Supply chain management needn't be a complicated process, but close
relationships with business partners online are crucial. One
slip-up can jeopordise the strength - and success - of the chain.
Like e-commerce itself, e-supply chain management is still in its
infancy, and any software or Web exchange company that says
otherwise is being opportunistic. For all the reports that have
been published, the integrated, online supply chain remains, for
the most part, a distant dream.
That's not to take away from its potential, or to suggest that
companies are not investing heavily in this area, but organisations
can relax if their only driver for investigating online supply
chain management (SCM) is peer pressure and a fear of being left
behind.
As Alan Lawson, research analyst at Butler Group, points out, the
UK is actually at an advantage being behind the US in online SCM
adoption, because it can learn from the mistakes made over the
water. Some early projects were over-ambitious, resulting in a lack
of perceived return on investment and mistakes being made through
over-reliance on automated processes.
Lawson uses the debate about the relative merits of private and
public exchanges as a good example of the lessons that can be
learned from early US-based experiments. "The past year or so saw a
huge spike in the belief that public exchanges would thrive and
drive new value into trading relationships, but the exact opposite
has proven to be the case," he says.
Market analyst firm AMR Research specialises in tracking the SCM
market. Nigel Montgomery, research director for European
e-business, defines the supply chain as "everything that moves" in
the process of doing business, from how goods are bought and sold
to how invoices are generated.
"You can't look at any of it in isolation," he says, arguing that
it is unwise to invest in e-procurement, e-planning or online
collaboration systems without making sure internal back-office
systems such as ERP are appropriately enabled.
The implications and potential benefits of moving the supply chain
online are multiple. The negative implications are that it could
mean layers of the supply chain getting squeezed out as their lack
of added value becomes more transparent.
It could also mean redundancies as processes become automated. Even
more controversially, smaller companies at the bottom of the supply
chain could feel bullied into investing substantial sums in new
technology just for their larger customers' convenience, as was the
case with EDI.
Then there's the impact of bidding wars on suppliers' margins, as
e-procurement processes seek to drive prices down by making it
easier to compare suppliers' costs. For those whose differentiators
lie in value-added services rather than rock-bottom pricing, the
Web can be a cruel trading environment.
On the plus side, a collapsed, automated supply chain could
revolutionise business for all parties involved. As a result of
automating its promotions planning activities, for example,
Sainsbury's has reduced its stock piles from four to five weeks
worth to just one week, and claims to be enjoying millions of
pounds worth of savings.
"And that's just the win to Sainsbury's, not even mentioning our
suppliers," says the company's central supply chain manager, Dave
Simister, who admits that Sainbury's used to be very arrogant,
holding back forecasting and planning information from suppliers,
resulting in massive overstocking, poor promotional roll-outs,
frustrated suppliers and dissatisfied customers
Political and cultural issues
Achieving an efficient
online supply chain management system is a considerable
undertaking, however. As well as overcoming the political and
cultural issues, such as issues of ownership, getting other
suppliers on board, and trust and competitive privacy issues as
suppliers are called upon to share sensitive information, there is
a host of standards issues that need to be tackled.
In addition to technology standards for exchanging information
electronically - XML-based standards are making some headway here -
there are the standards concerning the way business processes are
handled in different companies.
"If standardisation is to take place at this level, you need the
buy-in of business leaders," advises Charles Findlay, lead partner
for the European supply chain management practice at consultancy
Accenture, which has come up with a five-point plan for achieving
an e-synchronised supply chain.
Without common standards for information exchange and process
integration, smaller companies face substantial costs if they seek
to comply with the online supply chain demands of each of their
major business customers. If each company does things differently,
the implications for suppliers lower down the supply chain may be
worse than when large companies began imposing EDI
requirements.
This is one of the reasons why online exchanges have risen in
popularity. These seek to provide a single place where partner
organisations in a supply chain can share information and place
orders, without having to invest in multiple points of system
integration.
Typically, these are industry-specific. Examples include consumer
products network Transora, automotive industry network Covisint,
petrochemical industry exchange Trade-Ranger, and chemicals
industry exchange Envera. Some exchanges are public while others
are closed, private trading networks.
The trouble with exchanges
The trouble with public exchanges is that they tend to focus on the
e-procurement element of supply chain activities, encouraging
companies in a particular industry to promote their wares in one
place, with visible pricing, so that larger suppliers can then
command the best deal.
For the likes of Shell, which wants to track all available goods
and compare pricing, the benefits are clear. For the smaller
supplier wanting to get in front of the likes of Shell, there are
benefits too. The trouble is, the emphasis quickly becomes price,
driving the smaller supplier's margins down.
To encourage smaller suppliers to join in, larger organisations are
now helping their smaller partners publish their catalogues on
these exchanges, offering them free tools and providing general
help with getting online. Private exchanges, on the other hand, are
designed more to encourage tighter integration between existing
business partners and greater collaboration through the sharing of
commercial information.
"Here, the technology is supplementing already trusted trading
relationships rather than trying to create new ones," says Lawson,
arguing that this is important for the success of an online SCM
initiative. Again, the emphasis is visibility, but now in the
interests of member suppliers being able to achieve greater
efficiencies in their own businesses as they plan stock levels and
production schedules.
