Embedded Software Is an Enabler of Demand-Driven Supply Chain Orchestration

The use of embedded software to create efficiency, grow revenue and increase customer satisfaction has spread across the discrete manufacturing industries. Gartner discusses the supply chain implications of this trend for manufacturers.

The proliferation of embedded firmware, software and applications in devices and equipment enhances product functionality, process flexibility and customer satisfaction, resulting in higher levels of demand-driven maturity. Designing an end-to-end value chain strategy for embedded software is typically not well-integrated across functions, nor do companies always maximize the opportunities that are possible. Gartner provides an overview of embedded software (ES) capabilities, business case considerations, organizational requirements and trends by industry.

• ES capabilities enable improvements in efficiency, flexibility, revenue growth, channel management and customer satisfaction, but an ROI business case is difficult to quantify, since many of these benefits are not easily measured.
• High-tech, industrial, automotive and healthcare industries are actively integrating ES capabilities into value networks, but they are not aligned organizationally to maximize the opportunities throughout the value cycle.
• The primary uses of ES in supply chains are postponement of software download, remote diagnostics, licensing, device monitoring and asset management.
• ES provides the opportunity to improve demand sensing by creating a real-time connection with customers through device monitoring.
• C-level executives, including the chief supply chain officer (CSCO), are weighing the benefits versus the costs of off-the-shelf technologies versus homegrown solutions. Sixty percent of companies use homegrown solutions.

• Ownership of ES decisions should expand beyond the product and engineering organizations to include cross-functional representation from demand, supply and service organizations. Collaboration across these groups is required to design and implement the physical network and go-to-market strategy before new product introduction (NPI).
• When creating the business case for ES, include the end-to-end value chain and extended customer value cycle impacts to revenue growth, cost optimization, complexity reduction, customer satisfaction and process flexibility.
• Extend demand-sensing capability beyond the point of sale (POS) by using ES to monitor usage patterns and device performance user configurations.
• Use data captured from device monitoring, remote diagnostics and user downloads to optimize innovation, design, source and make processes.

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As device hardware continues to commoditize, software, content and applications are driving more value from the customer's perspective. In certain product categories, the hardware is simply a software delivery mechanism. This value shift is changing where and when revenue and margin will be realized. The aftermarket may very soon become the primary market. As this evolution continues, it is not unlikely that hardware may just be a manufacturer's means to enable an ongoing software-based revenue stream. In fact, in the release of the iPhone 4S, Apple lowered the price of the 3GS to $0.00 for certain customers. Sound familiar? Is the plan to get the hardware in the customer's hand to take advantage of content and application sales?

These trends all signal an important message for supply chain organizations: Software equals value. Supply chain management for devices is changing, and we all must understand the emerging capabilities in software, content and digital distribution. One of the most promising capabilities is in ES, a technology that's already impacting many supply chains today.

This report could be the first time supply chain leaders are hearing about ES. What is it? Who uses it? How will it impact supply chain? We will address these questions, as well as provide actions to take to better plan for its deployment.

As software deployment continues to evolve with newer options such as cloud, content delivery networks (CDNs) and electronic software delivery (ESD), OEMs are adapting their supply chains to enable software deployment at multiple times throughout the value life cycle. One option in software postponement, licensing and management that is growing most rapidly is embedding software in the devices. Before we can describe the supply chain implications of this emerging technology, we must provide a few definitions:

• ES – This programming capability is built into the hardware of devices as a means to distribute, manage and control software on them throughout their life cycle.
• Virtual appliance – This describes a software solution that contains the entire operating system (OS) layer, plus a specific application that is built for purpose for distribution and control of one application. A virtual appliance is not a complete virtual machine platform, but rather a software image containing a software stack designed to run on a virtual machine platform. Many virtual appliances are constructed with a Web-based user interface (UI) to permit further configuration.
• Firmware – Similar to software, firmware usually implies internal, device-level code that can be updated and managed without adversely impacting external hardware or software. Firmware describes real-time programs and/or data structures that internally control various electronic devices. It will be found in consumer electronics, industrial machinery, aerospace and defense (A&D) electronics, healthcare devices, semiconductors and other devices that run software.

