e-supply chain and logistics:

the partnership dance

Produced in association with AMR Research, Inc. Driving business value

E-supply Chain and Logistics: the Partnership Dance

Not long ago, managing the supply chain was a simple, plodding procession. Manufacturers partnered with one dancer at a time, and the twosome learned the steps together, slowly moving to the same music year in and year out.

Then the Internet changed all that-dramatically. The advent of open, real-time communications among manufacturers, suppliers, distributors, and customers transformed a simple two-step into a complicated square dance, with multiple prospective partners but no one calling the steps. Linked through cyberspace, any partner in the group can take the lead, and all of the participants lend their support, creating a complicated pattern of interactions. (See Figure 1.)

Well-executed e-supply chain implementations can drive significant business improvement across the entire value chain, reducing costs, increasing profits, and enhancing competitive advantage through dynamic collaboration among partners. In fact, the successes of online retailers such as Amazon.com and Dell Computer last year made late 1999 an inflection point for e-supply chain, causing the boards of many major companies to petition CEOs for their Internet vision.

But turning the traditional buy/make/move/store/sell cycle into an intricate electronic partnership requires more than just Internet-enabling existing systems. True e-supply chain and logistics initiatives expand the view of a company's supply chain beyond its own four walls to include the inner workings of several tiers of suppliers, distributors, and other corporate partners, even when those partners are halfway around the world.

Expanding the supply chain to include global partners raises a new set of issues. Aside from the obvious difficulties synchronizing language, currencies, and measurement systems, businesses must also consider the standards required in e-business communication. In Europe, EDIFACT has been widely adopted, but in the United States, EDI has been a less popular standard, limited to large manufacturers and their first-tier suppliers. (Proponents of XML are lobbying to have that language declared a global standard, but skeptics remain.)

Beyond the objective issues such as standardization lie subtle but important concerns such as culture and taxation. When supply chains become global, executives must assume the burden of understanding the cultures in which their operations function. In Western countries, for example, deadlines are generally understood to be firm promises of delivery; in some other places, deadlines are construed to be guidelines with flexible end dates. Implementing a global e-supply chain without understanding these influences can lead to misunderstanding or even unmet business goals.

Taxation concerns are also critical in the global environment. Because countries are entitled to tax the growth of value in their jurisdiction, companies that link supply chains with foreign concerns must be careful not to assume liability for their partners' tax footprint. Most businesses lack the internal resources necessary to fully grasp all the implications of global taxation issues and require assistance from outside experts.

Fancy Footwork

The current generation of products designed to deliver a global view into the supply chain vary in their approach. Leading e-supply chain vendors such as i2 Technologies and Manugistics capture the complexity of the global value chain in a series of components that address individual manufacturing supply chain needs-such as demand planning or shop floor planning-but can link to other, related modules.

Other vendors tackle more specialized concerns: Agile Software offers a manufacturing collaboration suite that creates and communicates product content, while AlphaDog focuses on streamlining indirect procurement. Computer Associates' interBiz division delivers neural technology agents that monitor shop floor processes and communicate potential production problems to supervisors and customer care representatives.

But simply installing a number of supply chain components is no guarantee of success. "Successful e-supply chains require companies to tie their internal workings to the external view, integrating back-end applications such as ERP and advanced planning and scheduling (APS) to customer touch points such as the corporate Web site and customer care operations," says Larry Lapide, vice president and service director of Supply Chain Strategies at AMR Research, Inc. Such integration provides a vital information exchange between the back office applications that help companies control their operations and the applications that transmit data to and from external partners such as suppliers, distributors, and even customers.

Comprehensively integrating such systems can be a lengthy, resource-intensive process, acknowledges Adam Klaber, managing partner of PricewaterhouseCoopers' CRM practice in North and South America. Companies can implement the integration process in phases; complete enterprise application integration is not immediately necessary to gain benefits from an e-supply chain initiative.

"Successful e-supply chains are not necessarily fully integrated environments from Day One," Klaber says. "But they must be fully knowledgeable about one another so that your response to customer needs can be personalized and delivery made to customer satisfaction."

