Internet-enabled supply chain management ushers in a new wave of "c-commerce" for collaborative business
Madanmohan Rao reports from the Second Annual European Logistics Summit in Brussels
As the digitization of business progresses from the first phase of stand-alone e-commerce front ends and online marketing to the second phase of connecting business value chains, a key technological and management challenge of "c-commerce" (collaborative commerce) is weaving together a complex mesh of public and private links for supply chain management (SCM).
"Old economy" giants, systems integrators, logistics companies, technology vendors, B2B start-ups, consulting firms, and online marketspace players gathered in Brussels recently for the second annual European logistics summit, eChain 2001, hosted by London-based firm World Business Research (www.wbr.co.uk).
One of the key impacts of c-commerce is to break down traditional barriers within the company between its departments, geographical units and employees, and on the outside to connect the company seamlessly with its customers, suppliers, distributors and business partners.
While proprietary solutions (especially for ERP) for some of these activities have already existed, Internet technologies have added a whole new layer of functionality in terms of open standards, end-to-end visibility of information, integrated CRM, and dynamic knowledge management.
Elements of partner-facing functions which can be Web-enabled include adaptive lead management, content management, promotion management, order/quote configuration, consultative selling, e-commerce storefronts, and forecasting/planning.
The supplier side includes direct materials (which go into products), indirect materials (for maintenance, repair and operations), and services (such as IT, marketing, management, human resources).
Numerous start-up and incumbent IT vendors are offering solutions in the supply- and sell-side of business operations, such as MRO procurement (Ariba, CommerceOne), SCM (Manugistics, ViewLocity, Iona, GLog, Demantra), collaborative design (Agile, NexPrise), content and catalogue management (Vignette), configurators (Trilogy), integrated marketplaces (Ariba, CommerceOne, Oracle, VerticalNet), direct sales (BroadVision, Intershop, OpenMarket), logistics (i2, Yantra, GoCargo), payment (Verisign, iEscrow), CRM (Siebel, Kana) and customer analytics (E.piphany, Cognos).
Other incumbents are not sitting still either -- ERP software giant SAP now has a diversified set of Web-enabled offerings for enterprise portals like mySAP.com (used by Samsung and Nestle), online marketplaces (in conjunction with Commerce One), CRM, SCM and product life-cycle management.
Using SAP solutions, Colgate-Palmolive reportedly increased order completion rates in the U.S. market to 95 per cent and lowered finished goods inventories by 10 per cent; Mexican manufacturer Hysla improved forecast accuracy from 40 per cent to 80 per cent; and Dutch company Computer Services Solutions reduced order cycles from 5 days to one day.
"The pressures of hyper-competition and the possibilities of global sourcing make it increasingly important for a company to design and practice adaptive SCM," said Alexander Renz, business development manager for SAP.
C-commerce is particularly critical in an era where competition is no longer just between companies but between entire supply chains and trading communities, said Mark Herwege, regional business development manager for JD Edwards.
"There has been no mountain of hype in e-SCM as compared to the dotcoms. e-Chains have attracted growing and steady interest," observed Paul Henderson, supply chain development manager at Nestle UK.
Beverage giant Coca Cola uses EPOS (electronic point of sale) data from some of its stores to track actual sales data in real time and dynamically make joint demand forecasts with its distributors.
"Online order tracking and audit trails help us smoothen shelf availability, particularly for supplies during pre-weekend spikes," said Carl McInerney, customer order management services controller for Coca Cola.
Industries with major demand spikes also include entertainment, where sales of music CDs and movie videos peak sharply just after release or during other time periods.
"We notice this in retail stores as well as e-tail sites, and this calls for dynamic and scaleable supply chains," said Phil Streatfield, supply chain director of Entertainment UK, a supplier of entertainment products to UK retailers like Tesco, Woolworths, Safeway and Comet and also e-tailers like Bol.com.
"Online sales of such products are increasing despite the dotcom bust," said Streatfield, who coordinates purchase invoicing and delivery at the Web back-end of e-tailers.
e-SCM pioneers like Intel, General Motors, Benetton, Ford, Safeway, and Wal-mart operate in a web-like "keiretsu" or symbiotic system with their key trusted partners, sharing customer history data and integrating processes at a great depth. Companies like United Technologies and Eastman streamline purchasing via e-procurement. New Jersey-based BOC Gas uses the Web to coordinate purchases worth $20 million from Japanese suppliers annually.
