Whether through offshore sourcing, manufacturing, selling, R&D - or some combination of the above -the value chains of most companies today are dispersed around the globe. The result is an exponential increase in supply-chain complexity and in the difficulty of synchronizing supply and demand.

In a series of in-depth studies, Deloitte Research, New York and London, is examining this trend. Its Global Supply Chain Benchmarking Series is based on surveys of 600 mostly large, global manufacturers in the U.S. and Europe. The report, released last year, "Mastering Complexity in Global Manufacturing," revealed that nearly all of these manufacturers now view the entire world as their market and as a place to sell, source, manufacture and engineer their goods. More than 80 percent sell outside their home regions and just over half (53 percent) have shifted production to lower-cost areas such as China, Mexico and Central and Eastern Europe. Additionally, three out of five of these companies outsource at least portions of manufacturing and engineering.

The drivers of these trends are many, according to Deloitte, and include immense margin and cost pressure from increasingly large customers, the mandate to cut engineering costs because of the growth in new products, and the need to build markets in emerging economies.

But while most companies seem to embrace globalization, few are well prepared for the transition. Indeed, for the majority of companies surveyed in this study, globalization and mounting value-chain complexity had an unpleasant side effect: lackluster business performance. Gains from lower-cost offshore operations or entrance into new markets were more than offset by additional costs, operational problems and quality risks.

"What we are seeing is that companies are going global in piecemeal fashion," says Peter Koudal, director of Deloitte's Manufacturing Institute. "We see very few companies putting together the pieces on a global scale, optimizing their plan and making the right decisions from a global point of view."

	"By far, the number one stated imperative for revenue enhancement was innovation and new product indroduction and development." - Doug Engel of Deloitte Consulting

A small minority (7percent) of companies studied, however, qualify as "complexity masters." These companies have strong value-chain capabilities that enable superior performance. On average, complexity masters were 46 percent more profitable that other high-complexity manufacturers with comparatively weaker value-chain abilities. "Complexity can be a very good thing if it is managed well because not only are these companies more profitable, competitors have a hard time copying their capability," says Koudal.

According to the study, managing value-chain complexity well comes down to two mammoth factors: excellent customer, product and supply-chain-related business processes; and excellent synchronization across those processes.

"What really sets complexity masters apart is how they are able to synchronize across these areas," says Koudal. "They are using their capabilities throughout the enterprise to actually differentiate everything they do."

Deloitte researchers identified four elements vital to synchronization: collaboration, flexibility, visibility and technology. The first three largely are enabled by the last, though clearly technology is only as effective as the people and process that support it. That said, this article looks at some of the broad categories of information technology that can help global companies achieve proficiency in the three essentials.

Information Backbone
Enterprise Resource Management is unquestionably a critical system for global companies. The problem is that the standardization that ERP promised often has been lacking.

"The marketing myth surrounding Y2K was that global companies would implement one instance of SAP or Oracle, but the reality is that most companies didn't do that," says Darren Ward, vice president of product marketing at i2 Technologies, Dallas. "In many cases, they implemented different instances for each division and each geography."

Ending that proliferation is now a target for many enterprises. "What we are seeing is a big movement among companies to simplify their architecture," says Carol Ptak, vice president of manufacturing strategy at PeopleSoft, Pleasanton, Calif. "Companies are getting serious about standardizing on one solution."

Cummins Engine took this approach when it decided a few years ago to implement and standardize on an Oracle ERP system throughout the world. "We implemented Oracle on a global basis as the fundamental piece to help the company meet customer expectations and market demands around the world," says Lucio Nubile, information technology and telecommunications manager at Cummins Latin America. The decision to move to a global ERP platform also "gave us a lot of opportunities to enhance the way we do business with customers and suppliers," he says.

In some cases, that meant looking for solutions that served particular regional needs. In Brazil, for example, Cummins specifically wanted an import and export solution that would automate documentation and allow it to take advantage of a Brazilian Customs regime known as Blue Line. For companies that qualify, goods that used to take days or weeks to clear customs were guaranteed to move through in four hours or less.