If all suppliers in the chain are candid with each other about
their sales forecasts, for example, and are prepared to share this
information online and in real-time, each party can make advance
provision for future orders, but without undue wastage.
The only real question hanging over private exchanges as the ideal
medium for such information-sharing to take place is whether these
add any value over and above the existing extranet and EDI
facilities. For SMEs with less sophisticated IT infrastructures
than large suppliers, the required investment to become part of an
additional electronic exchange forum could be too much to bear.
As with public exchanges, the suppliers with the most to gain will
need to provide substantial incentives to get smaller players on
board, preferably positive ones rather than bullying tactics.
Get to the heart of success
However companies decide to share their commercial information,
industry analysts now agree that visibility of information and
collaboration lie at the heart of effective supply chain
management.
While organisations are undergoing the necessary mindshift to make
this happen from a business perspective, the IT industry has its
work cut out, making sure collaboration is possible
technologically. "In the software industry, 20 minutes after a new
concept has emerged, everyone claims they can offer it," says
Montgomery.
"This is what's happening now with supply chain software vendors;
they're all claiming to offer collaboration, but they don't." In
the meantime, AMR has defined an Enterprise Commerce Management
framework which encourages organisations to prepare for greater
collaboration internally by getting their own systems in order,
while at the same time allowing for flexibility in the way that
companies may collaborate in future.
The blueprint moves away from the idea that there will be one set
way of collaborating and recommends an internally integrated
architecture that has the flexibility to cope with new applications
as they come along. Montgomery suggests that in future, for
example, collaboration between suppliers may lead to the
introduction of a commerce document - a universally recognised,
central point of information relating to all aspects of a supply
chain business transaction, negating the use of invoices, sales
orders and advice notes.
Any plans for collaboration must be able to incorporate this type
of innovation. The likes of SAP and i2 are also now investing
heavily in helping organisations get a better handle on their
internal activities, by promoting supply chain event management
applications which help businesses focus on processes inside their
own organisations to provide better visibility and control as they
prepare for online collaboration.
Bringing in a third party
If all of this sounds
unwieldy, an emerging option for companies anxious to improve their
supply chain efficiencies is to outsource the technology - or even
the entire supply chain management operation - to a third
party.
A growing number of software vendors, including Microsoft as well
as specialists such as Virtual Supplychain, are now providing ASP
services to encourage smaller businesses to take advantage of
applications such as ERP and SCM, without having to take on board
all the technology issues.
Alternatively, why not hive off the entire supply chain operation
to a third-party logistics (3PL) company, many of which are
broadening their services to include full supply chain management
services?
For example, Hays now runs the Kentucky Fried Chicken supply chain
operation, and Unipart does the same for Jaguar, leaving those
companies to concentrate on their core businesses.
Interestingly, several of the SCM software vendors are targeting
their applications at these companies, reflecting the expected
growth in these services.
The supply chain at Sainsbury's
When Sainsbury's got
knocked off the number one spot a few years ago, the company had to
ask itself some painful questions. A major problem area was
in-store promotions. "We wouldn't talk to our suppliers about the
details," says central supply chain manager Dave Simister.
As a result, when a promotion came around, the suppliers had to
second-guess the supermarket chain about stock levels and where the
displays were to be set up. "The impact was either overstocking, or
that the customer couldn't get hold of the product because we'd run
out, or it was in the wrong store."
Promotions are big business for Sainsbury's (the company does 500
promotions in any one week, with a large variety of suppliers), yet
they need careful planning because of their relative
unpredictability. Simister's team set up a pilot project with one
of its suppliers, Nestle, to determine where the heart of the
problem lay.
The idea was to map out the entire supply chain and be frank about
any problem areas. The process lasted six months and involved no
technology. "We found that communication was at the root of the
problem," says Simister. So Sainsbury's piloted an application from
Eqos which provides workflow management and data sharing online.
The initial pilot involved 100 suppliers; now the system has been
rolled out to the company's 500 promotional partners, with
impressive results. The improved communications have led to a
reduced inventory pipeline of one week, compared with four to five
weeks previously.
Because of the ability to perform 'What if' forecasting, which
means Sainsbury's is now taking less of a risk on surplus stock,
the company can also afford to be more ambitious in its promotions.
It recently achieved a typical year's increase in beer sales in one
'buy one get one free' promo.
Without this move to online information sharing, as well as the
cost of financing additional stock, at the rate Sainsbury's was
going the company would have had to construct three additional
depots at a cost of millions due to the rise in promotional stock
it was carrying. Simister describes the overall savings as
considerable.
Additional benefits are improved supplier and customer relations.
Faster response times once promotions are live in-store mean that
early forecast adjustments can be passed directly on to the chain's
suppliers. "Because we now share all this information daily online,
our suppliers can react too," Simister says.
Accenture's five steps to the e-synchronised supply
chain
1. Operational excellence: make sure your own house is in
order before trying to open up your systems to others in the supply
chain, and make sure you support open standards.
2. The Web-based breakthrough: now add in the Web as a
medium.
3. New relationships: use your new openness to court the
best partners.
4. Managing complexity in real-time: take advantage of
sophisticated tools and processes to share and respond to once
complex scenarios in real-time.
5. Optimising around the unexpected: take advantage of your
ability to be more responsive as the expected becomes the rarity.