Unity is strength


The service level, important element to generate added value in supply relationships, evolves towards new forms of integrated partnerships, which even include a common responsibility in the design of products and in the management of their production.

Roberto Papeschi

In the post-industrial economy that has taken shape in this new century, referring in particular to what happens in the most developed Countries, we are living a progressive dematerialization of activities, with the predominance of finance and services on the production of material goods. In particular, the manufacturing activity tends to become a mere “commodity”, accessible wherever there is availability of low-cost labour. In that context the importance of the so-called “added value” services increases. Services, in other words, able to add economic value to a mature business, which would be relatively poor in itself. This trend is significantly expressed by the opinion – today diffused among the scholars of economics – that “the main goal of products consists in spreading services”. And it is in services, in fact, rather than in the product, that today the economic margin, and then the profit of an activity, more and more often resides. Therefore, besides the services traditionally offered by the standard sectors of economy, with the typical activities of the public administration, of banks, of insurances, of communication and training, new services have gradually enriched in innovative way the offer of the manufacturing activities, based on the production and distribution of material goods.

Owing to the market globalization, the production of goods has lost great part of its importance, turning into just a “commodity” that can be allocated everywhere depending on the labour cost, while the added value of services has grown.

The driving case of logistics
Among aIl others, the logistics and distribution sector is the closest one to the production of material goods and it is then natural that it was the first, before others and in more extensive way, which developed proposals of added value services. These services have been initially developed in the three factory areas interested in the handling and stocking up of raw materials and finished products:
Inbound logistics, concerning the aspects related to the provisioning and storing of the necessary materials for production processes
Inbound logistics, referring to the supply of raw materials to production lines, to the transfer of semi-finished products among the various departments of semi-finished products and to the gathering, packaging and stocking of finished products
Outbound logistics, which concerns the various aspects regarding the delivery of finished products to sale points and to final customers

While in the first phases the collaboration with the logistic operator was limited just to the operations of transport of goods and products towards and from the factory, over the last twenty years it has progressively taken shape that integrated system, which has been called Supply Chain, with the participation of the operators of manufacturing and of logistics, which have integrated not only their activities but also their responsibility, in a strict partnership relationship.
The Supply Chain model, as it has been carried out, includes all the operators of the supply chain of materials, machining processes, products and services that share in the production of a physical good, from its initial conception up to its positioning on the market. Once defined the Supply Chain as a single production process, it started the optimization phase of the whole chain, which has seen the reallocation of the various activities among the different participants in the supply chain, with a particular relevance gained by logistics operators.
Therefore, the inbound logistics has been extended to the organization of the relationships with suppliers and to the management not only of transports but also of the warehouses of materials intended for factories. In some cases, logistic operators have even undertaken the task of collecting the materials from different suppliers, of carrying out some machining processes with their personnel, before delivering the so attained semi-finished products to the factory. There have been then some examples, especially in the automotive industry, where the inbound logistics itself of the factory, which includes the stocking of materials and their distribution to departments for the successive machining operations, has been entrusted to the same logistic operator in charge for the management of the inbound logistics.
In its turn, the outbound logistics has seen the enlargement of the process of delegation of business activities, entrusting the logistic operator with numerous working phases that traditionally constituted the final part of the factory’s productive process. In particular, this has concerned the packaging, the labelling and the storing of finished products, up to their completion with accessory materials, such as the documentation, to proceed afterwards with the sorting out and the transport of products to their final destination. In some cases, the logistic operator has been entrusted also with some phases of configuration and assembling of the finished product according to final customers’ orders.
This has happened in particular for the publishing sector products and, in even more innovative way, in the field of mobile telephony and of consumer information technology. In the latter case, they have even provided also for an activity of final testing, of installation and start up of the equipment at the final customer’s. Such collaboration has called for a strict integration of the respective information systems, between the producer of material goods and the logistic operator itself, which in some cases has also performed the task of the direct management of the delivery orders of products and of shipping documents, as well as of customs practices.

Logistics, thanks to the transversal character of its applications and to the numerous technologies that it uses, was the first sector that succeeded in taking advantage of the trend to outsource industrial activities.

Suppliers’ services
The double trend of offering and asking for services, which are added to the main object of the supply, has naturally involved also the more specific sector of manufacturing activities, which has witnessed the birth of a strict collaboration between the customer that produces manufactured items and its supplier of raw materials, semi-finished products and components. All that in a short-term market trend in which the big manufacturing enterprise has been induced to concentrate its financial and professional resources in the upstream and downstream phases of the production process, that’s to say in those phases that today are deemed strategic for the competitiveness of the company’s “core business”: marketing and product definition on one hand, distribution, marketing and the after sale service on the other hand.
With the main target of reducing fixed costs and of concentrating the corporate resources on the phases deemed strategic of the product life cycle, besides achieving a higher flexibility of the whole corporate system, companies have then started entrusting their suppliers with a series of activities that they carried out in-house in the past. The most relevant part of those activities has concerned the production and has involved the customary suppliers of semi-finished products and components. In this case the trend to outsourcing, put into practice by finished product manufacturers due to reasons of organizational simplification and of reduction of internal costs, has been coupled with the integration process of functions and with the increase of complexity which had been in course for a long time in the component sector.
The finished product structure, from the car to household appliances and up to audio, video and professional products, in fact, has changed in time with the formation of complex functional sub-systems. In this transformation have intervened the component producers, which have integrated a plurality of elementary components into a complex and functionally defined subsystem. In this integration process not only the added value of supplies has increased but the component producer has acquired transferred knowledge that was considered secret in the past and important competences regarding the finished product itself into which the subsystem was to be integrated.

