Most companies can hope to reach the highest level of supply chain evolution, the networked enterprise, only if they’re a "nucleus firm" that can dictate technology and process choices of their trading partners. In The Networked Supply Chain: Applying Breakthrough BPM Technology to Meet Relentless Customer Demands, CSC authors Charles Poirier, Lynette Ferrara, Francis Hayden and Douglas Neal state that business process management (BPM) technology can be used to help even small companies become fully networked. This abridged excerpt of Chapter 4 describes how BPM can provide the process flexibility necessary to quickly link to suppliers and customers.

Technology Will Be the Solution — as Soon as It Stops Being the Problem

In moving beyond Level 2 of the supply chain evolution [For more information on the levels of supply chain evolution, see Related Information, at end of article], and starting to collaborate seriously with supply chain partners, a business is presenting itself with a number of increasingly complex and difficult challenges. Technology will clearly be a part of the solution, but so far its track record has not been very good. It has not even been good at responding to the challenges of Levels 1 and 2, the improvement of local processes and the cross-functional integration of the firm itself. Given the stalled position of most efforts, BPM technology is arriving just in time.

The business environment is becoming more and more challenging

The challenges of improving the supply chain are not self-imposed; firms are being forced to respond to a business environment that has become a lot less benevolent in the last few years. After a period of extended business prosperity, companies around the world are now facing the kind of market and economic conditions and pressures that force a greater need for performance improvement.

The major pressures come from three sources:

• Customers — who are becoming ever more demanding. Whether they are business customers or end consumers, they expect high quality products and services. They demand innovation and something that is significantly better than last year’s offering. And spurred by the typical advertising and promotion that surrounds the goods and services, they expect to get these commodities at rock bottom prices. There is also a growing awareness that they can have these products and services customized to their needs.
• Competitors — who are altering their traditional positions. Suppliers of products and services are not only serving their own customers well, they are stealing them from each other. And these customers/consumers tend to show little loyalty. They regard it as their right to be able to move between suppliers, even if what they bought has involved substantial investment and development, and is highly customized to their requirements.
• Change — and meeting new challenges. Businesses have always had to worry about market changes and making appropriate responses but today it is more like responding to a constant deluge of complications. There is more need for change than ever, occurring at a more rapid pace — and nobody expects things to get any slower. Changes in technology make more things possible and that creates new expectations, new buying habits and new demands. Just when consumer products companies and retailers had generation x figured out, along come generations y and z — groups that believe their human rights are violated if information is not instantly available to them.
  

At the same time, open borders and new forms of communication are opening markets and exposing customers to new products and services, and new suppliers. Global commerce can increase market penetration, and even small firms expect to reach customers all over the world. All of this pressure for change is creating financial demands as turnover and profit margins are threatened in the quest to maintain pace.

In summary, the pressures for change are forcing a firm to move its supply chain effort beyond any stalled position at level 2 and accelerate the progression to level 3 and higher with help from willing allies, or become the victim of more agile, networked competitors.

Businesses must respond with a new wave of process work

These challenges are unprecedented, but there are lessons to be learned from previous improvement initiatives. One of the earlier responses to these types of pressures came through Business Process Reengineering (BPR), which promised to increase effectiveness and reduce costs without requiring lots of upfront cash. What it did require was an investment in time and effort. It was cheap, low risk and if you could do it right, the rewards would be large. That same recipe would have immediate appeal in the face of today’s conditions — if the key ingredients were available.

The original recipe for Business Process Reengineering was simple: look at the processes involved in a business function from end to end and then eliminate what is unnecessary, automate what is routine and empower people to add value at the points where they really should make an impact. The recipe this time is not much different, except that the focus has shifted to the bits we couldn’t improve the last time around — the problems that were too hard to resolve and the areas that were out of reach of the process designers. In particular, we now have to confront the issues that are outside the control of the individual businesses and which require collaboration among them.

This deeper effort begins with eliminating as much of the non-value-adding processing work as possible. The first step is to break down the organizational stovepipes that partition work into separate channels, so the process can be viewed and understood as a whole. Last time it was the functional stovepipes that had to be demolished; this time, it is the company boundaries themselves that must be challenged. That is the only way a firm moves out of a stalled position and progresses into a networked environment. As businesses then begin to move into the external domain, and start collaborating to deliver greater value, they will discover the necessity to improve the processes that are shared across companies, which must be analyzed, understood and made more customer-focused.

