June 2000 | Commentary | Supply Chain Technology

Understand the Net, Don't Get Caught In It

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This past year has seen an unprecedented move toward consolidation of the supply chain and the Internet. It also has seen a major push toward integrated trading exchanges.

These trends are keeping consultants such as Advanced Manufacturing Research (AMR), The Gartner Group, Dataquest, and Aberdeen Group pretty busy. Here's a look at what these analysts say about the year past, what these trends mean to your business, and what you can expect in the future.

Last year, logistics managers turned to the Internet to improve both their own internal supply chains and their connection to trading partners, reports AMR, Boston, Mass. This effort captured the attention of top management, and drove them to build e-business strategies for their companies.

Vendors responded to this e-business demand by creating Internet-enabled software. They offered support for both corporate-directed hubs, and for new and aggressively developing independent trading exchanges (ITEs). Some vendors opted to develop their own independent trading exchanges.

Those changes are just the beginning. We can expect even greater changes in the supply chain as it reacts to the Internet's growth and opportunities. Ownership of materials flowing through the supply chain will shift from the traditional ways to a greater dependence on third parties who offer information, manufacturing, and distribution services, AMR suggests.

The Gartner Group, Stamford, Conn., predicts that the plethora of transportation and logistics trading exchanges on the web today will unify. In the next few years, there will be fewer exchanges but, paradoxically, those that remain will aggregate to offer a far larger base of supply and demand.

Take the web site established by automakers General Motors (GM), Ford, and DaimlerChrysler as an example. Each company gravitated away from its own and separate trading exchange to create a unified business-to-business site.

In their experience, according to the Gartner Group, maintaining separate exchanges created too many trading rules for suppliers to comply with. The complexity was costly, and particularly hard on small, less-sophisticated suppliers. The situation was in direct conflict with the original purpose of trading exchanges: to expedite trade by making the process more efficient and cost effective.

The collaborative effort among GM, Ford, and DaimlerChrysler not only proves the collective strength of suppliers, according to The Gartner Group, but has other implications as well. Within this new trading environment, a "channel master" such as GM has to give up some of its former control to gain more access to a wider group of suppliers, at less cost. This consolidation in the manufacturing marketplace will encourage vendors to offer more integrated application packages, Gartner suggests.

Dataquest, Powder Springs, Ga., offers an interesting perspective on Electronic Data Interchange (EDI), which has been the industry's workhorse for years. While some analysts predict EDI's demise, Dataquest says EDI will survive by evolving toward an open relationship with e-business and the web.

This EDI evolution will place further pressure on the solutions vendor offer, and how users implement them. It means ironing out the relationships among databases, proprietary EDI, portals, and other e-business technologies and systems.

Developing business models that have lasting power within an e-marketplace undergoing such change will be challenging, if not daunting. Keeping an open mind and remaining flexible is the best strategy, Dataquest recommends.

Those companies that are to be successful in the economy described above will have to make strategic use of the Internet to automate, redesign, and integrate all business operations, according to The Aberdeen Group, Boston, Mass. The range of these operations extends from purchasing to demand, from production planning to delivery, from new product development to customer relationships.

The Aberdeen Group sees these functions as being built upon a new and dynamic supply chain, or a set of supply chains—the "supply net." This net must have the ability to respond to rapid change, particularly from customer demand.

The order of the day, according to Aberdeen, is to view the integrated and extended enterprise as the means to communicate, analyze and collaborate on plans, schedules, and initiatives. Aberdeen recommends that an e-business/supply chain solution should perform the following functions:

  • Build on Internet architecture.
  • Enable universal self-service access.
  • Support demand-driven business.
  • Provide a common data model for SCM.
  • Enable extensive reporting, planning, and analysis.
  • Support integrated business systems.
  • Provide an open communication platform for transactions, and collaborate across the entire supply chain.
  • Deliver modular or component- based systems.

Enterprise integration, supply chain savvy, and Internet enabling are keys to tomorrow's business success. What is unique about doing business today is not the need to respond to change; business has always had to respond to change. What is unique is that these changes are occurring at so many levels and at such an accelerated pace. What is even more unique is the fact that these changes are all interrelated. Modify one and you modify all.

To be successful, look at this new supply chain "net" in its proper perspective. It's better to understand the net than be caught in it, as any fish would know.

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