MSI Magazine - May 2001

It’s become an axiom that information equals power, and nowhere is this truer than in supply chain management. Yet depending on a company’s place within a supply chain, the type of enterprise applications that yield the right kind of information—and thus the appropriate power—can vary widely.

For companies that must manage complex inbound and outbound supply chains, emerging Web-based applications such as supply chain performance management can bring rapid benefits, primarily by using Internet technology to coordinate partner interactions and resolve exceptions. Other e-Business software vendors are vying to become the dominant providers of software for Internet-based private trade exchanges. A private trade exchange typically has a one-to-many business process topology, as opposed to the many-to-many structure of a public trade exchange. For dominant supply chain players, setting up private trading hubs is a key concern.

Another group of e-Business software vendors is focusing on the needs of suppliers. One example is Web-based pricing analysis software that helps suppliers determine optimal pricing and bring greater automation to the quoting process.

Some experts, however, warn that this new era of Web-based collaborative applications requires a foundation of real-time transactional data of the type found in enterprise resources planning (ERP) systems. “You certainly need to have a solid collaborative platform, and ultimately, have that integrated with ERP or ERP-like data across multiple applications,” says Jill Jenkins, a senior analyst with Current Analysis, a Sterling, Va.-based analyst firm that closely tracks the enterprise applications market. “There are other major barriers to implementing some collaborative applications. For one thing, your suppliers or your transportation providers may need real-time transactional systems, and must have the ability and willingness to share their data through mechanisms like EDI [electronic data interchange].”

Such barriers notwithstanding, some enterprises are now turning to collaborative applications to bring greater control to their supply chains, while others look to Web-based solutions that allow them to become better, more profitable suppliers. The Mopar Parts Group of DaimlerChrysler, for example, is deploying a supply chain performance management solution, while Cutler-Hammer is deploying an application for pricing analysis and automation. It is hoped that by implemeting such solutions, these companies will get the type of information they need to become more effective supply chain participants.

Know what’s happening

The Mopar Parts Group, Auburn Hills, Mich., is the primary distributor of parts and accessories for all Chrysler, Plymouth, Dodge, and Jeep dealerships in the U.S. The group procures more than 300,000 parts from 3,000 suppliers, and delivers to dealers. This includes parts distribution and replenishment for 16 field centers.

Mopar Parts, forecasting at 1.8 million stock-keeping units, represents a large-scale supply chain, according to Jerry Quell, senior manager of materials operations planning for the group. The group uses SeeChain, a suite of supply chain performance management and improvement applications from SeeCommerce, Palo Alto, Calif.

“The suite allows us to see information about our supply chain,” says Quell. “Aggregated information allows us to respond, tells us when we’re in trouble, and gives us multiple measurements in each application area.”

Using a combination of workflow and business performance metrics, along with zero-client browser-based software, SeeChain is said to improve productivity by coordinating the multiplicity of events that follow from pro- duction, purchasing, and distribution decisions. “The Web-based process can be seen by anyone in the organization,” says Quell.

Previously, the division performed time-consuming ad-hoc reporting based on flat files. Now, SeeChain’s e-mail alerts capability keeps managers informed, wherein they can now access supplier performance using 30 different measurements. “Just point and click and you can slice and dice, and look at all suppliers of sheet metal parts, for example, and see how well they’re doing,” says Quell.

Using an extranet, Mopar’s suppliers can check their performance. “We can send out alerts to suppliers,” says Quell. “This starts the whole collaboration process.” Quell adds that the SeeChain application has contributed to improved forecasts and reduced safety stock. “In just six months, we achieved $7.5 million in reduced safety stock,” he says.

Profitable response

There’s little doubt that maiden business-to-business (B2B) e-commerce processes, such as reverse auctions that pit suppliers against each other in Web-based bidding events, were focused on the potential upside for buyers. Meanwhile, suppliers were left to respond to these new demands with whatever legacy or client/server-based enterprise systems they had at their disposal. But today, a number of e-Business software vendors are focusing on the needs of suppliers.

One company benefiting from a Web-based, supplier-focused solution is Eaton’s Cutler-Hammer division, based in Pittsburgh. This manufacturer of electrical control and power distribution products offers complex products in high volume, leading to approximately 200,000 pricing evaluations annually, according to Ray Huber, Cutler-Hammer’s director of e-Business. These sales requests lead to more than $2 billion in annual revenue for Eaton. Approximately 60 full-time employees, including pricing managers and pricing executives, manually evaluate these sales requests by using various internal data sources and homegrown applications. Responding to sales requests using this manual process can take as long as five days.

“In the past we may have looked at two or three variables as part of an analysis process, and sometimes we made a gut decision,” says Huber. “We may have had to walk away from opportunities because we didn’t have time to analyze them.”

What was missing, contends Huber, was a Web-based application that could help analyze and automate pricing decisions based on a number of variables. “We wanted to look at manufacturing capacity and do ‘what-if?’ analyses, and consider other variables such as inventory and [delivery] timeframe,” says Huber.

