April 2001 | Commentary | IT Matters

Extending Efficiencies Beyond the Four Walls

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Most companies that have successfully streamlined the internal links of their supply chain have not been able to extend those efficiencies outside their own four walls. Inside, they've found many ingenious ways to squeeze time and complexity from supply chain processes. Outside, where the supply chain branches out to myriad partners who help move goods from here to there, these masters of internal efficiency often must revert to faxes, phone calls, and manual data entry to keep the supply chain moving.

Companies looking to extend supply chain efficiencies outside their own four walls have traditionally run into a simple but sizeable roadblock: the varied systems employed by supply chain partners simply weren't built to work together. As a result, these systems have remained islands, bridged only by manual communication. EDI, once thought to be a supply chain panacea, turned out to be too costly and complex. It wasn't until the advent of the business Internet that open, simple connectivity suited for the external supply chain became available.

The possibilities opened by Internet technologies have made streamlining external supply chain operations a center-stage business issue. Extensible Markup Language (XML), for example, is becoming a lingua franca that enables multiple businesses and their computer systems to share information automatically. XML requires no retrofitting to link legacy systems and information into the supply chain. The potential benefits are clear.

Likewise, Java is now solving one of the big issues of legacy systems—their inflexibility. Java enables companies to more easily modify their supply chains as they evolve. It's another huge plus for companies that want to squeeze the most possible value from external supply-chain operations but can't afford to be hemmed in by a rigid proprietary solution. In total, the characteristics of these and other Internet technologies are adding up to provide a clear path to achieving the most important steps to external supply chain efficiency: integration, event management, and intelligence.

Supply chain integration is a cure for the blindness that has plagued supply chain operations. When supply chain partners connect their disparate technical systems via technologies such as XML, they can normalize their messaging and see the entire supply chain rather than just one or two links. A window is opened into the entire flow of goods, funds, and information as it snakes through the chain—giving all partners what they need to communicate and interact more efficiently.

Event management is a logical extension of integration. Once you can see the individual elements of the supply chain, you can pinpoint and manage them individually, in real time. Suppose a manufacturer sees that a shipment of components being routed by normal supply chain protocol will arrive two days late for assembly. It can then isolate that individual item from the supply chain and increase its shipping priority. This ability to intervene immediately and automatically, without human intervention, to manage specific events is key to competing efficiently in a time-compressed market.

Intelligence is then the logical extension of event management. Once you can manage individual events, you can implement intelligent processes that streamline that management. At a basic level, adding intelligence to the supply chain is a matter of executing if-then business rules: if this happens, then do this. But technologies now in prototype will increase this intelligence to the point that supply chains will operate to achieve certain goals rather than just execute rules. The supply chain can be calibrated to maximize speed over cost, for example, or vice versa.

If these sound like pie-in-the-sky ideas that exist in some engineer's head rather than the real world, keep listening. You'll start to hear stories of companies that have actually put these kinds of solutions to work—companies that now realize dramatically lower operating costs, reduced inefficiencies, and improved satisfaction with customers and trading partners.

Don't confuse the Internet with Internet business models and shun the technologies for fear they will make you want to spend more money than your business earns. Open, extensible Internet technologies are key to unlocking your front door and extending efficiency from within your four walls to the farthest reaches of your supply chain.

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