More and more companies, notably not global ones, are being faced with the problems known to the operational footprint of the world leading companies. The complex, dynamic, fluid, multi-tiered network of relationships required today to deliver on brand promise tomorrow are posing huge challenges to local, multinational and, yes, global companies. Check out why you really need to put operation orchestration at the top of your priority list.
Before anything else, it seems appropriate to anchor a few concepts I’ll be approaching in this short blog. The first one is operational footprint, one of the most overlooked and certainly one of the most complex concepts companies are facing today.
Operational footprint is defined as the geographical reach a company uses to source or produce the goods or services it sells. Normally, this operational footprint is mapped against what we call tier 1 suppliers, or the suppliers that directly interact with you and provide the components and capabilities to develop or deliver the products and services you sell. I argue that this is a clear and dangerous understatement, since today most components and services are delivered through a complex and deep network of suppliers that have two very important sides: the actual components and capabilities to produce or develop goods and services, and, on the other hand, the equipment and capabilities required in the process of producing or develop those goods and services.
It’s actually quite interesting to look at the operational footprint of a global company: take Apple for instance. Apple produces its entire range of products using just two suppliers, in three different assembly lines. Simple, right? Well, in fact Apple uses components from 31 different countries in three different assembly lines, located in two different continents. Each assembly line is equipped by machinery and industrial capabilities that in turn are built in 10+ countries and require components for maintenance that come from 30+ countries. Most of these components, either for end product manufacturing or industrial capability, can be supplied by different vendors in different countries, although the specifications are the same. And to assure adequate lead times, Apple’s tier two suppliers are normally local to the assembly line, although it sources components through worldwide suppliers.
At first, it would seem that Apple had a simple network with just 2 tier 1 suppliers. But in fact we’re talking about a fully connected, four+ tier network, that needs to deliver according to spec, in time, with traceability assurance and proven quality to allow Apple to deliver on the brand promise that it has built. Is this landscape substantially different if you consider a mid-sized or even a small company today? You’ll find that is actually even more complex, since the reduction of leverage in sourcing and maintenance forces small to mid-sized companies to work with a greater diversity of suppliers to increase its ability to reduce costs.
Enter operation orchestration. This important concept is the ability to create a synchronous capability based on processes that span the entire sourcing network to increase the overall ability to deliver on time in full, in spite of demand fluctuations.
Operation orchestration allows for a common process to be executed by the entire value chain, promoting full visibility across the network about requirements, status and exceptions, so each node has the ability to adjust planning and respond adequately to changing expectations.
I argue that as a company’s operational footprint grows, so does the need to achieve adequate, global operation orchestration. And this becomes the core, most important goal a company must pursue, if it aims at assuring sustainability. Why, then, do you need to consider operation orchestration as such a critical issue? Three reasons:
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Reduce operational costs: By providing downstream planning information based on top level upstream requirements, fully visible across the entire value chain, for both end product as maintenance requirements, you focus on eliminating the bullwhip effect that torments most companies. And note that I’m being very specific about the nature of the requirements visible and the scope of that visibility. You should be focusing on getting the top level requirements that drive the value chain you’re inserted into and, more importantly, forward them down the chain along with specific requirement information that you add. This will allow a better planning capability, a significant reduction of inventory carrying costs, production streamlining, maintenance effectiveness and lead time adjustment;
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Assure quality: Traceability and accountability can only be achieved if the full scope of quality information flows across the value chain. By providing quality related data upstream in an automated way, you are increasing the capability to monitor quality issues and respond effectively to defects, reducing recall impacts and complying with quality regulations. As you also receive quality related data from the nodes below you, your own quality and traceability processes benefit from having that information available without extra effort. And this enables you to track defects internally and propagate them effectively downstream to the remaining value chain, stopping catastrophic propagation of defects to interconnected nodes. Would Samsung have been able to stop disaster if it had full quality orchestration on it’s Notes 7 sourcing network? Most likely yes, since the problem affecting the batteries was probably identified before by other companies that used the same battery or components that were installed on the defective batteries. If quality information propagated across the network, it certainly would have stopped the problem from escalating in such a dramatic way;
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Prevent failure: By receiving and exposing status information about internal processes included in a value chain, you’re able to infer tendency and accommodate for exceptions, before they become failures. There’s a common misconception that letting your partners know about your own problems exposes your weaknesses. Well, everybody has weaknesses and, more often than not, the problem is not having an exception, is not knowing that the exception occurred (or is likely to occur) so a preventive action can be taken to avoid failure. Information availability makes you more conscious and helps your organization focus on preventing exception conditions, instead of dealing with them. And if you benefit from knowing about exceptions that your downstream nodes have, you can certainly accept that your upstream nodes will also value that information and your willingness to share it.
In short, operation orchestration is about engaging in a proactive, real time, joint effort to become more flexible, more efficient and more effective. This joint effort produces huge benefits and delivers a truly sustainable environment, where quality, adaptability and continuous improvement come naturally. No wonder you should put it at the top of your priority list.