The application Cutler-Hammer is deploying to meet its pricing analysis needs is the Metreo Supplier Response solution from Metreo, Palo Alto, Calif. The software evaluates each customer’s pricing request against a manufacturer’s criteria, in effect “grading” each sales request. Key decision-making criteria include the value of the customer, expected impact on key strategic performance metrics, competitive environment, product availability, and plant capacity.

This sales response process is supported by Metreo’s analytical and optimization capabilities, as well as real-time and bulk access to critical sales request, product, customer, inventory, and production line data. Supplier Response also allows Cutler-Hammer to aggregate orders from multiple selling channels and pricing mechanisms.

While the Metreo application was still in beta-testing earlier this year at Cutler-Hammer, it’s already made a positive impact, says Huber. “It reduces response time, creates a more consistent process, and we believe we’ll make better and more profitable decisions. It speeds things up—we respond faster, and we have a consistent process that we can perform from anywhere.”

Such pricing analysis, accessible via a browser, will help Cutler-Hammer keep pace with e-Business, Huber contends. “More suppliers are sending us requests, probably because the Web has ratcheted up volume,” says Huber. “This is where we see the Metreo solution helping us from a supply chain standpoint. From a broader IT [information technology] perspective, because Metreo is Web-based, it meets our ‘anyone, anything, anytime, anywhere strategy’ for new software. Metreo just screams the Web.”

Execution still key

The more traditional supply chain management applications, such as warehouse management system (WMS) software, still pack a punch for many supply chain participants. In particular, improving warehouse management is key to better supply chain management for CHS Cooperative, St. Paul, Minn.

The company blends and packages lubricants, motor oils, and gear oils. Most of CHS Cooperative’s customers are farmers, and they do some OEM work as well as contract packaging. “We’re in the middle,” says Bill Broberg, plant superintendent. “So we selected High Jump for warehouse management and we’ve lived happily ever after.”

Broberg is talking about Warehouse Advantage software from Eden Prairie, Minn.-based High Jump Software, which helps CHS manage 12 key vendors that account for approximately 90 percent of the company’s business. “Better managing the warehouse has definitely improved our ability to control our supply chain,” Broberg says. “Information cycles are much shorter. It used to take me two days just to see where a product is located. With High Jump, it’s on my PC and I know where it is within 10 seconds.”

Simply knowing where goods are at any given time carries other benefits. “With the data from the WMS, our forecasting is more numbers-based, not gut-based,” Broberg says. “We can look at five levels of detail and make decisions on raw materials. Our vision is so much clearer now.”

Also seeing things more clearly in its supply chain is Sonic Manufacturing, a contract electronics manufacturer based in Fremont, Calif. It took a two-pronged approach to improving supply chain effectiveness. The first move was to implement an ERP system—in this case, Expandable II from Santa Clara, Calif.-based Expandable Software.

ERP suites integrate order entry, purchasing, production planning, and financials under a common database and user interface. Most ERP systems also include reporting and querying tools. For instance, the latest release of Expandable II features a “query by example” search engine that provides generalists with the ability to find information using the same screen used to add or modify data.

David Ginsberg, vice president of materials at Sonic, believes a major barrier to external collaboration is that not all suppliers have up-to-date enterprise systems. Some, he says, have legacy systems that are challenging to glean data from—and integrate with—on a point-to-point basis. “It may take months or years for suppliers to be able to integrate on the Internet,” says Ginsberg.

The route Sonic chose was to subscribe to a hosted collaborative commerce solution from Viquity, Sunnyvale, Calif. The vendor’s offering is called the Viquity Dynamic Commerce Network, and it is described as an e-Business platform for direct-procurement transactions.

A partnership between Viquity and Expandable has produced a Dynamic Commerce Network adapter for Expandable II. The adapter connects ERP information with Viquity’s network, allowing purchase orders, demand forecasts, invoices, and other actionable documents to be exchanged in real time between business partners through the Viquity network.

“Collaboration has formed a much tighter relationship with a smaller group of suppliers,” Ginsberg says. “We tend to use suppliers that are tied into the system more often. We get on-time delivery, and the supplier gains business volume.”

Do the needs analysis

Companies benefiting the most from Web-based collaborative commerce are those that already have sound transactional systems to serve as a foundation. Another word of warning: some of the new collaborative commerce solutions are targeted mainly at upper mid-tier companies and larger.

Ultimately, says Jenkins of Current Analysis, an all-encompassing supply chain management suite that meets everyone’s needs or pocketbooks does not exist. “It comes down to a manufacturer analyzing what constitutes its most critical business need, then examining the market for applicable solutions from Tier 1, Tier 2, or Tier 3 vendors. And with hosted collaboration solutions, it can still be a struggle to get trading partners involved, even if the technology hurdle is taken away.”

