Supply Chain Visibility 2.0: A New Framework for Outsourced Manufacturing

Gone are the days when outsourced manufacturing was a supplement to your business. Today, it is your business. Building quality products quickly, while remaining nimble to address market feedback or unexpected manufacturing snafus, can be the difference between success and failure.

By: Hari Menon, CEO, Serus

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In contrast to the first wave of outsourcing, where brands were focused on cost, the new generation of outsourcing sees brands expanding their network of manufacturing partners around the globe to leverage both manufacturing capabilities as well as situate low-cost manufacturing sites closer to the customer. In addition, since no single partner is handling everything, the process must be collaborative, starting with design. As brands increasingly relinquish control over critical business processes and assets, they need to better optimize the outsourcing process in order to meet product launch dates, ensure product quality and stay competitive.

Brands that fail to manage this quickly and properly risk death by a thousand cuts.

Manufacturing Complexity Calls for Extreme Visibility

A decade ago, brands relied on outsourced manufacturing primarily to reduce costs and off-load excess capacity from their own production lines. They “threw the product design over the wall” – a unidirectional buy-sell model wherein focus was only on cost reduction. In this scenario, Visibility 1.0 was comprised of understanding inventory movements, which was adequately handled by B2B integration tools and legacy supply chain management and planning tools and processes.

Brands have since learned that outsourcing manufacturing does not mean abdicating all responsibility for orchestration, and manufacturing partners’ capabilities have become an extension of their own capabilities.

This evolved approach requires extreme visibility into multiple dimensions of the extended manufacturing. We call this “Visibility 2.0” – a collaborative, gain-sharing framework on all aspects of manufacturing, from design to delivery. By monitoring production events and transactions on a real-time, granular level, brands and their manufacturing partners can discover detailed causes (e.g., why a new product is failing on the manufacturing floor and under what conditions), immediately collaborate to address issues, and adapt on the fly with decisions that impact output, inventory, costs and customer satisfaction.

As the industry has become more sophisticated in how it operates, traditional SCM, ERP and planning solutions – that were built for “an arm’s length relationship” with contract manufacturers (CMs) and other outsourcing partners – haven’t kept up. No longer is the ability to deliver data in multiple formats across different integration mechanisms sufficient. This new era of Visibility 2.0 requires new processes and a new mechanism to monitor real-time data across the entire partner base that will improve orchestration of outsourced manufacturing.

The Components of Visibility 2.0

Deep visibility into manufacturing detail is critical, especially for those industries that rely heavily on complex outsourced manufacturing and multiple partners. To stand out in today’s competitive business environment, brands should focus on the following:

1 – Enact a ‘trust but verify’ approach

To eliminate non-value added steps from outsourced manufacturing, brands should adopt a “trust but verify” approach, which streamlines processes, maximizes productivity and strengthens the collaborative relationship with the CM. Under this approach, both parties share access only to what they have visibility to on a continuous basis (not on an episodic basis). This ensures both parties see the same information and are making decisions based on a common source of truth. For example, the brand provides the CM with early visibility into the market success of their new product launch and end-of-life plans, while the CM provides visibility into quality excursions, shortages and resource constraints. The result is efficiency and granular visibility into each other’s operations where the relationship involves both “gain-sharing” and “risk-sharing.”

2 – Embrace a collaborative ‘Design for Manufacturing’ philosophy

In industries that are characterized by complex, multi-tier supply chains and/or a complex BOM, where multiple suppliers and outsourced manufacturers are involved in delivering the final product, a sequential approach to new product introduction (NPI) has become extremely cumbersome and risky. This is especially true for semiconductor equipment, storage equipment, and networking and communications equipment, where product quality and delivery issues can significantly threaten success.

Today, brands should strive for more visibility into processes by following a “Design for Manufacturing” philosophy supported by:

• An iterative, “continuous improvement” approach to product realization built on close collaboration between the CM and the brand.

• Active involvement of product and test engineers working closely with the CM to design the right manufacturing process for the product.

• Constant monitoring of the “as designed” versus “as built” variations.

• Processes and systems that support partner compliance with quality parameters, BOM changes and spec changes (e.g., ECOs and MCOs).

3 – Establish strict protocols to meet global regulations

In industries such as medical devices and medical equipment, regulatory compliance plays a critical role. Brands have become better at understanding and addressing the political and social environment through local experts, but have yet to address the manufacturing compliance of various geographies. Complying with labor regulations (e.g., minimum age, wage requirements) as well as local markets’ sensitivity to product content, for example, requires transparency of the CM’s operations. It comes as no surprise that brands which have already faced market PR disasters – e.g., the fires in garment factories in Bangladesh, the FitBit product recall – have been much more proactive in putting in the processes and systems to manage regulatory compliance issues as they pertain to manufacturing.

A strategic and comprehensive approach involves establishing a protocol with the partner that covers frequency and granularity of communication, as well as visibility into various manufacturing steps.

A Platform for Visibility 2.0 Success

As manufacturing continues to grow in complexity, a technology platform that meets the heightened requirements for visibility is critical for effectively orchestrating cost-effective, on-time manufacturing, and should include the following functionality:

• Extensible, real-time integration of heterogeneous data sources from suppliers and manufacturing partners

• Support for collaborative workflows, even when conversations happen over email or Skype

• Ability to collect and analyze large volumes of transaction data at appropriate levels of granularity

• Cloud-based platform for effective collaboration and ease of use within varying environments, regardless of CMs’ technical sophistication

• Analytics and data visualization to proactively identify and quickly resolve issues.

Many brands’ survival depends on complex and outsourced supply chains. While brands can’t plan around assets and processes they don’t own, with Visibility 2.0, they can effectively orchestrate outsourced manufacturing to bring new products to market faster, at lower cost, and with higher quality.

Posted in Manufacturing, Supply Chain Management.