Supply Chains: Beyond Collaboration

What we are seeing now is something beyond collaboration; it’s the idea of federated networks

By Rob Handfield, Ph.D., Director of the Supply Chain Resource Cooperative

The idea that large organizations can create a “federated” network by integrating smaller firms into their network and drive a common purpose is a concept that is emerging as key to global competition. Federation implies common operating procedures, established standards, driving aligned supply chain processes and tacit understanding of how things work.

The importance of alignment in the supply chain and the notion of federated supply chains is especially applicable to life sciences. The complexity of our supply chains is increasing dramatically, due to many factors.

First, there are increased likelihoods of disruption of globalized supply chains, which often require products and brands to adapt to local regulations and customs at the last steps in the supply chain. At the very least, this causes changes in packaging to adapt to local language, but in actuality changes can be much more significant.

At the same time, the global picture for generics is evolving, positioning generics as the dominant category, especially in developing countries. The rise of generic products means the vast majority of products are made by multiple companies. This introduces further challenges in terms of quality. Companies respond to demand volatility in two ways: reducing inventories and trying to instill more agility in their supply chains.

Another trend is pervasive monitoring. We see new technologies that will be used to monitor patient’s health conditions, and tracking their compliance to regimented prescriptions. The application of analytics to patient compliance is an important development that will result in medical breakthroughs. Lastly, we are seeing a move toward specialized products with more complex formulations and processes. Many of these products are for small patient subsets and require special handling.

Suppliers that work for a larger company in a federated supply chain are generally happy. Suppliers at federated supply chains like Honda, John Deere, Intel and Flex don’t want to leave, as they feel like they are treated as equals, assured a steady revenue, and understand that they are in it for the long haul. Over time, suppliers’ loyalty towards the dominant firm grows. That is one reason why companies like Honda have begun using the term “Supplier for Life,” which suggests a strong, paternal relationship that is governed by high performance expectations, fair price negotiations and deep understanding of long-term technology and customer roadmaps.

The idea of aligning people around data and a common process for decision-making makes sense. But what we are seeing now is something beyond collaboration: the idea of federation. There has always been a need for organizations to establish standards of performance embodied in policies and procedures, but in a study of global logistics providers, we discovered that top performing organizations developed a form of supply chain governance that builds in some level of flexibility to adapt to local requirements, by design. For instance, organizations would develop a global process for delivering an outcome in the form of a “maturity framework,” but which allowed people in the global network to achieve the outcome in the appropriate manner that was aligned with their local cultural norms.

Federation is based on the simple thesis that supply chain leaders cannot standardize the entire world, and need processes that will be a solution in 80 percent of the cases, allowing for local adoption for the remaining 20 percent. This requires an organization with clear roles and responsibilities so that people can speak to the same processes, with the same toolboxes. This ensures all parties are “speaking the same language” and are using comparable metrics and plans. At the same time, differences should be highlighted. Leaders should be aware of challenges and successes of regions, what they struggle with, and what they are proud of. Leaders should also be prepared to accept a different point of view on what is working locally and what is not, and be prepared to adapt the process to fit the right local requirement.

This means that interactive communication is required to ensure that, when decisions are made, everyone is kept informed. It is the interaction that creates intelligence, in a cyclical view of new ideas, feedback and response that forms the interactivity that drives new knowledge.

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