Cummins selected TradeSphere global trade management software from Vastera of Dulles, Va., to provide this important piece of information technology. "The Vastera import and export module integrates to our Oracle ERP and provides all the functions necessary for us to operate in Brazil in a near just-in-time fashion," Nubile says. "As a result, it is much easier for us to accurately respond to our customers, in terms of what we can produce and when orders can be delivered." The reliability of product arrivals also allowed Cummins to reduce components it carried as safety stock.

A solid ERP infrastructure is critical for pieces like global trade management because it determines the quality of the data that feeds such systems, says Robert Skinner, Vastera's vice president of global sales, professional services and marketing. "Companies that have very poor internal systems provide very bad data," he says. "If a company is trying to go global on that type of foundation it makes it very difficult. Whatever savings it may be getting by manufacturing offshore, it loses through its inability to move goods quickly through the pipeline."

Open Harbor, San Carlos, Calif., also is a provider of global trade management software. Beth Peterson, vice president of product solutions, notes that many countries have time- and money-saving programs for companies that possess the technology to take advantage of them. "It's not just about getting your goods there on time, but getting them there at the lowest cost," says Peterson. "If you are shipping goods between countries that have trade agreements and you are not taking advantage of those benefits, your competition may be able to sell the product for a lower price. So Open Harbor and other GTM providers are handing our customers a tool that lets them know, right when that new product is introduced or a component is sourced, that it may be eligible for preferences."

Financial Supply Chain
"One of the big challenges we see companies struggling with is the link between the physical and financial supply chains," says Jeff Guettler, director of NIAC Trade Management Solutions, Portland. "This is an issue that should be addressed up front, but most people don't recognize the need until later down the road." Down the road is when they have to reconcile, to the penny, the value of goods declared and the duties paid. "This is a challenge for any company - to coordinate all the data and then push it back into the accounting system is a real challenge that requires not only technology but a lot of trade expertise."

NIAC sets up and streamlines the data for quick reconciliation, coordinates communication of invoices and shipping data, and then pushes the information back to the company in a standardized format.

Tradecard, New York, also automates the financial supply chain. "We automate all documents in the procure-to-pay process and we wrap that with workflow and event management so that it can be managed by exception," says Kurt Kavano, CEO. Through relationships with financial institutions, Tradecard also enables vendors to receive payment much earlier at lower discounts than traditional factoring services.

Innovation Support
Technology to support development and introduction of new products - Product Data Management and Product Lifecycle Management - rapidly are becoming core requirements for global success. According to the Deloitte study, global companies increasingly rely on new product introductions to fuel revenue growth. New products - those less than three years old - generated 29 percent of total revenue in 2003 for companies surveyed, up from 21 percent in 1998. By 2006, these manufacturers expect the number to reach 35 percent.

Most companies, however, do not have the core ingredients needed to support this goal. Seventy-three percent of those surveyed do not have PLM software and 57 percent have no formal product lifecycle program methodology.

"By far, the number one stated imperative for revenue enhancement of the companies we studied was innovation and new product introduction and development," says Doug Engel, director of Deloitte's U.S. Manufacturing Industry practice. "But it is the last priority of these companies from a supply-chain standpoint. This is a major disconnect." Deloitte's next study, soon to be released, will focus on this disconnect or "innovation paradox."

John Fleming, senior vice president of worldwide marketing at PLM provider MatrixOne, Westford, Mass., notes that the eco-system within which companies both design and manufacture products has changed dramatically over the last five years. "Outsourcing of manufacturing and design has made things a lot more complex," says Fleming. "Successful companies are turning to PLM because in order to produce products in this kind of complex eco-system, they have to have much better ways to move information content across the whole value network." PLM's ability to create "one view of the product" is a key enabler of that, he says.

To improve the speed and success rate of new product introductions, companies also need better collaboration with customers, generally provided through a customer relationship management system. "With customer needs - and new products to fill those needs - changing faster than ever, manufacturers must be far closer to their best customers and faster to react appropriately," the Deloitte study says.

