Adapt or Die: Turning Your Supply Chain into an Adaptive Business Network

Overview

Cut costs and control inventory an adaptive business network

This book introduces the adaptive business network, a new method of business interaction that offers the ability to respond swiftly to changing market conditions, increase revenue growth, and lower overall cost. In Adapt or Die, the experts from SAP provide a thought-provoking road map to a new business world in which companies are linked together by uniform business processes and standardized software (uniform ...

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Overview

Cut costs and control inventory an adaptive business network

This book introduces the adaptive business network, a new method of business interaction that offers the ability to respond swiftly to changing market conditions, increase revenue growth, and lower overall cost. In Adapt or Die, the experts from SAP provide a thought-provoking road map to a new business world in which companies are linked together by uniform business processes and standardized software (uniform business processes and standardized software leaves me the impression of being rigid and inflexible, which is contrary to what were trying to say in the book). An adaptive business network allows companies to more precisely control inventory, quickly add or drop trading partners, and produce products and services that mirror actual customer demand.

Adapt or Die explores all the vital aspects of the adaptive business network, including:

  • The benefits for your business
  • Ways to prepare your company
  • Implementing the adaptive business network in four steps
  • Its application to specific industries
  • The changes the adaptive business network will bring to the future of business
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Product Details

  • ISBN-13: 9780471265436
  • Publisher: Wiley
  • Publication date: 12/1/2002
  • Edition number: 1
  • Pages: 256
  • Product dimensions: 6.25 (w) x 9.30 (h) x 0.85 (d)

Meet the Author

CLAUS HEINRICH, PhD, is a Member of the Executive Board of SAP AG, where he is responsible for a range of critical internet supported enterprise software solutions, including mySAP.com applications for supply chain, product lifecycle, and human resources management, as well as for finance and accounting. Heinrich serves as Vice Chairman of SAP's Product and Technology Board and is also responsible for human resources and labor relations at SAP AG. Claus Heinrich has been a member of the Management Science faculty at the University of Mannheim since 1988 and teaches there in the field of supply chain management.

BOB BETTS has worked in the information technology field for over twenty years, on projects including the first- and second-generation IBM PCs, the World Wide Military Command Control System, the NASA Hubble Space Telescope, and the NASA Space Station Freedom. Since 1985, Betts has worked globally as a company employee and as a consultant on supply chain and related business issues.

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Read an Excerpt

Adapt or Die

Transforming Your Supply Chain into an Adaptive Business Network
By Clus Heinrich Bob Betts

John Wiley & Sons

ISBN: 0-471-26543-8


Chapter One

In Search of the Holy Grail

Make voyages. Attempt them. There's nothing else. -Tennessee Williams

It's a simple fact: The rules of business have changed.

In the New Economy, it's all about speed and service. With today's instantaneous availability of information, new cultural trends can take hold globally within weeks-and fade just as rapidly. With technological advances occurring at such a pace, new products quickly gain in popularity, only to be replaced by more advanced gadgets.

What's more, customers are unwilling to settle for mass-produced items and plain-vanilla services. They want specialized products in the size, color, and shape they prefer. They expect these products to show up at the exact time and place they need them. To keep up, companies must anticipate changing market conditions and produce a greater variety of customized products in the rapid time frames customers expect.

The challenge for business has always been to get the right products and services to the customer at the right time and at the right price. It's an ever-greater challenge with today's accelerated pace. Corporations face a whirlwind of change, highly variable demand, and shifting economic, geographic, and political influences. Businesses no longer have an option: They mustadapt to survive.

What happened during the dot-com crash to Cisco Systems, the leading supplier of telecommunications equipment and Internet routing infrastructure, provides a good example of the importance of being flexible as market conditions change. When business was booming in the 1990s, Cisco signed long-term contracts with suppliers committing to inventory and production capacities months in advance. This allowed Cisco to speed shipments of products to customers and maintain profitability.

The approach worked well when times were good and sales were strong. But when the economy started to slow and many of the start-up telecommunications companies and Internet businesses Cisco served went out of business, the company suddenly found its warehouses full of obsolete routers and other networking equipment, with payments due on contracted capacity commitments. Cisco suddenly became painfully aware of the need to quickly adapt to anticipate potential market shifts. Once they occurred, the company lacked the ability to respond to them in a timely fashion.

