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 Supply Chain Frontiers issue #6. Read all articles in this issue. 

During the heady days of the Internet bubble it was predicted that e-commerce would open the way for closer supply chain collaboration, involving tightly integrated trading communities that share risks and rewards and compete as seamless entities. That vision now seems utopian, but what has replaced it? The question is redundant, according to Dr.Gabriel Bitran, Chair Professor at the MIT Sloan School of Management, because the alternatives are already here.

The idealized view of supply chain collaboration persists, according to research carried out by CTL Research Associate Mahender Singh (see MIT Supply Chain Frontiers, issue number 5, December/January 2004-2005). As part of the MIT Supply Chain 2020 project, he reviewed predictions of the future shape of supply chains as reported in 46 publications.

"There seems to be a consensus that different organizations will gel together to form virtual organizations that will ramp up or down to meet demand as needed," Singh said. In this scenario customers take total control over the creation and delivery of services, and there is a "presumed environment of total trust and commitment from all involved in the creation of such alliances."

Research being carried out by Bitran shows that events have overtaken the "total trust" vision of supply chain collaboration. Organizations should be looking beyond this vision because the future is here in the shape of a new generation of market players, he believes.

Electronics manufacturer Flextronics is such a player. As Bitran explained, the company was created to fill a gap in the market for contract manufacturing and design expertise. Unburdened by legacy manufacturing practices, Flextronics has thrived and now occupies "a space that is much bigger than they originally thought," he said.

Another trailblazer is Li & Fung, the company that orchestrates supply chains on behalf of client enterprises. Like Flextronics, Li & Fung has created a new market niche, but this one is based on the demand for trading expertise in Asia. It helps clients do business in a region where they lack industry connections and infrastructure.

These enterprises are the product of changing markets. "We may be in a period of transition that will eventually reach more stable network configurations," said Bitran. Currently there is a great deal of market fragmentation as companies continue to outsource what they regard as non-strategic functions to a wide range of third-party providers. "That has led to complex supply networks," he observed.

The new generation of providers promises to remove much of this clutter, by consolidating multiple outsourced functions into highly versatile service portfolios. "Flextronics is aggregating several network nodes," Bitran pointed out, which removes much of the complexity that clouds supply chain visibility and hampers the development of collaborative links.

The telecommunications industry offers a glimpse of the evolutionary path that markets could now be taking. Said Bitran, de-regulation spurred the creation of numerous start-up firms that fragmented the industry. It was impossible for all these enterprises to survive, and in the consolidation that followed a new generation of big telecoms organizations emerged that provides the connectivity the industry needs. 

"We are not comparing the cost structure of telecommunications with supply chain cost structures," he emphasized. However, the way in which a different set of players has simplified telecoms supply networks is analogous to what is happening in other markets. In other words the market is forging new supply chain collaborative models, as companies like Flextronics and Li & Fung respond to changing demands. These players "are doing what others are not able to do," Bitran said. "The solution is here, but we are not paying attention to it."

The research project headed by Dr. Gabriel Bitran is sponsored by UPS and is looking at the evolution of supply chains and associated processes. For more information contact Dr. Bitran at: gbitran@mit.edu.