From a technology perspective, ES is most often built into the hardware or devices, making the client device an "intelligent machine" with multiple capabilities. It is then connected to a brand owner or a content provider backbone application to support a wide range of capabilities and uses. Enabling end users or consumers to upgrade and add to the ES in their hardware effectively allows them to personalize their devices – a new form of supply chain "postponement" and demand-driven value.

Supply chain should be aware of these terms, since these new capabilities will impact how software is added to devices, distributed in the aftermarket and updated across life cycles. Additionally, new capabilities enabled by ES will impact how products and services are monetized, how end-user customers value their personalized hardware devices and how solutions are deployed.

The capabilities enabled by embedding software in devices are best shown in case examples. A few common uses for ES are demonstrated below:

• Industrial manufacturer – An equipment manufacturer found that demand for software and applications had become the primary decision influencer in the customer base. This shift meant that demand for hardware had largely commoditized, and the manufacturer was able to reduce the number of hardware stock-keeping units (SKUs) by nearly 50% by moving to standard hardware offerings and differentiated software packages enabled by embedded software management (ESM).
• Mobile devices – One OEM of smartphones has started to embed virtual appliances in its device to control the capacity throughput when it is connected to a network. This capability can be updated virtually over time through a specialized Web portal maintained by the OEM.
• A&D – The U.S. and foreign militaries utilize many single-purpose radios defined by frequency bands and communication protocols, similar to separate AM and FM consumer radios. As military and computing technologies have advanced, one set of joint, tactical radio hardware can now cover more bands, but many protocols are required. To solve this problem, military and defense companies created software-defined radios (SDRs), with firmware and ES that select the right parts of the hardware and the right protocol for on-demand communication by the warfighter. The SDR's goal is to reduce complexity, allow new protocols to be added in the future, and replace old, single-purpose radios to reduce military logistics costs.
• Medical devices – A healthcare device OEM recognized that the high cost of hardware equipment was impacting the sales process, and that a licensed pricing structure over the life of the product would help it grow sales. This OEM now uses ES as a means to control devices in the aftermarket in a pay-for-usage model. Now, its customers can buy access to the device by purchasing a code that will allow for a certain number of uses. When usage credits are fully consumed, the customer can then recharge the license.
• Semiconductor manufacturer – One semiconductor manufacturer that sells product to the federal government for weapon systems had to create a way to source, make and fulfill products that enabled complete security and control by customers. This manufacturer embeds firmware on the chip that creates a secure processor. With this embedded security, the chip is only accessible by the end user with a "key" that no one else can enable – not even the manufacturer.
• Media – ES can open new revenue models by adding capacity or capabilities to a device – in this instance, a network service gateway. Case examples include the dial-up/dial-down device capacity based on need, or by transferring capability and capacity from device to device to match shifting demand. Overall, this capability helps strategically manage embedded applications, from enabling product functionality through order fulfillment to CRM.

In each of these examples, the OEM is adding value to its hardware offerings by embedding software capabilities to address the specific needs of its customers. Next, we expand on the opportunities available in new solution offerings.

Although ES is being leveraged across device makers, the high-tech, industrial communication and automotive industries generally have higher rates of adoption. Our research shows similarities in the tactics for ES usage, but the varied customer types and value chain attributes across the industries has resulted in differences in the reasons for and benefits of those tactics.

We have identified five widely used tactics in embedding software in devices that impact supply chain. Note the connections of the "to-market" supply chain with the usage phase of the customer experience in the aftermarket supply chain in the descriptions below:

• Software distribution and postponement – Software and applications can be uploaded to devices at many points in the value chain. By using ES as a distribution mechanism, software can be postponed from the core make process to enable more flexibility in the exact configuration to the customer. This postponement can occur in OEM production; at a contract manufacturer (CM), distributor or channel outlet; or in the aftermarket.
• Service offerings – Device manufacturers are improving the customer experience and growing revenue with ES-enabled services, which include remote diagnostics, predictive maintenance, licensing, quality management and performance monitoring. Consider the following examples:
• Asset management and licensing – Managing assets and service plans in the aftermarket is a major challenge for manufacturers, given the decentralized nature of product distribution. In addition, many OEMs sell through channel providers, which disconnects them from the end user. By embedding software in devices as part of the make process, OEMs have an automated way to connect with end users, and manage warranty and license renewals.
• Remote service – ES can help manufacturers diagnose, and even solve, problems remotely, thus reducing the burden on their customer service staff. Solving problems remotely can prevent the dispatch of a field service technician, which is a costly event. Automobiles, ATMs, PCs and many more devices use these kinds of services.
• Compatibility – With the proliferation of OSs, software applications and equipment that interface with ES-enabled devices and hardware, compatibility is a significant issue. Using ES to detect and resolve any conflicts or software bugs via upgrades with minimal user intervention helps improve the end-user experience. Scanning and downloading software security patches, OS upgrades, and application version enhancements are ongoing run, refine, integrate, and manage processes in digital networks.
• Healthcare device compliance monitoring – Pending legislation will require that certain healthcare devices be reviewed and updated after a defined period of usage to assure compliance. ES automates this monitoring and can deactivate the device when required or upon detection of out-of-compliance conditions.
• Capacity management – ES is used to manage capacity of single devices, such as servers, as well as capacity across a network of servers. For example, one OEM embeds software in its servers as part of the make process. The sales organization will price a quote based on the capacity required by the customer, with the knowledge that more capacity can be sold and "unlocked" after POS. ES is essential for unlocking that capacity management capability. When embedded in a network of servers, this same technology can be used to manage capacity to support fluctuations in processing or storage bandwidth requirements in different regions and/or facilities.
• Licensed sales models – An emerging trend in sales and management of medical devices is to license access to the products and charge on a per-use basis. ES is used to control access to the device by locking and unlocking software applications.
• Embedded security and geographic information – ES can be used to control access to certain applications and/or capabilities. Embedding this technology on semiconductor chips is used in several industries to limit access, support encryption/decryption, detect and defend against intrusion/malware, and provide complete security to the end user. Integration of geographic location information – for example, GPS and other GIS data – helps enable map, navigation/guidance, and other destination and emergency- response-driven inquiries and monitoring.

The general uses of embedded technology across industries – that is, postponement, licensing, monitoring and status reporting – are fairly consistent, but the specific application of the capabilities varies. Below, we provide a few industry-specific examples to highlight how embedding software can be applied in different areas for unique service and solution offerings:

• High tech – Manufacturers embed software in both completed devices and subcomponents as a means to improve efficiency and customer service. Mobile device and PC manufacturers use ES to remotely manage license renewals, distribute software in the aftermarket, postpone software integration and remotely diagnose product issues. Semiconductor companies embed software on the chip to manage access and performance of those chips. Server manufacturers use ES for software distribution, asset enhancement and capacity management across server networks.
• Industrial – In addition to embedding software in heavy machinery, the industrial manufacturers are essential enablers of "smart" infrastructure, such as the "smart city" and the "smart grid." New, low-cost sensor arrays are being used to outfit and monitor processing and utility plants, and are linked via ES-enabled network devices to send status information to control centers. ES in heavy machinery is used for device monitoring, remote services and postponement of software sales. When included as part of a "smart" infrastructure solution, ES is leveraged for environmental and energy performance monitoring, as well as capacity management. The data from performance monitoring is used to improve the efficiency of assets, processes and utilization. The improved efficiency is frequently connected with sustainability initiatives.
• Healthcare – Healthcare device manufacturers use ES for device monitoring, licensing and capacity management. One manufacturer can monitor the quality of application performance on its devices to identify improvement opportunities. It uses its service organization to then proactively make repairs to hardware and software. Although not yet a common practice, ES can also be leveraged to license the usage of expensive devices by charging through per-use subscription model.
• Automotive – Automotive embedded and device-related software usage is maturing, with the emergence of connected vehicles that enable communication, information, entertainment and monitoring functions accelerating. Consider the following use cases:
  
  
  • Connected navigation systems offer content and service upgrades, including new map updates, traffic and parking optimization, and gas price comparisons.
  • Engine performance controls include ES that is used to test and track performance of powertrains in vehicles for preventative/proactive testing and maintenance or fleet monitoring for remote diagnostics and pay-as-you-drive insurance. In the future, ES smart-networked devices may permit modifications of engine parameters to adjust performance to special driving or user requirements (for example, teenage drivers can only access 70% of available horsepower).
• A&D – The use of ES and smart devices has been with us since the dawn of the Space Age. Satellites and interplanetary probes are remote and seemingly impossible to service, with remote sensing, wireless diagnostics and uploadable ES still essential to mission success. These ES technologies have evolved along with semiconductor and hardware processing and storage. Military size, weight and power consumption considerations paved the way for the miniaturization we see in current mobility devices. Today, commercial aircraft, such as those from Boeing and Airbus, include large arrays of smart, connected electronics. Defense companies, such as Lockheed Martin, Raytheon and Northrop Grumman, design, build and service the air, land and sea platforms that provide an ES-enabled edge on the "smart battlefield."

