Is External Manufacturing Dead?
Hardly, but a Network-Based Approach Is Needed to Enhance Collaboration and Ensure Quality
The pandemic experience and resulting supply chain disruptions have exposed a weakness with external manufacturing. When it comes to sectors of strategic importance – semiconductor manufacturing is often cited as a primary example – bringing manufacturing back home may be necessary to ensure capacity in the face of disruptions.
But let’s be honest, it’s not as if external manufacturing is going away. For the vast majority of products, the economic case is simply too compelling. And when it comes to adding manufacturing capacity quickly – alternatively called external manufacturing, contract manufacturing, outsourcing, offshoring, or even “tolling” in the chemicals industry – working with an external partner can give you the agility needed to continue meeting customer demand.
So, no, external manufacturing is not going way anytime soon. Experts, in fact, predict the global market should grow from US$2.0 trillion in 2018 to $2.7 trillion in 2023 with a compound annual growth rate (CAGR) of 6.6% from 2018 through
That’s a vote of confidence. But something is in fact changing with external manufacturing – namely a growing recognition that greater controls and automation are needed to support the collaboration required for success. The reality is that external manufacturing is vulnerable to the extent it depends on manual processes – phone, e-mail, and spreadsheets – to manage critical processes and support collaboration.
Facing the challenges
The challenges for external manufacturing with manual processes are as obvious as they are persistent. One challenge is faster-than-ever product lifecycles in the face of ever-growing operational complexity. How do you keep pace?
Another is ever-rising customer expectations for product availability and on-time delivery. If customers aren’t satisfied with you, they’ll go elsewhere.
And what about compliance? If your products are at all regulated, you need to produce compliance data in full. This is often difficult to do with poor visibility across complex multitier supply chain relationships.
The Network Solution
When you’re out there on your own, googling for new manufacturing partners, it’s easy to get nowhere fast. And if you have no way of evaluating a new partner, the risk is all yours.
This is why many organization are now coordinating and managing external manufacturing through business networks like SAP® Business Network.
Business networks facilitate and speed collaboration across multiple supply chain planning and execution processes and various types of trading partners. Data is shared in near real time and each step in the process of making and shipping goods and final products is visible through the network.
Several SAP customers have realized tangible advantages by joining SAP Business Network. One company, a leader in pharmaceutical manufacturing, achieved earlier visibility into batch quality and results, helping to minimize exposure to risk before products are shipped. This same company was able to minimize processing costs by automating transactions and streamlined inventory management through real-time collaboration with external manufacturing partners.
Another company, a maker of medical devices, implemented supplier-managed materials replenishment based on forecast, in-transit, and projected stock calculations. Planning and Procurement collaboration with external partners is managed through the network while transaction automation and validation help to improve productivity, speed processing times, and increase visibility.
Still another customer – one of the leading software and technology companies in the world – used SAP Business Network to improve supply chain resilience and reduce inventory levels while at the same time increasing service levels. The result has been $200 million in annual savings, a 75% reduction in supplier on-boarding time, and an 87% reduction in planning cycle times.
As the largest business network in the world, SAP Business Network supports a thriving community of buyers and sellers where the record of all participants is tracked and reviewable. If you as a buyer have a reputation for paying on time, a lot of manufacturers will want to work with you. If a partner you find shows a stellar record for delivering on time, you may want to work with them.
Once you get down to work, data is visible thanks to integration with multiple ERP systems, advanced planning systems, and other backend systems. Industry-specific processes are supported as well – such as subcontract PO based collaboration supporting multi-tier order orchestration with quality collaboration for external manufacturing.
SAP Business Network itself is supported by a large global infrastructure investment including global data centers, dedicated supplier enablement teams, and support for multiple currencies and languages. This helps you work without obstacles across a globally dispersed set of supply chain partners, improving the resiliency of collaboration.
Add-ons that work within the network
In addition, SAP is offering a range of proven and powerful solutions that work entirely within SAP Business Network. Rather than jumping from one solution to another and porting data back and forth, you remain in the network where your supply collaboration gets done.
Solutions supporting external manufacturing include:
- SAP Strategic Sourcing Suite for design collaboration and tech transfer to minimize defects and improve quality
- SAP Integrated Business Planning for Supply Chain to generate, share, and continuously update forecasts with external partners
- SAP Business Network Supply Chain Collaboration for collaboration planning, buying and delivering goods and materials, managing inventory, and helping ensure quality
- SAP Business Network Global Track and Trace for improving efficiency, optimizing inventory, and minimizing transportation spend through comprehensive logistics visibility into inbound deliveries
- SAP Business Network Material Traceability for tracking product genealogy, achieving E2E visibility, improving compliance, and helping ensure product quality
What’s in it for you?
Why move to SAP Business Network to drive supplier collaboration and streamline external manufacturing? The obvious answer is that otherwise you’ll have to build connections on your own and take on all the risk of managing these relationships with little insight into trading partners’ ability to deliver as promised.
In the end, it’s just better working through a proven business network that enables real-time process visibility, facilitates collaboration, and delivers greater supply chain resilience in times of uncertainty.
Organization working through SAP Business Network have been able to achieve the following outcomes:
- 16% to 45%
Lower supplier defect rate
- 9% to 23%
Improved revenue protection due to reduced supply chain disruption
- 9% to 25%
Improved buyer, planner, and scheduler efficiency
- 4% to 12%
Fewer days inventory outstanding (DIO)
- 1% to 3%
Reduction in transportation spend
If these numbers look good to you, maybe you’ll want to take a closer look at SAP Business Network: