Smarter Supply Chain Management: Can Your Suppliers Deliver?

Despite the generally expected decrease in overall technology spending, a recent AMR Research report predicts that the SCM (supply chain management) market will reach $7.8 billion in 2001. The report goes on to say that collaboration is expected to become a fundamental capability as companies are increasingly called upon to identify and eliminate constraints not only within their own organizations, but within those of their suppliers and distributors as well. In other words, future SCM applications will require a combination of ERP (enterprise resource planning), business intelligence, and enterprise integration.

Ross Mackie, VP of sales and marketing for Interbiz, and Austin Thomas, VP solutions supply chain management for i2, agree with AMR's assessment. "Everyone is an intermediary today," says Mackie. "Vendors have suppliers and customers at both ends and have to know about events taking place upstream or downstream." Let's say, for example, that you manufacture pens. You will want to know if the company supplying the ink is going to run short next month, either because the raw materials are unavailable or a factory will be temporarily out of operation. Collaborative supply chain technology allows you to know this in real time and to immediately research availability from alternate suppliers. At the other end of the spectrum, a collaborative system could allow you to see that your biggest retail customer is experiencing a sudden and unexpected surge in sales of your product.

That's where the business intelligence component kicks in. According to Mackie, supply chain event management is more than notification. It's the implementation of business rules to automate as much as possible. Events trigger rules that order certain actions with options for escalating the warning if there is no response. For instance, the system could detect underproduction at a preferred supplier. This could trigger the system to simply seek out secondary suppliers and automatically order that part. However, contractual or relationship obligations may prevent that course of action. In this case, the system could alert the appropriate person and prompt that individual to make a phone call to the supplier confirming that needs will be met. An intelligent system can also audit personnel to ensure that the proper course of action is taken.

It is this kind of functionality, says Thomas, that will keep demand for SCM high during an economic downturn. "Everyone is doing more with less," he comments. "Just because you have to lay off employees doesn't mean that all of the work disappears. Automating as many functions as possible allows improved efficiency with the same equipment and labor - or maybe even less. Companies can't afford not to make the investment."

Faster Turnaround, Greater Accuracy
The demands on businesses are growing, particularly in the reduction of processing time. Without collaboration, says Thomas, it might take weeks for an order to trickle down to tier two suppliers. However, customer demand is increasingly moving toward smaller, more frequent orders.

Mackie adds that e-businesses have higher expectations for their suppliers. "In e-business, there is no justification for short stock. We have clients who are contractually obligated to fill orders in full and on time at a rate of 98% or they lose the business. For them, understanding that an order will be larger than the last one or come earlier is imperative."

Bringing Your Partners Online
The adoption of open languages like XML (extensible markup language) and Rosetta Net is an important factor in integrating with others in the supply chain, Mackie points out. Thomas advises companies to purchase products with architectures that allow for, and sometimes even provide, APIs (application program interfaces) for other SCM systems. Or companies can use a hub-and-spoke model where a vendor maintains a system that partners can easily access via a browser.

This may sound like it would limit your partners to large enterprises, but both Mackie and Thomas stress that it is in everyone's best interest, including vendors, to provide reasonable options for small businesses. Choices like ASP (application service provider), "light" applications that interface with larger vendor partners, and vendor-supported networks are all ways that smaller partners can be included in the larger picture.