The second step is to automate routine work. For many firms, much of the small-scale automation work is already done, as many of the local process fragments have been automated by software applications. But when the focus is switched to the larger scale processes, such as APS, SRM, CRM, CPFR and a host of e-business solutions, these applications become part of the problem. Automating bigger processes across business boundaries will involve integrating their applications — something they were never designed to facilitate. The existing fragments can only be integrated into a larger automated process if a new system is introduced, something that will guide the whole process to a better state, and drive the existing applications using explicit and flexible rules. No such system has existed before BPM.

The third step is to empower people to add value. The valuable lessons from Business Process Reengineering are often forgotten in this area. Eliminating unnecessary work and automating routine work are both ways of reducing the need for people and gaining new efficiencies, but some management teams were so focused on cost cutting that their imagination went no further. The result is that process improvement work has gained a reputation for being dis-empowering and anti-people, reducing them to the role of mere workflow slaves — if they have a role at all.

But businesses cannot be fully automated. People are crucial to the whole enterprise and their contribution must be made as valuable as possible. Process work can and should empower people.

Advanced supply chain initiatives require a strategic approach

Collaborative process design is too complex and too important to be approached in an ad-hoc way. It must be approached strategically with the commitment and sponsorship of all the participating parties. Supply chain interactions have become too complex and too dependent on digital communication to be handled in separate pieces. Business allies cannot leave it to chance that they will happen to find the best practices at each point of handoff. The puzzle has to be put together through inter-enterprise collaboration, the application of the right technologies and finding the end-to-end solutions that differentiate the network in the eyes of the intended consumer group — solutions that will often go well beyond existing “best practices.”

Process design begins with an agreement on, and alignment of, the fundamental strategies that are going to be applied to a customer or a customer segment. Value, products and services are no longer dictated by the nucleus firm but negotiated directly with the customer. Once the value proposition is defined, a fulfillment process is designed and deployed. That can be done centrally by a nucleus firm and extended later with the help of business allies, or it can be co-developed with business partners.

Then attention can be turned to improvement. Best practices are fairly well understood but it is important for businesses to focus on process management so that these practices bring the greatest return to the participants.

IT is part of the problem

Over the years, IT has carved out a niche for itself, a domain in which it works rather well. What they generally offer is something called an “application” — an island of information and logic that serves one particular purpose for one particular part of the business. There are a number of important criticisms that can be made of this approach, with the fragmentation issue being the most familiar but the issue we want to address first is that applications serve only a very limited portion of the business need.

Applications naturally serve business activities that are simple, stable and local, but the new wave of process work will demand that IT comes out of this corner and supports a much wider range of possibilities. Businesses want to manage activities that are becoming more complex, more dynamic and responsive to change, and which reach right across the business and out across the whole supply chain. They want to take an external perspective rather than look only at the pieces that happen to take place within their boundaries. They have to be more flexible in order to create more value and to serve specific customers better but they must retain visibility and control if they are not going to end up in complete chaos.

A key feature of the broader processes is that they will inevitably involve people and automated systems. In general, the larger the scale of the process, the greater the complexity and the more intimate the mix of human and computerized activities that will be involved. Casework in help desks, insurance companies and public services is a prime example. Computers can provide required information, they can handle the case data and they can check for consistency with specified rules, but the caseworker has to make the real decisions. These larger-scale, complex processes are currently supported rather poorly by IT. Employees often have to wrestle with multiple, unintegrated systems and applications that were designed for other purposes. The new wave of business process work will look for new economies and new value in precisely these areas and IT must find a way to respond by enabling such activities.

Shared processes, involving several business areas — perhaps even several businesses — concurrently, present another challenge. Perhaps the prime example is manufacturing. Business customers buy products from manufacturers who buy components from suppliers who buy parts from other suppliers who buy materials from other suppliers who start the whole thing again by buying machinery from someone else. Participants can no longer see themselves as islands bounded by “goods in” on one side and “goods out” on the other. Each participant must have a stronger sense of the whole process for a number of reasons, including matters of complexity, reach and flexibility:

• Participants need visibility of the whole supply chain.
• Participants can collaborate on process design.
• Participants can collaborate on business problems.

IT has not been good at supporting this level of collaboration. Applications are designed for internal use and they are so difficult to connect that only the crudest and simplest B2B transactions can be handled electronically. Anything more subtle or complicated requires the involvement of people at some point who can sort things out by talking to each other.

Flexible processes compound all these problems and introduce another level of difficulty for IT. Today, businesses need to be able to change their processes at will and yet still manage them effectively. An example is logistics, which once just meant the delivery of products from one place to another. Today, it can include many other optional services such as the handling of import and export documentation, the management of the customer’s inventory and the rerouting of products even while they are in transit. With volatile markets and customers, who keep changing their minds, flexibility becomes a core competence — and one that is not supported well by IT.

