The holy grail for supply chain management is to gain complete visibility throughout the chain. But to do this a great deal of connectivity is needed across a diverse network of internal operations and processes, as well as external suppliers and partners. Complexity in exchanging data over these networks has frustrated many skilled supply chain and IT professionals over the years, battling with electronic data interchange systems that are geared to exchanging messages with established key suppliers, but are unable to offer the simplicity required to link-in smaller suppliers or partner organisations on a flexible basis.
In recent years the internet has matured as a conduit for business information. To some degree security may still be an issue, although now Web2.0 technology using online platforms, accessible through a Software as a Service (SaaS) model, offers the potential to not only link-in smaller suppliers easily but also has the capability to analyse the data being transferred which enables the application of intelligence. Complexity need no longer be an obstacle to supply chain performance.
This new era of supply chain networks that are able to link together even the smallest of enterprises, brings with it the possibility of creating collaborative cells that can work together to maximise transport capacity, local sourcing for shipment to local retail stores, electronic trading, direct ship solutions for retailers and their 3PLs, along with a multitude of other applications. So surely, the vast majority of organisations must be active in bringing the potential of collaboration into practice? You might think so.
Sterling Commerce recently undertook a survey of large discrete manufacturing companies in France, Germany and the UK to support the release of its sales and fulfilment suite. One of the key questions asked was: how well are you integrated with your business partners? The answer surprised Roland Teijken of Sterling Commerce; just 25 per cent were integrated with their business partners.
“Everybody talks about supply chain visibility, everyone wants it,” says Teijken. “It’s fine working internally, but as soon as you cross the frontiers of the company it becomes less and less common. But if you don’t connect, you don’t get visibility.”
Teijken sees collaboration in the complex manufacturing, discrete manufacturing and aerospace sectors taking place around the design process, centring on components. “The firms that are talking about this are struggling with the amount of data and the security of data. With our technology security is something we consider as very important, so we are seeing more demand from customers regarding security, fast file transfer and help with regulations.”
Manufacturers are really in the middle of the enterprise, he says, and they have different communities they have to work with – demand, supply, logistics, finance and compliance. “And that’s the nice link that we can make from our integration technologies into our applications like order management, where we can help with collecting different data from different areas and share that data across various companies.”
So what are the barriers to integration? “The security of data and ‘how much I am willing to share’, are two big barriers,” he says. “Another big topic covers the capabilities and the skills of the IT department. IT departments are struggling to keep up to date with the latest trends, technology, standards and regulations and instead of supporting the business in the main processes, they are struggling with getting the latest IT releases and compliance releases. So what we are seeing is more and more demand for managed services.”
Simon Bowes, alliances director at Wesupply, a provider of on-demand B2B integration solutions, sees some of the biggest changes in collaborative technology taking place on the internet, as broadband proliferates and Web2.0 takes off. “Collaborative technology is moving to the web, and by its very definition, collaborative means it needs to be partner-friendly,” he says. “It’s very difficult to collaborate when you are collaborating on the terms of one or other of the partners, or when you are having to use applications that reside inside one or other of the partners’ companies.”
By putting computing power out on the web collaborative technologies and tools can be designed that are accessible by the whole supply chain rather than just the biggest partner in the chain. This is very different to the traditional approach adopted by many retailers and manufacturers.
Bowes still sees EDI as a valid means of communication technology, but believes it is limited when it comes to wanting to do more value added planning activities and close collaborative work with partners. There are ways of improving availability through the supply chain by overcoming the age-old problem of poor visibility. The bullwhip effect is a problem that needs to be overcome, “this is where everyone in the supply chain tends to second-guess what everyone else will do and start to make irrational decisions on ordering stock, each building in a safety margin which has the negative effect of amplifying the problem.
“If everyone could see what each other’s demand was, instead of just seeing an order appear, then they would tend to make more rational decisions,” he says.
“By providing solutions on the web it is much easier for companies to join in standardised processes that improve visibility. It’s that step beyond EDI that’s enabling us to work together and make information available that helps us make better decisions.”
But just how many companies are collaborating closely on the web? Bowes estimates that at present, it is a lot less than ten per cent that actually agree to work with partners. He points out that for simple EDI messaging this figure is probably higher, but if we are talking about visibility and trying to work collaboratively with partners then this is a much smaller group.
“Up until now, if you’re using one ERP system and your supplier is using another, it has been quite difficult getting the two systems to talk to each other,” he says. “But through a web-based service, complexity is taken out of that process and that leaves you with a standard connection which can be rolled out to your supply base.” The technology lends itself well to enabling small to medium sized companies (SMEs) to connect with the chain and engage with larger organisations.
“SMEs are now able to join the party. If you are going to make better decisions you need visibility and unless you include everybody you haven’t got full visibility. So companies should be looking to get as many of their partners as makes sense connected to a network so that everyone can benefit – and then you have a more complete picture,” he says.
Many organisations are looking for more than just pure document exchange, they are looking for business activity monitoring and analysis of supplier performance. They want joint visibility of confirmation of dispatch and delivery, whether it was on time, in full and against what was ordered. What’s more, they want to know which suppliers perform the best. “The very fact that you have a credible measure tends to make suppliers improve their performance,” says Bowes.
“It’s because we look at the data in the messages that we’re able to provide analysis and KPIs, as well as decision support that sits on top of that data. Next generation systems look at the content of the data so that they can provide some intelligence that goes along with that data – we can spot errors in advance; we can spot invoices that we know will not match,” says Bowes.
Tom Varghese, senior global product manager at GXS, believes that many retailers are missing out on the opportunity to take cost out of the supply chain through adopting more efficient means of communicating with their wider supplier base. “Large retailers have thousands of suppliers but can only collaborate electronically with about 20 per cent of their top suppliers. The other 80 per cent tend to send out paper orders, receive paperwork back and all the communications back and forth are very paper laden,” says Varghese.
Tesco had thousands of small suppliers that the company could not communicate electronically with, so GXS used intelligent web forms – a web space solution that lets small companies receive an order electronically – to integrate the community.
“Tesco sends out data from their back end systems in the same way as they always have, it goes to GXS filters through our trading grid, we translate it into human readable web form and then present that to the supplier. The supplier then passes on the invoice by pulling out a web form and then sending it back through the trading grid. We then translate it back into EDI and put it into Tesco’s back end system,” says Varghese. Importantly, both parties are able to collaborate without changing the way they do business.
Varghese sees the next area of development for collaborative technology being in hand-held technology, around direct-to-store delivery.