Idea in Brief
The Current Reality
Most companies have a digital platform that supports a specific function, such as supply chain management, product design, or operations, and they tightly regulate who may join the platform.
The Chinese appliance manufacturer has extended its platform to facilitate a broader range of collaborations from innovation and design to supplying materials and components to solving technical problems and providing new services.
The platform allows Haier to capitalize on the expertise and resources of its ecosystem, rapidly exploit new business opportunities, respond quickly to disruptions, and achieve efficiencies in a wide range of activities.
In early February 2020, when its home country of China was coping with the first wave of Covid-19, Haier Group, one of the world’s largest manufacturers of home appliances, faced a challenge and an opportunity. A customer—Heji Home, a Chinese home-furnishings company—asked Haier for help in producing mobile isolation wards that it wished to donate to a hospital in Wuhan, the site of the first outbreak of the novel coronavirus. These units required fresh-air, sterilization, and sewage-treatment systems that met stringent medical standards. Neither company had produced such equipment before, and neither had the design resources and supply chain capabilities necessary to go it alone. So they teamed up, and despite widespread lockdowns because of the pandemic and other business closings for the Chinese New Year, they managed to develop a working prototype of the unit and deliver it to the hospital in two weeks. That was quickly followed by the production and delivery of additional units to local hospitals in the subsequent weeks. Heji and Haier continued their collaboration and in the ensuing months developed other versions of the unit, such as a mobile nucleic-acid testing station and a mobile vaccination station, to meet new demands.
Such agility required that the two companies quickly identify the right partners in several industries, including industrial appliances, health care, and construction, and that all the parties involved trust one another and be willing to collaborate on the design. Haier and Heji Home were able to get a prototype built and tested, configure the supply chain, and line up manufacturing capacity in a matter of weeks—all because of Haier’s digital platform.
Haier’s digital platform has enabled shorter order-to-delivery times, greater production efficiency, and increased product customization.
COSMOPlat (which stands for Cloud of Smart Manufacturing Operation Platform) is fundamentally different from conventional digital supply-chain platforms and other types of digital platforms. It facilitates a broader range of collaborations—from innovation and design to supplying materials and components to solving technical problems and providing new services—and can be used by any of its members to mobilize responses to new opportunities or cope with disruptions. What’s more, platform membership is not limited to Haier’s suppliers. It includes companies that its suppliers have invited to join and others whose employees have heard about the platform from colleagues at conferences and professional meetings and from stories in the media. Haier is planning to make COSMOPlat a stand-alone business that offers services to companies in other industries.
Many companies would benefit from having a digital platform with capabilities like Haier’s. In this article, we offer an overview of how Haier developed COSMOPlat, examine how it differs from digital platforms used by other multinationals, describe how Haier and its suppliers leverage the information and relationships created by the platform to solve problems quickly, and provide guidance to companies that aspire to create a similar platform.
How Haier’s Platform Is Different
Haier’s digital platform was created in 2012 to improve the company’s basic procurement functions. The early versions were designed to place orders, coordinate production plans, and manage inventories, payments, and other routine transactions. However, Zhang Ruimin, Haier’s founder and CEO, soon decided that he wanted the platform to go beyond facilitating routine supply-chain functions and be able to mobilize critical resources inside and outside the company. He hoped to increase the agility of the supply chain—by helping to solve problems such as supply disruptions, unexpected shifts in demand, and quality issues—and to seize new opportunities quickly and efficiently. Accordingly, the company began adding new capabilities to the platform and changed its name to COSMOPlat in 2016.
