What does Joe have to do to move from a supply chain to a supply network? What steps does he have to take to enter a world where all of his front office and back office systems are integrated and he can communicate electronically with all members of his supply chain using the Web as a major tool?

Presume for the sake of argument that Joe is convinced he has to become technologically savvy and is avidly boning up on new technologies and is promoting change throughout his company. The next thing he has to do is be prepared to spend money — at least $500,000 say technology vendors and experts — to network his operation, build a Web presence and provide the backup staff support required for this work.

But technology purchases and implants alone won’t create a supply network. To function in a networked, Web-based world, Joe and his top staff need to know about information flow as it relates to the supply chain and procurement. He has to start developing partnerships to help with marketing, strategy, industrial development, sales and distribution. He may as well toss out his old marketing and development plans and be prepared to build his own, making his new business plan multi-dimensional so his company can function in an array of Web exchanges and marketplaces. By leveraging existing business relationships and building on a pre-existing customer base, he can create new business ideas, plus save resources, writes Michael Cunningham in B2B: How To Build a Profitable E-Commerce Strategy (Perseus Publishing.)

Supply Networks Are Still a Long-Term Goal for Many

There are far more Joe Tire Manufacturers in the world than there are companies operating at the cutting edge of technological change. Many companies are still grappling with issues like networking all departments, controlling e-mail, determining whether or not to implant an ERP (enterprise resource planning) system and whether to buy or create software packages to automate various business functions. Your company may be considering outsourcing back-office functions and many of you are in the throes of designing Web sites. Practicing mobile commerce when you can barely communicate electronically from department to department is hardly high on the lists of some companies and institutions, even if they aspire to operate in a paperless environment.

Most companies have to function in two worlds: the three-dimensional world of the office and water cooler, and the cyberspace world where their transactions are taking place. Until technology develops enough to allow for image and voice on the Web there won’t be integration of the these two worlds.

John Murphy, director of Solutions Consulting for Logistics at the Rockville, Md.-based Manugistics — a developer of enterprise software optimization solutions — is well aware of these sorts of issues. Murphy works with a diverse group of Fortune 1000 clients, mainly shippers and manufacturers, who have broad and complex supply network issues. It’s his job to advise them on their individual pathways into the networked, Web-based world of the future.

In terms of technology sophistication, he experiences “large and significant differences among industries.” He finds that the impetus for technological advancement relates directly to that industry’s need to maintain or increase very competitive profit margins. These competitive profit margins translate into competitive supply networks.

In terms of individual companies, he says the range of technological sophistication is huge. Murphy finds “multi-billion dollar organizations” still operating in a paper environment and other organizations advanced enough to practice elementary forms of electronic collaboration. He says few organizations today are operating in a 100-percent paperless, completely supply-networked mode. Although he works with the “some of the most sophisticated transportation and logistics clients in the world, I’ve yet to see any single organization fully networked and integrated with one (computer processing) system for all divisions.”

The Pathway to a Supply Network

All the experts agree that changing management styles, work habits and attitudes about information sharing, competition and collaboration are prerequisites to organizing your company or institution to thrive in a supply network. You will want to explore how information flows in your company, and the sorts of skills your employees have — or lack — to handle the tasks of working in a networked, Web-based fashion. Ensuring that employee schedules are flexible to meet the demands of this new world is also crucial.

After management issues are addressed, it’s time to start assessing what methodologies and technologies you can use to bridge into the networked, Web-based world of the supply network. For example, it may be that enterprise resource planning (ERP) will help you integrate back-office functions and help you and your employees practice operating in an integrated, networked environment. You may want to consider other supply chain methodologies like SCOR (the Supply Chain Operations Reference model) to implement improved information and work flow processes.

Following are four steps you should take to prep your company for this new environment.

1) Understanding Information Flow

Imagine the supply network as strands of information flowing throughout a company, connecting to suppliers, transportation/logistics companies, customers, and trading partners, and then looping back into the organization. Today, information is carried electronically, whether through older systems like EDI or via the Internet/Web. Satellite, cellular, radio frequency or microwave technology may all be employed for messaging and tracking and tracing of goods.

Information is the life force of the supply network and the building block of the new, knowledge-based economy. Without accurate information relayed at the right time and the right place, there are no purchase orders, no shipment messages and no payment. The supply network shuts down and so do your companies and institutions.

Technology may carry the information, but humans are both the source of the information and the drivers of the technology. In July of 1997 a Fortune magazine technology writer pointed out something that is just as true five years later: Human supply networks are complex “and not always efficient. Purchase orders get lost between incompatible computer systems, checks go astray, procurement officers ‘guess’ how much material to order because information they have to work with is unreliable. Warehouses pile high with unused inventory while other units scramble to find parts. Someone, somewhere in the value chain doesn’t get the word.”

If these sorts of communication problems are taking place in one organization, imagine what’s happening globally with the increase in outsourcing, the growth of multinational operations, and the emergence of global alliances between corporations and institutions. Without human skills — the ability to communicate both orally and in writing, manage information, and maintain strict quality levels — the whole supply network will collapse.

2) Adopting the Media Model

Organizing your company or institution so that information flows accurately and smoothly throughout your evolving supply network is key to being able to operate in a networked, Web-based world. But many companies and institutions are still bound up in the old hierarchical system that allots communication rights based on an employee’s stature in the company, rather than on an employee’s effectiveness. Resources are lost because the right employee can’t be heard, or is stifled.