Enhancing the Customer Experience

This mutual knowledge among applications is key to what experts call the "customer experience." Since the success of Amazon.com, customer expectations for service have risen to new heights. "Every company wants to have a full view into its orders, invoices, and inventory with each of its suppliers," Klaber says. "For this reason, significantly investing in supply chain optimization without a corresponding enhancement in the customer experience will deliver no value."

E-tailers lacking front-end/back office integration in their own supply chains experienced this problem last Christmas, when promised products were never delivered. "By purely focusing on supply chain concerns, you may be able to lower your operational costs," Klaber says. "But if you don't integrate supply chain applications with the customer experience, the whole point is moot, because your customers will move on to competitors who do."

Integrating enterprise applications-among themselves and with CRM solutions-is no easy task, particularly with so many applications in the mix and no de facto communication standards. Some e-supply chain providers tackle the problem with customization techniques or message-brokering translation technology. Others, such as Viewlocity, bring an extensive library of pre-built connectors to the game; the connectors reside at a company hub, speaking the languages of and translating between any two applications that must communicate with one another.

Upping the Tempo

With so many businesses concentrating on using the Internet to enhance supply chain operations-and, in the process, enhance their competitive standing-the demand for quick results is intense. Customers looking for improvement tomorrow have no patience to wait for lengthy studies or time-consuming analysis. As a result, vendors playing in the e-supply chain game are devising new ways to bring fast benefits to businesses.

New e-business models such as application service providers (ASPs), independent trading exchanges (ITEs), and third-party logistics providers deliver services designed to optimize pre-built solutions, which enable customers to get up and running quickly.

ASPs-many of whom prefer to be called e-services hosted solution providers-take responsibility for assembling, managing, and delivering the technology infrastructure to customers lacking the core competence or budget to build their own. Because these solutions are hosted by the vendor and become available as soon as contracts are signed, they appeal to buyers interested in reducing their start-up risks and increasing their speed to market.

Another benefit is bottom line-related: ASPs typically charge a fixed, monthly fee for their services. When compared with the uncertain and often enormous financial burden shouldered by businesses that build their own e-supply chain solutions, the services offered by such vendors as Calico, Digex, fourthchannel, and RockySoft are eminently affordable.

"Early on, we evaluated the cost of developing an internal supply chain infrastructure comparable to the one that Digex provides us," says Mark Carleo, chief technology officer for Celarix, a vendor of Web-based solutions for shippers and transportation providers. "To set up that infrastructure ourselves, we calculated that we would have needed to raise three times as much money as we had planned."

Evolution of Services

The next generation of e-supply chain services is available through providers of Web-enabled applications. Like ASPs, Web-enabled providers deliver a pre-built solution at a fixed monthly cost. But unlike the product delivered by ASPs, Web-enabled solutions require no client software to be resident on the company's internal network. The Web-enabled vendor not only handles the system infrastructure, but the complete software requirements as well. To access the services of Web-enabled providers such as Baker Street, Datasweep, Modus Media, and webPLAN, companies need only provide users with a desktop and a browser.

Perhaps one of the most popular ways of getting started in the e-supply chain arena is through ITEs, also known as online marketplaces. The concept, which began as online "flea markets" dedicated to helping companies liquidate excess inventory, has evolved to include public "walk-in" markets, industry-specific markets, limited exchanges open to select companies, marketplaces that serve the customers of software vendors, and marketplace technology that enables companies to set up their own private electronic supply chains.

Marketplaces can have seller-controlled sales, where buyers pay the listed price, as well as "English" auctions in which buyers bid for items, or "Dutch" style auctions where the price starts high and falls until a buyer is secured. Some marketplaces serve as online stores that allow buyers to select from extensive catalog content.

A new breed of marketplaces is emerging to meet the specific needs of particular industries. Ventro, for example, has created the Chemdex vertical market for life sciences, Broadlane for health care, and Industria Solutions for the process manufacturing industry.

Still, some companies want to develop their own marketplaces to serve partners in their supply chains. Vendors such as GE Global eXchange, Oracle, and Yantra offer marketplace development technology that enables businesses to build new marketplaces in a short time frame and with the promise of a rapid return on investment.

