The supply chain today is becoming globalized where multiple parties are involved in the manufacturing value chain from order fulfillment to delivery. Companies pursuing growth will have to strategize to deal with this emerging global trend and complexity that promises quicker lead times, increased options and expanded product portfolios.
According to insights from McKinsey, by the year 2020, 80% of the goods (compared to 20% today) will be manufactured in a country different from where they are consumed. However, the US-China trade war and protectionist stance adopted by some countries have impacted global the supply chain significantly. Multi-national companies are now diversifying and re-evaluating their sourcing and manufacturing strategies to mitigate the impact the tariffs have in their overall production and supply chain costs.
A case in point is the concern that investors of Apple are facing; given that the company is dependent on its contract manufacturer Foxconn based in China as an important manufacturing hub and as a lucrative market for its products. A bulk of Apple’s manufacturing is based in China via contract manufacturers sourced globally. Although the net value added in China is not astronomical for most Apple products, its landed costs in the US could rise if tariffs are imposed on its finished goods shipped from China; thus, eroding the tech giant’s margins and profitability. The disruption in the company’s well-oiled supply chain could be a larger issue as Apple may have to rework its logistics and suppliers’ base.
An illustration of the Apple supply chain:
Another case in point is Tesla – an electric car manufacturer, it’s supplier chain and network spans more than two dozen different parts and components and there is a need to deliver the vehicle at the right price entry point and yet sufficiently flexible to enough to produce different model-make of Tesla cars depending on changing demands.
These two cases aim to illustrate the challenging nature and complexity of supply chain in today’s landscape and with global manufacturing as the new normal, this article examines the emergence and roles of 4PL and 5PL orchestrating supply chain platforms in the global manufacturing context and how global manufacturers can exploit the functionalities of supply chain orchestration platforms to its advantage.
Supply Chain Platforms
Orchestrated supply chain platforms aim to transform traditional silo, non-collaborative nature of value chain players to fully integrated data and workflows across all regions and different organizations. Advanced technologies such as cloud computing and blockchain are used to quickly and effectively manage multiple different scenarios to provide real-time feedback to aid in decision-making, minimization of errors, smarter forecasting and higher profitability. As a result, businesses are able to meet customer expectations for timely, high-quality logistics, with zero errors and profitable operations.
Companies today can adopt 4 different strategies towards supply chain orchestration depending on the results they want to achieve as illustrated below:
• Internal strategy – Business units are more focused on internal information and data gathering, whilst information is available on request, there is generally a lack of coordinated planning and sharing of information within the organization.
• Integrated strategy – Provides for visibility within the organisation where a business unit proactively manage supply chain execution together e.g. handling order exceptions in real-time, reducing missed orders and overall expedition costs for seamless operations.
• Collaborative strategy – Managing the necessary functions and strategically leveraging and investing in the right relationships to ensure cost certainty and flexibility in delivering quality customer experience.
• Orchestratedstrategy – Focusing on the full life cycle of the customer order from beginning to end across the various functions to effectively deliver on-time and fulfil orders to customers. Ensuring all parties and systems work in concert to deliver every order on-time in the most efficient way possible.
A well-orchestrated and coordinated flexible supply chain involves having well planned optimal workflows for each and every order as well as having a system that will release orders immediately, create the necessary documentation, send notifications, and track status to keep stakeholders informed. These features coupled with the ability to calculate total landing costs of every single action will be crucial to ensure healthy margins, real-time insights and efficient cost control is necessary. With the availability of more data, predictive analytics can be employed to gain greater operational edge.
The Practical Realities of the 9PL Services
Increasingly, there is a trend amongst shippers to deploy 4th party logistics service providers. 4PL is a new concept coming into the market and it involves employing an overseer for managing the entire supply chain of a company. These are often called Lead Logistics Providers and they are treated as a consultant for many supply chains. With increased efficiency, 4PL is emerging as the next big thing in the logistics industry where they provide single invoice solutions and streamline logistic work.
