Perhaps the most compelling attribute of today’s business environment is its accelerating change.

The speed and scope of the digital revolution, embodied by the ubiquitous and triumphant internet, has transformed commerce more completely than any development since the Industrial Revolution. And, as every CEO knows all too well, that transformation continues a daily, hourly, or minute by minute.

In these dynamic and often volatile times, where technologies and markets have forced a company to extend not only beyond its “four walls” but also beyond its traditional local, regional, or national borders, the ability to compete successfully depends increasingly on the networked performance of the supply chain. As Stanford University Professor Hau Lee has described, “The battle for market supremacy will not be between enterprises, but between supply chains.” And in this battle, it’s no longer the big beating the small, but rather the fast and accurate beating the slow and imprecise.

Which Supply Chains Will Reign

In the new economy, organizations will be measured more on agility and their ability to work with trading partners and to respond quickly and efficiently to customer demand than by traditional brick-and-mortar figures. Measures like asset utilization are giving way to new “parametrics” like collaborative capability, time to response, and cash-out to cash-in cycles.

In a world where everything seems accessible from the click of a mouse, customers want what they want, when they want it; and if a company can’t provide it, you can be assured they’ll find a provider who can. Add to this an increasing desire among customers to be involved in more than the purchasing process and the abundance of choice now at their fingertips, and demand becomes increasingly less predictable.

Such volatility in demand is causing a “whiplash effect” throughout many supply chains. In these traditional structures, the supply chain is not networked but rather layered or tiered, with one organization receiving data from the next in line, then passing it along to the next in line, and so on. Every step in the process has an incomplete view of the whole, and the resulting “whiplash” through tiers of suppliers results in bad and poorly understood inventory.

Why Adaptive Control Is Needed

Adaptive control is the ability to adapt a company’s processes to seamlessly manage unplanned events using real-time data and exceptions based analysis to meet customer needs. Organizations today center their businesses on relationships, a dramatic move away from the era of monolithic organizations where the control of internal assets guaranteed viability.

The latter approach, embraced in the 70s and 80s through vertical integration, has become a path to oblivion as technology has leveled the competitive field, eliminated traditional market boundaries, moved the customer closer to the center of business processes, and shifted the base from which companies compete from production to knowledge. These changes have resulted in nothing less than a new way of doing business.

In this new business paradigm, which Gartner Group has termed collaborative commerce, seamless communications between the company, its trading partners, customers, and any intermediaries involved in the order-to-fulfillment-to-financial-settlement cycle is essential to managing change and maintaining competitive standing. Simply put, businesses today are based on relationships, and relationships need networks to facilitate them: communications networks, financial networks, and logistics networks.

Real Time, Bottom Line Benefits

Depending on the type of company, inventory can account for up to 40% of the cost of doing business, especially when transportation elements and other factors like carrying costs and administration are added into the equation. Since input into this network is provided in real time, a company doesn’t have to estimate inventory status, enabling it to maintain tight control by responding to needs through dynamic collaboration with suppliers and customers. Using this strategy, the “to market” model changes from push to dynamic-demand-pull as customers plug directly into the network to drive supplier activity.

In today’s markets, the ability for organizations to compete with others really comes down to how well they adapt to the needs of their customers. Increasingly, this comes down to speed. When a company gets an order, it needs to source, and that sourcing may be bid among several competitors. More often than not, the allocation of that bid depends on who can fill the need fastest.

Companies using batch or other supply chain planning processes have to “trick the system” by predicting demand. As all industries move toward mass customization or make-to-order requirements, this is an increasingly difficult task. Companies using adaptive control have a powerful competitive advantage in these instances. By sharing demand data in real time across their supply chains, their sensory network responds to genuine demand, enabling faster response with leaner inventories.

Where Global Business Is Going

Almost everyone in logistics has been focused on production-focused planning. The problem with this is that it misses what logistics is really about. Everyone in logistics works within a network of relationships. Most companies have mapped out their business and financial relationships and established some kind of network to support them. What they failed to do, however, is to build a communications network that allows for the movement of data that corresponds with the movement of goods, and expanding this to a logistics network that links information about the movement of goods with the actual goods. This is adaptive control.

Regaining control of supply chain logistics is really a straightforward problem. Its resolution requires the building of delivery networks that account for all transactions, inbound and outbound, in the supply chain. Three fundamental elements are necessary to do this: 1) source data collection, 2) real-time demand and control, and 3) incremental optimization.

Superior software products allow the company to pull or poll network data by whatever means a network member communicates: wireless, e-mail, EDI, XML, fax, phone, GPS, GSM. Furthermore, semantics resolution is critical. In a logistics network, there could be 100 different XML community standards. So, to achieve a true sensory network, you need a library that supports all different standards that exist.

Much of the current turmoil in the high-tech sector can be directly related to the loss of supply chain control. Some manufacturers who thought they had six weeks of inventory have suddenly discovered they have a year’s worth and they don’t know where it is. That’s the kind of whiplash that goes all the way to Wall Street.

The good news is that most companies are beginning to realize that traditional supply chain planning systems cannot cope with the pace of change in today’s dynamic global marketplace. As this understanding takes root, a new focus on logistics will move enterprises from reactive systems toward real-time adaptive control. As this occurs, performance will improve, and adaptive logistics will have broad-scale benefits for all who use it. wt