The provisioning and the stocking of materials was the first area in which logistic activities have been integrated with production ones, giving rise to the modern management of the “Supply Chain”.

It is in this phase that springs the functional need, together with the economic convenience, of involving the component producer in the devising and in the design of the finished product. The availability of powerful information solutions for the communication and the shared design favour, on the other hand, the transformation of the supplier into a partner. A partner that strictly collaborates with its customer in the management of a shared business that covers various phases along the whole product life. From the activities of co-design, which sees the supplier to take part in the definition of the product and of its parts in creative way, up to the collaboration in the production management, with just-in-time supplies according to a shared scheduling that can be modified in interactive way, through the integration of the respective information systems.
The convergence of interest between customer and supplier creates an atmosphere of participation, transforming the supply contract, in which the price and the quality of the component are elements by now given for granted and determined by the market competition. More and more often, in such context, the choice by the customer of its supplier depends on the contribution of ideas that the supplier itself can generate during the product design. According to this vision, the supplier is expected to be able to listen to, to understand and to interpret the requirements, even unexpressed, of its customer, in this way contributing in the common success with the heritage of its knowledge and competences, being favoured in that by its presence in the global market and by the experiences gained with other customers, too.

Strong point of the integration of activities into the “Supply Chain” is the participative collaboration among the various partners that take part in the management of a shared business.

The experience of industrial districts
In the creation of integrated supply relationships it was of fundamental importance the experience of Italian industrial districts, just as they have developed in the form of a Piedmontese automotive pole, around Fiat, and as regional poles of household appliances in Lombardy, in Veneto and in Marche, referring to the main brands of the “white goods” industry. The success of these districts, studied also abroad as original and winning model of distributed productive organization, was based on the presence of a product leader company at the heights of a supply chain, formed by small and medium enterprises that constituted the induced activities of that company on a territorial basis.
In the Italian industrial district, the leader company was not only the main customer of the chain enterprises, but it constituted also their reference model in terms of business culture, performing towards its suppliers a tutoring action and transferring them the basic knowledge concerning organization, working methodologies, technologies, production quality and service level. In this way it has been favoured the organizational, cultural and professional growth of the supply chain enterprises according to a partnership vision.
With the market globalization and the consequent productive delocalization, the reality of Italian districts as territorial aggregation between a leader company and its induced activities has been affected by a crisis. In few cases, in fact, the finished product companies that have decided to produce abroad, have promoted the displacement into the new productive sites of the companies of their historical induced activities. In most cases they have instead preferred finding local suppliers, often favoured by lower labour cost and by the geographical proximity with the finished product factory. On the other hand, the supplier itself has hesitated, when it was possible, to follow its customer in another country, facing huge transfer costs without having anyway the guarantee of the continuity of the supply relationship.
Nevertheless, the experience of Italian industrial districts has not been completely lost. The most advanced enterprises in the induced activity sector, once become orphan of their reference partner and industrial tutor, have in fact started operating in the global market, looking for new opportunities everywhere, relying on the competences that they had succeeded in acquiring until that time. In the relationships with new customers, they have naturally brought their bent for partnership, together with the habit, by now gained in Italian supply chain experiences, of providing high service level together with the product.
The high productive specialization, the technological competences and especially the capability of being partners in the co-design of products, with a substantial creative contribution in the solution of problems that the Italian producers of components were able to offer, have been elements that in lots of cases have constituted the competitive difference in comparison with local suppliers recently established. It was, in fact, an added value that included deep functional and technological competences concerning the finished product to which the component was dedicated, together with the expertise regarding the most advanced production systems of household appliances and of their parts, of which Italy is still today the Country that holds the absolute leadership in the world.

The transformation of the supplier into partner provides for its creative participation in the product design definition, up to including the management of its production with JIT modalities.

The new global districts
In the global supply market, the conditions for new relationships between customer and supplier are rapidly arising. If in a first internationalization phase it has, in fact, prevailed the pursuit of the lowest prices in absolute, thus resulting in the generalized success of Asian suppliers favoured by low production costs, the complexity of the supply chain and numerous negative experiences have convinced lots of finished product manufacturers to retrace their steps, evaluating in more realistic way the supply risk.
Not always, in fact, the quality of supplies turned out to be suitable for the severity of the regulations of the most developed Countries, in particular referring to the European market. Besides, the interaction with the supplier of components in the definition of the demanded characteristics often proved to be difficult, owing to problems springing from the differences of language and culture. Finally, the service level of local supplies in terms of flexibility and timeliness of the delivery, as well as of minimum batch size, did not correspond to what the finished product factories were accustomed to obtain from traditional suppliers. Most of all, the local suppliers of rising markets were not absolutely able to contribute, as partners, in the development of products.

The logic of Italian industrial districts, which, thanks to the synergies that they have developed, have been considered a successful case on a world scale, can be extended to international level, connecting one another also companies of different Countries, with the aim of optimizing supply chains.

This situation has favoured the most evolved component producers, which have operated in the global market looking for new alliances, not only with the new producers of household appliances of rising markets but also with other enterprises of the supply chain, in order to develop synergies and to improve their presence in the territory through the union with them. The traditional industrial district, born in Italy on provincial basis, has so spread on an international scale, with partners from different Countries but anyway selected according to their reliability, maintaining the previous organizational and cultural model in order to preserve the original characteristics of great efficiency and flexibility, together with the capability of providing an inimitable service level.