This applies not only to new products but also to demand planning and forecasting for existing products. "A lot of global companies are very challenged when it comes to getting a global view of their business because they may forecast differently in each region in which they operate," says Karin Bursa, vice president of marketing at supply-chain management vendor Logility, Atlanta. "They really need the ability to do what we refer to as multi-echelon demand planning." Multi-echelon planning, she explains, allows companies to build forecasts on a number of levels. "They can build forecasts by market - such as Europe or North America - and have product visibility inside those markets. But at the same time, they can pull together the products across all markets and be able to view what the total business impact or total demand is likely to be for an established planning horizon. That is the foundation for synchronizing product to demand," she says.

Supplier Relationships
Collaboration and information sharing with suppliers is better established among global manufacturers and remains a critical requirement for global success. Hyundai Motor provides one example with its global parts management.

Hyundai has plants and distribution centers in America and elsewhere but all parts are sourced from Korea, notes George Kurth, director of supply chain and logistics at Hyundai Motor America. "As we began to expand globally, it became critical that we retain good control of our supply parts," he says. To achieve control and visibility, Hyundai implemented the iPlex visibility solution from BridgePoint, Cary, N.C. "We are able to access orders from the time they are packed in Korea, all the way through to our DCs, so we always know where they are," he says. "As we measure each milestone, we are able to update the ETA for our warehouses and that has allowed us to reduce our inventory. Just the reliability of knowing when your product is coming in is an incredible advantage."

Supply-side visibility and collaboration is another area that has become more complex as companies outsource manufacturing.

"The growth in outsourcing requires a whole new way of thinking than what previous generations of supply-chain management solutions have provided," says Cyrus Hadavi, CEO of SCM software provider Adexa, Los Angeles. "It requires distributed intelligence that is a mixture of optimization and collaboration with customers and suppliers," he says. "It requires an iterative approach because, before you can optimize, you have to know your customers' needs and your suppliers' constraints, both of which are constantly changing. The outsourced world, where suppliers may be 16 or 17 time zones away, requires 24/7 non-stop monitoring, analyzing of exceptions and deciding what is the right thing to do. It is a whole different level of complexity."

Ptak agrees. "In this new world things that used to be in alignment - such as the movement of goods, change of ownership and payment - now can fire at totally different times and that complicates the whole idea of visibility," she says. "For example, I may outsource part of my manufacturing to Mexico or China, and goods from that manufacturer are shipped to another supplier who does an additional value-add process, and the first supplier gets paid based on the yield from the second supplier - just knowing where all that is and being able to connect that to what the customer wants or demands has forced collaboration."

The process of going from the customer to an internal set of constraints, then to suppliers and coming back again is really Sales & Operations Planning, Hadavi says. "It's all one business process with no silos between your sales and operations or between your procurement and suppliers."

Bursa agrees, noting that she is seeing a tremendous focus among global companies on S&OP. "This issue hits right between the eyes of balancing demand with supply," she says. "It brings together views across the business - what is my market demand and where are these products being sourced - and rationalizes the production and distribution network to make the best decisions on where I should assemble and ship these products." It is a matter of getting a holistic view so the best trade-offs can be made.

Network Modeling
Another holistic view that is especially important to global supply-chain operations is network modeling. "As our clients expand into other regions and new markets, supply chains are completely changing in structure," says Bill Gordon, director of transportation solutions at Caterpillar Logistics, Morton, Ill. "If all your sourcing previously was done in the U.S. and it is now all done in Mexico, Asia and Eastern Europe, that changes where you want your distribution points to be and where you are going to consolidate shipments. We need to be able to engage our clients at a strategic design level to help them solve these very complex problems."

Cat Logistics uses tools from i2 Technologies to enable that process. "With these tools, we can give our customers good visibility as to how their supply chain will perform under a new set of challenges. This is critical to being able to make our clients comfortable with the solutions we propose and for us to be able to ensure them that they will get the service levels they are looking for," he says. "The ability to model the supply chain is the difference between engaging as a business partner as opposed to a functional vendor."

