Enhancing performance with supply chain management

Organisations in sectors such as manufacturing, distribution and retail have got better over the years at automating many aspects of their internal processes. This is in no small part thanks to the broad use of enterprise resource planning (ERP) systems. These all-encompassing software packages enable an integrated approach to business planning and operations that can span everything from demand planning, through production and logistics management, to all the accounting processes that keep score as the business trundles on.

Systems with such a large scope can be quite a challenge to implement, however, especially if you are reviewing your business processes along the way. Nevertheless, when implemented well, the seamless operation that results can transform an organisation, with benefits stemming from both increased process efficiency and better business visibility.

It is these same motives of efficiency and visibility that typically encourage organisations to take the next step and look at implementing seamless operation between systems across organisational boundaries in the supply/ demand chain context. If you are a large organisation with a big network of suppliers, for example, a switch from paper-based to electronic transaction mechanisms can potentially save a fortune in terms of administrative overhead, as well as reducing the number of errors associated with the processing of purchase orders, delivery notes, invoices and so on. So what’s not to like?

The truth is that there are several important challenges that need to be taken into consideration. In systems terms, for example, when you look across your supplier network, you are likely to find myriad different packages in use that all interface with the outside world using different mechanisms and standards. Point-to-point integration with all these individually is typically going to be cost prohibitive. So what do you do?

Well if you are big enough and bad enough, you define your own set of “standard” integration mechanisms then force your suppliers to use them, threatening to cut them off if they don’t comply. Which would all be very well if you were the only organisation playing that game, but when your competitors are doing something similar and smaller suppliers are being hit with conflicting demands from a number of big customers, the integration costs can be crippling and the whole thing falls to pieces. Many a good supplier relationship has been sacrificed on the altar of process efficiency over the years through the blind enforcement of unreasonable supply chain automation demands.

Fortunately, while these kinds of practices still occur, some of the dominant players in sectors such as automotive, retail, high-tech manufacturing and so on have at least agreed some basics in terms of common standards and schemas for information and document exchange. It is far from perfect, and any level of integration work remains a challenge for smaller players in the supply chain, but at least things are easier if the number of variants you are trying to manage in terms of message and data formats has been reduced. A gradual switch from traditional electronic document interchange (EDI) formats to more modern extensible markup language (XML) based messaging has also helped to reduce the burden, as has the more “integration friendly” nature of modern ERP systems.

Extranet interfaces

The other welcome development for smaller players who may not even have much in the way of systems at all is the publishing of extranet interfaces by larger organisations into their transaction environment. This allows document exchange and commercial transaction management to be handled via a browser interface.

If you don’t have an all-singing, all-dancing ERP system automatically generating invoices, for example, and are producing such documents manually, you can at least submit them, or the pertinent information from them, electr onically through your customer’s portal. The same approach can be used for managing bids, inventory requests, pricing information and so on, and dealing with a range of other common supply chain-related activity.

One other significant enabler worth mentioning is the evolution of supply chain “hubs” or “grids”. These are basically third-party hosted business-to-business (B2B) exchanges that act as a central mapping, routing and clearing mechanism for supply chain transactions. The point here is that each supplier and customer only needs to plug itself into the exchange once to hook up electronically with all the other trading entities on the exchange, which can cut integration costs associated with system-to-system integration dramatically.

There are also potential benefits in terms of catalogue management, product data synchronisation and even tracking, monitoring and full-blown business intelligence. Of course, the size of the network of traders from your industry that are on the exchange will clearly determine how valuable it is to you, but service providers will often help with trading community recruitment and management if necessary.

The daddy of this space is GXS, and while its recent acquisition of another big player, Inovis, has skewed the market considerably from a consolidation perspective, smaller players such as Crossgate, E2open and others are also worth checking out, as the presence of players in different industries can vary, and they all offer different types and styles of service.

And as a word of warning, don’t be put off by the fact that some are insisting on using the word “cloud” in association with such services. While the “C” word generally equates to “new, unproven and risky” in the mind of many business and IT professionals, services in this hosted B2B integration space have been around for years and are extremely mature.

The bottom line is that while implementing supply chain automation is still far from a walk in the park, a lot more capability exists nowadays to cater for all sizes of organisation. Coming back to the lessons we have learned from ERP, however, it is important to treat B2B integration projects as business initiatives rather than technical ones. The options and issues we have been discussing can then be considered in their proper perspective.

Dale is a co-founder of Freeform Dynamics, and today runs the company. As part of this, he oversees the organisation’s industry coverage and research agenda, which tracks technology trends and developments, along with IT-related buying behaviour among mainstream enterprises, SMBs and public sector organisations.