This inability to comprehend what was happening and respond quickly cost the company dearly. Cisco's revenues dropped 30 percent in the first quarter of 2001 over the previous three months, and the company announced it would lay off 8,500 workers and write off $2.5 billion in excess inventory.

The situation wasn't unique to Cisco. Many high-tech companies were caught off guard by the dot-com failures. Although market changes will always be difficult to predict, companies can no longer afford to run their businesses assuming that market conditions won't change or will change at the same pace as yesteryear. To play by the new rules of today's fast-moving economy, businesses need mechanisms to allow them to swiftly react and change direction-even when they cannot foresee what lies ahead.

The Current Business Climate

Today, businesses face a number of key challenges:

* Globalization Demands Ever-Quicker Response Times. For most companies, it is no longer sufficient to have an international presence with stand-alone bureaus in multiple countries. A company's operations, products, and employees must now be coordinated globally yet enable local operators to react to local market conditions on a local basis. The complexity of operating on a global scale requires that organizations have the infrastructure in place to "follow the sun" 24 hours a day, seven days a week, worldwide. Companies are doing business with new partners in unfamiliar languages and distant time zones. They are employing workers in different cultures with different work habits and legal protections. They are competing with companies, products, and ways of doing business that may be completely unfamiliar. And they are branching into new and unfamiliar markets. Meeting these challenges requires that businesses respond quickly and communicate instantaneously across all their operations worldwide. * Industrial Production Capacity Exceeds Demand. Improvements to manufacturing processes have resulted in a situation where many industries now produce more goods than the economy has the capacity to consume. Moreover, the speed at which companies can add new production capacity outpaces the speed at which new markets develop. As a result, companies are increasingly finding themselves in a position where they cannot sell enough products to keep ahead of working capital, additionally, these companies look for ways to market the excess capacity through collaborative activities with companies that may require additional capacity. To thrive in this environment, companies must identify new, creative opportunities to market their products. * Working Capital Is Increasingly Limited. The expectations of capital lending institutions have changed, creating a more competitive environment for access to working capital. Today, institutions are focused on earnings per share and price-and-earnings ratios (P&Es), and prefer sustained, quick-turnaround returns over long-term investments. Companies are forced first to fight for capital, and then to focus on business practices that stress short-term performance in an effort to deliver positive quarterly results, even if these actions are not in the best interest of the long-term viability and health of the company. Companies need to find ways to borrow less working capital and use it more efficiently. * Consumers Have Higher Expectations Than Ever Before. Consumers have become accustomed to getting what they want, the way they want it, right here, right now. Mass-produced goods and services no longer suffice in a climate where consumers increasingly expect customized goods and services to be tailored to their unique taste. For instance, cable TV brings in hundreds of channels 24 hours a day. But even so, consumers are increasingly turning to digital recording devices like TiVo, which allow viewers to personalize their cable programming into their own "channels." For example, the machine can be programmed to record only Star Trek reruns, Italian soccer games or all the films in a given week that star Audrey Hepburn.

But it's not just entertainment. Consumer expectations are higher than ever across a broad spectrum of industries. For example, 20 years ago travel by airplane was expensive, time-consuming to arrange and restricted mostly to well-dressed business travelers. Today, nearly everyone can afford to fly, and customers instead have turned to complaining about the food, how long it takes to reach their destination, and how crowded the planes are. Today if customers don't find the price they want, or the flexibility in layover stops and flight times, they frequently will seek out another competitor.

These factors-increasing globalization, excess capacity, reduced access to capital, and higher customer expectations-present new challenges for business. To meet these challenges, companies need to be more adaptable and flexible than ever before. They need to develop quick response times on a global basis. They need to develop new markets for their products and borrow working capital more efficiently. They need to adapt to keep up with their competitors and to respond to changes in customer demand. In the New Economy, speed and variety are key. Although some companies have made strides in meeting growing expectations, many businesses are struggling to keep up with the pace (see Figure 1.1).

The Same Old Response

In response to these changing business dynamics, many organizations have tried to either grow from within as vertically integrated companies or assemble smaller companies into massive corporate conglomerates. Management teams continue to focus on a variety of business efficiency initiatives that are confined to fixing problems solely within the four walls of their company. Some have sought mergers and acquisitions or other equity vehicles such as joint ventures as the best route for adapting to changes in the business environment.