The benefits of ES are quite intriguing for many in the device-manufacturing industries. Many begin slowly by enabling specific offerings to test capabilities before fully integrating as part of ongoing software distribution. Benefits realization is directly tied to the maturity of the company in its understanding, design and management of ES technology. As such, a maturity assessment should be a precursor to creating any business case.

Our broader supply chain research has found that companies go through very similar journeys when maturing their supply chain capabilities. We define this journey as the process to developing a demand-driven value network (DDVN), and its four stages are reacting, anticipating, collaborating, and orchestrating. As we conducted our ES research, we found that this four-stage maturity model also directly applies to how companies leverage embedded technology. We outlined the characteristics in each of these four maturity phases across five key value chain categories in Figure 1.

Use the information in Figure 1 to assess where your company is on the journey to orchestration through ES. The following descriptions for each of these four stages may also help to identify your current maturity level:

• Stage 1: Reacting – In this stage, the ES-related decisions are made by a single function, without input or collaboration from others in the organization. Typically, this singular decision making is housed in the product organization, and the primary focus of design/engineering is on how software applications will be deployed to devices. The focus is very product-centric, and potential benefits are not often communicated to the sales and marketing, supply chain, or IT organizations. Requirements of the physical supply chain are discussed with engineering, but not in the broader, supply chain planning processes. Benefits are limited to the basic cost of doing business.
• Stage 2: Anticipating – As organizations begin to recognize the opportunity to enhance services in the aftermarket, decisions on the application of ES extend into a couple of business functions. The product development organization will collaborate with services to discuss licensing and entitlements. Sales and marketing is also engaged to develop a go-to-market plan that enables salespeople to describe the flexibility in accessing software applications across a product's usage life cycle. Supply chain's role is limited, but will be engaged to discuss the network capability to install ES at manufacturing and distribution facilities. IT's role may be limited to providing data infrastructure to support device downloads. In this stage, the business cases focus on cost reduction and efficiency creation.
• Stage 3: Collaborating – Demand and product organizations have now formed moderately collaborative processes. They recognize that inclusion of the supply chain processes will aid in a more complete view of the benefits and requirements for ES utilization. Full Stage 3 capabilities begin to form as this integration matures, with the decision making shifting from a focus on cost to one on value and ES-related revenue opportunities throughout the aftermarket. Companies in Stage 3 will understand the full range of capabilities available with ES, aligning product life cycle management (PLM) and product design to include the right mix of capabilities and digital networks to meet customer expectations. The supply chain organization, in collaboration with IT, assists with decisions on where software will be embedded, and how embedded capabilities can be leveraged in the aftermarket to improve planning processes and to-market supply chain processes. Financial analysis of benefits realization will focus on enhancement of customer value and revenue upside opportunities. With the recent proliferation of smart mobility devices and the explosion in sensor technologies, the stage is being set for many OEM Stage 2 companies to pursue ES solution initiatives that will move them into Stage 3 maturity.


Figure 1


Levels of Maturity Leveraging ES



Source: Gartner (December 2011)

• Stage 4: Orchestrating – The few companies that have reached Stage 4 ES application have extended the planning and benefits into partner networks. One high-tech manufacturer engages a couple of key semiconductor suppliers to embed software in chips that enable complete functionality control by the end user. In another example, we found a strong collaborative planning process between a hardware manufacturer and a software development organization to create a more complete solution for customers. These are examples of four capabilities in pockets. Another OEM has assembled a portfolio of easy-to-use computer, phone and tablet devices with common ES capabilities that are configurable by the consumer, which enables smart device personalization with music, content and apps over the value life cycle. ES capability is viewed as an opportunity to enhance demand management processes by monitoring usage and shaping aftermarket software purchases. The business case for ES is periodically reviewed in cross-functional planning processes to ensure continued alignment with customer value expectations.

