Supply chain visibility still hard to spot
Supply chain visibility still hard to spot
Pioneers in supply chain management are experiencing frustration as take-up of the new technologies among partners has been disappointing.
Nick Broughton has a problem. As vice president of information systems with BHP Steel Asia, he’s helping drive the company’s effort to improve partner interactions by automating its extensive supply chain. The company has committed funding - $10 million worth - to roll out Intentia’s Movex enterprise management system across the region. Integrators are ready to go, implementation plans are being drawn up, and over the next two years around 700 users - spread across 17 sites in nine countries - will begin using Movex modules including enterprise resource planning (ERP), customer relationship management (CRM), supply chain planning and execution, partner relationship management, business performance measurement, and e-business.
There’s only one thing: they won’t have anyone to connect with. Although Australian companies have been rapidly adopting supply chain management (SCM) solutions to streamline internal procedures and optimise inventory handling, their counterparts in Asia and elsewhere are light-years behind. That means that, for now, BHP Steel’s dream of automating supply chain will be sitting on mothballs until Asian partners catch up.”In Asia, they’re fairly primitive in terms of extending electronically to customers,” Mr Broughton said. “The market there is just not ready for e-business; they’re running on very low cost structures, haven’t got the same pressure on costs and so forth that have driven [SCM] forward here at a great pace. [For now] we’ll use a standardised model and a good, robust software platform to build a best practice back-end system that we can then exploit in the future. I suspect that in a couple of years there will be parts of the market that will be interested.”
The experience of BHP Steel echoes the frustration that business managers across Australia have felt as they work to realise grandiose visions of supply chain harmony. Despite SCM vendors’ assurances, when it came time to deliver many customers have found it’s not so easy getting partners to sing from the same hymnal. Partner visibility, vendor managed inventory and the many other accoutrements of SCM remain wistful fantasies.
Anaemic progress towards SCM has limited attempts to increase visibility up and down the supply chains that carry the lifeblood of Australian business. Australian companies manage just a small fraction of the region’s business, but account for fully 24 per cent of the region’s SCM sales, according to Gartner Dataquest. That leaves a whole lot of Asia-Pacific companies with virtually no SCM infrastructure.
Last year, the analyst firm forecast a nine per cent decline in SCM sales for 2002, a reduction equal with that for ERP, which is facing a saturated Australian market. SCM software showed “mixed results” last year, although Gartner Dataquest anticipates an upturn next year as regional privatisation and deregulation hot up economies where exporting is important and business software is uncommon.
That’s not to say that SCM is completely without its successes. In smaller, closed environments where company and suppliers can work closely to common standards, SCM initiatives are showing great promise.
That’s been the case at the ABC, which last year used Connect CommercePlus software to facilitate the electronic transmission of orders to and from nearly 300 suppliers of products for its 38 retail shops.
ABC Retail stocks around 6,000 line items - books, videos, CDs, toys and other merchandise - and sells around $45 million worth of merchandise through its shops every year. To keep the stores filled, ABC Retail processes around 5,000 orders per month. These orders used to be dispatched over a few days using paper-based ordering, and can now be transmitted to suppliers within seconds. Orders are entered into the chain’s OL2000 purchasing system, then transmitted in batches to CommercePlus for distribution to the right supplier via fax, email or EDI (Electronic Document Interchange).
With the system now well and truly underway, ABC Retail head Doug Walker said it’s demonstrated the viability of SCM.
”As our business grew over the years, procurement became a cost we could not continue to carry,” he said. The online system has “improved efficiencies and improved buyers’ capabilities. We know our buyers are spending more time buying and less time standing at the fax machine.”
Lacking the manufacturing complexity of a company like BHP Steel, ABC Retail has been fortunate to have a very flat supply chain. It has no warehouses, and each retail outlet orders stock directly from suppliers. Yet in the same breath, Walker conceded, there is still a long way to go. It’s been less than simple to revolutionise the company’s entire supply chain, with the company having to accommodate a variety of suppliers at different stages of technical infrastructure development.
Many suppliers are still stuck in the SCM Dark Ages of fax, mail and phone orders. When the project went live, around 100 of ABC Retail’s suppliers had no electronic order management facilities - a surprising number given the pervasiveness of email, but an issue that the company had to deal with nonetheless.
By January, Mr Walker said he anticipated completion of an expansion to the system that will facilitate Internet-based ordering: “the Internet is just opening up this sort of thing to a lot more suppliers,” he said. Yet even Internet-based order taking is only an early step: ABC still lacks any sort of live visibility into its suppliers’ inventories, systems and business processes.
Providing that visibility is crucial for SCM to become even a shadow of what it’s been made out to be - but it’s difficult to accomplish using EDI systems that were designed to handle transactions in batches. Visibility requires real-time collaboration, and achieving that collaboration will depend on the use of XML (eXtensible Markup Language) as a replacement for EDI.
XML’s low cost, high flexibility and almost promiscuous extensibility has made it the darling of future SCM planning. If EDI is the workhorse of e-business, XML will be the debutante: young, fresh and free, it will enable the kind of free-thinking, self-configuring, extensible and highly visible supply chains spoken of so wistfully by vendors and analysts.
