The Cloud & the Supply Chain: A Match Made in Heaven

The demands of extended global supply chains, along with the addition of new suppliers, have placed a greater burden on high-tech electronics manufacturers to collaborate with their partners as they use cloud computing technology to manage inventory, improve forecasts, and sharpen their competitive edge.

Many electronics companies have successfully designed a network that connects their partners and digitizes data that captures every aspect of a product lifecycle -- from design, to the procurement of parts, to the manufacturing and distribution of the product. But a more pressing issue arises when high-tech companies seek to leverage their supply chain's financial and operational data and create new business processes among partners to drive efficiencies and reduce costs.

Undoubtedly, the current European recession; the continued expansion of electronic manufacturing in Asia, Latin America, and Eastern Europe; and the rise of new technology (such as tablets that compete with desktop and laptop computers) are some of the market conditions that have caused significant changes to the ebb and flow of demand and supply across the electronics industry. As companies like Lenovo Group Ltd. (Hong Kong: 992) and Cisco Systems Inc. (Nasdaq: CSCO) try to predict consumer demand, they have both taken decisive steps, through their partnership with E2open Inc. , to improve their collaborative efforts among key suppliers, and their efforts are worthy of our attention.

In a report, published earlier this year by E2open, outlining Lenovo's collaboration strategy, Jon Pershke, vice president, Business Transformation/IT, Global Supply Chain at Lenovo, had this to say:

At Lenovo, our average product innovation cycle is six months, which magnifies the cost of supply chain errors. To drive growth and profitability, our operations must be fast, flexible, and reliable to ensure that we can get the newest products to our customers -- regardless of disruptions in the trading network or macro-environment. Access to real-time, actionable information -- plus the ability to collaborate with partners to resolve exceptions -- are critical to achieving this goal.

Like many companies in the personal computer space, Lenovo has had to contend with consumers' appetite for Apple's iPad tablets, which launched in 2010. In 2011, Lenovo took on new supply chain challenges when it expanded operations through mergers and acquisitions, including German PC and consumer electronics company Medion, and an agreement with NEC to form a substantial personal computer business in Japan.

Therefore, when Lenovo turned to E2open, the provider of a cloud-based B2B integration and supply chain management platform, to build a collaborative transparent global supply chain, several key objectives were identified. Not only did Lenovo want to reduce the cost and time to onboard new trading partners, but the company set out to build a real-time, consolidated view of processes and operations, so that partners can view a single "version of the truth" that enhances data analysis and correlation.

Another requirement was that the E2open platform offer partners a vehicle to collaboratively execute key supply chain processes such as order-to-cash, procure-to-pay, and inventory management. Lenovo used E2open's cloud-based platform to collaborate more efficiently with its suppliers in uploading supply chain data. According to Lenovo's own data, the company has reduced onboarding time by 85 percent, lowered IT costs by 53 percent, and reduced IT management costs associated with supplier integration by 70 percent.

Furthermore, Lenovo is leveraging the E2open platform to automate procurement processes via a single hub in Hong Kong, where it controls strategic components purchasing regardless of the manufacturing location, whether at facilities belonging to Lenovo or at outsourced facilities. The company asserts that it has strengthened its market competitiveness by improving its ability to practice volume-based pricing as well as providing secrecy around its supply agreements. Lenovo's Hong Kong procurement solution provides the following features:

• Complete automation and tracking of the order-to-cash and procure-to-pay processes
• Elimination of the need for manual touches and data aggregation
• Support for discrete orders and blanket orders/scheduling agreements
• Purchase order (PO) collaboration between Lenovo and its suppliers and contract manufacturers
• Confidential pricing agreements with key suppliers

Another company that has intensified its collaboration with its partners is Cisco, the manufacturer of network equipment such as gateways, routers, network bridges, switches, and hubs. In 2007, Cisco decided to boost its data exchange capabilities with key suppliers and partners by joining forces with E2open. Cisco outlined a number of objectives for its B2B program, which included:

• To make it easier and less costly for partners to conduct business with Cisco
• Drive lower total cost of ownership (TCO) with a scalable cost structure
• Meet current and future capacity and performance requirements, per process-specific service-level agreements (SLAs)
• Increase business process collaboration across suppliers and customers
• Implement a repeatable and scalable onboarding process
• Enable partners to connect more efficiently with one another via standards-based, reusable code
• Increase availability of metrics for internal reporting

In a report released earlier this year, Cisco officials estimate that since using E2open's B2B integration tools, the company has linked its systems electronically with over 100 key suppliers and partners. By leveraging E2open's standards-based models, Cisco and its partners can exchange data, make better decisions, and transact business in near real-time. This improves transparency among partners, reduces supply and demand discrepancies, and mitigates overall supply chain risks.

That said, Cisco asserts that its supply chain offers greater transparency across its operations and has realized a number of business benefits since it began utilizing E2open's B2B integration tools. These improvements include a scalable network that can accommodate new partners as well as provide average processing time of less than a second, with average volumes of 1.1 million transactions per week.

Many high-tech companies already have the ability to view and exchange data with their suppliers, contract manufacturers, and distributors. The key to success, however, will be how companies use that data to effectively collaborate and take action in the fast-paced world they operate in.

Speaking about his own company's experience, David Gillon, executive director, global supply chain at Lenovo, puts it this way in a posting on E2open's site:

We already have a lot of the connections; we already have the plumbing in place for connecting Lenovo to our partners. We want to leverage that data [and] start to utilize the data in a way that we can help the execution from [the] supply chain, give people alerts, give them the opportunity to make corrective actions but basically get that data into usable formats that we can use to enhance the supply chain.