Would you, as head of supply chain, purchasing, manufacturing or the CEO of an electronics manufacturing company, agree to a shared supply chain? If you said “No” and work at a company that outsources any of the supply chain functions – components sourcing, production, logistics and repairs and warranty fulfillment – you most likely are already operating a shared supply chain.
In fact, if your company is not completely (that is, 100 percent) vertically integrated, then it is already sharing a network of manufacturing, procurement, sourcing and logistics support systems that stretches well beyond the organization’s control. That, essentially, is the definition of a shared supply chain. But the truly shared supply chain is even more than this, according to researchers and observers who say companies are looking for additional ways of improving their competitiveness. At a certain level, some supply chains are already shared amongst numerous companies, they say.
The sharing is about to get more complicated and involved. A portion of the shared supply chain referred to above has to do only with the fact that no single company can alone control all of the elements of production. The global economy is so interwoven today that no enterprise can exist independent of other businesses. Even companies that make their own components still get raw materials, equipment and general supplies from other businesses, which makes these suppliers an integral part of the OEM supply chain and reinforces the dependency of all players on each other.
The new shared supply chain goes much deeper than this. It weaves together some of the traditional supply chain operations that we would expect companies to retain control of and hands these to a commune of businesses that may or may not be direct competitors. In such a scenario, a Microsoft Corp. could share and combine the supply chain of its about to be acquired wireless handsets division (the ex-Nokia Corp. mobile unit) with similar divisions at Lenovo, Apple and Samsung! They may pool purchasing of components and negotiate a single contract with contract manufacturer Foxconn. Wouldn’t that be a shock? Samsung and Apple partnering with other major OEMs to exponentially increase their purchasing power, leverage at software vendors, logistics providers and warranty fulfillment companies?
It sounds crazy but such a world already exists, according to Lisa Harrington, president, LHarington LLC, and associate director, supply Chain Management Center, at Robert H. Smith School of Business, University of Maryland. What will differentiate these companies in the marketplace, after all, each remains independent and must still make and declare profits as a standalone enterprise? The supply chain, Harrington said in a research paper sponsored by DHL Inc., is not really a competitive weapon, contrary to a belief many hold. “Some industries and companies are starting to recognize that, in the long run, the supply chain may not be a main basis for competing. Instead, the source of competitive advantage will derive from product, innovation and branding,” Harrington said in the report.
It may not be such a novel concept. The supply chain, however elevated and superb, isn’t the product. It’s a means to an end as Dell Inc. finally discovered after more than a decade of marketing itself as the company with the most optimized supply chain and delivery mechanism in the PC market. Once, I warned in a report published in Electronics Supply & Manufacturing Magazine that Dell would slip and fall behind more innovative companies if it continued to focus on distinguishing itself solely on its supply chain. It happened.
At the time I wrote the article Dell was spending approximately one percent of annual sales on R&D. That was a recipe for future disappointment because it meant the product pipeline wasn’t being replenished. Then Apple came along and showed clearly that innovation, even if only in design and operating system, could topple the biggest giants and create a new behemoth. As I have been writing for a while, Apple seems to have forgotten this lesson itself. Until recently, the company, too, was spending only about one percent on R&D years ago and while still relatively low compared with some other firms, Apple has jacked this up to close to 3 percent per year.
Products win in the market place. These come out of R&D centers, design centers and innovative enterprises. Supply chain excellence and great marketing and positioning give the best products wings to fly but they can’t turn a dud into a winner. My conclusion is simple. If a business can squeeze greater efficiencies out of the supply chain system by partnering with rivals, it should go for it. The only ones who might complain might be confused employees and even, for that, there’s an app somewhere.
If you could, which part of the supply chain would you feel comfortable sharing with a rival across the road or a non-competitor from a different but-related industry?
DISCLAIMER: Bolaji Ojo is editor-in-chief and publisher of Electronics Purchasing Strategies. The views expressed in this blog are those of the author alone who promises to base his sometimes biased, possibly ignorant, occasionally irrelevant but absolutely stimulating thoughts on the subjective interpretation of verifiable facts alone. Any comments should be sent to the author at firstname.lastname@example.org.