Value Chain Partnerships

Adding Value to the Value Chain

Agility, adaptability, and alignment are the three vital ingredients in a successful value chain.
By Bill Roberts

he complicated supply chain of the 21st Century must be agile, adaptable, and better aligned among partners, according to Professor Hau Lee,

a preeminent supply chain researcher at Stanford University, in Stanford, California.

adaptability, and alignment, Lee explained. Lees comments kicked off an afternoon breakout session on strengthening value chain partnerships at Microsoft Global High Tech Summit 2007. The session was tailored to provide big ideas from Lee, followed by case studies from three electronics companies describing how they are dealing with the implications of the New World of Work in real supply chains. In his presentation, titled AAA Supply Chains, Lee elaborated on themes he has been researching for years and wrote about in an October 2004 Harvard Business
Instead of company to company competition, we are now in an era of supply chain to supply chain competition. Hau Lee, Stanford University

Instead of company to company competition, we are now in an era of supply chain to supply chain competition, Lee said. Lee, the Thoma Professor of Operations, Information, and Technology at Stanford, sees a hightech supply chain environment uncertain over demand and supply, in addition to being strained by evershorter product and technology cycles and increasing numbers of partners. Given these facts, he argues for greater flexibility and shared interests among partners and the use of more information technology (IT) to help achieve that goal. All supply chains need agility,

Review article titled The Triple-A Supply Chain. His three As are not mere sloganeering; each correlates to what he defines as a major trend in modern supply chains in most industries, including electronics (see table, Supply Chain Prerequisites for Success). These trends include: Rising demand and supply uncertainties require agility. Shorter product and technology cycles need adaptability. Outsourcing and multiple supply chain partnerscustomers and suppliers from end to endrequire alignment.
Agility, Adaptability, Alignment

Supply Chain Prerequisites for Success

Agility Adaptability Alignment Challenges Increasing demand and supply uncertainties Shortening product and technology cycles Multiple outsourced supply chain partners Implications Uncertainty drives need for flexibility Dynamic instead of static supply chains Differential interests of multiple players

Source: Stanford University

Lees presentation was laced with examples, including several from the electronics industry. As illustrations of agility, he noted Microsoft Corporations video game system projects Xbox in 2001 and Xbox 360 in 2005. The Xbox 360 launch took fewer months than the original Xbox launch, and it beat the competition to market by a significant amount of time. Both

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Value Chain Partnerships

projects involved several partners, Improved Spend Transparency and Lee emphasized that the col(% of transactions visible online) laboration was made possible by 33% IT. (The projects were described in December 2004 detail in one of the keynotes, see 57% Xboxs New Route to December 2005 Innovation on page 44.) 85% To illustrate adaptability, Lee December 2006 noted the response of Nokia 90% Corp., the 41.1 billion cell September 2007 phone company based in Espoo, Source: ABB Ltd Finland, to a fire in a factory in 2000 that impeded its supply of radio frequency chips. Nokia lined up mask development costs at the TSMC other sources quickly, allowing it to foundry. Everyone, including TSMC, continue to produce cell phones when wins by spreading the million-dollar one of its rivalssupplied by the same cost of a mask among several projects planthad no other options. and companies. As an illustration of alignment, he noted CyberShuttle at Taiwan Semi- In the Real World conductor Manufacturing Company Lee said IT can help with alignment (TSMC) Ltd., a $9.7 billion semicon- and cooperation, but partnerships ductor manufacturer based in must be based on trust; shared Hsinchu, Taiwan. CyberShuttle is a rewards, risks, and information; program in which companies share common optimization strategies; and

Solution Spotlight
Develop Better Value Chain, Improve Business Performance
Research shows that a savings of as much as 8 percent of revenues is possible via tight value chain integration and streamlined internal operations. Microsoft Corporation and its partners have helped customers such as Intel, ABB, and Texas Instruments develop and implement agile, adaptable, and aligned value chains for improved business performance. Our cost-effective solutions build on your existing IT investment and utilize tools familiar to users across your company. Key elements of our value chain solutions include: > Business-wide analytics and risk management solutions that leverage dashboards to expose value chain performance. > Business process automation and integration solutions applicable to your largest and smallest trading partners, regardless of technology sophistication. > Unified communications and collaboration solutions that streamline and enhance the ad hoc collaboration activities performed by your people every day. > Enterprise resource planning (ERP) solutions that deliver a more cost-effective, adaptable, and agile value chain, especially for smaller or satellite plants, and that can integrate with existing ERP investments. To learn more about how the People-Ready solutions of Microsoft and its partners can help make your value chain agile, adaptable, and aligned, contact us at: htsinfo@microsoft.com and http://www.microsoft.com/industry/manufacturing/hightech/solutions/