IBM generated $43 billion worth of business via e-procurement channels last year, according to Ben Grave, director of global parts logistics at IBM.
Dell's SCM solution (http://valuechain.dell.com) has reduced inventory turnover to 5.1 days. "85 per cent of our suppliers are on this site," said Ton Den Dam, regional e-business manager for Dell. The B2B solution plugs directly into ERP systems of customers, and includes Premier Pages for major customers who can check service call status online.
Cisco's SCM portal - Manufacturing Connection Online - coordinates operation with Tier 1 suppliers (immediate partners) like Celestica, Avnet, Jabil and Solectron as well as Tier 2 suppliers like AMD, Agilent and Sony.
Based on Oracle Financials and now XML, it has reduced error rate on orders to less than 1 per cent, reduced supply chain inventories by 45 per cent, and improved time to market by 20 per cent, claimed Alain Veirmeiren, customer solutions consultant at Cisco Systems.
"Though the IT market is tough now, we are actually increasing investment in our IT infrastructure to help manage the situation better," he said.
All this means companies must choose vendors that demonstrate compatibility with the company's values, cultures and beliefs. This will automatically whittle down the number of potential partners - but also reveal only the committed ones. Thus, Cisco gives the bulk of its business to a few strategic partners like Solectron.
The magnitude of impact of e-SCM on a company will depend on the IT maturity of its industry category (more in high-technology and retail than agriculture and heavy industry), its inertia based on existing legacy systems, and whether the goods in question are critical to its value proposition (eg. raw materials, which will require a mix of private and public channels) or indirect (eg. office supplies, which can be easily procured from commodity public exchanges).
As Internet diffusion and mobile phone penetration continue their explosive increase, SCM design must accommodate the accompanying change in customer preferences and expectations as well.
For instance, Brake Brothers, a distributor of frozen fish and poultry to supermarkets and hotels in the U.K. and France, added Web and wireless functionality to its ERP solutions to enable Internet ordering for its customers, Web-based call centre support, and membership in B2B Web exchanges.
"The company still uses EDI for its bigger customers who already have it, and Web or Excel spreadsheet formats for transactions with its smaller customers," said Peter Christovic, regional business director for Ironside, which developed the Web solutions for Brake Brothers.
The "e-factor" is critical for injecting speed into a company's functioning. "And speed is as important as perfection in this day and age," said Wolf-Dieter Lachenmeier, VP for e-transformation at the Siemens Centre for Excellence.
"Knowledge management and e-SCM are critical for transforming Siemens into a global e-business innovator," said Lachenmeier. The company is promoting an "e-business mindset" by providing Internet access to all its employees (including cybercafes in factories) and creating an internal e-commerce mall on its Intranet.
Manufacturers also need to figure out what kind of strategy to adopt in terms of joining the various public exchanges emerging around the world, along horizontal and vertical axes.
"Theoretically, a B2B exchange offers good economies of scale, shared development costs, and more buying and selling reach. But it may potentially also remove your competitive edge if you have a superbly refined supply chain," argued Juup Willemse, supply chain e-business activity director at Unilever, whose brands include Rexona, Dove and Organics.
The company uses the Ariba platform for Web-based workflow, and already reports 5 per cent savings on export tenders from the U.K.
Companies like ICG Commerce offer Web-enabled procurement of "white collar" MRO goods (IT, telecom, public relations, travel, fleet management) as well as "blue collar" MRO (machinery, construction services, engineering equipment, office furniture). With over 300 suppliers of such goods, the company accounted for a total of $12 billion purchasing volume last year, with $2.5 billion in Europe.
"We have sourced our purchasing of office supplies and mobile telecom services to ICG Commerce. We realized that we were not properly leveraging our high level of spending - we buy from 40 companies in 15 countries, and had a lot of duplicate buying," said Gary Emerson, outsourcing director at Sara Lee, a leading household and body care products company.