Taking the marketplace concept one step further are logistics companies that handle the distribution of goods needed in the e-supply chain. For example, Grainger.com-a descendant of long-established MRO supplier Grainger-maintains an inventory of more than 220,000 items available for electronic ordering.

With so much e-supply chain technology development, the emergence of a new class of services vendors was inevitable. E-services vendors such as eJiva and Avicon address complex e-supply chain technology issues. For example, eJiva advised customer Mercury Marine on training its shop floor managers in the use of new supply chain technology after user resistance threatened to blunt the competitive advantage derived from the new system.

Avicon helped customer ShipLogix select market approaches and choose components of the technology infrastructure. "We're bringing the expertise model to the customer, not just the consultant model," says Ann Grackin, executive vice president for global sales, marketing, and strategic alliances for Avicon. "Speed is everything, and you can only deliver speed when you have deep expertise."

Notating the Steps

Taking the e-supply chain idea from concept to implementation is typically a complex but rewarding endeavor. Companies that profit most from the effort are those that implement e-supply chain initiatives that not only do no harm to suppliers or customers, but that help partners achieve the same new efficiencies.

"You must think about how e-business initiatives like this can be leveraged to benefit everyone in the supply chain," says Larry Lapide of AMR Research. "In some cases, you may need to develop a segmentation strategy for partners who cannot participate in e-business, or several strategies for partners who are high-tech, low-tech, or no-tech."

The supply chain used to be a simple, linear connection among partners. But now, to make e-supply chain effective and advantageous, it must facilitate communication with everyone in a networked value chain, Lapide says. To make sure this happens, AMR Research advocates developing a formal e-business strategy that defines how your company will use the Internet to enhance supply chain operations. While continuing the upkeep on basic applications and enabling technology, companies should also establish a role for supply chain hubs and ITEs as a method of connecting to trading communities, he says. Finally, ensure that your supply chain vendors are prepared to help you connect externally focused technology to your internal systems, so that your information can be seamlessly passed along the value chain as mechanisms develop.

You can never know every step that may be required in the changing supply chain dance. But with a little preparation and an outward view toward new tempos and willing partners, you can enjoy the efficiencies and competitive advantages that the partnership ballroom now offers.
tby, president of HubGroup.com.

The e-business architecture developed by Cysive and Hub Group is being rolled out in several stages. Phase One is a system designed for Hub Group's drayage partners-a diverse group of motor carriers that haul freight between train depots, ports, and container yards and customers' plants, distribution centers, and retail stores. The system enables Hub Group to coordinate shipments with the most appropriate carrier via the Internet based on delivery date and location. Hub Group can assign the shipment to the carrier, agree to terms, and authorize the shipment without a single phone call or fax. A sophisticated authentication and authorization system confirms the identity of each carrier and validates each transaction.

Phase Two of Hub Group's e-business is focused on its customers. It includes an enhanced track-and-trace capability that gives customers comprehensive information about each shipment. The self-service, Web-based system provides up-to-the-minute status for shipments that may be handled by multiple carriers before and after reaching their destinations. The system provides estimated arrival times and even allows customers to generate their own customizable activity reports. It also saves Hub Group staff countless hours by eliminating the need to run individual reports on an as-requested basis.

"With Cysive's help, we're light-years ahead of the industry in applying technology to address logistical challenges," adds Maltby. "The bottom line is that our e-business architecture reduces our overhead and tightens our operation. The next phase of our e-business plan will enable us to strengthen our customer relationships even further by providing more products and services on the Web. This is a highly complex system, and we know that Cysive is the company to make it happen."

The 100-percent-pure Java architecture provides Hub Group with all the hallmarks of a Cysive-built e-business. It is designed for optimal performance, access, and the scalability necessary to process thousands of transactions daily. And to make sure that Hub Group maximizes the return on its investment, the system is built with a modular design, so new capabilities can be added as needed.

"Hub Group is changing an industry, and we're proud to be the company selected to help them accomplish that," says Cysive president and CEO Nelson Carbonell. When success is the only option, every possible contingency must be examined and decision-making throughout the project must be flawless. Says Carbonell: "We pride ourselves on being the company that other companies look to for e-business solutions that deliver...all day, every day."