Beyond 4PLs, there is also the 5th party logistics service provider, referred to as the Logistics Aggregators. These players aggregate demands of the 3PL and others into bulk volume to enable command for better rates from the transportation companies like the airlines and shipping companies. It is not asset based and usually works seamlessly across all disciplines.
The 9PL Service provider drives performance by combining the synergistic functions of both 4PL and 5PL, targeting manufacturers for supply chain orchestration services through a synchronized platform.An example of a 9PL is PSA Calista, an orchestration platform that aims to perform and act as an aggregator of demand and orchestrator of supply chain services to serve the needs of the upcoming Tuas hinterland as Singapore forges ahead in the lap of development.
PSA Calista aims to integrate logistics facilities, transportation, information, inventory planning etc and share ship arrival and container discharge information with all supply chain players for greater efficiency.
Analysis of data captured provides insights into cargo flow and offers shippers, and beneficiary cargo owners visibility they need for their sourcing, pricing and value-added services, enabling manufacturers to plan ahead, fix schedules and offering flexibility in their supply chain. Value added services relating to trade finance, compliance and import-export administration and documentation are also provided on the platform. At full-scale, PSA Calista could compliment the Tuas mega-port development and support the adjacent Tuas hinterland for true orchestrated supply chain operations.
Supply Chain Orchestration Platform – Underlying Infrastructure
The orchestration of supply chain events requires significant IT network infrastructure in order for information/data to be integrated and shared. The following illustration outlines some of the system architecture that enable applications to be built out and shared on a platform e.g. SAP cloud platform integration suite.
SAP Cloud Platform Integration Suite is a versatile, dynamic and enterprise-grade iPaaS (integration platform-as-a-service) that simplifies and accelerates enterprise integration and helps organizations to quickly transition to becoming intelligent enterprises. It is an open and modular iPaaS supporting a comprehensive set of end-to-end integration scenarios. Integration scenarios represent the customer-jobs-to-done and the modular set of integration services works together in cohesion to support these customer scenarios. The illustration below shows how digital applications can be developed utilizing SAP Cloud infrastructure:
Integration of cloud computing and business process shapes modern enterprises significantly. A service-oriented supply chain is promising to promote the creation of value-added services through different levels of service provisioning.
The diagram below shows an open platform for abuild-out of key functionality and use case in the global manufacturing context.
Using the APPLE i-phone example cited earlier, an open platform such as PSA CALISTA can actually be used to orchestrate the delivery of the parts and components to the final destinations i.e. retail stores. Manufacturers can deploy their value chain and even roll-out a (SCOR model – Plan, Source, Make, Deliver and Return) for their products via the platform.
A framework and its functionalities are summarised in the tables below.
Impact of poorly orchestrated, non-coordinated supply chain
Poor supply chain orchestration affects business profitability, increase wastage/cost and negatively impact customer service levels. Communication delays, missing information and transmission failures are disruptive and can be catastrophic to the bottom line. In addition, demurrage charges and out of window events can drive cost and lead-time up significantly. In the competitive industry, customers today have more options than ever and would gladly switch to another provider if they fail to get what they want, whether it’s faster delivery, cheaper shipping costs, or a better product. In the global manufacturing context, careful orchestration is a competitive proposition.
As global manufacturing is here to stay, enterprises can embrace this new normal and exploit the advantages that orchestration supply chain platforms can provide. Numerous case studies from Apple and Tesla have proven that there are operational efficiencies to be attained in adopting orchestration platforms. Commercially available platforms such as PSA Calista can help transform industries to achieve the three outcomes desired, namely, meeting customer’s needs and expectations; ensuring order fulfilment; and managing cost. The drive towards productivity and efficiency is a continuous one with new and emerging platform technologies and business models revolutionizing the way enterprise work and interact with each other. The future holds a promise for a more interconnected community and free trade that is positive for the world economy.
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