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The Other Side of Supply Chain

Supply chains have been traditionally linear in nature. Let me explain what I mean by a linear chain.

Raw materials are procured from sources such as vendors, transformed into a sub-assembly and/or into a finished good again at  factory and transported to a distribution center or a warehouse. The number of echelons in the chain vary based on industry structure and resulting dynamics. Each echelon adds a finite value by either transforming the product into something more worthy of consumption or moving it closer to a consumer. This chain quickly became a network when organizations felt strongly about leveraging core-competencies of other organizations and developing one of their own.

 

The network quickly became complex as the nodes were either geographically dispersed or did not talk the same language as the other.  They used different tools for communication, were bound by a local legal structure and sometimes had divergent/adversarial/competitive positioning compared with other entities in the network. What came out of the mass fragmentation and dispersion was a complex supply chain structure dropping under its own weight no longer nimble as before.

Then came a phase of consolidation and tool revolution where the partners in the network started or seemed to start working towards a global objective of serving the customer - the only objective agreed upon or could have been agreed upon by all the entities in the network. Good sense prevailed and the common objective gave a common ground for innovation and service to the customers. So far so good.

However one aspect of supply chain that was not able to get due attention and focus was the service side of supply chain - the after-sales service. This is pertinent towards Hi-Tech supply chains in particular. As the customers become more demanding, the after-sales service model became increasingly complex requiring tracking and management at multiple service points. Supply chains  of today have become increasingly  more complicated on this reverse side of supply chain. 

Some of the broad challenges that Hi-Tech supply chains in particular are facing in the service side include
- Increasingly complex service models towards customers requiring guarantee schemes that are very difficult to price
- Due to miniaturization and complex designs, full part replacement has become popular but very expensive for supply chains
- Product Portfolio proliferation has led to maintenance of increasing pipeline inventory in terms of service parts
- Shortening Life-Cycles add even more complexity to service side business. Though laws require 7 years of service, as an example, the composition of the installed base of finished products is a dynamic target for planners to chase for planning service parts
- Aggressive selling in forward supply chains burdens the service supply chain, since this leads to consequent "freak" sales-returns
- Fragmentation in the forward supply chain leads to a huge complexity in the service supply chain, since the failure component needs to be replaced/repaired by coordination with a diverse set of component suppliers
- Forward supply chains have to absorb, adapt and adjust to the "regurgitation" levels in the supply chain to come up with a better evolved forward business models

This has made the supply chains of today non-linear in nature and very different from what we understood conventionally. There are entities in supply chain that are becoming core-competent in service side playing sometimes equal role as the forward side entities. All of the above has created a market opportunity for software product vendors to come up with appropriate tools to address this service side of supply chain. The marketplace of today have forced businesses to evolve from a point offering positioning to a an end-to-end offering positioning.

Times of today and future will be very interesting for service side supply chains.

Well, on a philosophical note, selling an offering to a customer is a lot like being accepted for a marriage proposal.  As one wise old man said - all marriages are happy. It's the living together afterward that causes all the trouble !

Comments

Srinivas,

Interesting thoughts...But i am not very sure if the chain has become non-linear. I still believe that service side supply chains are a part of the typical linear supply chain as addressed in the SCOR model(P-S-M-D-R).Services supply chain are the inputs for Return attribute in the SCOR model. Moreover you can use techniques like insourcing(Toshiba uses it) or risk pooling to reduce cost and improve flexibility to your supply chain.

I had not thought of the commodization of components as a delimiter in the supply chain. Good food for thought.

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