Integrate your alliances into a global network

Andrew McAfee, a professor at HBS, explores how the Internet affects production and productivity, and how companies can team up to make the most of technology.

Andrew McAfee, a professor at HBS, explains in his chapter “Manufacturing: Lowering Borders, Improving Productivity” in the book “The Economic Revolution Generated by the Internet Revolution: The Brookings Working Group on the Internet” As the Internet Increases Production Productivity Lowers Costs and allows companies to form alliances that are mutually beneficial.

If two or more businesses agree to do business beyond simple purchases, they will need to re-engage in the most efficient way of executing many common processes. Moreover, these processes are generally less well defined in advance than those in the purchase cycle. Therefore, defining the process before automation is an additional challenge. At present, Internet technologies are widely used to tackle the double challenge of providing comprehensive point-to-point links between alliance partners and enabling the manufacturing communities to work together in harmony.

Point-to-point links
The most obvious use of the Internet between companies is probably the establishment of a point-to-point connection between two alliance partners. These are companies that have agreed to co-operate with a significant number of businesses and therefore are willing to invest resources in creating a highly functional connection, especially one that enables their information systems to perform routine human-intervention tasks to interact. This intervention is expensive and can slow down the necessary activities. However, it is now also prevalent; In a survey of 50 manufacturing companies worldwide, 62% said they mainly use manual methods to share production plans with their partners. One interviewee said, “Our biggest coordination issues are the lack of transparency of our suppliers’ systems over long uneven periods.” 50

Cover of the book: The Economic Impact of the Internet Revolution
A number of technology providers offer Internet products that respond to this problem. Some focus on integrating enterprise information systems, while others focus on defining and automating processes that span multiple organizations and potentially span multiple systems. Both approaches have proven to be productive for manufacturing companies.

Multi-partner integration
The Internet not only creates comprehensive point-to-point links but also integrates groups of partners and integrates functional or geographical groups within a company. Although automatic process execution is still useful for these networks, the more important goal of integration often seems to be better and faster decision-making. For example, up-to-date supply chain management and advanced planning and planning software include more advanced algorithms than their predecessors, and have the potential to streamline decisions across the supply chain in a single company. Obviously, in order to work effectively, this software requires accurate concurrent data from all members of the supply chain, and the Internet technologies described above are fast becoming the preferred channels for these data.

In addition to creating point-to-point links, groups of alliance partners are also integrated on the Internet.
A better exchange of information between allies can have subtle but important benefits. One of the most common and noticeable shortcomings in supply chain manufacturing is the “whiplash effect”, where information gaps and delays lead to a slight increase in customer demand as they move up the chain, creating a counterproductive combination of order patterns and thorny inventories , Bottlenecks and surpluses. To the extent that the Internet can help reduce information gaps and delays, it can be expected that this situation will be mitigated. Indeed, major vendors such as Dell and Cisco have established extensive information sharing opportunities with their suppliers, and thus seem to suffer less from the whip effect. 55

Process consortia
Manufacturers in many sectors who recognize that their interactions are far from effective are looking for ways to improve. The American high-tech industry may be the farthest from these efforts. He founded a consortium called RosettaNet to develop standards at all required levels, from XML data formats to interaction scripts (“Partner Interaction Processes”) – enabling productive automated interactions. To understand the goals of these efforts and the extent of the current difficulties (even in this relatively computerized industry), it is useful to give a comprehensive overview of the RosettaNet website:

The electronic components (EC) and information technology (IT) industries are still heavily focused on developing and selling the next generation of rapidly evolving technologies. Therefore, we have not taken the time, effort or common will to develop a wide range of interoperability standards for e-business. With the profound changes in the new digital economy and the growing size of the EC and IT sectors in the global economy, we can no longer afford to focus on effective business processes between supply chain partners.

The lack of electronic business interfaces in EC supply chains and information technology places a heavy burden on manufacturers, retailers, resellers and end users, ultimately leading to significant inefficiencies and hampering our ability to use the Internet as a business-to-business tool. , Here are some examples:

Currently, manufacturers are using complex processes to guess stocks and locations throughout the supply chain. This is because there is no agreement that is as simple as specifying a part number or how inventory requests can be made through a standard interface. This has a significant impact on production planning, channel allocation and return costs.

Publishers who provide their resellers with technical support before and after the sale for tens of thousands of SKUs will need to seek different forms of product information collected from hundreds of manufacturers without a common taxonomy. Due to the lack of product information standards, the current aggregation and distribution of this content is an expensive and inefficient affair – a duplication of effort for any distributor. This problem is aggravated by the speed of explosive content change.

Resellers need to learn and manage various ordering and return procedures as well as system interfaces for each direct distributor and manufacturer with whom they trade, thereby earning valuable back-office resources (50%, according to estimates) that they otherwise would could use to give their customers new sales

New users do not have an efficient purchasing mechanism with common templates that can be contextually linked to government-authorized schedules. This often leads to an absurd extension of the purchase cycle, since most PC controllers are old technologies as they go through this inefficient cycle and end up on the plaintiff’s desktop.

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