Develop a supply chain strategy

IT'S NO LONGER about becoming a powerhouse but simply about remaining competitive. To maintain a strategic position in today's marketplace, companies must demand a greater level of enterprise efficiency. And that's why automating the supply chain via the Internet has become so popular.

Internet-based SCM (supply-chain management) solutions link all of your customers, suppliers, factories, warehouses, distributors, carriers, and trading partners in one virtual enterprise. These solutions replace linear SCM models with a circular model that offers greater interaction and responsiveness.

But SCM is not without its shortcomings. E-marketplaces, once thought to be the saviors of supply-chain efficiency, have proved less than fruitful. Cross-vendor incompatibilities complicate the search for the right mix of solutions to integrate the supply chain from end to end.

Nevertheless, a company can use an SCM solution to achieve a competitive advantage and broaden its profit margin. By providing greater visibility throughout the supply chain -- from planning and procurement to point-of-purchase -- businesses can reduce expenditures, improve operational efficiency, and respond more quickly to customer demands.

Planning an SCM implementation

When developing an SCM strategy, you should begin by evaluating how the links in your supply chain fit together. SCM doesn't so much require the employment of a specific technology or solution as it demands an understanding of the business processes that must work together.

Most likely, your SCM solution will seek to incorporate existing systems such as e-commerce, business and planning, manufacturing and control, and sourcing and distribution. Your SCM solution will typically include, for example, material sourcing, forecasting, warehousing, inventory planning, transportation, purchasing, and financials.

This integration must be accomplished not only within your own enterprise but within those of your customers and suppliers (and often their customers' and suppliers' systems as well). This stage is likely to incur additional expense. Processes within all of these organizations must be evaluated and updated or even overhauled to meet efficiency and logistical expectations.

Larger SCM packages bundle a variety of capabilities to improve accessibility to and integration of the supply chain throughout the enterprise. Naturally, the broad scope of these solutions, which integrate multiple business functions much like ERP (enterprise resource planning) applications, imposes difficulties in implementation.

For example, IT shops running custom-built, rather than packaged, back-end applications will need a substantial amount of time to develop and adequately test the programming interfaces. Once the system is in place, updates are difficult because they require new software to be pushed to every vendor within the chain.

Implementing an SCM solution also places strain on the daily operation of the enterprise and its business partners. For instance, companies have found that, after integrating the raw transactional fundamentals intrinsic to supply-chain success, the new system requires more efficient communication and planning capabilities along the value chain.

As a result of these tangential requirements, the supply chain has evolved to include a number of processes that were never originally considered SCM elements, including product design, planning, materials sourcing, and contract management.

Recognizing the demand for these additional capabilities, vendors are beginning to include more dynamic, collaborative communication networks in their offerings, giving birth to collaborative commerce and helping to improve communication beyond the transactional supply chain.

Collaborative commerce

Collaborative commerce, or c-commerce, also aims to extend capabilities such as ERP and APS (advanced planning and scheduling) solutions beyond the walls of the enterprise, allowing companies to share planning responsibilities and transaction processing with trading partners.

Collaborative commerce creates a unified, virtual enterprise with mutual sales, operational, and business goals by providing real-time access to information about your partners' production schedules and inventories. And c-commerce helps to breed stronger integration with suppliers by streamlining process flows and enhancing productivity through joint planning. Rather than simply responding to order requests, your suppliers can anticipate your procurement needs by taking advantage of direct links to your sales forecasts and inventory targets.

Of course, c-commerce is not exactly a new concept. In the late eighties, there was QR (Quick Response), the retail industry's effort to share inventory data with suppliers. And if c-commerce makes you think of EDI (electronic data interchange), you're not far off the mark. EDI, by allowing the sharing of data and ERP-based information in a collaborative arena, proved a solid means of facilitating cooperative trust among companies.

The biggest stumbling block to the adoption of c-commerce is the lack of defined standards. Even early initiatives, such as the Collaborative Planning, Forecasting, and Replenishment project (www.cpfr.org), which targets the consumer goods and manufacturing industry, are still in their infancy.

Companies should be cautious when evaluating an SCM vendor's collaboration-ready components, and they should take the time to fully understand what that vendor's notion of c-commerce actually comprises. There are technological challenges to surmount in exchanging data between disparate data sources. If you come up short on integration, you may wind up leaving your trading partners in the cold.