These attempts at reaching the Holy Grail of business most often fall short of this goal on one account: They don't provide the flexibility that organizations need to succeed in today's fast-moving economy. Companies keep paving the same stretch of road again and again, hoping the new asphalt will make their journey more comfortable (Figure 1.2). As it turns out, the shortest route is often somewhere else entirely. The problems have shifted, and the old rules no longer apply.

What's needed is a new approach that provides the flexibility required to adapt to the rapid pace of today's business world, and extends beyond the company's walls. In the New Economy, a company's success no longer depends on how efficiently it operates in isolation, but rather on its ability to form flexible interdependent relationships with its partners, both customers and all suppliers.

Keeping Everything Under One Roof

The classic vertically integrated company owns and operates most or all of the elements of its supply and distribution system. It is usually a collection of smaller divisions and wholly-owned subsidiaries operated as a single company. Each of these is responsible for producing a component, a product, or a service that goes into the finished offering of the larger company. Many companies are managed as top-down hierarchical structures. Management decisions are passed down the authority ladder to the company's operation level (Figure 1.3).

A wood products company such as Weyerhaeuser Co. provides a good example of a vertically integrated company. Weyerhaeuser controls a supply chain that literally goes from dirt to consumer, and it owns almost all of the component industries in between. As of December 31, 2000, the company owned or was leasing 38 million acres of woodland in the United States and Canada. From this land, timber is harvested and shipped on Weyerhaeuser-owned logging trucks to Weyerhaeuser lumber or pulp mills. The resulting lumber or paper is shipped, on Weyerhaeuser trucks, to distributors or to a Weyerhaeuser building site. Weyerhaeuser also owns and operates a real estate and land development company, which specializes, unsurprisingly, in building wooden houses.

On the other hand, a conglomerate is a centralized corporation that acts something like a holding company. It comprises independent companies managed as stand-alone entities, though the central corporation provides some direction and strategy and, in some cases, a unifying brand.

Philip Morris Cos. Inc., a multinational tobacco products company, is a conglomerate. In addition to making cigarettes, Philip Morris owns a stable of prominent food and beverage companies-including Kraft Foods, makers of Kool-Aid, Oreos, and other confections, and Miller Brewing Co., makers of Miller beer-which are managed as distinct brands. Philip Morris remains the "silent" owner, while the companies are allowed to pursue their own marketing opportunities.

A conglomerate like Philip Morris is similar to a vertical company like Weyerhaeuser in that they are both hierarchically integrated, inherently slow to respond, and normalize on the least radical thought. Companies of all types, whether they are like Weyerhaeuser or Philip Morris, need to adjust their structure so they can adapt to ever changing market conditions.

Historically, the business strategy of keeping everything under one roof was a competitive choice as companies sought to attain critical mass. In a time when access to resources and availability of distribution networks were a problem, the vertically integrated company and the conglomerate were the most efficient operating structures. The strategy allowed companies to maintain control over all facets of supply and distribution related to their products. Companies were able to increase their reach by expanding to provide an entire supply chain's worth of goods and services. Because the companies owned all the units within the supply chain, they could control where raw materials came from and how products were delivered to the consumer. Owning everything also gave them close oversight of costs and allowed them to maintain a consistent level of quality, which in turn made it possible to develop a solid reputation for their product brands.

Today, however, this is an expensive, inefficient, and risky way of attaining corporate reach.

Continues...


Excerpted from Adapt or Die by Clus Heinrich Bob Betts Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Introduction: When Bad Things Happen to Good Companies.

Chapter 1: In Search of the Holy Grail.

Chapter 2: Seeking Partners for Greater Competitive Advantage.

Chapter 3: The Adaptive Business Network Vision.

Chapter 4: Roles and Responsibilities within the Network.

Chapter 5: Preparing for an Adaptive Business Network.

Chapter 6: Step One—Visibility.

Chapter 7: Step Two—Community.

Chapter 8: Step Three—Collaboration.

Chapter 9: Step Four—Adaptability.

Chapter 10: The Adaptive Business Network in Practice.

Chapter 11: Future Implications of Adaptive Business Networks.

Glossary.

Notes.

Bibliography.

About the Author.

Index.

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