Supply chain antics
Knowing your role in c-commerce requires knowing everyone’s role

According to Gartner, successful c-commerce initiatives hinge on building collaborative relationships, streamlining communications between supply chain partners, building trust, and sharing information. The analyst firm says an enterprise also may play different channel roles simultaneously, varying its relative power position for extended supply chain processes. According to Gartner, c-commerce roles can be characterized as:

The Channel Master: wields the most power in the extended supply chain, and is the natural leader for standards development and collaborative pilots. Channel masters must be careful in the balance of power, or they risk losing trading partner viability. For c-commerce success. Channel masters must have robust, internal supply chain management systems; and also provide Internet access to trading partners.

The Chameleon: Exerts extensive supply chain power, yet yields to the channel master. Chameleons need to be sensitive to the balance of power supporting standards development and interoperability, while pushing for flexibility in processing design. Successful chameleon strategies are founded on persuasion and channel master support. Chameleons must ensure strong internal processes and application architectures, while investing in trading partner enablement.

The Zen Master: The Switzerland of the business-to-business [B2B] world. The enterprise operates as a constant intermediary, providing service and connectivity to everyone. The Zen Master often has limited forward visibility. Banks, suppliers of packaging materials, manufacturers of maintenance parts, distributors, and transportation companies are natural Zen Masters. To succeed, the Zen Master must commit to interoperability and service, link with larger trading partners’ marketplaces, and provide optimal customer service.

The Cooperatives: Small enterprises or business units that gain power by joining together to look like a larger enterprise. Marketplaces naturally emulate the cooperative model, giving power by banding together to look like a larger enterprise. To participate cooperatively, an enterprise must support neutral marketplace standards, while emphasizing member interoperability.

Tech sector’s slowdown brings on an IT balancing act

Projections of negative growth in PCs; slowed demand in the semiconductor industry; inventory build-ups at the semiconductor manufacturer—and at the contract manufacturing level in telecommunication segments—as well as layoffs at leading telecommunication equipment providers are activities of late that indicate rough seas are ahead for the technology sector. Now, with the news that rate adjustments by the Federal Reserve will not have an impact for months ahead, it appears the storm is still brewing.

What is the impact of all this on the IT organization, which grapples with integration activities inside and outside the firewall, buy-side versus sell-side e-commerce projects, and the realignment of business process as the organization tries to grow the business with less resources?

In recent independent studies conducted by AMR Research—and in another study by Ernst and Young, in cooperation with the National Association of Manufacturers—it was found that high-tech manufacturers are devoting their energies to IT projects that can drive revenue growth when compared with cost-reduction projects. In validation, AMR has seen a higher adoption rate of sell-side collaborative manufacturing execution (CME) projects from contract manufacturers and leading distributors in providing design-to-manufacturing services.

Another sell-side initiative—supply chain fulfillment—enables organizations to differentiate themselves from competitors through logistics services, but these organizations still need to be conscious of possible inventory build-ups if demand and supply are not synchronized.

These sell-side projects not only drive revenue, but also enable the organization to provide greater customer value with fewer resources. So, in many instances, the sell-side IT priority is achieving both objectives. CME participants that provide manufacturing visibility and supply chain coordination are seeing the benefits of inventory reductions and higher turns.

On the buy-side of CME, we have seen a growing set of projects at the OEM level centered on supply chain coordination. These projects, when executed correctly, seek to provide better customer service by integrating back through the value chain for accurate available-to-deliver information. With a slowing economy, companies want to take a deeper look into their extended supply chain performance metrics, positioning the application segment quite nicely for 2001. These solutions are moving well beyond their original roots, as supply chain management vendors are addressing not only extended supply chain performance management, but logistics, workflow, and statistical measures and reports.

The real story is in the adoption rates of the private exchange (PTX). These initiatives are attempting to coordinate the entire supply chain as a method to increase customer service and streamline costs associated with visibility. The value of inter-enterprise integration and immediate access to sales and inventory information have been noted by Federal Reserve Chairman Alan Greenspan to indicate that the economic downturn now moves at a faster speed and we are able to react more quickly.

The real power of the PTX lies in streamlining existing trading relationships, including those with resellers, distributors, and logistics providers. Up to now, however, there has been a lack of business process optimization tools to streamline these new processes. To date, most activity has involved automating new and complex processes instead of stream- lining them. As a result, we have not seen the true benefits of product quality improvements, inventory synchronization, and shorter time-to-volume metrics. However, the PTX will insulate corporate systems during the turbulent developmental phase of B2B commerce. The solution set provides an integration framework to communicate across business processes in a secure manner on both sides of the firewall.

Even if you cannot envision your company operating an active on-line marketplace for suppliers or customers, think of the PTX as the most effective way to take advantage of Internet-based commerce while insulating your systems from the many changes that will occur as this new era of on-line commerce unfolds. Users should incorporate sell-side components of CME into their private exchanges as a means to achieve revenue growth through additional services, provide the necessary connectivity for external integration, and realize back-end operating efficiencies.

David Cahn is a research director with AMR Research, a Boston-based analyst firm. Cahn has extensive experience as an information technology consultant, and as an executive in the enterprise applications industry. He may be reached through MSI, or via e-mail.

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