Get the supply chain back on track
It's another technology that has struggled to deliver on early promises, but supply chain management can still become a competitive tool, writes Nick Booth.
Do you remember the early days of the e-business boom, when marketing managers competed for attention with ever-more attractive claims? The best was that e-business would eliminate waste, slash the costs of production and drive down prices. We would all be richer, they said.
But where are all of these bargains now? What happened to the e-business miracle?
There is good news and bad news. The bad news is that supply chains haven't delivered the fabled efficiencies, so none of us are getting anything any cheaper.
The good news is that there is still a lot of integration work to be done, which is great for companies like Silver Bear Technology, which was formed to do precisely that kind of work. But before you rush in, there is more bad news.
"It was never easy to sell this sort of solution, but it's almost impossible now," warns Roy Lee, director of marketing at Sterling Commerce. For every task people need doing, someone will have already sold them an application for it.
Tough sales
People are reluctant to spend money any more, which is why Stirling Commerce concentrates on helping people get more out of existing applications. It's a tough sale, but Lee is confident they can continue to pull it off. He suggests it will be tougher for the channel to achieve this.
Martin Atherton, lead analyst in enterprise applications at research company Datamonitor, senses much disillusion among end-users. Having made a great case, many vendors fail to deliver on their promises.
"Sadly, there are many instances of vendors having fouled up supply chain management (SCM) projects," says Atherton. "This is largely due to claims about benefits that were not obvious to the user once the software had been implemented."
Some software vendors are capitalising on this and offering exchange programmes and other inducements in order to benefit from disillusion with their rivals' products.
"This is all well and good, although it's a little grimy to say the least," Atherton comments. "But it is a sign of the difficult markets, leading vendors to become increasingly cutthroat in getting a deal, even if that means playing on other vendors' misfortunes."
Simon Clark, chief executive at consultancy Katapult-IT, agrees: "In these desperate times many companies seem to have abandoned the 80:20 rule of customer relationships in favour of one I've dubbed the 18-30s rule of relationships: find 'em, screw 'em and forget 'em."
You would think that in this market the most important decision would be your choice of vendor; get that right and everything else will follow. If only it was that easy.
Choosing the right vendor
According to Atherton, the most efficient selection process goes like this: First you look at the likely candidates, then take advice from other sources, and ignore most of it. You then make your own mind up while remaining completely oblivious to deals, functionality that you don't need and other sideshows.
The three crucial issues are:
- Domain expertise, which should be long-term and provable.
- Partnership track records. Ask whether your business can work with the vendor's business.
- Stability. Will this vendor be around in five years' time to support you?
Too few of the pioneers of SCM made a distinction between planning and execution. In supply chain planning, you look at historical data, models and predictive analysis to assess needs and draw up a plan.
This can then be applied to the physical supply chain. Then you execute this plan or, as often happens, you end up feeding it into another system.
This brings us to supply chain execution (SCE). This is the 'doing' side of the business: the execution of physical processes, ensuring the smooth flow of goods from supplier to user, which often exposes unexpected problems.
What makes SCM a particularly hard sell is that it's so difficult to demonstrate a return on investment. What constitutes a big improvement for one company might not be for another.
By being broad and generic, vendors can demonstrate general benefits but can't be specific. This is why some SCM projects failed to provide the improvements needed.
That said, it could be a question of perception. If a user doesn't know how bad things were to begin with, how can they measure improvements?
So all the blame for SCM disappointment cannot be laid on vendors, but they are the ones the finger will be pointed at. Perhaps some perception management is needed.
You can manage perception all you like but it won't increase demand, claims Chris Barling, chief executive of e-commerce vendor Actinic.
Barling has kept an eye on the supply chain sector, with a view to getting into it if there's money to be made for Actinic and its channel partners. But, according to his research, there isn't - not at the moment anyway.
Actinic asked 185 companies, in manufacturing, wholesale and retail, for their views on the business importance of various aspects of the internet.
Supply chain management a low priority
SCM came near the bottom of their priorities. This seems odd when most firms are looking to cut costs above everything else, and if SCM achieved its goals it would deliver just that.
However, more companies seemed fixated on increasing sales by using the web. Perhaps it is the end-user's fault after all that SCM is failing.
Not so, says Barling. "Technology offers a great deal for companies in the supply chain, in theory, but it has rarely delivered. Remember a decade ago, EDI was set to change the world. Then we had business-to-business (B2B) exchanges which did nothing," says Barling.
The final straw that broke the back of the technology's credibility was the US-based B2B steel exchange, which had a market capitalisation greater than the entire US steel industry.
Automating the supply chain hinges on two issues: widespread adoption and the problem of dominance. The first is a case of the chicken and the egg. Until both ends of a supplier relationship adopt the same technology, it can't work.
Unless an entire market sector adopts the same technology, it's not economic. But this can't happen unless a third party pushes the project, and success would give them too much market power, which neither buyers nor sellers want.
Once this is understood, it's easy to see why supply chain automation has only happened in the sectors dominated by a small number of massive buyers, such as the supermarkets. They have the power to make their suppliers conform to their standards.
Nevertheless, there are some shining examples where SCM has been turned into a competitive tool. The channel itself is a good advertisement for how things could be done.
Nolan Computers is a Great Plains partner, and its integrated distribution solution is generating a lot of income for the company by automating a number of supply chain steps.
