From Excellence to Expertise
During the last
decade, companies focused much of their attention on achieving operational excellence,
with the goal of becoming more competitive by lowering internal costs. This focus led to a
better understanding of the inner workings of the company, highlighting a broad range of
inefficiencies and driving new ways of organizing business processes. Functional silos
built around specialized applications and unique data were replaced with
"enterprise" software, connecting the entire organization through common
business rules and shared data. This change generated significant corporate value by
streamlining inter-departmental communications and eliminating redundant business
processes.
At the same time,
competitive pressure forced many organizations to rethink their core business. Global
corporations that had pursued mass consolidation, often acquiring hundreds of disconnected
business units, began to question the wisdom of these moves. As a result, the notion of
core competency gained new traction as companies looked outside their own organizations
for new sources of business process expertise.
For example, rather
than owning the entire process, high-tech firms such as Hewlett-Packard implemented
virtual manufacturing operations; building strategic relationships with contract
manufacturers, sub-component assemblers, and other suppliers, while retaining product
design and marketing. Strategic sourcing initiatives such as these drove down operating
costs and increased the OEM's reliance on external business partners.
This trend is being
repeated across many other industries. Tier one automotive suppliers are being asked to
take on more and more of the assembly process, while the auto manufacturers themselves are
focusing their efforts on product design, marketing, and other core competencies. Consumer
packaged goods companies are working with major retailers to implement vendor managed
inventory concepts while outsourcing significant portions of the logistics process.
As businesses have
become more interconnected, some of the efficiencies gained during the migration to
enterprise software have been, if not lost, at least minimized. Supply and demand
volatility is not constrained within the boundaries of a single enterprise, but involves
trading partners many layers back in the supply chain and forward in the demand chain.
This new model presents new challenges – increased risk of stock-outs, excessive
inventory levels, difficulty reacting to changing market requirements, limited purchasing
strength, increased business cycles – brought about by a lack of coordination among
the many business partners that make up today's commerce networks |
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