The Global, Make-to-Order Supply Chain: Is it Time to Examine Alternative Models?
published: cw 50, 2005 in Supply Chain ManagementWhen one thinks of a global, just-in-time, make-to-order supply chain, the first company that comes to mind is Dell. Dell’s model might be charac-terized as a Command and Control model. This, however, is not the only model for running very lean with a global supply chain. Sun has a different model - which we call the Empowered Trading Partner model - that is also worth studying.
When it comes to Logistics Service Providers (LSPs), some companies use Command and Control while others empower trading partners to make the right decisions, within a set of predetermined guidelines, and then measure the results. What is interesting is that Sun has used the latter approach not just for selected LSPs, but for managing a global supply chain of server manufacturing and shipping that runs very lean. This was an audacious undertaking. Sun Microsystems is an $11 billion public company headquartered in Santa Clara, California. The company sells it products and services for network computing both directly and through indirect channels. In recent years the company has restructured its supply chain for server products. This re-structuring included:
? Moving a growing percentage of manufacturing, currently over 90 per-cent of production, to partners in lower cost geographies;
? Rationalizing their supply base and cutting tiers out of their supply chain so that key strategic partners engage in a greater number of sup-ply chain activities; ? And, migrating from a Command and Control business model to one in which trading partners are provided visibility to forecasts and orders and are then expected to reliably fulfill orders according to fixed com-petitive lead times that range from four to thirteen days, depending upon the product, and with one day expedited delivery if customers are willing to pay a premium.
Why do we characterize Sun?s strategy as an Empowered Trading Partner model? Because they don?t plan the production or fulfillment activities. They set goals for performance, provide appropriate visibility tools, measure performance, and hold partners accountable. Sun built portals for three tiers of their supply chain that include key com-ponent suppliers, contract manufacturing partners, and LSPs. This portal shares information residing in Sun?s Oracle enterprise applications with partners through customized views that support their data needs.
Sun also built their own customized Supply Chain Event Management solution, using internal resources and Sun middleware and development tools. Sun?s SCEM supports three key events.
The first event is the order schedule date. Exception events are created whenever a partner reports that they cannot make and ship by the required date. Exceptions run at less than 1 percent for this event.
The second event is notification from their contract manufacturer one day before they are scheduled to ship. Exceptions occur when their partner has not sent the required acknowledgement or if they send a message that they will not be able to ship as scheduled. This class of exceptions occurs about six percent of the time. Contract manufacturer ASNs are routed to Sun’s LSPs.
The third event occurs when an LSP confirms delivery. Again an exception is created whenever there is a failure to confirm delivery or an acknowledge-ment that they will not be able to pickup the goods on the required day. Such exceptions are very rare at this level, less than 1 percent.
Why do we characterize Sun?s strategy as an Empowered Trading Partner model? Because, they don?t plan the production or fulfillment activities: they set goals for performance, provide appropriate visibility tools, meas-ure performance, and hold partners accountable. One benefit of this approach is reflected in the way that partners can bring additional intelli-gence to the table in this environment. An incident occurred in Singapore in early September of this year that highlights the value. Eugene McCabe, Executive Vice President for Worldwide Operations, was on a panel with this analyst at SCMLogistics World when he read an email from a second tier component supplier. The supplier had reviewed orders that Sun had issued to their contract manufacturer in China. Based on what they saw, they doubted the size of the component order that they were receiving from the contract manufacturer. They queried Eugene to see if the contract manufacturer was ordering too much. They were. This visibility, and the empowerment to operate on that visibility, ended up saving everyone money.
Other advantages of this model are lower fixed costs, the ability to run with a much leaner supply chain organization, and less total (supplier plus OEM) inventory in the supply chain.
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