Magazine Article | October 1, 2003

Avoid Supply Chain Disconnect

Source: Field Technologies Magazine

Having the right supply chain planning and execution applications is one thing. Getting the two solutions to work together is a whole other challenge.

Integrated Solutions, October 2003

Businesses that want to grow beyond small-time status know it requires a team effort. And, suppliers, vendors, strategic partners, and customers need to be in the starting lineup. This strategy, often referred to as collaboration, can create a higher level of efficiency that none of the individual players could achieve on their own. Consider the following example. A manufacturer uses specific raw materials in its production process. When raw materials drop to a specific level, a new shipment shows up at the receiving dock. Because it collaborates with its supplier, the manufacturer doesn't need to use its own resources to monitor raw materials. Collaboration makes good business sense. But, there are some common mistakes enterprises make which create a disconnect among the players and threaten to bring down the team. If you want to be the MVP (most valuable player) on your team, avoid the following pitfalls.

1. Don't Take Too Narrow A Focus
A common mistake companies fall into when collaborating with strategic partners is to delve into the project with a shortsighted view. "Collaboration shortsightedness reveals itself when companies ask themselves and their strategic partners the wrong questions," says John Davies, cofounder and VP of product marketing for supply chain execution vendor Optum, Inc. (White Plains, NY). "For example, if a manufacturer meets with its supplier to discuss sharing data, it's a mistake for the two parties to only consider how the project affects them. They should also be thinking about how the decision to share information will benefit other members of their extended supply chain such as distributors and customers." By taking a broader view of the value chain, the business rules set up among supply chain applications will make the integration right for everyone involved. In today's world it's not just about business versus business; it's about supply chain versus supply chain. Make sure yours includes everyone who contributes to the finished product.

2. Avoid Heavy Customization
Creating a collaborative value chain entails integrating applications. When you get to this phase in the collaboration process you will be faced with the decision to customize your applications or implement new applications. Some customization is inevitable. "However," warns Davies, "too much customization will inflate your TCO [total cost of ownership] and will lead to a supply chain disconnect down the road." It's important to select a solution that includes the functionality you need as part of its core offering. For example, you may have an ERP (enterprise resource planning) solution that includes a WMS (warehouse management system) module as part of the package. But, this module may be far inferior to the functionality of a best-of-breed WMS. Not only will the WMS require less scripting to get it to work with your collaboration partners, but expensive repeat customizations won't need to be performed every time you (or one of your partners) need to do a software update. Remember, the more parties involved with an application integration, the more often you'll potentially have to upgrade your software. Customized applications can be twice as costly to upgrade compared to off-the-shelf applications. As a general rule, no more than 10% of the original software code should be modified.

3. Establish Fact-Based Trust
You can't get too far into a collaboration conversation without hearing the term trust. To create a collaborative environment, you have to expose portions of your internal supply chain processes and data to your partners. Everything is out in the open. If a couple of machines break down and a shipment is delayed, the customer knows why. There's no use blaming the shipping company or making up excuses. Your supplier knows exactly how much inventory you have at all times, what your budget is, and your storage capacity. Naturally, you may feel a bit vulnerable.

"The best way to establish and maintain trust is with facts," says Michael McClellan, president of consulting firm Collaboration Synergies, Inc. (Camas, WA) and author of Collaborative Manufacturing. For instance, customers share with the manufacturer their forecasts to buy 1 million widgets in the next 12 months. The manufacturer shares this information with its supplier, who quotes the manufacturer a price for 1 million raw materials. Three months into the project, however, some of the customers reduce their orders. By allowing the manufacturer and supplier to integrate their forecasting software, both parties can see how unanticipated events in the market changed the initial forecast, as opposed to the manufacturer or its customers trying to get better prices by artificially inflating forecasts. When business partners share truthful information, trust is established.

Integration issues aren't the only factor that compromises trust. Inaccurate data is another cause. If your forecasts are not accurate, suppliers attempting to achieve fine-tuned supply chain management will be stuck with extra inventory or will have to place last-minute orders to get materials to you on time. The chaos created by inaccurate data breeds frustration and mistrust. "Issues related to process discipline, personnel training, and IT infrastructure stability need to be identified and resolved for an enterprise to succeed in collaborative commerce," says Mark Engleman, president of SoftSelect Systems (Vancouver, WA), provider of an enterprise software optimization process and research partner with APICS, the educational society for resource management. "Measures need to be put in place to monitor and improve collaboration readiness."

4. Don't Integrate More Than You Need To
Even though trust is a necessary component for successful supply chain collaboration, there are practical business reasons why you may not want (or need) to reveal all your data to your business partners. If you manufacture medical products, for instance, you may follow HIPAA (Health Insurance Portability and Accountability Act) regulations, which protect healthcare patients from discrimination. If you share too much information with your business partners, you may inadvertently match a medical product with the intended recipient and find yourself in violation of HIPAA.

"Companies that require real-time data will need tighter integration," says Roger Crawford, PC/AIM (Personal Computer/Automatic Inventory Management) operations manager at WMS vendor Ann Arbor Computer (Farmington Hills, MI). "Joining databases via EAI [enterprise application integration] tools is one way to achieve real-time data sharing. This type of integration has a higher initial cost compared to using triggers and should only be used if real-time data justifies the extra expense."

If joining databases is required, it is recommended that security software be implemented to optimize data sharing and security. For example, Novell's Nsure solution, which enables IT administrators to use LDAP (lightweight directory access protocol) to restrict access to specific applications, restricts access control within an application.

5. Include Alerts As Part Of Your Plan
During the planning phases of most implementations, only ideal scenarios are considered. "In the real world, however, unforeseen events distort operations and escalate costs," says Todd Hartz, VP of strategic marketing at EXE Technologies, Inc. (Dallas). "The source of this problem is a 'right time' interaction between planning and execution systems. Events occur in the execution process that the planning processes cannot predict." For example, a delivery truck breaks down and misses a pickup or delivery. This could result in stock not being available for an order to be fulfilled in a timely manner, which could lead to customer service issues, production line availability problems, overtime, or expedited shipping costs. "SCEM [supply chain event management] software is designed to provide or coordinate the management and automated handling of the events that disconnect planning and execution software," says Hartz. "An SCEM solution uses real-time event management and rules-based agent technology to synchronize planning and execution functions. It can bridge the disconnect between planning and execution functions by providing real-time monitoring and resolution capabilities to automate adjustments, ensuring staffing, uptime, service levels, and exception handling costs are optimized."

Creating a collaborative supply chain infrastructure is no easy task. In fact, some may count the cost and conclude that opening their business to anyone not employed by the company is too risky. Those who do take this risk - and learn from the examples of others who have already trod down this path - will likely find that the team is much more effective than the sum of its players.