Value Chain Convergence - The New Frontier

The Internet has expanded many opportunities for cost saving and quality improvement. This paper discusses current issues in the supply chain.

Business Background
The accelerated economic expansion of recent years has forced enterprises to satisfy growing global demand by focusing on speed and agility in their supply chains. At the same time, the key question of competitive differentiation remains unanswered all too often: "How do our products add value to customers and address the needs and expectations of our target markets?" Business models and techniques of value creation have been left aside, and a simplified "technology push" approach has been promoted instead. Moreover, market-differentiation strategies increasingly began to look like blitz wars - "strike fast and strike hard" -- based on new technology and products never seen before. Very quickly, proliferation of technological advances that were packed into products of disputable utility and of value recognized by customers caused great confusion and constant disruption in customer-usage patterns. The new technology-absorption potential of the market has been put to a test and has failed to return positive results. All to easily, companies have fallen prey to the seductive but shortsighted lure of premature and costly technology effects. The customers have sent a clear message that they need more time to mature their needs and usage patterns in order to realize the full value of the new technologies.

We are now witnessing how some leading corporations of recent years struggle to clear inventories of products that do not "speak value" to targeted customers. And while these products have already been fully "commercialized," and their supply-chain resources deployed and allocated, many companies are not able to verify and predict demand for these products. At the same time, a large majority of new products are built around the latest and greatest technology and intellectual property, condensing in their designs tens of thousands of engineer years of hard work and breakthrough technological advances.

Product Value Chain
Value drives demand; demand drives supply chains. Demonstrated understanding of customer needs and the ability to satisfy customer needs and expectations will position products to be seen by customers as valuable. But, the value of a product does not happen instantaneously, nor is it created only in the physical transformation of materials through the material supply chain. The value chain starts in fact by the very processes that will ultimately determine the layout of the supply chain and set its constraints. Value begins in creative ideas on how to address spoken and unspoken needs of the targeted markets and customers.

What Opportunities Lie Ahead for Improving Management of Extended Value Chains
The signs are strong that leading vendors of product-development and supply-chain systems are recognizing that value-chain convergence drives the emergence of new business requirements. Increased partnerships between CAD and SCM vendors and aggressive entries of ERP vendors into PDM and PLM indicate that the race has begun. Bolder moves concerning interoperability standards by Microsoft, IBM, BEA, Oracle, and Sun have also signaled many vendors and users that effective logical reconciliation of meta-data within and across enterprises can be achieved in the near future.

At the same time, end users gain increased corporate visibility and benefit from greater incentives to articulate their requirements in a more business-oriented fashion. Many companies are taking immediate action to articulate requirements, especially for the most critical and related value-chain convergence areas:

• Real-time sharing and complete reconciliation of critical information across all systems supporting the value chain - from product definition, through product data management, supply-chain planning and procurement, all the way to order fulfillment.

• Once internal convergence has been achieved, improved design and procurement collaboration across the extended value network with customers, trading partners, contract manufacturers, and suppliers alike can take place in earnest.

Today, the installed base of legacy systems severely constrains value-chain convergence. However, the business need for synchronization and transparency across the extended product value chain, both internally and externally, grows more and more important. Huge opportunities lie in improving time to market, market acceptance and profitability.

The Web introduces dramatic shifts, and fundamentally forges a set of standards required for reconciliation of the definition of data and relationships independent of domain specializations. The relentless and unstoppable drive for web interoperability resides well outside the power of any single vendor to control or manipulate. That fundamental, and new, factor has inspired new architectural concepts that directly provide a strong basis for value-chain convergence.

D. H. Brown Associates, Ins. (DHBA) is a leading IT research firm. This paper was published by DHBA's service in Product Commerce. For more information, please visit the D.H. Brown Web site: www.dhba.com.