Haier has deployed COSMOPlat in some 20 countries, and although its direct benefits are difficult to quantify, senior management believes that it has been instrumental in achieving substantial gains in the form of shorter order-to-delivery times, greater production efficiency, reduced stockout rates, faster receipt of payments, and increased capability for product customization. Other member companies report that COSMOPlat has helped them significantly. Compaks RV, a manufacturer of motor homes, camping trailers, and recreational vehicles based in Rongcheng, China, reduced its production cycle from 35 to 20 days, trimmed procurement costs by 7.3%, and increased customer orders by 62%. Other members, including Heji Home and Tongyi Ceramics Science and Technology, a Chinese producer of ceramic products, say that the platform has allowed them to improve performance in areas such as product development, procurement costs, production cycle times, sales, and net profits.
Over the past five years, we examined more than a dozen platforms developed by other companies and found that Haier’s differs from them in significant ways. One is that COSMOPlat provides a much wider range of integrated functions to facilitate the collaboration of multiple companies up and down the value chain. Many major companies have digital platforms dedicated to supply chain management. Some advanced platforms, such as GE’s Predix and Siemens’s MindSphere, help members use advanced technologies, such as Industry 4.0 digital capabilities (internet of things connectivity, cloud computing, analytics, and artificial intelligence), to improve the operational efficiency of factories and products in the field. And others, such as the Taiwan Semiconductor Manufacturing Corporation’s Open Innovation Platform, focus on product development—designing new chips in the case of TSMC. COSMOPlat is both a supplier management system and an innovation engine.
Another difference between Haier’s platform and those of others is the extent to which it controls the supplier network. Many companies decide which suppliers may join their platform and designate the tasks they will be involved with. Haier, by contrast, does not limit membership to its own suppliers; nor does it specify who will work on what. Rather, it posts a description of a problem it is facing on COSMOPlat and lets any supplier—current or potential, even one from a different industry—offer solutions or engage in collaborative efforts to find one. Many large companies also tightly control the collaborative process, whereas Haier does not. The relevant parties work together on finding a solution without Haier’s continual involvement. Such an organic approach to tapping the capabilities of other organizations and marshaling needed resources is particularly helpful when the opportunity for offering a new product or service has a short time window and the company does not already have the requisite design capabilities or suppliers, or when it faces a major or sudden disruption.
Expand the Role of Supply Chains and Platforms
Building a platform that, like COSMOPlat, is both a supply-chain management system and an innovation engine requires a company’s leaders to broaden their perspective. They should think of the platform as a tool for the following.
1. Enlarging the supplier network quickly.
Many companies focus on improving the efficiency and agility of their current supply chains. A common approach is for an original equipment manufacturer to map out its multitier supply networks, develop information links with the network members, and create a tracking system to monitor and coordinate the flow of products and information among suppliers. But as climate-and pandemic-related disruptions have driven home in the past five years, a company may need to significantly change its existing supply chain or form a new one when a crisis occurs or a new opportunity arises. A digital platform like COSMOPlat can greatly expedite the process of bringing in new partners—sometimes from unexpected places.
2. Looking beyond procurement.
A primary goal of digitizing a supply chain is usually to manage the flow of materials and goods (such as orders, deliveries, inventories, and forecasts) and the services directly related to them (such as payments and logistics) among members of the supply network. But when opportunities arise that require the development of radically new products and services, a company may need an array of new players: those that have design and product testing capabilities, possess relevant IP, and can help rapidly ramp up production, deliver products, and provide after-sales services. A digital platform can help locate such players quickly and make it easy for them to work with one another. It is also useful in identifying and bringing on board expertise that will be helpful in developing and producing products and services just appearing on the horizon. A digital platform can help build out an expansion of the necessary capabilities—for example, 3D sampling to assess variations of new designs digitally, virtual reality to see or experience how a new design works under a range of conditions, and virtual prototyping tools to validate the physical and engineering properties and compatibilities of a new design.
3. Generating new opportunities and solutions.
Ideas for new opportunities or solutions to problems can come from all parts of the ecosystem. But just providing a digital platform isn’t enough to persuade members to offer solutions or participate in efforts to achieve them. They must feel confident that the collaboration will benefit them, which entails specifying the rules of engagement and the ways costs and benefits will be shared.
