Supply chain collaboration yields efficiency

by Mark Leon

April 23, 2001 —

COLLABORATION HAS always been a part of any economy, but the information age has breathed new life into the meaning of the term.

Although much of the focus in business-to-business e-commerce has been on expediting transactions, businesses are discovering that the flow of information within a supply chain is a collaborative process that is at least as important as the movement of dollars.

This is especially true for manufacturers. "New, Internet-based tools are starting to emerge to enhance the relationships and dynamics between manufacturers and their suppliers," says Lucine King, senior analyst at Forrester Research in Cambridge, Mass.

King recently completed a study that predicts a rapid growth in the adoption of these tools in the next two years. The reasons, she says, are compelling. "Over 75 percent of the companies we surveyed say the new technologies will enable them to bring products to market faster while reducing the errors in production processes."

Industrial-strength information

It isn't just about suppliers. Richard Gray, director of e-business and information systems at SPX in Muskegon, Mich., is using the Internet to share data with his customers.

Gray works in the Lightnin division at SPX where the job is making industrial mixers and agitators. This is equipment that you don't just buy off-the-shelf.

"We build these to order," Gray says. "We need to have the detailed specifications -- things like viscosity, blending times, and volume of the material -- before we can start to make the appropriate machine."

Such information is critical because it determines specifications such as the motor speed, impeller design, and shaft length of the product. And, perhaps more importantly, if any of this information is incorrect, it can mean big losses for SPX.

"We don't just guarantee our products for mechanical functions," Gray says. "We also promise [that] they will support the process. In other words, a machine could work perfectly and, because of one specification error, SPX still has to eat the cost."

So it is no surprise that Gray, the point man for information, felt a certain amount of pressure to ensure that the information was accurate. "It was a big problem for us," Gray says. "We sell to third-party reps. They funneled information to us via phones, fax, hard copy -- real old-technology stuff. It was extremely inefficient and error-prone."

So in November, hoping to find a better way, Gray and his colleagues started testing a complex system of software components. It consisted of a homegrown sizing and selection application; software from Big Machines, a Foster City, Calif., company; and connectivity software from webMethods in Fairfax, Va.

The system is all Internet-based: Sales representatives enter specifications from a browser directly into the SPX application which then passes the data to the Big Machines eSales application; eSales then creates a detailed set of specifications, generates a quote for the customer, and, with the help of webMethods, passes everything back to the sales representative.

Gray says the "killer app" here is the capability of eSales to dynamically generate AutoCAD documents and to talk directly to the SPX ERP (enterprise resource planning) system. "It means we can automatically generate a detailed quote -- complete with engineering drawings and specifications -- for the customer. The system is much faster and far less error-prone," Gray says.

Gray considered building a system such as this in-house but decided against it for a reason familiar to most IT professionals: "It would have been difficult for us to attract the type of talent Big Machines has on board," he explains.

Goddard Abel, president and CEO of Big Machines, says developing this kind of software internally would be prohibitively expensive for many manufacturers. "I think it would cost at least $5 million to do it yourself," Abel says.

The code is all written in J2EE (Java 2 Enterprise Edition). "We use XML to integrate with CAD systems," Abel says.

Gray says testing has gone well. "We have been in pilot with six of our sales reps. We are almost ready now to start full deployment. We think we can reduce cycle times and internal costs -- in some cases by more than 50 percent," he says.

Gray is already thinking about the next step. "This should support about 80 percent of our product line," he says. "The other 20 percent of our business involves more intensive collaboration with our customers on design. We will need a whole new set of tools for this."

The kind of online, collaborative design tools Gray wants are just now starting to show up, according to Forrester's King. "Software that allows real-time sharing of complex information, like CAD drawing on the Web, is the next level in this kind of collaboration," King says.

Web browser of the '60s

But most manufacturers still have a long way to go before they are ready to make that kind of leap. Many still use a technology that John Cronin, chairman and CEO of Digital Paper in Alexandria, Va., calls the "Web Browser of the 1960s."

Cronin is referring to aperture cards, three-inch-by-seven-inch punched cards with an embedded 35mm image of an industrial part. "The punch holes have descriptive data about the part," Cronin explains, "and the film lets you see it."