Ariba and Accenture helped Web-enable and integrate Sara Lee's SAP platform with ICG's procurement software; the company expects to generate savings of 7 to 19 per cent.
Areas like transportation for suppliers and distributors seem to be ideally suited for Internet-based business and economic models, as witnessed by the proliferation of online transport exchanges like Nistero, CargoFinder, LogiGo, X4Freight, and Translogistica.
"At any moment, 27 per cent of trucks on Europe's roads run empty. Aggregation and optimization of transportation services via the Web can help reduce this wastage and also enable cost savings for shippers and manufacturers," said Gary Mansell, managing director of transportation exchange Freight-Traders.com, a subsidiary of Mars International whose brands include Snickers, Twix, M&Ms, and Mars bars.
The company leverages pan-European transport services for companies like Kellog's and Lever Faberge via bulletin boards, optimizing software, auctions, tenders and benchmarking.
"As a result of our services, Mars cut its empty runs in the UK by 20 per cent, and Kellogg's Web-based tendering process now takes 5 weeks instead of several months. Within a year of operation we accounted for 380,000 freight moves worth 140 million Euros," said Mansell.
The company's Web site experiences 800 logged sessions a week, with an average session time of 36 minutes; it charges 4 per cent commission according to cargo value.
"In the future, online freight marketplaces will not disappear - though some will consolidate or collapse," Mansell predicted.
Forrester Research estimates that 50 per cent of B2B transactions will be conducted in 2003 on e-marketspaces, but only a few will survive.
In addition to the numerous venture capitalist-backed exchange start-ups, established industry players have also collaborated to create their own exchanges - such as Transora, founded in New York in March 2000 by the e-business heads of FMCG companies.
"We are not a dot-com but a dot-corp," said Johan Sauer, head of sell-side services at Transora. The exchange supports public and private data sharing, consistent catalogue standards, and process synchronization.
However, the growing complexity of e-SCM means that supply chain managers and CIOs in many companies seem to looking "more and more harried" over the years, observed Girish Pashilkar, business consultant at Bangalore-headquartered Infosys, one of the sponsors of the e-Chain summit.
"Theoretically, e-SCM means greater transparency and visibility of information along the entire chain - but this does not necessarily mean that this information can be better managed. Even a pioneer like Cisco has had trouble with the complexities of forecasts and planning," said Pashilkar.
A massive cultural change also has to take place to adjust from a 5-day work week to 24X7 operation, said Steve Agg, logistics director at Danone Waters.
And even when all the places are in place, coordinating the various cogs is like "orchestrating an electronic fishtank," joked Nick Rawls, c-commerce evangelist at JD Edwards.
Rapid innovation and shrinking lifecycles for products like cellphones means that products are moving much faster through supply chains. Such complexities continue to increase during mergers and acquisitions, as companies enter into entirely new supply chains - raising new integration challenges.
e-SCM applies not just to business but also academic institutes and government agencies, said Richard Wilding, professor at the Cranfield School of Management.
The U.K. government expects to have 100 per cent e-procurement in place by year 2005; an E-Minister and an E-Envoy were appointed in 1999, to act as government champions of online service for citizens and businesses (via portals like www.UKonlineforBusiness.gov.uk and www.ukonline.gov.uk).
In Scandinavia, the Danish government expects to bring about 20 per cent savings via online procurement by 2002.
Dozens of books have already been written about the galvanizing impact of the Internet revolution on SCM; magazines dedicated to the subject include "Supply Chain Management Review" and "Logistics Europe."
In retrospect, it might be said that the new economy was the best thing to have happened to the old economy, according to the recent bestseller "The Seven Steps to Nirvana: Strategic Insights Into e-Business Transformation" by Mohan Sawhney and Jeff Zabin.
"Unlike anything before it, the massive wave of entrepreneurial startups energized Corporate America to change," they observe. E-business should be exploited to play not just to the bottom line but also to the top line, where it can lead to the transformation and reinvention of entire industries, the authors advise.
Another recent book, "Zero Time: Providing Instant Customer Value - Every Time, All The Time" (by Raymond Yeh, Keri Pearlson, and George Kozmetsky) argues that companies must practice 'instant involvement' via mutual commitment among strategic partners along their supply chains.
The writer can be reached at email@example.com
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