With an honest assessment of your maturity aligned with the descriptions provided, you will be able to better align a road map of initiatives to reap the benefits of the next level. Higher levels of maturity result in four demand-driven capabilities:

• Demand, supply and product convergence – A DDVN is built on a foundation of integrated demand, supply and product processes, technology and organizations. With ES, this integration begins to take shape in Stage 2, as the product development and service organizations connect to discuss the issues in the aftermarket that could be managed better through embedded technology. This planning usually focuses on remote diagnostics and remote monitoring. In Stage 3, the supply chain organization is added to the strategic planning for ES as a critical collaborator in deciding where software integration can and should occur. The supply chain stakeholders will provide insights on value chain capabilities, such as software postponement, component quality management and demand sensing. The few companies that will make it to Stage 4 maturity in their ESM will do so by integrating their technology into the extended value chain. Most of this integration will occur downstream in the demand channel as a means to sense, shape and respond to customer requirements.
• Demand sensing – When sensing demand, companies use customer and channel data to identify demand trends. Embedding software in devices enables a connection with the customer across the usage and service phases of the extended customer value cycle. This connection can be leveraged to gain insights on how customers are using hardware, what software they use most often and new services that should be created.
• Demand shaping – When shaping demand, companies use programs, including price, new product launch, trade and sales incentives, promotions, and marketing programs, to impact what and how much customers will buy. Embedding software in devices enables new, innovative methods of demand shaping for software sales. When used to manage capacity, power and storage can be shaped in the aftermarket.
• Orchestration – Orchestration describes a value-driven organization that is consciously excellent. ES enables OEMs to make conscious choices, and to understand the trade-offs between cost and service. By using ES to distribute and control applications, the mature OEM can orchestrate with downstream value chain and channel partners. In addition, it extends engagement further into the value stream, creating an ecosystem approach to orchestrating a portfolio of solutions, as opposed to nonscalable, single point offerings.

When creating the business case for ES enablement as part of network design, begin with corporate-level metrics. The direct impact will vary by industry and company, but, in general, you will be able to quantify improvements to the following four areas:

• Revenue – Embedding software in devices provides a mechanism to create recurring revenue on software sales, including new upgrades/maintenance and digital content sales opportunities. The ease of use by end users helps shift a value proposition on trying new applications. Some OEMs use ES to create trial periods for certain applications by remotely turning applications on and off. It is a low-maintenance means to create continued sales. Using ES as a means to manage licensing will help automate hardware warranty and software maintenance renewal processes. ES technology can track contract periods and terms, and send proactive notifications to sales and service organizations.
• Efficiency – One of the most visible signs of efficiency is in the elimination of disks and drives in software distribution. By virtualizing the software supply chain and enabling digital networks, physical inventory goes away, providing scale and opportunities for massive efficiency. Aftermarket service and warranty processes can evolve to manage by exception. These capabilities will also become more proactive in managing renewals and may even automate certain processes.
• Responsiveness – ES in devices as part of the to-market supply chain will enhance responsiveness in the aftermarket. Software distribution and updates become virtual and can occur with minimal to no impact on end users. Server and storage OEMs will use ES to manage capacity across networks to become more responsive to shifts in bandwidth needs.
• Customer satisfaction – Interactions between end users and OEMs are streamlined, with automation enabled by embedding software. The process to evaluate, purchase and utilize software is in done in real time, and application refreshes are transparent to customers. The time to resolution for certain problems decreases dramatically, which also contributes to overall customer satisfaction.

The capabilities we described provide a compelling value proposition for most in the ES-enabled device-manufacturing industries, but adoption will require several changes in how these companies currently manage their supply chains.

ES in the End-to-End Value Chain

Source: Client graphic

Leveraging ES is much more than a product engineering decision, since the expected benefit and integration requirements often extend across multiple internal and external organizations. For example, ES used for content distribution could be leveraged as part of a make process in the OEM's factory, as a postponed software burn at a CM, at a distribution or retail location, or even after purchase by the user. Because ESM extends across the value chain, coordination and synchronization on the strategy for network design and customer benefit are critical enablers for a profitable end-to-end solution.