And many organizations don’t take the time to perform information flow analyses that will show whether communication and work-flow are meshed in a way that’s productive. Ensuring that communication is fluid and flexible and not bound by hierarchical rules is enormously important to pulling together those work teams, and developing the creative solutions the knowledge-based economy demands.

Like those in the media, your employees have to be able to gather, sort, analyze and disseminate information and knowledge at high speeds, and accurately. More and more of your company or institutional activities are taking place on Web sites that need to be maintained, and that means having writing, editing and formatting experience. A little journalism, editing and graphic design 101 would go a long way to improving the look and performance of most Web sites, which is so crucial to creating a supply network.

3) Networking and Integration

As Cunningham, Murphy and other supply network developers well know, there’s a point where networking business processes and integrating business functions in an electronic fashion has to be addressed. Even if you choose to outsource back-office functions, you still need to create databases to store information. Before you start plunking down cash for servers and database applications and solutions, consider integrating the technologies you already have using the nicheware and middleware. The following are a number of options from which you can choose:

a) Adopt Enterprise Resource Planning Principles

Analysts believe one of the best strategies for evolving into a supply network is to adopt the principles of ERP without necessarily buying into a full ERP software solution. Or, alternatively, you can purchase those portions of ERP solutions that help you integrate whatever functions you don’t choose to outsource. Why bother with ERP? Let’s face it, the Internet has not developed to that all-encompassing tool that will eliminate the need for translators, middleware and the like. ERP can be the quickest and easiest way for small and mid-size companies to find a way to integrate a host of applications. There are many reasons that ERP solutions failed in many companies. Over-hype of product lines has been a problem with software companies promising solutions they couldn’t provide. But other ERP experts cite the fact that many companies seized on ERP as a means to make themselves Y2K compliant, which didn’t work. And ERP presents management issues that many managers fail to address.

Multiply the number of players exponentially when you extend ERP integration into a supply network — which the Internet now allows you to do — and that means you must be able to track information flow and be able to set up default systems to avoid costly errors and failures. And always remember that developing a human process to back up the ERP solutions is just as important than the actual technology.

b) Alternate Ways to Manage Integration

For many companies, the world has become an electronic hodge-podge of incompatible systems. As tech experts have pointed out, that’s because software applications have been designed to address specific functions, not the entire supply chain cycle. Customers and suppliers usually have their own set of computer systems and software applications that are more often than not incompatible.

What you need to be considering is integration — or the act of taking data from one software application (output), and without human intervention, using it as input into a separate application. As noted, data integration has been tricky because software programs describe information differently. There’s hope that the new Web languages like XML will help. But for now most companies have to find ways to work in integration without Web assistance.

Besides ERP tools, there are also supply chain planning and execution tools available on the market. Supply chain planning and execution tools promote collaboration beyond your company or institution. They will allow for your systems to communicate, which is the basis of the networked, B2B world that you are working to build.

c) Consider Hosted Solutions

The good news is that there is a whole world of hosted solutions that you can now rent from one place, which will make it easier for companies to move into a networked environment. Application service providers are emerging who will provide vertically-oriented, meaning industry-specific, applications to meet your needs. There will also be business service providers who offer not only the technology, but the services to back it up.

For example, UPS e-logistics applications is starting to provide Oracle and EXE warehouse management solutions as hosted applications. Along with hosting the applications — meaning they store and download them — UPS will provide distribution centers for companies who lack facilities, as well as transportation services. PricewaterhouseCoopers is partnering with them to provide solutions integration and project management. These services will spare companies and institutions the bother of licensing expensive applications and putting them together. Take note, however, that companies like UPS are still experimenting with hosting applications for others and there may be a learning curve involved in working with them.

d) Apply the SCOR Method

The Supply Chain Council’s Supply Chain Operations Reference model could prove a useful tool to help you organize your company and institution to function in a supply network. In fact, experts argue that SCOR’s basics, which include a focus on information flow design, are perfectly suited to a networked, Web-based world. SCOR has 22 work steps that unite supply chain processes and can easily be applied to conducting business on the Web. For example, SCOR work steps address issues such as scheduling product deliveries, reducing both direct and indirect costs in materials purchasing, and learning how to establish a new flow for materials between suppliers in a variety of physical locations. The key, in most cases, is integrating your ERP system with an Internet link to bring many former supply chain practices online.

4) Moving onto the Web

If you’ve fully automated and integrated whatever business functions that make sense for your overall strategy and have a fully networked operation, you can consider running your supply network from the Web. Take e-procurement as an example of what’s required to operate in a Web environment. On the buy side, companies will need Web access and strong search engines, at the very least. On the sell side, your business will need a Web presence, e-catalogs and electronic order fulfillment.

At its best, e-procurement provides organizations with the ability to automate routine practices and tighten supplier involvement and integration. Many purchasing organizations are moving beyond this stage and working on developing buy/sell collaboration between suppliers and vendors, creative risk sharing, online auctions, complexity reduction, and management of complex channel relationships. For example, General Electric has created a “Trading Process Network,” an electronic system that sends out requests for quotations — along with required drawings — digitally to global vendors. GE managers cite 50-percent cycle time reductions and lower material acquisition costs among the benefits. Cisco Systems claims its e-procurement processes have reduced acquisition costs by $105 per transaction.

What’s good for GE and Cisco may not be what’s good for smaller companies. Experts say E-procurement only works when buyers and suppliers have the right management systems and technology in place. Your organization has to be able to support a switch to electronic buying and selling, suppliers must be able to handle new information processing requirements and all systems must be compatible. And you better be able to manage content.

Copyright © ASTM, 2002