To combat the challenges of globalisation, many companies are shifting from a "push" supply chain model to a demand-driven, customer-centric model. To become demand-driven means you have to build in flexibility at every point along the supply chain – from sourcing and procurement to consumption. And this flexibility means you have to be able to see what’s happening at any point in the supply chain.

In a recent global value chain study conducted by IBM, we found that 50% of the surveyed companies collaborate with partners’ supply chains. That means they need to have a formal, technology-enabled relationship.

Being able to collaborate on demand with your supply chain, and see the issues as they are happening, removes many of the timing issues inherent in traditional global supply chain communications. Managers are able to monitor progress across the supply chain and make decisions that can affect performance in a meaningful and timely way.

Figure 1 shows a model of a supply chain with products and information moving from supply sources, through production and throughout the pipeline to customer delivery and post sale service. Simultaneously, across each functional area (e.g., plan, source, produce) there is need for increased visibility.

However visibility and collaboration have serious implications for technology, software and data management.

Most companies struggle with sharing information across their own functional groups. Adding the complexities of supplier, manufacturing and logistics networks to this magnifies the issue of collaboration. So to effectively enable change, one has to look at the business processes, and underlying technology, and how these existing systems can be adapted.

Many business systems’ architectures are "hardwired," – made up of hundreds – even thousands – of custom-coded connections, each of which must be re-coded every time a connection or something it connects is altered in any way.

For an organisation with hundreds of trading partners, implementing change on top of this foundation can be a time-consuming task.

So what is Service-oriented architecture and how can it help?

Service-oriented architecture (SOA) has emerged as a means for supply chain managers to address these technical obstacles. Essentially SOA is designed to speed up new application development. It can be described as a business-driven IT architectural approach that takes everyday business applications and information and breaks them down into individual functions and processes called services.

For example you may need to link a supplier number to the supplier name and address. This little function could be called a service, and this service may be required at multiple stages of the supply chain.

So each service acts as a reusable building block which can be mixed, matched and reused to quickly support new business processes. These services can also be made available to others in your supply chain – such as other departments, trading partners and customers.

When business processes change, companies can use existing, assembled, composite services and just "snap-in" the additional new process, shortening the response time. And by putting new interfaces onto older systems, they can continue to coexist and interoperate with newer systems.

With a service-oriented architecture, you can create a more flexible and responsive environment for your supply chain partners. You can now have access to supply chain information from many different partners, such as a revised forecast based upon actual demand, a supplier’s new production plan and a logistics provider’s delivery constraint.

The benefits associated with a successfully implemented SOA are significant and include

Improved responsiveness – Being able to see supply chain transactional event information allows you to quickly identify the root cause of issues. By taking an SOA approach, you can build a service component once and reuse it many times for rapid changes to business processes.

Improved flexibility – SOA can allow your organisation to be more flexible in the capabilities you build, providing for more options with greater integration.

Improved performance – The ability to detect exceptions and immediately take action, along with monitoring Key Performance Indicators, allows you to measure and improve activities along the entire supply chain. SOA can help legacy and enterprise systems to continue to provide value in the functions that they perform, while integrating with reusable services to collaborate in different environments.