10 January/February 2006 actionline ity increases to transactions and processes outside the enterprise. In the extended enterprise, areas of responsibillit are less defined and the value chain has been replaced with a value network, where strategic advantage is achieved by leveraging added value from the network. The value network is a fluid-pull model that enables vertical and horizontal partnering and encourages more collaborative processes between partners. Managing Interdependencies The extended enterprise does not directly control partner processes or infrastructure. Because interdependenciie operating across corporate boundarrie can be complex, business process reviews become more necessary and more cumbersome. Aligning these processes with a value network through information technology solutiion becomes more difficult due to differences and incompatibilities of business practices and systems among the organizations in the network. The value network requires flexibility to manage partners according to their needs. In addition to the infrastructure and organizational issues, the “prisoner’s dilemma” poses additional challenges. Maximizing profits can be at a partner’s expense, so the partner may be reluctaan to share data and information. The cost to find, contract and manage a vendor is high. To manage these challenges, the extended enterprise must segment the business partner communities in its value network and evaluate its level of engagement with each community. Next, the enterprise needs to develop an alignment strategy for each partner segment according to level of engagemeen and implement the strategies through process, technology and organizattiona infrastructure changes. When segmenting the communities, the enterprris should consider the following questions: n What functions does the community perform? Sparked by new developments in information technology, the extended enterprise has replaced the traditional supply chain with a value network that creates unique challenges. Rooted in complex relationships among partners, these challenges require greater alignment between partner communities. Over the past 25 years, information technologies have evolved from mainfraame to desktop computing and client/server architectures to Webbaase solutions. In the 1980s, computee systems helped manage data and reporting for accounting, sales and manufacturing applications with little information-sharing between departmennts In the 1990s, enterprise systems began to emerge by connecting informattio to different departments. These systems optimized the value chain, but processes were still constrained by seriaa information and asset flow. These systems were hierarchical and rigid, depending on a push model to deliver assets and information from one stakehollde to the next. The responsibilities and sphere of control of different organizations were clearly defined at different stages of the value chain. Information technology optimized processes inside corporate boundaries. Today, Internet-based information technologies have extended productiv-By Jeff Walter Managing INTERDEPENDENCIES SUPPLY CHAIN actionline January/February 2006 11 prise that goes beyond the initial purchhas of the vehicle and includes financing, service, aftermarket part purchaases and warranty and product feedbaac into the design of new vehicles. Similarly, an automotive supplier has an array of partner communities in its value network. The supplier has its own indirect, direct and Tier N supplierrs some of which overlap with its automotive OEM customer. In turn, the OEM has overlap with direct suppliers that also perform as contract manufacturrer to reduce assembly time and effort on the main production lines. As the OEM and supplier evaluate their partner communities, they may draw similar conclusions about the level of engagement with each partner communiit and adopt similar alignment strategiies Both work with a set of direct suppliers, which typically requires a high level of workflow integration as the OEM or Tier One supplier shares design and manufacturing resources with the supplier to meet milestones with dependencies on other suppliers. Depending on the frequency of engagement, the direct supplier may be considered a close friend or visiting relative according to the engagement matrix. If the direct supplier is engaged n How complex is the relationship with the community? n How is the community engaged? n What visibility into the community exists? n What are the most important processes performed with partners that must change? n What types and frequency of interactions occur with these communities? An engagement matrix can provide a way to visualize the interactions with partners. The two axes of an engagemeen matrix are the frequency of interacttion and the degree of workflow interdependency. Each quadrant of this matrix maps to four partner categories. To help understand these different partner relationships, think of each category as an individual rather than a corporate entity: 1) Acquaintance. An acquaintance can be a partner with whom you have low frequency and little workflow interdependency. 2) Office Buddy. Office buddies are characterized by high frequency and little workflow interdependenncy 3) Visiting Relative. The visiting relative is a partner with whom you have low frequency, but high workflow interdependency. 4) Close Friend. The close friend is what you’d expect: high frequency, high workflow interdependency. For each segment, there is a corresponndin alignment strategy that represents an appropriate investment to align processes with a partner and overcome the extended enterprise challenges. The technology investment required to achieve a successful resolutiio of each challenge differs with each partner category: n The acquaintance requires a minimal investment in technology. n The office buddy requires technology investments that reduce transaction costs. n The visiting relative requires investments that support joint team collaborative tools and processes. n The close friend requires more significant investments that create seamless business processes. Investments should create common, transparent and interorganizzationa operations. These investments can also help support certification and incentive progrram and performance tracking. Automotive Applications This process of evaluating and aligning partner communities can be applied to automotive manufacturers and suppliers. An automotive OEM has several different partner communities, including: n Dealerships (sales channel). n Indirect suppliers (office supplies, factory-floor tools and supplies, paper towels and other consumables, etc.). n Direct and Tier N suppliers. n Contract manufacturers. Customers can also be considered a partner community. Through the dealersship the customer engages in a contracctua agreement with the OEM, just as the other partners engage directly with the OEM or Tier N suppliers engage with the OEM through Tier One suppliers. The customer plays a crucial and continuing part in the value network of the OEM extended enter-Continued on page 12 OFFICE BUDDY CLOSE FRIEND ACQUAINTANCE LOW INFREQUENT FREQUENT HIGH VISITING RELATIVE FREQUENCY OF ENGAGEMENT WORKFLOW INTEGRATION Level of Engagement Managing Supply Chain Interdependencies 12 January/February 2006 actionline on a less frequent basis for more modular components that don’t change too significantly from