"The ability to model the supply chain is the difference between engaging as a business partner as opposed to a functional vendor." - Bill Gordon of Caterpillar Logistics

i2's Ward adds that there is a lot of pressure on global companies to "get it right" when it comes to deciding where and how much inventory to stock at various locations. "When companies are dealing with small geographies, stocking policies are fairly easy to determine," he says, "but as they become more global they have to be much more careful about inventory because costs can get out of control in a hurry if they try to stock the same parts in every DC." As a result, he says, leading global companies increasingly are going beyond network modeling to network and inventory optimization. "This means that on a regular, periodic basis companies optimize exactly what stocking levels they should have, by part and by location, taking into account their overall cost budget and their targeted service level," he says.

i2 customer Dell Computer is using the Supply Chain Strategist tool to periodically reevaluate its manufacturing and distribution around the world - which models should be manufactured in which plants and where those products should be stocked to service which geographic regions. "This is not a one-time exercise, Ward stresses. "It has to be revisited every quarter to six months."

Mapping business processes is another important modeling capability for global companies. GEAC, Atlanta, provider of System21 Aurora supply-chain software, has long had a visual process modeling capability. "Increasingly, to help manage the complexity in international supply-chain operations, customers are finding it helpful to use this visual tool to draw the processes," says Alastair Middleton, director of European marketing. "Modeling these visually really helps customers see the process. And, underneath, we can see where the business process meets the IT system and what support the IT system has to give to enable to business process."

The ability to model the supply chain also is behind one of the newest applications that leading companies are using to manage global complexity: performance management.
"The idea behind performance management is to link everyday activities across the global enterprise to the strategic goals of the company," says Steve Anthony of Celerant Consulting, Lexington, Mass. "It is about eliminating inefficiencies, eliminating initiatives that are not tied to where the company wants to go strategically. It is a way of measuring what people are doing at the everyday level and aligning that to strategic goals." If done well, he says, the impact can be dramatic - "one of the most important things companies do going forward."

Performance Management
Webplan, Ottawa, provides Operations Performance Management software to companies like Raytheon, Casio, Network Appliance, Coty and LeTourneau. Dave Haskins vice president of development, says the Webplan Rapid Response solution first and foremost provides visibility across the entire supply chain, giving companies "a single view of the truth." Second, it models various solutions and shows users the ramifications of each action. "Most importantly," he says, "it does this in comparison to the corporate metrics being used to run the business.

"Companies need not only visibility but the ability to model, in real time, the algorithms that are normally resident in their transaction system," he says. "We model those algorithms and provide users a spreadsheet-style interface, which presents a very familiar way for them to look at information." Haskins says that most of the companies he deals with are using a program like Microsoft Excel to "try and approximate the information in their supply chain, because it is the only tool flexible enough for them to model the behavior.

"So we, in effect, replace the use of Excel with a live, interactive spreadsheet-like interface that enables users to have visibility to their internal and external supply chains as well as provide the ability to do real-time analytic modeling of the execution system. They can look at multiple alternative actions and determine the exact changes that will occur if they make a specific decision."

Traditional supply-chain planning models, Haskins says, focused on optimizing the behavior of the overall supply chain. "That whole approach was predicated on the concept that the model itself wouldn't change very often," he says. "But that concept of optimization, which produces an ideal outcome, increasingly is not responsive enough to the dynamic changes that are occurring in demand, supply and even relationships with suppliers. The ability to rapidly analyze and make quick decisions against corporate metrics is exactly where money is made or lost in the supply chain today."

"The real technology message is that masters are clearly focused on decision support," says Delotitte's Engel. "The lesson is that it is all about decision support tools to enable scenario planning, to understand capacity planning, to understand how to quickly react to uncertain demand. It is not about trying to make the forecast perfect, but about being able to plan around an imperfect forecast with agility. It is about being able to understand the implications of alternatives and to responding well, as opposed to transaction support."