What is an Outside-In Supply Chain?

If you want to stay ahead of your competition, take the step beyond the traditional approach to supply chain. Most supply chain analysts believe that to remain competitive, companies must transform their supply chains from being focused inward to focusing on trying to predict demand to customer-driven chains that are organized to respond to demand with lightning speed. This takes communication and collaboration among trading partners, from customers through to suppliers. It takes a completely different supply chain architecture that focuses on sensing, shaping and driving an intelligent response.

As supply chains extend globally, they become more complex. The flow of supplies, finished goods and information is widely distributed, presenting significant challenges across a manufacturer’s entire supply chain network of customers, suppliers and logistics providers. Mergers and acquisitions, increased competition, wider fluctuations in the availability and costs of raw materials, reduced demand and supply predictability, and dispersed assets further add to the broad array of challenges manufacturers face when planning their operations. As a consequence, volatility is increasing, while predictability is decreasing. Rapid responses and clear visibility into the supply chain are required to avoid costly mistakes. To achieve success, companies need to gain visibility into their complex supply chain network to collectively sense and respond to changes.

The ERP is not the end-all solution. Most manufacturers have invested heavily in internal process standardization and company-wide ERP systems in an effort to improve efficiency. The scale and internal efficiency of these investments have driven savings through simplification and centralization, while enabling increased control over a company’s internal operations. Industrial manufacturers must buy from and sell to nearly every industry in the world, creating special demands on their business requirements. It is these unique characteristics associated with industrial manufacturing that keeps the ERP from being a complete solution. When the standard processes and monolithic ERP systems meet the outside world, they stumble on two significant challenges. First, information flows in/out of the company remain overwhelmingly manual. The historical complexity of linking these different systems together means that most transactions between companies – orders, invoices, confirmations, status updates, etc. – remain paper, fax and phone based. The reality is that manufacturers can’t expect all of their customers, suppliers and logistics providers to collectively adopt a single process.

When companies can operate their supply chains to respond directly to external market drivers, this is known as the outside-in supply chain. This enables companies to focus more on sensing, shaping and driving an intelligent response to the environment happening outside their internal control. Outside-in supply chains put the customer first. These supply chains maximize the value of technologies that enable collaboration across multiple networks of corporate stakeholders and supply chain trading partners.  As companies utilize collected data to analyze consumer behavior, they begin to focus their supply chains on the customer. This type of supply chain allows companies to determine what has changed since the last forecast, where the product needs to be now, and how to get it there.

The new outside-in supply chain architecture requires a multi-tier business-to-business network, like a supply chain operating network, that provides reliable secure connections and communications with all trading partners – suppliers, logistics service providers, and customers. Trading partners on the network gain supply chain visibility into processes and can collectively sense and respond to demand and supply challenges. With an outside-in supply chain network, transaction data is captured across the entire network, creating a critical mass of real-time business information allowing trading partners to better respond to customer demands and drive value out of their supply chain network. Companies no longer have excess material inventories at a time when prices fall, or a shortage of inventories at a time of increased demand. An outside-in supply chain is strategic, focuses on what matters for the customer, and creates a successful and collaborative partnership that adds real value over time.

Rich Katz is CTO at Elemica. Rich is responsible for directing Elemica’s Product Management and Development activities, joining Elemica in 2009 through the merger with RubberNetwork. He has an extensive background in Enterprise Resource Planning, Application Development and Business-to-Business eCommerce. Prior to Elemica, Mr. Katz was the Director of Implementation Services for ATT’s Enterprise’s Ariba Practice (formerly USI) and has held Senior Manager positions in Arthur Andersen’s Advanced Technology and ERP practices. Mr. Katz earned a Bachelor’s Degree in Electrical Engineering from the Georgia Institute of Technology.