Distributor Computer 2000's (C2000's) web ordering system has proved to be an enormous boon to productivity for the firm's reseller clients, according to Martin Stoker, Nolan Computers' business solution manager. But this is only after resellers have had their systems and C2000's ordering system tightly integrated, of course.
"All of our customers are resellers and they buy from C2000, which has been proactive in making its product catalogue available," says Stoker.
"Our customers get a competitive edge by taking advantage of tighter integration, which has been made possible by C2000, which offers more integration points for clients to get closer to the system."
For example, use of XML has enabled resellers such as Upgrade Options to pull more in-depth information from the website, and to run queries in order to get the best ideas of pricing.
So if they wanted 250 PCs for a particular tender, they could find out pricing and availability and sort out delivery dates for a customer in a fraction of the time.
So there is one area at least where SCM is bringing about greater competitive edge, but it's available only to those who can achieve tighter integration with the existing framework.
Integration, integration, integration
With Ideal Hardware and Ingram apparently doing the same, soon resellers will have to spend money getting integrated, otherwise the timeliness and accuracy of the information you offer your customers will fall behind the rest of the field.
Supply chain vendors are working harder now to make integration of systems easier. One of the biggest players is I2, whose Fast Track product was designed to be a series of templates, the easier to implement a framework.
According to Ken Adcock, I2's director of alliances, a crucial balancing act is complementing the work of ERP systems.
"Typically, ERP balances the resources you have, such as materials, capacity and human resources, but these studies will be run independently," he says. "There's no way to weigh up the inter-relationships between them.
"You need to see not just how resources affect each other but how they affect the supply chain. The problem is the scale of the task, but we believe we have the framework to make it possible, and to cut implementation time by making it simpler."
Tying together the once separate silos of functionality in the business is definitely a good thing, agrees Atherton. "Sure, it's complex, but that's the aim," he says.
Martin Palmer, business development director at software vendor Amethyst's logistics division, says that maybe this is too ambitious. "There has been a tendency to over-complicate. But I'm delighted to see there's a discernable shift back to basics, taking a practical approach.
"A key element in this is the identification of weaker parts of the existing supply chain and addressing these on an individual basis, so delivering step-by-step and cost-effective benefits to the supply chain as a whole," he says.
Brad Scheller, vice president of TradeCard and a man with 16 years experience of implementing supply chain systems, has a theory about what SCM has achieved so far.
"SCM has done more cost-pushing in the supply chain than cost elimination. Take Dell. Often cited as an excellent practitioner of SCM, it may manage its internal savings at the expense of its trading partners," he says.
"A Dell supply chain carries very little inventory, Dell uses its market muscle to require vendors to position just-in-case inventory, at their risk, within a short drive of the Dell factories. When Dell receives an order, and collects cash from the consumer, this triggers the need for the parts to be pulled into the assembly factory.
"Dell ends up with negative cash flows by collecting from the consumer well before paying its suppliers. In fact it is this financial supply chain that has helped drive down PC costs much more than anything Dell has done on the physical side of the supply chain."
There are some much wider issues to be resolved before SCM can be successful, says Jonathan Hamblin, managing director of White Obsidian, an integration specialist.
"The main issue has never been the technology required to achieve tighter integration, but the politics and security around the integration between the systems used.
"Often these systems are diverse and owned by different companies, performing differing roles within the supply chain, each with different standards and procedures," says Hamblin.
With the biggest problem being the politics of integration itself rather than the data and data transformations required to integrate, the channel is left between a rock and a hard place.
Politics in SCM come down to who owns the data within the supply chain or parts of the supply chain. "In our experience individual departments claim ownership of supply management. Any part of the organisation that uses a different system also claims ownership and the right to update and change these as the supply process is meet.
"This leads to problems while achieving the integration, leading to greater costs and over-complicated procedures, which you've been forced to do to keep the political objectors satisfied," says Hamblin.
And guess who gets the blame when it all goes wrong? The reseller who had all the compromises forced on them. Few are ready for the next push in SCM. If there is an opportunity, it's in preparing them for this next stage.
"Organisations have been slow to realise retraining is required. As a consequence there may be an opportunity to supply interim skills to organisations to help them up the learning curve," says Palmer.
Get the best from your supply chain strategy
Clyde Bennett, manufacturing and supply chain specialist at Microsoft Business Solutions, offers this advice on helping customers get the most from their supply chain strategy:
- Make sure your business strategy is well-realised and understood.
- Find a strong partner that can help make the right choice of solution, and follow through with the project to deliver the benefits.
- Find a flexible platform. Make sure connectivity (to customers and suppliers) and interoperability/integration are part of that flexibility. This choice is critical, but you can't possibly make it without the right partner, and the ability to abstract your strategy for them to understand.
- Manage the various phases of the project at the highest possible level in your organisation.
- Only outsource skills your organisation is capable of outsourcing effectively.
CONTACTS
Actinic
(0845) 129 4800
www.actinic.co.uk
Amethyst (01892) 512 609
www.amethystgroup-uk.com
Datamonitor (020) 7675 7271
www.datamonitor.com
I2 (01344) 756 400
www.i2.com
Katapult-IT (01932) 227 982
www.katapult-it.com
Microsoft Business Solutions (0870) 243 3111
www.microsoft.com/businesssolutions
Nolan Computers (01252) 811 663
www.nolancomputers.com
Tradecard (001) 212 405 1811
www.tradecard.com