Logistics and Supply Chain Management, 4th Edition

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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Supply chain orchestration

With the emergence of the virtual organisation and the extended enterprise comes

a heightened requirement for some way of managing the complexity that is inevi-

tably created. Consider for a moment the difference between the supply chain at

Ford during the time of Henry Ford with Ford’s supply chain today. Henry Ford

had an integrated supply chain because in effect he owned most of it. As well as

manufacturing the vast majority of all the components that went into the vehicle,

the company also owned steel mills, rubber plantations and mahogany forests!

Today’s Ford could not be more different. Most of the component manufacturing

business was floated off as a separate company, Visteon, and the steel mills have

long since gone. Instead Ford is at the centre of a network of specialist service

providers, first tier suppliers and collaborative alliances. The task of managing,

co-ordinating and focusing this value-creating network might usefully be termed

supply chain orchestration.

The idea of orchestration is that there has to be a common agreed agenda driv-

ing the achievement of the supply chain goals. This itself implies that there must

be a supply chain strategy that is subscribed to by the entities in the chain. By the

very nature of things, the orchestrator will probably be the most powerful member

of the network, i.e. a Wal-Mart or a Dell, but not necessarily. Innovative organisa-

tions can utilise their superior supply chain capabilities to act as orchestrators, as

the Li and Fung case study below demonstrates.

Li and Fung: supply chain orchestrator

Li and Fung (L&F) is a long established Hong Kong-based trading company,

orchestrating one of the largest and most successful of all outsourced manufac-

turing networks. It supplies apparel, accessories, sporting equipment, household

goods and toys to retail chains located mostly in North America and Europe.

L&F does not manufacture anything in-house, but as network co-ordinator

it oversees the manufacturing and delivery processes end-to-end. Its modus

operandi is, however, in sharp contrast to automotive industry-style supplier man-

agement programmes. L&F does not micro manage or monitor each and every

process of a handful of first tier suppliers. Nor does it control its network through

intricately worded contracts or sophisticated IT capabilities. The secret of L&F’s

success is that it has learned how to manage outsourced operations through

hands-off relationships with over 7,500 trusted and very specialised manufacturing

organisations, working with up to 2,500 at any time. L&F’s suppliers are located

in around 40 countries, stretching across South East Asia, into China, the Indian

subcontinent, the Mediterranean, Africa and across to the Americas. Together the

suppliers represent a highly flexible and highly skilled resource pool, able to meet

the requirements of almost any customer. L&F ensures their loyalty by pre-booking

between 30 and 70 per cent of the selected suppliers’ capacity each season and

rewarding high performers with more business.