A Closer Look
Let’s now examine the architecture of the COSMOPlat system. The platform consists of three modules.
Cooperative innovation and design.
This module helps different companies collaborate in the design of products and components to ensure that they can be manufactured efficiently and transported and delivered safely and economically. It also facilitates communication and knowledge sharing. For example, a component for a new model of a home appliance may require a ceramics company and a supplier of an electronic control box to work together. This module provides protocols for the exchange of information between the design teams as they come up with solutions to technical problems. It provides templates for project management, monitors target dates for important milestones, and manages intellectual property permissions. It helps move from a prototype to large-scale production by identifying the factories with the right capacity and location, automation, quality control, and product test standards. The module can also be used to survey potential end users to get feedback on design, hear about any problems, and learn about other features that the product should include. These actions may be initiated by any COSMOPlat member—not just Haier’s suppliers.
Production resources integration.
This module facilitates procurement, manages orders, and coordinates the flow of materials in the production of the final product. It configures the supply chain and allows suppliers in different tiers to explore capabilities and coordinate their production capacities. It creates a detailed layout of the manufacturing process, materials handling system, and labor requirements. It also enables product feasibility testing, prototyping, and ramp-up planning. Most other supply-chain-management platforms lack the ability to incorporate many supply tiers and dynamically change the supply network.
Distribution and service.
This module enables platform members to coordinate or integrate their individual capabilities in distribution, logistics, and after-sales services to support the needs of new products. For example, it allows them to work together to decide what marketing channels to use and how to develop the channel partners; to determine where inventories of a new product will be held (the final assembly factory, specific distribution centers, or retailers’ warehouses); and to devise processes for order fulfillment and delivery. It also enables service support and repair (whether tasks should be done in-house or outsourced, how and where to store spare parts, and so on) and the management of returns.
Any company may apply to join any of these interactive modules without being formally invited by Haier or anyone else. All it needs to do is complete a questionnaire and provide documented evidence of its qualifications and capabilities. Once a company registers, Haier conducts a cursory review, which often takes only a day. That gives the company access to nonconfidential information on COSMOPlat, such as general descriptions of issues needing solutions and which members may be working on them. Instead of putting a company through a formal certification process at the outset—as many major companies do, and which can take weeks—Haier allows interested companies to explore the platform relatively painlessly. If a company wants to join a project, Haier performs a rigorous evaluation to check its production or technical capabilities and its track record on quality, pricing, and sustainability. This due diligence, which may include on-site visits, usually takes no more than a few days. If the review turns up serious problems, Haier drops the supplier and blocks it from the platform.
Haier intends to keep expanding COSMOPlat’s capabilities. New functions will include energy and carbon-reduction management, digital financing, and cross-border trade services. It will also expand “digital twin” capabilities—the use of virtual models of physical objects or systems to improve how they are designed, manufactured, operated, and serviced.
Developing a Similar Platform
Creating a platform like COSMOPlat requires a company to be widely known and reputable, have experience managing multiple tiers of suppliers, and have a reasonable level of expertise in digital technologies—prerequisites that put such an initiative beyond the reach of many small and medium-size companies. The good news is that it can start small and grow gradually, without a heavy commitment of resources at the outset. As Haier did, a company can build modules that have limited functionality, gradually add more features, and then link the modules for better communications between them. It can learn by doing and use early wins—even small ones—to build confidence among both internal and external stakeholders and generate savings that can be used to help finance subsequent steps.
A digital platform like COSMOPlat can provide benefits in normal times and during crises. By enabling its members to organize and conduct work faster and more efficiently, it can alleviate the requirement for costly alternatives such as carrying large emergency stockpiles of materials, components, and final products or building extensive buffer production and logistics capacities. Equally important, it can help a company’s value chain evolve organically so that it can better serve today’s needs as well as those that emerge tomorrow.