Yet most of the potential of XML lies far down the track. Despite its oft-criticised proprietary nature and high cost, EDI is still alive and well within ABC RetailÕs supply chain, a concession to the large suppliers that long ago standardised on the technology for order automation. This situation is not unique: despite its limitations, EDI is still the most widely used method for electronic order management.EDI is particularly useful in predictable situations where companies are regularly ordering quantities of the same products.
”There was really no payback on [moving to XML] in the short term,” says Greg Mills, head of large enterprise manufacturing solutions with Cincom. “Many customers have had to say “why not continue to use EDI?” All XML offers was a way to bypass going through a third party to exchange data. It’s just exchanging one [Value Added Network] for another.”
It’s also a moving target, making it hard to build supply chains around what are now largely promises. Moving suppliers to Internet-based ordering, using XML standards, will require a significant effort on the part of everyone involved. And for now, patience remains been the watchword for supporters of that approach: the W3C Consortium is crawling through the approvals process for XML 1.1, a major update to the now venerable XML standard.
Web services will become important because they allow the encapsulation of business processes and rules within code that’s easily portable between companies. Using Web services, a company could easily publish a method for other supply chain members to view its current inventory or check up on a pending order.
The platform independence of those Web services will obscure the idiosyncrasies of each company’s individual administrative system, allowing supply chain systems to communicate using abstraction layers instead of getting caught up in the semantics of application interfaces.
This is a major improvement over the enterprise application integration (EAI) based supply chain strategies of just a few years ago, when request brokers handled connectivity and data translation between specific systems in pairs.
”Just because it’s an XML document instead of an EDI document doesn’t mean it’s going to be easier,” said Paul Farrell, senior director of product marketing with Epicor Australia.
”XML is just a way; what you do with it and how you react to it is an entirely different thing. Web services are the real answer to improving visibility in the enterprise. They’ll be the easier way by having not just the document, but having an intelligent way of accessing that information and gathering it in real time. Web services are the strategic hub of everything we do.”
With XML slowly evolving, Web services are still years away. Major application server vendors continue bickering over Web services standards, and Microsoft’s launch of Windows .NET Server next year will change the dynamics of a market that’s evolving faster than its customers can keep up. With the market in such a state, the specifics of supply chain visibility remain a distant priority.
In the meantime, EDI will continue to do the heavy lifting in supply chain interchange: it simply works and is widely available. By contrast, most major companies will have at least experimented with XML but few small companies would even know how to spell it - much less use it. This will change, of course, but for the time being patience is going to be the key.
Whatever standards are used, many companies are also struggling with the notion that effective SCM execution depends on more than technology alone. Even though many early SCM efforts succeeded in the basics - rationalising inventory management, aggregating demand for lower prices, reducing supplier numbers, optimising logistics and so on - internal problems persist. Organisational rifts can be even more devastating than lack of technical standards, with implementations compromised by turf wars and an inability to establish common objectives.
From what he’s seen, Chuck Poirier, a SCM author and partner with CSC Consulting, said he believed it could be another decade before companies truly get these issues worked out.
”Most companies didn’t have the internal understanding to make facilitation easy,” he said. “They resisted the changes foisted on them; everybody thinks their data is sacrosanct, but I’ve discovered there isn’t much data that everybody doesn’t know about.”
Mr Poirier said he saw SCM as incorporating four stages: two internally facing (sourcing and logistics, then inventory management) and two externally facing (selective partnering, followed by full online collaboration). While many companies have successfully worked through the first and second stages, Mr Poirier said he believed the need to look outside the company often served as a stumbling block in more ambitious SCM implementations.
SCM is not a new concept, and its benefits should be clear to any company dealing with suppliers. Yet it’s not always the company instigating supply chain that’s at fault: as BHP Steel and countless other companies have found, no amount of looking outward is going to get a supplier or partner go online if they’re not ready. And even if they are ready, SCM is going to fail unless companies have the internal will to make it succeed.Even the most modest procurement initiative takes money and effort that they may not be willing to commit in pursuit of hypothetical cost savings and business improvements. This is particularly true in the wake of general economic slowdown and a new management philosophy that has a hard time retaining a long-term view.
”The promise of what the Internet was going to do provided a pretty big distraction to industry,” said Richard Gerner, vice president of the Australia-New Zealand Supply Chain Council and supply chain solutions manager with SAP Australia. Depending on the industry they play in, according to Mr Gerner, many companies may continue to lag at the trailing edge of supply chain innovation.
This would marginalise them in the emerging “supply chain ecosystems” which Gerner said would emerge as SCM philosophy and open standards levelled the playing field for various supply chain participants. He advocated that companies take a staggered approach towards SCM, focusing on highly granular projects with quick deliverables and measurable ROI. Successfully executing on this approach would engender an SCM culture that will pave the way towards greater visibility.
This is the inherent problem with SCM: unlike enterprise systems with defined and limited scope, supply chains introduce all manner of data, process and other interdependencies.
”Some companies are going to understand this stuff and get around to it faster than others,” said Mr Gerner. “When it comes down to it, all companies are competing with each other, trying to minimise costs and increase profitability. They all have their own fundamental issues and need to adapt more readily to changing environments. If you can create efficiencies where parties can be brought closer together and can facilitate increases in technology, this technology can support their improvements in relationships and collaborative efforts, and help to get the job done.”