Competitive pressures surrounding changing customer needs are growing.
Customer demand for products that meet needs in a rapidly and ever-changing world is growing. For product and service companies, accelerating expectations have created a point of competitiveness that can quickly determine whether your company survives.
Because every company and all consumers today face rapid change, and expect rapid improvements in products and product capabilities, we no longer have the luxury of spending three years to develop products to meet those needs and expectations. For consumer products, for example, by the time a product is developed under such a system, customer needs will have changed and your product will be obsolete.
These changing needs and expectations have a tremendous impact on supplier and partner management. If you're in a situation in which you need to get new products to the market in under a year, say, then you need to find partners and suppliers that can match your rapid rate of development. Many potential partners and suppliers know this, too.
Together, you can take advantage of technologies that allow you to interact at high speeds. Web conferencing, for instance, can allow you to put a 3D model up and spin it for your partner in Korea. They can see it, and you can agree to cut things away, dimension it and discuss technical issues like that in real time.
Agile development systems and rapid prototyping are changing the speed and nature of product development.
\The software world has really changed in the last five years through agile and scrum development techniques. Instead of spending a lot of time defining a product, then freezing the definition and spending a year or two years meeting all those requirements, they have moved to a series of short sprints. In two weeks, let's say, you develop a piece of software that a customer can use, and then you try it out with customers. They'll have more things for you to add. They will like this and not like that. So you do another sprint, and then after maybe 10 sprints you've gotten to a marketable piece of code.
In the hardware development world, that approach is problematic because the time frames for sourcing or developing parts can be too long. But now the hardware is catching up in speed, and one of the key technology advances is 3D printing. If you want to make a model of something, you can quickly build a virtual 3D model and have it printed on a 3D printer. On the same day, or in a few hours, you can have a very complex model that you can touch and feel; something that used to take weeks or even months for many kinds of parts before.
Similar kinds of rapid prototyping have become available in other technologies. For instance, in electronics you can get a big, complex PC board prototyped in just hours. Even at the chip level, it used to take six months to get an application-specific integrated circuit, an ASIC. Now you can get something called gate-arrays, or other kinds of devices, that you can program up just like an ASIC and have something running in weeks instead of six months. Chemistry has become another field in which you can prototype things very rapidly.
Now, people are starting to work on ways to synchronize these software sprints with hardware sprints and do rapid prototyping to get beta products out there to see what customers think about them.
Social media are changing product development supply chain processes.
Most companies are beginning to worry about how social media are going to affect them. Right now we're at a stage in which many companies are afraid that other companies are ahead of them in social media. They sense that companies are using social media to improve their product requirements and to get parts and to get new ideas. This belief leaves them wondering: Who do we talk to? How do we use social media for our development, marketing and manufacturing? For most businesses this phenomena is a whole new lion out of the cage, and people just don't know how to tame it yet.
But people are working on it. In product development, some companies are beginning to insert a social aspect in their product development processes. Young engineers operate in social media for almost everything. One young engineer noted that he didn't even have supplier catalogs for determining available specification for parts. He just got on social media and asked questions like: "Hey, what's the best oscilloscope that you use for this purpose." When answers come back he clicks through to relevant websites and compares products. Then, he goes back to social media to see who's commented on and reviewed the products. In about an hour he's got all the information he needs to order it online.
People don't really care where they get the best information, so long as they get it. And the use of social media definitely does affect partner management and the supply chain, but, frankly, nobody knows quite how it will stabilize yet. There is a lot of room for innovation here!
Technology industries have moved away from vertical integration and toward broadly sourced partnerships in product development and manufacturing.
The trend for the last 20 years now in manufacturing, and particularly around hardware-software systems, electronics and high-tech kinds of manufacturing, has been to move away from vertical integration – where one company does everything from design through manufacture. In the 1970s, some firms were so vertically integrated that they even manufactured their own, specialized screws and fasteners.
Today, it's gone to the total other end of the spectrum in which most companies do very little manufacturing that belongs to them. If they do any, it's usually final assembly of major components that they get done by captive manufacturers. In the extreme, a few companies outsource almost everything, just taking orders and controlling the flow of finished goods from suppliers to customers.
Basically, everybody needs to depend very heavily on suppliers and partners. They depend not only partners for manufacturing, but partners for development. Most people don't even do their own product development anymore. They use their own posse of outsourced manufacturers; they call them ODMs (outsourced design manufacturers). Companies look for partners that already are experts in their product areas. Very often these companies are in southeast Asia, China and Eastern Europe because they can do the job more cost-effectively.
The new approach, of course, places added emphasis on a company's ability to source, qualify and manage supply partners. Often, companies use "seat-of-the pants" ad-hoc processes that could be improved greatly.
Global sourcing is changing the supply chain process.
It is no surprise that competitive price pressures have pushed companies to look all over the world to find the best suppliers, the best parts and the best partners. Companies, even the tiny ones, no longer think locally. About 85 percent of the sourcing and manufacturing has moved to southeast Asia and China.
Some manufacturing and sourcing is moving back to western countries as the wages in those Asian nations catch up with western wages, but the main trend is to move-on to the next low-cost region, such as Vietnam and the Philippines. Sourcing has also moved to Southeast Asia and China as well, so supply chain knowledge and best practices are moving to that side of the world.
When the West first started outsourcing manufacturing to southeast Asia and China, the whole idea was that the knowledge and the intellectual property, or IP, would stay in the U.S., Europe and Japan. The other countries would supply low cost labor and possibly low cost capital facilities. But more and more we are transferring the knowledge and the IP to these Asian countries and China as well, so that they can develop their own next set of products for us.
What the West is really good at that the Asian countries have been unable to duplicate is creativity – the Steve Jobs effect, in which you introduce entirely new classes of products that nobody ever thought of before.
The other change happening now is that the focus for offshore sourcing and manufacturing is shifting to new countries. As the standard of living – measured in salaries and cost of living – in places like China go up, people are looking to new hotspots like Vietnam and the Philippines. The same shift happened years ago when cost of living and average salary in Japan caught up with the U.S. Additionally, the shift is accelerating away from China over concerns related to official corruption, intellectual property theft and increasing costs.