But to do that you need a big machine -- an aperture-card reader. "It is hard to believe that people still use these things," says Cronin, "but a big plant might have hundreds of readers."

Digital Paper makes software that is starting to replace all of these readers and cards. John Alexander, supervisor of engineering services at Grove Worldwide in Shady Grove, Pa., has been using it since August.

"We make mobile hydraulic cranes," Alexander says. "Each crane required thousands of aperture cards. We were generating about 3,500 new cards a month."

These cards had to be copied and distributed to several facilities and old cards had to be updated constantly. "Every aspect of the business depends on having a current set of cards," Alexander says. It was a manual process, he explains, and the opportunities for error were high.

So he liked the idea of getting rid of the cards altogether. "[The Digital Paper] product is called DocQuest," Alexander says. "It shows you a TIF image of a given part and all its attributes. It also supports PDF."

And it enabled Alexander to get rid of all those cards. "It took us about four months to implement," he says. "A lot of that time was spent scanning in over 250,000 aperture cards."

Alexander says getting rid of the cards isn't the only benefit. The software is Web-based, so Grove can publish part specifications and diagrams that its suppliers can access. "A lot of our parts are outsourced," Alexander says. "We can now collaborate with our suppliers on a daily basis. All they need is a Web browser."

Alexander says this also helps his company deal with one of the biggest problems in manufacturing: inventory control. "We don't want inventory sitting idle on our shop floor, and we don't want to wait on parts to run the assembly line," he says. "DocQuest puts the visibility in our supply chain that we need to better manage inventory."

Shared repositories

Digital Paper's Cronin thinks that although collaboration is part of e-commerce, it is also useful to distinguish it from the traditional notion of commerce. "Collaboration," he says, "is about driving costs down by maintaining relationships and working together. This is very different from the spirit of the first e-commerce tools, which were more about driving costs down by forcing suppliers to lower their prices."

Forrester's King puts it this way: "The Net does change the economics of collaboration. It is the idea of shared repositories of information that is new here."

Gold chains

Sometimes collaboration is right on the money. Although most of the supply-chain collaboration buzz is about trading partners sharing nonfinancial information, in some supply chains the primary product is money. In those cases business-to-business collaboration involves information about financial matters such as payments and invoices.

Ken Deveaux, director of b-to-b e-commerce at FleetBoston Financial in Boston, says he is just starting to make use of collaborative tools that are tailored to this environment. "Historically, in automated b-to-b financial systems, the information about the money has been separate from the money itself," Deveaux says. "This is very inefficient."

Since February, Deveaux has used software called Paymode from Clareon in Portland, Maine, to address this issue. "As a bank, we support over half a million companies," Deveaux says. "We provide cash management, payment, and collection services."

Deveaux uses the following example to illustrate how Paymode works: "When a business pays a supplier, the amount paid rarely matches the amount on the invoice," he explains. "So someone in the supplier's accounts receivable office will need to reconcile the difference with someone else in accounts payable on the customer end. Today this is usually done with fax, phone, and e-mail."

This reconciliation process involves what Deveaux calls "rich remittance" information. "Some of the product may be returned; there may be reasons why the customer will pay full shipping only for part of the order," Deveaux says. "All this kind of data is critical to reconciling accounts."

FleetBoston uses Paymode to put an electronic payment into the same package as the payment data. "The rich remittance information is encapsulated in an XML document," Deveaux says.

FleetBoston still uses an older format, ACH (Automated Clearing House), for actual payments. And Paymode supports popular electronic-payment methods such as ACH and FEDI (Financial Electronic Data Interchange). What is new here is the ability to package these transactional formats with the remittance information required to streamline the reconciliation process.

"This is financial, b-to-b collaboration," Deveaux says. "We have accounts payable mangers and accounts receivable managers working together, and all they need to use the system is a Web browser."

At present the collaboration never involves more than two parties, but Deveaux says that could change. "In the future this rich information could flow farther down or up the supply chain. I can envision this happening with complex transactions, perhaps cross-border transactions involving multiple countries."

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