DDVN management includes internal functions and external partners, such as original design manufacturers (ODMs), CMs, distributors and others. Each of these players may have a role in the integration of ES, depending on the network strategy. In Figure 2, we mapped how ES is integrated with the physical, digital and solution supply chains as part of managing a customer solution. The value chain for embedding software in device manufacturing highlights important take-aways:

• Note that integration of ES can occur in many different places in the value chain. If ES decisions are made in isolation, it is likely that the integration points will be suboptimized. Supply chain can play a critical role in designing the best network for the planned capabilities.
• Network design for embedding software must include partners. ODMs, CMs, distributors and even certain 3PL providers have updated their facilities to enable software distribution on-site.
• Data from the aftermarket can be used to improve the to-market supply chain. Data on how devices are being used can be included in demand sensing. Licensing, entitlement management and capacity management are new vehicles for demand shaping. As such, network design should include the digital supply chain and the data managed as part of the solution supply chain.

In the Enabling Demand-Driven Maturity With ES section, we described the integration of demand, supply and product as both a benefit of and requirement for maturing demand-driven capabilities with ES. This integration requires an update to cross-functional decision making. To plan and support ES integration, we recommend assessing the following:

• Your current sales and operations planning (S&OP) process
• Your NPI, ramp-up and aftermarket processes, including your product life cycle and software management tools
• Your product portfolio management (PPM) process and phase gates for capability

These three major processes are primary areas where demand, supply and product decisions must be made in parallel. It is likely that you will find that ES is not currently being discussed in these meetings or cross-functional councils, but many of the capabilities created with its implementation are. Use discussion on topics such as software distribution, postponement and licensing as a starter for enhancing collaborative decision making.

We found that OEM supply chain organizations in Stage 1 and Stage 2 maturity often felt as if they didn't have a role in planning for ES technology. We further found that this disconnection was closely tied with a general lack of collaboration across functions on all product decisions. If your company is in an earlier stage of maturity, then your first steps may be to create collaborative processes for all planning before taking on work related to ES. Regardless of your maturity, note that supply chain does have a role in enabling value generation in products and services related to this emerging technology.

ES utilization will challenge the current responsibilities of your supply chain organization. The first step is to identify how the capabilities discussed in this research are being applied in your industry, as well as how they could be applied directly in your product and service offerings. With that knowledge as a base, the focus should shift to how planning for ES technology will impact the core plan, source, make, deliver and service supply chain processes and IT technology. Be mindful that integrated solutions will drive additional product, postdelivery, and customer management processes, including enabling, running, and refining the digital supply chain, and integrating and managing the solution supply chain. The most relevant supply chain activities are network design, demand forecasting, service management and software distribution.

The broader contextual impact of ES integration is that OEM business models will evolve. Lower-margin hardware may take a back seat to higher-margin software and services. In this case, the physical supply chain that manufactures and distributes hardware will need to evolve by reducing complexity and cost. Furthermore, ES-enabled solutions will change the monetization of products and services, driving even larger portions of total margin attainment to the longer duration aftermarket. As this shift continues, it is likely that physical supply chains will need to shift focus from cost reduction to availability and very high service levels. We are already seeing this trend in certain industries, such as gaming, mobile devices and other lower-priced electronics. Supply chain will need to evolve the supply network accordingly. Some OEMs are already reconfiguring their supply networks to create step function improvements in speed to market or service-level performance.

We make trade-offs every day. We can choose to make coffee at home in the morning, or buy it on the way to work. The decision is "make versus buy." Simple enough for a $4.00 personal decision, but for corporate-level, make-versus-buy supply chain decisions, more rigor is required. Decisions must be aligned with the corporate mission, strategy and core competencies.

For physical products, make versus buy is about either internally making the product from raw materials, using equipment (assets) and expertise to consistently produce a quality product, or buying the end product from a supplier, contract manufacturer, or distributor. However, if the product is ES or an aftermarket solution, what is there to "make"? The trade-off instead becomes build versus buy. In other words, your company's decision is to either build (design and code) the ES versus buying the software or enabling the solution. Detail on this decision is available in "Marketing Essentials: Strategic Alternatives for Electronic Software Delivery, a Build vs. Buy Strategy."