commonly agreed uponand sharedmeasurements. As a network, you are all interdependent, he said. You need performance measures across company boundaries. He encouraged everyone to seek agreements that benefit all partners. Win-win relationship is the cornerstone of supply chain success, Lee said. If your partners want to go north, and you want to go south, that is an alignment problem. The breakout session continued with case studies presented by Texas Instruments (TI) Inc., a $14 billion semiconductor company based in Dallas, Texas; Intel Corp., a $35 billion microprocessor company based in Santa Clara, California; and ABB Ltd., a $24.4 billion power and automation company based in Zurich, Switzerland. Catherine Carey, worldwide business-to-business (B2B) sales strategy manager in the sales and marketing operation of the global B2B programs office at TI, talked about the companys partner integration strategies. These include internally developed solutions that take advantage of commercially developed software, which make it easy for customers to connect with the company for e-commerce. TI has a portfolio of more than 55,000 products and companies of all sizes among its customers. The goal of the program, Carey explained, is to accommodate real life business processes and provide back-end integration regardless of the customers sophistication with technology. Called EZ Connect, the program makes it easy to automate the purchase order creation process, which is the heart of business between two companies. The program has raised the number of automated purchase orders at TI from 64 percent of the total in 2004 to 93 percent of the total in

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IT can help with alignment and cooperation, but partnerships must be based on trust; shared rewards, risks, and information; common optimization strategies; and commonly agreed uponand sharedmeasurements.

Linda Pfost, Intel Corp.

Herbert Brecheis, ABB Ltd.

Catherine Carey, Texas Instruments Inc.

2006, Carey said. TI saves $4.3 million a year through the program. Next on the dais, Linda Pfost Intels director of enterprise collaboration engineeringdescribed her companys efforts to improve its collaboration and communication internally through IT and culture change. Intel hopes eventually to push many of the same processes out to its partners. Pfost expanded on themes sketched in general during a keynote presentation, titled Driving Supply Chain Excellence, given in the morning by Intel colleague Stuart Pann, vice president for sales and marketing and cogeneral manager for customer fulfillment, logistics, and planning (see Intels Supply Chain Excellence Quest on page 16). Our vision is to make the barriers of time and of location disappear, Pfost said. What we are really trying to do is change the way we work. One initiative focuses on the needs of specific employee populations, as opposed to a single solution for all 86,000 Intel employees. Engineers might need better tools to collaborate on designs in global teams, while sales and marketing people might

place a higher priority on infrastructure that plugs them into customers. Everyone needs better internal search capabilities, and in 2008 we will spend a lot of money on robust search, Pfost said. We are going to get our collaboration process firmly established inside, and then move forward with B2B partners with data exchange, video, and so on, and then finally extend them throughout the entire value network, she said. Finally, Herbert Brecheis, vice president of supply chain management (SCM) processes and tools at ABB, explained the companys efforts to make 95 percent of all its external spending visible online. As of September 2007, the company had

achieved 90 percent (see chart, Improved Spend Transparency). Called eSmart, the initiatives features include transparency in spending, cost savings reporting, and a data feed on various metrics to a management dashboard used by supply chain decision-makers. Next, ABB is focusing on improving data gathering from various enterprise resource planning (ERP) systems and other ERP-related features. Although IT supports these initiatives, Brecheis emphasized: The tool issues compared to our business challenges are not difficult.
Bill Roberts is a Silicon Valley-based freelance writer who covers business, technology, and management issues.

Lessons Learned
At the session led by Stanford Universitys Hau Lee, he and other presenters offered these insights: TIs EZ Connect eliminated more than 100,000 manual entries per month. ABBs eSmart allows suppliers to view forecasts in the ABB enterprise resource planning system dynamically, as often as they wish. Intels supply chain excellence program seeks to accelerate time to decisions, time to deals, and time to action.

JOURNAL OF THE MICROSOFT GLOBAL HIGH TECH SUMMIT

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