Specific Characteristics Define Business-to-Business Supply Chains in the Manufacturing Industry
Digitalization has enabled consumer product supply chains take significant leaps during the past two decades. Information flows from one player to the next and the customer can observe the parcel’s journey almost in real time, using a computer or even a smartphone. Companies present in the ecosystem can estimate the supply, demand, and delivery times of products with high accuracy.
In a business to business (B2B) environment the situation is different. Consumer products are typically standardized and volumes high. In contrast, in B2B supply chains the products are tailored and volumes low. Products are often unique and targeted to a specific need. Also the purchasing process differs: you can buy a consumer product by clicking a couple of buttons on a webshop. Purchasing between companies takes longer and is more complex, often including for example tenders.
Balancing supply and demand
One central objective of the Reboot IoT Factory project’s second phase is to estimate demand in a B2B supply network. As in the consumer market, also in B2B supply and demand need to be balanced. In a business like this, where the product varies a lot, estimations take for example the order backlog, ongoing sales processes, and tenders as input.
Predicting demand is challenging, but it has to be done in order to evaluate future product configurations. Product configurations, in turn, have impact on the kinds of components and materials that need to be ordered by the manufacturer. And all this needs to get done in time so that the ordered products will be shipped according to the agreed schedule. In theory this problem would go away if everything imaginable was stored in the warehouse. In practice, however, this is not a realistic option.
Inventory management is a central process to be optimized in many if not all business domains. In B2B it is even more relevant than in consumer market. This is because the products vary so much, as mentioned above, and this would require maintaining even bigger an inventory. Naturally, B2B is not homogeneous and even within the Reboot IoT project there are different companies in this respect. For example Ponsse forestry machines are somewhat standard compared for example with KONGSBERG propulsion systems, where almost each product is unique. This is why it is enough for Ponsse to update its forecasts relatively rarely. The electronics contract manufacturer Scanfil, in contrast, needs new updates on a weekly basis.
Joint processes and information management in the core
There is still a long way to go until B2B supply networks are fully automated. Various players in the network typically have their own IT systems and interfaces between those are only partly implemented. That is why it is central to concentrate not only on technical integrations, but also on defining joint operating models and processes. The ecosystem needs to function on common rules and share enough information to guarantee that the products get shipped in time and as ordered.
There are roughly three main streams in a supply network: information flow, material flow, and money flow. The information flow is extremely important and has impact in the other two. Detailed and up-to-date information is crucial for the products to be manufactured and shipped as agreed. This is a basis for the money to flow from one company to another and profitable business to be made.
Jukka Majava, University of Oulu
Osmo Kauppila, University of Oulu
Text: Santtu Toivonen