network effect” that enables our family of 5 to have clean cloths in the midst of a pandemic.
To learn how you can leverage the network effect with your customers, download the IDC Connection paper on how to “Boost Customer Impact by Harnessing the Power of the Business Network.”