Global Logistics and Supply Chain Strategies - June 2008 - (Page 32) some other mitigation, and that cost can be five to 10 times greater than the initial investment,” he says. “We just don’t see organizations focusing on those issues.” Enterprises also lose sight of aggregated costs across different departments or business units, he says. “For example, say there is a new local regulation or a new security requirement that impacts movement through customs. A company may have someone in supply chain dealing with part of that, but there may also be a global security department that is dealing with it or a separate international group. All are managing different parts of the requirement and all are adding costs, but these costs are probably not being aggregated and rolled up into the product cost.” Because these are soft costs, they are easy to overlook, Lynch says. “It is really only the capital investments that have you need isn’t in your building.” These problems are exacerbated by two other trends at play in the world, Sicard says. One is that product lifecycles are shrinking, especially in technology; the other is the loss of brand loyalty as consumers change their buying habits. “Combined with the loss of flexibility, these trends result in higher costs to maintain customer satisfaction when you outsource,” he says. “Even though you are not making a product anymore, you are still responsible for keeping the customer happy.” Response Management Having the flexibility to respond quickly even in complex, outsourced supply chains —a solution area known as response management—is the basis of the Kinaxis RapidResponse product, which is used by many contract manufacturers as well as by “It is only the capital investments that have clear visibility that get the attention of those evaluating the total cost of doing business.” — Gary Lynch of Marsh clear visibility that get the attention of those that are evaluating the total cost of doing business in a particular location,” he says. “Soft costs typically are just embedded into the cost of operations, so they really are hidden.” And some costs are simply impossible to calculate. “If a brand is damaged due to a defective product, how do you put a price on that?” asks John Sicard, executive vice president of development and service operations at Kinaxis, a supply chain solutions provider based in Ottawa, Canada. Loss of flexibility is another side effect of manufacturing outsourcing that can’t be measured. “There is no question that you lose supply chain flexibility when you outsource,” he says. “If your customer calls and asks for something different, it takes you longer to give them an answer and you typically are answering them with less information—you don’t necessarily understand all the cost implications of a decision because much of the data their OEM or ODM customers. Kinaxis defines response management as “solving problems you can’t plan your way out of,” says Sicard. “We believe response management is emerging as a category unto itself partially because of those trends mentioned earlier—global and pervasive outsourcing coupled with less loyal consumers and shrinking product lifecycles. Together these present an acute problem for companies that are no longer in control of their manufacturing facilities.” RapidResponse solves this problem by “creating the equivalent of a glass factory, so brand owners can see right through the contract manufacturer’s facility as if it were their own factory,” he says. The Glass Pipeline solution provides visibility to the contract manufacturer’s production plans and inventory positions. In addition, it enables users to simulate the impact of placing a new order or changing an order so they can determine whether it is feasible and what constraints are impacting opera- tions. “With the multi-tier visibility enabled by Glass Pipeline, the brand owner can use the system to explore alternative scenarios that could enable them to fill the customer’s order,” Sicard says. “For instance, would making an existing order a lower priority enable the new order to be taken? If the brand owner could arrange for the contract manufacturer to receive more material, would that help? Could the contract manufacturer fulfill a slightly lower quantity or meet a slightly later date?” Of course, contract manufacturers have to be open to this, he says. “This is a competitive industry and contract manufacturers recognize that they can’t say, ‘I’m sorry, but I am drawing my window shades.’ If they do that, the brand owners will take their business elsewhere.” This kind of real-time visibility “is the antidote for everything,” says Kevin Harrington, vice president-global business operations, Global Supply Chain Management, at Cisco Systems, which has extensive manufacturing outsourcing arrangements with contract manufacturers around the world. To help give it visibility into the operations of its partners, Cisco developed a solution called Autotest. “The integrity of the manufacturing process and the quality of products being manufactured was not something Cisco was willing to compromise, so we spent a lot of human effort, technological effort and intellectual property to create Autotest,” Harrington says. “Autotest scales across our product families and allows us to have a window into the manufacturing process at each of our major contract manufacturing partners. It allows us to specify tolerances, collect statistics and real-time feedback about production status and quality, and automates a whole series of alerts. It allows us to understand what is happening while it is happening, so that if an intervention is required we can do that in a realistic way. In fact, if need be, we can stop a line halfway around the world from our offices in San Jose.” Autotest is an ongoing investment that is constantly being worked on and enhanced, he says. “We believe Autotest is a great differentiator and competitive advantage for us in terms of our outsourcing strategy because it assures quality on the front end.” E2open’s Multi-tier Visibility Solution also was developed for use in a manufacturing outsourcing environments. Toronto-based Celestica, an $8bn electronics manufacturing services provider, 32 JUNE 2008
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