Clearly understanding corporate mission and strategies is key when making build-versus-buy decisions. If the corporate mission is something akin to customer satisfaction through quality products, then the product focus doesn't leave much latitude for extended aftermarket services or solutions. However, if the OEM's company mission is to satisfy demand through offerings that are valued by customers, then there is much more latitude to explore opportunities across the product, service and solution life cycle. Supply chain leaders need to be clear on mission criteria before reviewing business and supply chain strategies.

Corporate business strategies establish how a company will differentiate itself to grow the business and provide a favorable return on invested capital (ROIC) to stakeholders. For OEMs, the DDVN architecture defines the interaction between demand, supply, and product functions, and supply chain segmentation helps operationalize the trade-offs necessary to sense, shape, and profitably respond to customer demand. The three primary supply chain segmentation outcomes are efficient, responsive and agile supply chains, each with its corresponding metric trade-offs. Gartner has observed that most digital aftermarket and solution supply chains evolve over time, using responsiveness and agility to enable immediate response to customer demands for content, applications and services. Knowing your company's segmentation strategies, the key metric trade-offs, and the timeline for implementing extended life cycle services and solutions sets the stage for optimizing your build-versus-buy trade-offs.

Build-versus-buy decisions come down to trading off the internal build costs, as well as the risks of building ES and/or architecting solutions, versus the external buy costs and risks. These decisions must be considered relative to the implementation timeline and internal capabilities (competencies). Furthermore, risks are an important consideration in making final trade-off decisions, and must include market, competitive, internal performance, and supply risks. Market risk – for instance, will there be a market for the ES capability or solution? – is different from competitive risk – namely, will competitors erode the value of capabilities or solutions you build or buy? Internal performance and supply risks are more about the uncertainty of your company's ability to build to the schedule and cost targets, or about the uncertainty of the supplier to deliver the required capabilities per the buy agreement. Risks must be valued and added to basic build-and-buy costs before making final evaluations.

"ESM" is a broad term that encompasses entitlement management, as well as application usage, intelligence and automation management. Planning the data network and solution offering requirements helps determine what sort of ES and ESM features must be developed or acquired. Collaboration with marketing and sales, channel and ecosystem partners, and the aftermarket support team is essential to ensure that the solution's use cases and go-to-market message can be supported by the ES, data network and solution environment.

In the Value Chain Tactics section, we discussed the typical ES use cases for supply chain. For build versus buy, the key requirements needed to enable these use cases include the following:

• Postponement capability:
  • Support validating and initializing the network device or platform
  • Having the ability to add, upgrade and update users
  • Determining the compatibility of applications to run on the specific device or platform
• Entitlements, compliance and governance:
  • User authorization to download apps or content
  • License monitoring (for example, how many in use relative to user agreements)
  • Use and maintenance periods (for instance, dates of coverage, including compliance with provisions)
  • Security and encryption to ensure appropriate use access and privacy
• Application management:
  • Remote usage monitoring
  • Intelligence (data feeds for analytics, such as searches and social information)
    • Providing information regarding shifts in short- and long-term user demand to the ecosystem stakeholders can improve responsiveness and adjust the supply of devices, applications and content.
  • Automation (the ability to automatically extend offers to upsell)
• UIs:
  • User (corporate or consumer – that is, Web or corporate UIs for managing entitlements, compliance and applications)

In addition to the technical requirements above, certain supply chain process requirements for ES enablement must also be addressed. As part of your build-versus-buy decision, be sure to address the following cross-functional issues:

• Order to cash
  • Traditional order to cash is focused on product shipments, as well as related installation and repair services, in the physical supply chain. For the extended life cycle, establishing digital and solution value networks, integrating ERP with ES to profitability manage the extended aftermarket order-to-cash environment, and gaining share revenue and margins with ecosystem buy partners will be essential. Extending ERP functions across the end-to-end solution environment may require support from companies that offer business process outsourcing (BPO) and enable elastic, scalable, cloud-based capabilities (for example, HCL Technologies and other external service providers).
• Device technology
  • A key to device and platform performance is processor speed, power consumption and form factor. The different semiconductor processor offerings are converging on high-speed, low-power and small form factors for thin and light devices, such as smartphones and tablets. This means software will differentiate future device and solution offerings as users change from content consumption to creating and editing information via new technologies, such as enhanced speech recognition, that are starting to be seen in small form factors.
• Security and reliability
  • Device security is critical to protecting the privacy of users. ES enables device-level encryption, which is critical to ensure that only authorized users are modifying approved devices, and to enable real-time monitoring of entitlements, licenses, and services.
  • Reliability of the network and solutions is essential to retain and obtain feedback from the customer. It is important to ensure that your technology partners can defend against attacks that compromise data, create vulnerabilities or take down the hardware, software, network or configuration of a solution during the extended life cycle. To help ensure compliance with security and other standards, several technology organizations have created a nonprofit vendor- and technology-neutral forum: the Open Trusted Technology Provider Framework (O-TTPF). This framework can allow government or commercial enterprise customers to consider the vendor's products as more secure and trusted. Consider engaging forums and organizations such as this as part of your build-versus-buy process.

Examples of companies that provide ES that covers many of the supply chain requirements listed here include Flexera Software, HCL Technologies, IBM and ModusLink Global Solutions (note: this is in no way an exhaustive list):

Flexera provides strategic solutions for application usage management, which enable software installation and licensing, entitlement management, and software delivery. It also has solutions for application readiness and enterprise license optimization to manage continuous compliance and optimized usage.

The company enables software vendors and high-tech manufacturers to monetize the use of its products in virtual machine environments. Producers can allow customers to deploy their products on a virtualized machine and control their use in those environments. The manufacturer can then implement specific capabilities and license models. This control extends to disabling the application for other potential users that do not have proper access. The marketed benefits of its solutions are products that drive revenue growth through software integration flexibility, reduced piracy and simplified distribution.

HCL is an IT service player, with a comprehensive portfolio of IT services, as well as a strong heritage in infrastructure management and services. HCL's go-to-market strategy is centered on two key themes: automation and remote service delivery.

HCL maintains a strong focus on deploying remote desktop solutions. Beyond the expected use of remote management tools and centralized application packaging, the company also offers an application virtualization solution that hosts applications remotely, and streams them on end users' devices by leveraging Citrix and VMware technology. HCL recognizes the growth of mobile devices in the enterprise space, and has a mobile device management offering in its service portfolio.

IBM's go-to-market strategy is focused on the creation of an integrated solution underpinned by automation, globalization, standardization and virtualization. This allows the company to draw on its strong global delivery capabilities for multilingual help desk and remote infrastructure services.

IBM has made numerous moves in recent years to bolster its ES capabilities. For example, the April 2008 acquisition of Telelogic gave the company strong requirements management, enterprise architecture, and design and testing capabilities for the ES market. More recently, it integrated its telemetry transport support (a publish-and-subscribe-based protocol for resource-limited devices, such as sensors and actuators) with its popular WebSphere MQ messaging software.

ModusLink provides solutions with an integrated value chain approach to manage the supply chain, aftermarket and e-business processes. These offerings include supply chain activities, such as sourcing; network configuration; fulfillment; revenue-generating e-commerce; customer service; brand loyalty solutions; and aftermarket returns, repair, and resale.

ModusLink's entitlement management solutions are an integrated set of offerings that act as a gatekeeper to control access to content, rather than securing it from unauthorized usage. Key features include media asset management, time- and contract-based automation of subscription renewals and expiration notifications, digital activation of software and hardware capabilities, and digital and physical product and content delivery. Prepackaged solutions include ModusLink Subscription, ModusLink Activation and ModusLink Upgrade.

At its core, supply chain is simply an enabler of corporate strategy. As strategy in the device manufacturing industries continues to shift from a hardware focus to one on integrated solutions, supply chain leaders must also expand their knowledge of software, digital and solution supply chains. Embedding software in devices throughout the value chain will provide benefits to customers and OEMs. Fully exploiting these benefits, however, is only enabled with collaboration among stakeholders and solution orchestration across the value chain. Rather than waiting for this collaboration to find its way to you, get proactive and reach out to product development and service organizations that may already be working on this technology. The journey to orchestration will only occur with engaged value chain collaboration, and you have a vital role in facilitating exactly that.