year to year, the supplier would tend to fall in the visitiin relative quadrant of the engagemeen matrix. As the OEM or Tier One enterprise outsources the design and manufacturing responsibilities to one of its direct suppliers, that supplier begins to move towards the close friend quadrant. Note that the indirect supplier most likely supplies some sort of commodittybased product. As a result, the indireec supplier operates in the office buddy or acquaintance quadrant, since transaction-based engagements require minimal workflow integration (simple order/inventory management) and frequeenc of engagement depends on how often the supplier’s product must be reordered. Promote Best Practices through Common Elements One partner community that the OEM and Tier One supplier may engage and evaluate differently operates on the demand side of the OEM’s or supplier’s value network. For the Tier One suppliier the demand side appears pipeliike consisting of direct sales to a relativvel small number of OEMs. The demand side for the OEM appears fanliike consisting of indirect sales to retail customers through dealerships. While they both have highly integrated workfllo with each of these partner communiities the OEM has a much larger transaction frequency with its dealershhi community due to the large numbbe of touch points with thousands of dealerships. According to the engagemeen matrix, the dealership lands squarely in the close friend quadrant. For the automotive OEM dealership community, the processes that it engages with the partner include sales incentives and promotions, parts trackinng customer service and inventory management. When alignment with the community does not exist, the infrastructure is geographically disperrse and the dealerships follow dissimilar business practices and host dissimilar business systems. To align with the dealership community, as indicated by the Extended Enterprise Challenges and Resolution table (see Table 1), the OEM needs to establish common operations, increase transparrenc into dealer operations, improve coordination of operations and establish incentive programs. By establishing best practices based on common elements across dealershiips the OEM can set a foundation for common operations. By launching a dealership portal, an OEM can provide a framework to build on that foundatiio and promote those best practices through business applications. A dealersshi portal can centralize workflow monitoring and control of data-driven transactions, such as sales, parts orderiin and service visits. All of this transacttio data is stored in centrally-locatee databases to ensure that all membeer of the OEM and the dealership community have access to the same data at the same time. More qualitative information (e.g., promotional and sales literature, technical bulletins, publisshe best practices for running a dealersship etc.) can be broadcast to the portal. The dealership portal also establishes common business systems for the community by hosting hardwaar and software at OEM facilities. In addition to centralizing data and information, business applications in the dealer portal can provide more transparency into the dealers’ operatioons For example, a dealer scorecard application can help establish performannc measures and incentives by tracking metrics, such as customer satisfaactio index or service satisfaction index, and maintain performance accountability. Other applications can provide visibility into dealership operatioons like parts tracking or salesinceentiv payments. Support from Organization and Process Changes Centralizing systems and information, as well as the increased visibility into operations provide the OEM and the dealerships with more accurate and relevvan data that can help the OEM make better decisions and better coordinate integrated workflows. By applying appropriate levels of security to portal access, the OEM can provide local autonomy and individual empowermeen to dealerships and their staff organizations. Dealer training and certificcatio programs, designed to ensure that customers receive consistent levels of high service from dealerships, can be implemented more efficiently at lower costs through portal applications that manage and deliver training online. A portal provides a technical solution to align the OEM its dealership communnity but the solution must be supporrte by organizational and process changes. Workflows should be reengineeere to take advantage of the portaal’ capabilities, rather than imposing technology that makes workflow more cumbersome. Requirements to maintaai and continually optimize the Continued on page 14 Continued from page 11 CHALLENGE RESOLUTION No direct control over partner Increased transparency leads to better decision-making and coordination with partner Value network requires flexibility Common operations reduce time and expense required to add/remove partners. Prisoner’s dilemma Incentive programs directly compensate partner. Cost to find, contract, and manage vendor is high. Common operations and improved coordination reduce costs. Table 1. Extended Enterprise Partner Challenges and Resolution 14 January/February 2006 actionline Managing Supply Chain Interdependencies dealer portal may dictate organizationaa changes. These changes include: n Creating a corporate entity dedicated to managing and supporting dealership applications. n Creating business partner councils composed of a subset of dealershiips which pilot new dealership applications or significant enhancements before release to the entire dealer community. n Implementing contractual requiremeent (For example, an OEM takes hosting responsibility for business applications and charges a dealer.). Although we’ve focused our discussiio on aligning a specific partner communnit on dealership communities, many of the proposed collaborative technologies and partner programs can also apply to similar communities. For example, from the supply side of the value network, the partner community of direct suppliers may resemble the fan-like structure of the OEM’s dealershhi community. Rather than a dealer portal, a supplier portal might help standardize business practices and systems and provide visibility into partner operations. Depending on which quadrant of the matrix best describes the supplier community, it might not be necessary or even advisable to launch a supplier portal that matches the scope of an automotive OEM’s dealer portal. A set of third-party, off-the-shelf online collaboration tools and corresponding processes may suffice to most effectivell engage with the supplier on joint team projects. On the other hand, for a large supplier community involved in many different interrelated, interorganizzationa processes, a full-blown supplier portal maintained by the OEM or a Tier One supplier might be necessaar to ensure that information and workflow operate efficiently among all suppliers and that all components maintain a consistent level of quality. Regardless of the stakeholder perspecctive the extended enterprise has emerged from technology innovations, replacing the traditional value chain with a value network that creates unique challenges. Rooted in complex relationships that exist among partners, these challenges require greater alignmeen between partner communities. Jeff Walter is president of Latitude Consulting. Latitude Consulting has been an AIAG member since 2004. Continued from page 12