It is useful to distinguish three levels of process flexibility, which call for different kinds of capability in the IT department:

• Modifying processes — The most basic requirement for flexibility is that even well defined standard processes have to be modified occasionally.
• Customizing processes — A different level of flexibility is required if a business wants to take advantage of the fact that customers differ by customizing its processes to serve each one.
• Driving processes — But even the ability to customize processes is no longer sufficient. We don’t expect to customize a car every time we want to travel to a new destination — and the new business environment means that businesses have to respond instantly to new requirements and change their processes in real time. What companies really need is a steering wheel from which the business processes (and indeed the business) can be driven.

IT has been bad at supporting processes that are complex or shared or which call for any significant degree of flexibility. But this is precisely the challenge that advanced supply chain initiatives are now presenting them with.

Previous technology approaches will not do the job

The challenge facing a business and its IT group, as they approach a meaningful solution to this dilemma, is essentially one of integration. In most businesses, thousands of applications, each an island of automation, sit on disparate technology platforms linked by a tangle of ad-hoc connections. Even simple customer requirements require real-time access to several unaligned and uncoordinated systems. Somehow, these applications must be knitted together into something that will support a well-understood and well-mapped enterprise effort. But the integration generally costs too much and takes too long. The last wave of process reengineering generated a deluge of requests which IT departments were hard-pressed to meet. As organizations struggled to find solutions, senior management began to appreciate the importance of IT — if only because it was often the chief obstacle to what they wanted to accomplish.

Integration of island applications is so expensive, so time-consuming and so rigid once it’s done, that it is often easier to leave human beings to do the dirty work. They tend to resent being treated as automatons and they are very prone to errors but at least they are cheap and flexible. The great irony is that this kind of “swivel chair integration” accounts for much of the wasted, non-value-added activity that should be removed by a process improvement initiative. IT is actually introducing useless work. If we had a smarter way of integrating applications (especially across business boundaries) then a whole raft of human activities would be eliminated instantly.

BPM finally allows IT to support complex, shared, flexible processes

BPM technology solves all these technical problems by approaching them from a different angle:

• BPM systems include a comprehensive set of standard connectors for integrating modern commercial packages and a toolkit for creating connections to older systems and bespoke applications.
• They are capable of communicating with systems using a wide variety of infrastructural protocols and messaging standards. They will connect very easily to existing middleware — and thus to all the systems already plugged into it.
• They include the capability to communicate with human beings and computer systems, and to integrate their contributions in complex and sophisticated ways.
• They do not require the development of new code for each new application but integrate and coordinate other systems within the network to cope with the complexity of end-to-end processing.

BPM systems take advantage of the trend towards componentization in the construction of modern applications to make the components interact in new ways, introducing a level of flexibility that was probably never envisaged when they were built.

This approach brings new and improved levels to visibility and control — central elements of ASCM, and provides vital aids in developing the external communications that become part of the networked effort. Now the firm can answer questions like: Where is my order? Where is my claim? When will I be paid? Will the parts be delivered tomorrow? Can the key suppliers have the subassemblies ready in time to fill my large order? Is my plan in sync with what is happening in the market?

With the advent of BPM, technology becomes part of the solution and helps to propel the firm and its allies beyond level 2 into the realm of advanced supply chain management. Adoption of business process management will be the catalyst that facilitates these elements, and helps the business allies reap the benefits from the effort. It becomes clear that a nucleus firm can define the usable systems and move a network to level 4 and higher. Small to medium size firms can also participate in several networks, either as a viable node on the nucleus firm’s exterior network or as a partner with other firms of a similar size.

Conclusions: managing an advanced supply chain requires a new technology – BPM

The solution to each of the business issues we have cited comes not from applying some kind of vanilla best practice, but applying the right process for each customer and each business situation. BPM enables this kind of flexibility by avoiding the need to tweak each application and to dismantle and reassemble the enabling technology at each point of information transfer. The reduction in the lag between management intent and execution comes from responding to the business situation by means of a directly executable business model, not a self-contained and rigid off-the-shelf application. BPM represents a breakthrough in a firm’s ability to manage the work of its people, systems and organizations, while leveraging the existing IT infrastructure, especially the ERP systems, and making it possible to respond to market conditions quickly and accurately.

Contact Us and Let Our Experience Help You Produce Results.

Read about Charles Poirier’s levels of supply chain evolution and the 12 biggest supply chain mistakes.

Learn about CSC’s supply chain management practice.