Over the last decade, increased outsourcing and alliance-building have made it harder for manufacturers to spot brewing supply chain glitches. The result? When unexpected supply chain events arise, manufacturers switch to firefighting — a defensive mindset that carries a hefty price and often leads to more damaging outcomes. But according to a new Forrester report, “Adapting To Supply Network Change,” emerging technologies will enable manufacturers to sense and respond proactively to unanticipated variations in supply and demand — and transform their static supply chains into what Forrester calls “adaptive supply networks.”

Forrester defines adaptive supply networks as business networks of supply chain partners that use technology to sense and respond in a coordinated fashion to changes in their environment. These supply networks will boast self-regulating capabilities akin to today’s energy and telecom transmission networks. The transformation of today’s linear manufacturing supply chains into adaptive supply networks will be supported by emerging technologies like Web services, extended Internet, and intelligent agent software.

“Today’s sequential and linear approach to supply chain optimization has led to a situation where firms can’t sense, let alone respond, to unplanned supply and demand variations,” said Laurie M. Orlov, research director at Forrester. “For instance, major apparel makers have witnessed their well-planned launch efforts for hot new clothing lines go awry because of the amplified effects of a yarn producer’s shop-floor problem four tiers deep within their supply network.”

Adaptive Supply Networks Defined

At the heart of adaptive supply networks is a continuous, technology-enabled adaptation cycle that will help manufacturing partners proactively detect emerging risks and opportunities, expedite exception resolution and capture opportunities, and continually improve their operational processes. This cycle is composed of three iterative steps:

  • Sense and interpret. To predict future risks and opportunities, manufacturers will identify, assemble, and continually track directional indicators that measure operational performance — and alert partners when a major deviation is detected.
  • Decide and act. Upon notification, partners will decide which action plan is most appropriate under current conditions and then rally shared resources.
  • Learn and transform. Partners will turn exceptions into insights and into change, altering their organizations’ underlying processes and objectives and reshuffling their coping strategies portfolio to better handle similar situations in the future.

“The ‘learn-and-transform’ step is key here, because unless you tackle the root cause of a supply network exception, you won’t be able to prevent its reoccurrence,” notes Navi Radjou, senior analyst at Forrester. “To eradicate their supply network woes, manufacturers must learn to correct exceptions in ways that involve modifying their organizations’ underlying processes, policies, and objectives.”

For instance, PC makers today tend to respond with a knee-jerk reaction when faced with an unexpected demand swing: They ramp up capacity and expedite shipments. But in adaptive supply networks, a PC maker will be able to detect and resolve the root cause of its demand spike: miscommunication between its marketing department and its production staff.

As manufacturers embark on the journey to adaptive supply networks, they will hone their continuous process transformation strategy by exploiting three successive waves of technologies.

  • Web services. This software, designed to be used by other software via Internet protocols and formats, will strengthen the weakest links in manufacturers’ supply networks and cost-effectively connect with a dynamic array of partners (hypergrowth expected by 2003).
  • Extended Internet.The extended Internet is an integral part of what Forrester calls the “X Internet” — Internet devices and applications that sense, analyze, and control the real world. Manufacturers will tap the extended Internet to raise their supply network processes’ real-world awareness through the use of sensors and smart tags attached to physical assets (hypergrowth expected by 2004).
  • Agent-based software. Intelligent agents will automate the resolution of supply network exceptions and improve learning (hypergrowth expected by 2006).

Forrester expects enterprise software vendors to rise to the challenge of adaptive supplynetworks by tapping these three emerging technologies to develop new applications and services that let manufacturers sense and interpret unplanned events, improvise action plans, and learn to transform exceptions into insights into change.