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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 {complink 9284|Lenovo Group Ltd.} and {complink 1131|Cisco Systems Inc.} try to predict consumer demand, they have both taken decisive steps, through their partnership with {complink 12942|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.

7 comments on “The Cloud & the Supply Chain: A Match Made in Heaven

  1. Ariella
    July 16, 2012

    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.

    Those are pretty impressive numbers — very large volume processed very efficiently.

  2. Barbara Jorgensen
    July 17, 2012

    I've been a cloud skeptic until recently, and I won't say I'm a convert, but the results you cite here are impressive. My recent cloud experience was retrieving all the songs and programs we downloaded from the iStore (big investment!) on a PC that crapped out. i couldn't even access the hard drive.  The cloud made it easy. Then again, I wasn't that concerned with security or privacy — my password is still PC-bound.  I do see the advantages of the cloud, and I look forward to more case studies like these.

  3. The Source
    July 18, 2012

     

    Dear Barbara,

    I can understand your skepticism regarding the use of cloud computing to manage high tech supply chain data.   As you know many tech executives across many industries have expressed doubt about the technology mainly because of their fears that cloud computing doesn't provide adequate privacy and security for their data. However, these days more companies are turning to the cloud mainly because of the cost-benefit of outsourcing the management of their data. The high tech supply chain is no different as the Lenovo and Cisco case studies show.   I'm sure there will be more examples in the future that demonstrate the benefits of using cloud computing to manage high tech supply chain data.    

    Thanks for reading my article.

     

    Nicole 

     

  4. The Source
    July 18, 2012

    Hi Ariella ,

    I must say that when I read the case studies I thought the same thing – the results are impressive.   These days executives need to know their options and understand what model will work for them as costs rise, supply chains expand and demand and supply forecasts continue to change.     

     

    Thanks for reading my article.

     

    Nicole

  5. bolaji ojo
    July 18, 2012

    The cloud still has its own kinks and Cisco System recently ran into some of these. The company issued an apology to customers of its Connect Cloud service. (See: Users Irked by Cisco's Clumsy Connect Cloud Debut.)

  6. dalexander
    July 19, 2012

    @Bolaji, Dropbox has been infiltrated. Users started complaining about a ton of spam coming their way via Dropbox and now DB is calling in experts to determine how the breach was perpetrated. They get a billion uplaods in a 48 hour time period. I think the cloud is a very positive innovation as I was able to restore every single file to a new iPad replacing a stolen one. BTW, I was also able to remotely wipe the iPad at large so that would not have been possible without the cloud's coverage. Would I use the cloud for sensitive information like BOM pricing and/or schematic and PCB layout designs? Not yet. Some of my clients use Box.com and all their IP is vulnerable. The Dropbox example is frightening enough as to me, it represents the potential for broken security and consequently business and personal data compromise. I know everything is going the way of the cloud, but right now, the Dropbox, for which I too am a user, just rained on my parade.

  7. bolaji ojo
    July 19, 2012

    Experience is, as they say, a great teacher. It also motivates change and can have an impact on what we do in business and individually. Perhaps Dropbox dropped the ball but someone is bound to learn from their experience but that lesson may not mean a withdrawal. It could show up first as a question: how do we benefit from the cloud without getting hurt by any security weaknesses?

    If that problem gets solved the next step could be helping other companies avoid similar challenges, which could translate into new sales opportunites, higher profit, greater recognition . . . you get my drift.

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