It is likely that most companies interested in implementing a c-commerce initiative will need to blaze trails that rely on best-practices and forego any trial-tested, interoperative standards for at least another year or two.

Culture shock

The success of even the best-laid supply-chain or c-commerce technologies will ultimately depend on how competently your work force can perform using the new framework.

When embarking on a project as monumental as supply-chain integration, implementing the technology will be easy compared to tackling the behavioral changes needed within your organization -- and within those of your trading partners. (If you thought integrating ERP was difficult, just wait until you try broadcasting it beyond your corporate boundaries.)

Although SCM doesn't involve as many employee touch points as ERP does, do not underestimate the human factor. Change management requires an understanding of the new interdependencies being constructed and of the roles and responsibilities that must be adopted for the enterprise and its trading partners to become more collaborative.

Beyond the requisite technical skills, employees must become comfortable with the new workflow and underlying concepts introduced by supply-chain and c-commerce initiatives before the company will benefit from the analytical intelligence found in products by i2 and Manugistics.

To help speed time to competency, businesses implementing SCM solutions should plan a comprehensive training strategy that offers employees hands-on access to a system that simulates real-world supply-chain environments and provides insight into strategic supply-chain operations.

Supply-chain ROI can be greatly enhanced -- or impeded -- by the way a company addresses the difficult challenge of adapting to an SCM workflow model. Ultimately, it will be the human factor that makes or breaks the success of this new work paradigm within your organization.

Shoring up your weakest link

Although value chains help speed time to market and reduce costs when managed wisely, the inherent risks increase as the chains become increasingly intricate. The consequence of one company's error has a greater impact when that error is quickly reverberated throughout the supply chain.

When integrating trading partnerships, one of the toughest hurdles is managing expectations and ensuring that each company lives up to them. Your value chain will only be as strong as your weakest link.

Newly forged interdependencies will expose inherent weaknesses in your partners' infrastructures. It's crucially important to identify which trading partners are eating into your profit margin by failing to meet expectations.

To the benefit of the alpha-businesses in the pack, many of the more collaborative planning and order-execution systems can provide insight into your partners' workflows. This familiarity can help you educate your partners, keep deadlines on target, and establish closer relationships and trust. But achieving these benefits requires you to keep a close watch on them and a tight rein on the process.

Private exchanges

Private trading exchanges can also help build trust and minimize risk in partnerships. Because the benefits of c-commerce are rooted in shared data, an Internet-based supply chain runs the risk of exposing not only proprietary information but also intellectual capital. It could also give partners a premature look into your company's strategic planning.

More intimate than e-marketplaces and private consortiums, private exchanges enable companies to transact business with a small handful of specially selected partners and customers. When critical tolerances on parts specifications or the like demand closer scrutiny when selecting vendors or when companies already possess a well-stocked stable of worthy partners, maintaining a small private trading network may be preferential to opening your supply chain to the world.

Private exchanges may eventually include links to public exchanges, providing automated fulfillment in the event that a local supplier cannot be found. And we will soon see public exchanges that embed private exchanges to give preferred customers and partners priority access.

SCM today and tomorrow

Some of the choicest SCM solutions today, such as those from i2's TradeMatrix Platform and Rhythm suite, offer extremely well developed means for performing SCM and CRM (customer relationship management). Furthermore, SCM products are rapidly maturing, as vendors beef up their applications' capabilities in a scramble for market share.

Coming down the pike are more collaborative integration options, including Web services and solutions based on standards such as ebXML (e-business XML) and UDDI (Universal Description, Discovery, and Integration), which are already supported in SCM applications from CrossWorlds Software and others.

Developing best-practice collaborative "standards" will help bridge the information divide and enable SCM to reduce capacity forecasting errors, take the guesswork out of addressing customer expectations, and ultimately increase profitability.

Although SCM and collaborative commerce might build seemingly cozy relationships between the enterprise and its partners, the primary responsibility of the enterprise is still to its shareholders. Exchanging information with current trading partners is good, but your company should continue to keep an eye out for new partners down the road. By embracing open standards and maintaining flexibility, your enterprise stands the greatest chance of evolving to meet the demands of a rapidly changing marketplace.