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 NEWSCollaboration in supply chain management provides benefits By Heather Harreld April 20, 2001 1:01 pm PT Supply-chain collaboration connects and invigorates enterprises and suppliers
Supply-chain intimacy  The second generation of b-to-b commerce is focused squarely on partnering with suppliers for direct material purchasing so as to remove inefficiencies from the entire product development and delivery process. Vendors are flocking to the supply-chain management space to offer software that often dramatically shifts the traditional buyer/supplier interaction from a distant, adversarial association focused on price negotiations to an intimate relationship focused on collaboration. Solutions are intended to allow buyers to whittle away at inventory and improve manufacturing efficiency by providing unprecedented visibility up and down the supply chain. Public exchanges are reacting by rapidly moving to offer value-added supply-chain management components such as design collaboration, and the private exchange market is poised to become the "corporate command center" for b-to-b commerce, according to a recent AMR Research report. Private marketplaces, trading interfaces from an enterprise to both its suppliers and customers via the Internet, will create the largest application software market to date and will become the cornerstone of $5.7 trillion in commerce transacted via the Internet by 2004, according to the report. Many of the successful public exchanges have taken a different tack than aggregating buyers to squeeze suppliers for indirect purchasers. Packexpo.com, an exchange for the $450 billion international packaging industry, focuses on providing leads for buyers and sellers. "These people have been doing business with each other for 20, 30, 40, 50 years and all of a sudden here comes the Internet and they're going to change?" questions Stuart Stafman, CEO of Fairfax, Va.-based Packexpo.com. "Suppliers are saying, 'I don't want some third party coming in here and taking part of my business off the top.' We're augmenting an ordering and procurement process that already exists." But Packexpo.com is increasingly seeing a demand from its smallest supplier customers -- those with revenue under $20 million per year -- to host private exchange carve-outs on the Packexpo site, Stafman added. Although enterprises may be shying away from public exchanges that offer commodity trading without value-added services, they increasingly are interested in working more closely with suppliers, says Joan Harbin, research director in the b-to-b marketplace practice at AMR Research in Boston. "It's not good business to squeeze your suppliers," she says. "It's not about saving a penny on a transaction; it's about smoothing out the entire process. If the suppliers are involved from the get-go [in product development], fewer mistakes are made." Cozying up to suppliers Whereas partnerships between buyers and suppliers vary among industries, supply-chain management solutions focus on providing more real-time data from all links of the chain. For example, in the shipping industry, companies will soon be able to get real-time information about the quality and price of bunker oil (the fuel a ship uses to travel from port to port) from various suppliers while monitoring fuel delivery times. Smartbunkers, a Rotterdam, Netherlands-based b-to-b bunker-oil exchange, will be using supply-chain management software from InfoRay, a Cambridge, Mass-based software company, to provide its members this service, says Max Van Bochove, CIO of Smartbunkers. "We'll be connected so that a buyer can see what the quality rating related to price was," he says. "A buyer can also actually see the timing of delivery. It's very expensive for a ship to wait for fuel to be delivered -- you go further and further into the chain," Van Bochove says. Supply-chain management solutions often span an enterprise's communication with suppliers, and product design collaboration is often highlighted as the crown jewel of this space. As much as 80 percent of product development costs can occur during the design phase, according to analysts, making collaboration tools highly desirable. PTC, a Needham, Mass.-based product development company, in February launched its Windchill ProjectLink solution for manufacturers and b-to-b exchanges. It is designed to advance the ability of dispersed project teams to collaborate on design projects. Exostar in Reston, Va., a b-to-b exchange for the aerospace and defense industries, and Zweave in New York, a collaborative commerce platform for the apparel industry, have tapped Windchill for design collaboration. Zweave customers, including fashion designers, retailers, and manufacturers, will use Windchill to collaborate with a matrix of business partners in preproduction activities designed to shorten design cycles and improve communication management between partners. Zweave officials say Windchill will allow users to spend more time in the creative stage of design by virtually linking a globally dispersed supply chain. This will simplify the process of designing and delivering fashions for the demanding monthly and seasonal product lines. Windchill ProjectLink provides self-service project management capabilities that enable users to define milestones and schedules while monitoring and maintaining progress of the project, says Bill Berutti, senior vice president of business development for Windchill. The product is designed to span the "black hole" that product designers often work in -- designing a product in isolation only to be told later that it is too expensive to be manufactured or can be built but would have quality assurance problems, he says. In addition, this type of collaboration is vital to companies that have in recent years moved away from owning their own supply chains, Berutti added. "It's all about globalization," he says. "You have people in different parts of the world developing products all at the same time. They're not a part of your company anymore -- you don't own it." Supply-chain challenges Despite the potential for cutting costs and driving efficiencies by boosting supply-chain visibility, the process does not come without cultural and technical challenges. Enterprises have to overcome natural resistance to revealing proprietary product design and marketing plans to suppliers, AMR's Harbin says. "You may have for many years trusted your supplier with only so much information," she says. "Now you're opening the kimono a little more. That's a little scary." Enterprises also need to move away from an attitude focused on negotiating the lowest price from suppliers, says Karen Peterson, an analyst at Gartner in Stamford, Conn. "The drive toward quick time to market and increased customer service ... drives a greater need for good relationships with suppliers," Peterson says. "I've got to change my thinking to drive from customer requirements as opposed to driving from the lowest price." Once a company overcomes the various cultural barriers to opening up the enterprise to the supply chain, it must next tackle the technical challenges associated with linking multiple disparate systems for visibility. Often enterprises with multiple suppliers communicate with them using phone, fax, snail mail, and EDI (electronic data interchange), says Jim Frome, vice president of marketing at SPS Commerce, a St. Paul, Minn.-based supply-chain integration service provider that specializes in electronically enabling suppliers for e-business transactions. Electronically enabling suppliers has plagued enterprises for years, he says. In fact, many large enterprises have been able to establish EDI connections with fewer than 20 percent of their suppliers, Frome says. W.W. Grainger, a Lake Forest, Ill.-based industrial supplies distributor, has tapped SPS to electronically enable its 1,200 suppliers, says Fred Loepp, Grainger vice president of product management. First, Grainger will move all of its suppliers to EDI, then bump them all to XML, he says. "Our goal was to get all of our suppliers to use the same transaction methodology," Loepp says. "SPS provides transactions in the format that we want. We obviously will get accurate information because you're going to have fewer people entering information. It's going to get the information accurately in a timely manner." Crucial collaboration Successful integration of suppliers and back-office systems is perhaps the most crucial and most difficult aspect of supplier collaboration, says Larry Alston, executive vice president of product management and CTO of C-bridge, an e-business consulting company in Cambridge, Mass. Issues such as moving away from traditional payment mechanisms to real-time settlement for transactions and swapping batch-oriented EDI transactions that a company processes several times a week for real-time purchases changes the rules within an organization, he says. "Collaboration doesn't begin because you have XML," Alston says. "Collaboration happens because these organizations understand what that means to their business and they endorse it." Send comments to Senior Editor Heather Harreld (heather_harreld@infoworld.com).
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