E-supply chain savings are more than just dotcom hype

Inter-enterprise collaboration in complex processes could be the real Internet revolution. Antony Adshead reports on the...

Inter-enterprise collaboration in complex processes could be the real Internet revolution. Antony Adshead reports on the obstacles

Last week the CEO of Europe's biggest software firm, SAP, took the opportunity to deal out some schadenfreude.

Hasso Plattner's argument was that the dotcom "Internet gurus" failed to understand the real potential for using the Net to enable inter-enterprise collaboration.

The occasion for his verbal assault was the announcement in Lisbon of a change in strategic direction for SAP - towards a "new, new economy" where the Net allows collaboration between enterprises in the supply chain to bring about massive cost-saving efficiencies.

"Manufacturing industry is complicated - much more than the Internet gurus said," explained Plattner. "Enterprise resource planning [ERP] has been moving outbound in the last five years, into the supply chain. Manufacturers can thrive using the Internet. Businesses can talk to any system anywhere in the world. We have the opportunity to build significantly better enterprises."

Despite the hyperbole of its software announcement, Plattner may well be right. As process and discrete manufacturing and their logistics consist of millions of different operations and supply inputs, squeezing cost in each of these soon builds up into big savings.

Manufacturing IT thinktank the Warwick Manufacturing Group has estimated that 50%-60% of cycle time could be saved in operations such as shipbuilding and aerospace - and this could be all-important in weathering an economic downturn.

The benefits are not just in manufacturing efficiencies. Customer satisfaction is built into the e-supply chain vision. If you have instantaneous communication with the customer you can deliver their precise requirement. The enterprise does not have to hold unnecessary component inventory and the customer gets exactly what they want. The Dell Direct model is held up as the guiding light in build-to-order responsiveness through the supply chain.

Gisela Wilson, director, product supply chain with IDC, said, "In general it is very important to extend the supply chain. Businesses need to establish demand more clearly and get sales closer to production to give the customer what they want at that point in time."

But recent casualties have shone a light on the possible obstacles to inter-enterprise collaboration. Cisco was trumpeted as another pioneer of the e-procurement revolution. The company grew at a phenomenal rate until announcing surplus inventory of $2.5bn (£1.7bn). It seems Cisco's e-procurement system had fallen foul of a very basic problem - incorrect information inputs.

Cisco customers had hedged their bets on the waiting times for products by placing orders with Cisco partners as well as the manufacturer itself. Components were procured by contract rather than short lead-time ordering. When the duplicate orders were withdrawn, Cisco was left with sheds full of excess parts.

According to AMR Research's Simon Pollard, the key is supply chain visibility. "You can't legislate or automate to deal with every potential problem of that type but extending visibility along the supply chain will pick up misalignments more quickly. Event triggers are needed to constantly check if the real world matches expectations," he said.

Gartner SAP research director Derek Prior points to a number of problems. "On the technical side, there is the lack of compatibility of business documents. XML has many flavours and it will be some time before it is a broadly useful format, though this is less of an issue where users have vendor compatibility. SAP-to-SAP communication is not a problem, but not all businesses are in this situation.

"Then there is the lack of common business semantics. It's all very well to have XML communications in place but you need to have a common understanding of business data transmitted in XML."

"And, of course, there is security. With application-to-application communications it has not been a problem, but business-to-business collaboration means having to be careful that data viewed in a business partner's database is confidential," Prior said.

Business processes also need to be knocked into shape between supply chain partners.

Holger Holstein, a project leader with chemicals firm Bayer, said, "Bayer has just completed a SAP implementation for e-procurement. However, the company has 15,000-20,000 suppliers but we only relate to 200 of them by means of e-procurement. We can only get them on board by negotiating with them and relating to them through marketplaces."

Wilson echoed this. "What is needed is a culture change. Businesses need to be convinced that security will not be breached and that queries and orders etc carried out in this way will be done in a timely manner," she said.

Many firms are going down the e-procurement road because of the obvious benefits to the bottom line while Gartner Group talks of the move to ERP II - to a future of modular, plug-and-play "collaborative commerce".

Nobody needs convincing of the possible benefits available to those who move to e-procurement. The challenge of making the necessary changes in business culture and improving the technologies underpinning them has never been greater.

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E-buying hurdles

Lack of compatibility of business documents
Lack of common business semantics
Maintaining confidentiality while business sharing data.

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