## The Supply Chain Paradox

### David Cope

555 Twin Dolphin Drive, Ste 600
Redwood Shores, CA 94065
650-596-1300
650-596-1210 fax

dcope@crossroute.com
www.crossroute.com

The Supply Chain Paradox

Despite the linear rigidity that "supply chain" connotes, today's supply chain dynamics are more fluid than ever. Instead of a strict hierarchy of independent organizations, manufacturing supply chains are evolving into networks of trading partners that are sharing information, risks and rewards.

Mixing Autonomy and Interdependence

Demand network integration exemplifies two key principles that are driving the nature of supply chain relationships. Those two key principles are "autonomy" and "interdependence," and those companies that master them can take a giant step toward operating more efficiently, and with greater responsiveness.

Symantically, it's easy to see how autonomy and interdependence can create a supply chain paradox. But what are the business implications of combining these two conceptual opposites in your business relationships?

Fast-Paced High Tech

Let's look at the business of high tech manufacturing, many companies have chosen to outsource some or all of their IC manufacturing. This is due to the industry's inherent challenge of producing many variations of products with short lifecycles.

At one end of the spectrum, "fabless" semiconductor companies do not own any production facilities and outsource all their production to foundries. They have avoided a multi billion dollar facility investment with this business model, but have taken on the task of operating closely with another company that performs critical, complex portion of their product delivery chain. In fact, fabless companies usually need to work fluidly with multiple foundries to ensure supply.

So, while there are many companies involved in the design of hundreds of kinds of specialized chips such as application specific integrated circuits (ASICs) and programmable logic devices (PLDs), there are only about a dozen fabrication facilities in the world that actually manufacture the core silicon wafers. By definition, companies like Adaptec, Altera and Xylinx are extremely interdependent on their manufacturing partners because fabrication facilities like TSMC, Seiko and Cypress Semiconductor provide core capabilities. On the flipside, running a successful fabrication facility requires maximum capacity utilization, so chip fabrication companies are equally interdependent on their customers.

But since the high tech industry moves at lightning speed, chip design companies need to maintain a high degree of flexibility in their relationships with business partners. Cycle times that are slowed by fabrication facility partners' resource constraints, or any of a thousand other variables, can result in lost opportunities, lost business and lost marketshare.

Autonomy -- the ability to shift quantities between business partners quickly and easily--is therefore just as strong a force as interdependence.

Technology As Catalyst

When it comes down to achieving autonomy and interdependence in the supply chain, technology plays a strong role as a catalyst--either speeding up or slowing down the ability to connect with, and change, business partners.

The reality is, more often than not, current technology infrastructure hinders the ability to gain autonomy and interdependence through the supply chain. For example:

- How easy is it to add a partner to the supply chain?
- How easy is it to change and/or add a new way to work with a partner?
- How easy is it for the supply chain to react to any member's change in IT infrastructure?

Let's examine some of the shortcomings found in existing core supply chain technologies, as well as emerging solutions.

Hitting The Wall

The road to autonomy and interdependence has included many important technology developments. But we're not quite there yet. For example:

- Electronic data interchange (EDI) provides a standardized way for partners to communicate, and facilitates autonomy because it's relatively easy to send messages between any two partners with EDI connections. But EDI is very limited in scope; this technology is being pushed into obsolescence as trading partners look for ways to exchange information and knowledge, not just very basic data.

- Enterprise resource planning (ERP) systems have dramatically changed the way manufacturing companies operate internally, but are today only beginning to address the need for trading partners to communicate on a system-to-system basis--including different vendors' ERP systems, and legacy applications. Today most ERP systems offer communication capability through EDI or application programming interfaces (APIs), both of which allow for only the most basic of cross-system data transfer. Neither autonomy nor interdependence is being achieved.

- Supply chain point solutions comprise a broad range of optimization and synchronization software programs which facilitate interdependence because they tightly link suppliers with customers. However, most supply chain solutions have a rigid architecture that requires significant development effort, which does not facilitate autonomy. Conversely, the majority of supply chain solutions dictate a "master-slave" dynamic in the buyer-supplier relationship, which is not conducive to trading on a many-to-many, networked basis.

Clearly, while all of these technologies address parts of the autonomy/ interdependence paradox, they don't handle both sides of the equation. And they don't make it easy to add partners to your supply change, change or add to the way you work with a partner, or react to changes in a trading partner's IT infrastructure.

Emerging Cross-Enterprise Solutions

There's a new software category emerging that addresses the issues of autonomy and interdependence in today's supply chain, enabling trading partners to establish cross-enterprise communications. By leveraging the power of object oriented software technology, cross-enterprise applications are allowing companies to quickly establish intelligent links between themselves and trading partners.

Note the operatives here: "quickly establish" and "intelligent links." Object orientation takes the concept of APIs a giant step further, using low-level APIs to establish system-to-system connections that then allow information-rich software objects to be exchanged, instead of static data. Software objects can trigger processes and initiate events, automating business processes unlike EDI, extensions to ERP systems or supply chain point solutions.

Finally, there's a way to achieve autonomy and interdependence in today's dynamic supply chain environment. And that's no paradox--it's a simple fact!

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