Supply chain: what supply chain?

6 min read

IT vendors now talk about little but the supply chain. What do they mean by it? And how closely do their solutions match industrial companies’ real needs? As John Dwyer reports, many supply chain problems can be solved nearer home.

As recently as January nearly all the chatter in industrial-IT circles seemed to be about the Y2k-inspired collapse, albeit temporary, of the market for enterprise resource planning (ERP) systems. Ten months on and the ERP market dip seems to have become a bit of a rout before the combined forces of advanced planning and scheduling (APS) and supply chain management (SCM) systems. If the supply chain is ousting the individual enterprise as the focus of IT vendor interest, perhaps it’s time, before this turbulent year grows any older, to examine some of the supply chain models they’ve got in mind and work out what will happen to ERP. One expression, synchronised supply chain (SSC), pops up time and again. But what the vendors and consultants mean by the SSC isn’t always clear. The common definition (MCS, February 2000, page 46) is that when a customer at the top of an SSC sends an order to a tier one supplier, the order information is broadcast simultaneously to all the other suppliers down the chain to react appropriately. The chain then becomes, so the theory goes, a succession of seamlessly interlinked business processes responding to the same heartbeat. Some hope. In the words of Cambashi consultant Ralph Seeley, this “fails at the first hurdle”: “This idea of the supply chain as being a cohesive whole all with the same ultimate objective is so much baloney.” Industry has moved far away from the vertically integrated model which gave manufacturers control over production processes. Outside companies do all the manufacturing and Ford puts the bits together. Rely this heavily on outside suppliers and you lose the idea of the internal customer. Crucially, no matter how big a stick you think you wield, you become one customer among many. To Martin Fokinther, senior manager and business consultant at Cap Gemini Ernst & Young’s manufacturing and retail division, the SSC model relies on a single, huge planning system driven from the assembler or tier one supplier back down the chain: “To get the synchronisation to work they have to plan weeks and months ahead, and every time there’s a change  an urgent order crops up or there’s a shortage  the way they resolve that problem is with an enormous amount of replanning across the whole length of the supply chain.” Most suppliers have several different customers, each with different supply chains and requirements of their own: “If you’re met with five or six different conflicting synchronised supply chains all hitting your business, that’s an enormously difficult requirement to fulfil.” And impossible orders don’t become possible just because they’re delivered on the Internet. As Seeley points out: “Once you accelerate information too fast it doesn’t do you any good, because you’re in no position to act on the information you’re getting without creating downstream instabilities.” If there is a succession of sometimes contradictory order changes, “everyone in the supply chain spends all their time adjusting the schedules and nothing happens.” Canny production controllers ignore the later messages simply so that they can get on and do something. Seeley summarises: “This is yet another instance of an idea which is clearly theoretically attractive but, as soon as you start trying to work out how you would try to implement it, it’s… difficult to envisage.” There’s a clutch of recent evidence that these caveats apply not just to SSC but to SCM in general. One example is the 200-plus page report published by the Cutter Consortium of the US in August, whose survey of 134 companies around the world concludes that, though some companies have adopted conventional SCM applications, they aren’t linking them to the Web. Cutter author Chris Pickering says e-SCM, which covers purchasing and procurement, logistics, manufacturing scheduling and related functions, is “in its infancy, with only two per cent of organisations using it, and another 12% planning to use it.” Even SCM vendors agree. Synquest’s Peter Klein says any manufacturer in any tier of the supply chain needs to know at once whether an incoming order will make money for it, and it needs to be able to look down the supply chain to gather that information. Synquest’s software, says Klein, is unique in showing this information in real time. But he is first to admit that, so far, he can think of only two inmplementations in the US; there are none in Europe, and the UK is slowest of all: “I don’t think anybody has it. They’re working towards it but you bite off as much as you can chew.” From the ERP side of the fence, Ed Stubbs of JD Edwards (JDE) reports: “[SSC is] a brilliant concept, and totally achievable with today’s technology… [but] there aren’t many doing it, to be honest. And it’s only going one level each way [up and down the supply chain]. In terms of their going back to their suppliers’ suppliers and looking at raw materials and so on, I don’t know anyone who’s doing that.” Klein’s explanation is straightforward: “They can’t trust it. The end user in Europe doesn’t believe it and is looking for proof.” And the reason?: “They were mis-sold ERP systems.” US investment analysts may be forcing the IT industry to repeat this mistake with SCM. Take an August company update from analyst Morgan Stanley Dean Witter which gave the leading supply-chain IT vendor, i2 Technologies, an “outperform” rating  one step below its top “strong buy” verdict. It did so while pointing out: that i2’s latest product, its TradeMatrix marketplace platform, was “99% vision as opposed to product”; and that i2’s product line, reinforced by the acquisition of rival Aspect Development and others, is “a quilt of technology and data models that i2 has tied together via a meta data layer.” For good measure, MSDW surveyed 45 customers for i2’s established supply chain software product, Rhythm. Of these, 14 had fully implemented one Rhythm module, one had implemented two and one had implemented three. Opines MGDW: “Even in the supply chain market, i2’s original product line, most customers are still at some stage of rollout…” But none of this matters, says MSDW, because i2’s sales team can sell what it calls the gap between the Powerpoint slides and the product, putting ERP companies like JDE, which only talks about what it can deliver, at a disadvantage. The clearest interpretation of MSDW’s message is that, if you’re a shareholder, buy i2; but if you’re a manufacturer, perhaps you should talk to JDE. Neither is any of this necessarily a criticism of i2, which isn’t responsible for the scabrous utterances of organisations like MSDW and which, in partnership with Dell, has created probably one of the finest pro-e-commerce case studies around. In a statement commenting on the MSDW report, Sarah Sherman, i2’s European director of marketing communications, listed six European i2 customers “who have gone live with very successful live implementations this year, some after only four months.” Most customers “implement to gain a strategic competitive advantage and, as such, are reluctant to speak publicly about the details.” As for the implementation rates, “Many companies that have publicly launched projects tend to be focused on one key business area to start with, such as e-procurement. This enables companies to measure value at each stage in the implementation, get people trained at a manageable rate and build the case for a more comprehensive solution.” Seeley sums up: “I think it’s a great shame, because there are some very real issues in supply chains but like everything else it’s been vastly oversold.” Fortunately the users are getting wise. Klein says a lot of managers who spent a packet on ERP are asking for proof and tying IT buys to performance targets. Stubbs adds: “Technology is not the barrier to entry. [The] barrier to entry is trust”  between supply chain partners, who should be showing each other their books. As Stubbs points out: “The only reason companies are able to be successful in an Internet environment is if their traditional supply chains are responsive and reliable and flexible. If Cisco had crap suppliers, it wouldn’t matter how good their systems were because they’d still be continually letting people down. It’s the fact that in addition to all the good work they’re doing on Internet trading and e-business, they’ve also put the effort into coaching and developing their suppliers so that they can support the business offer.” As for ERP, Klein points out that e-commerce users will still rely on ERP data: “The major Web based products are all running off a batch ERP system”. And Fokinther believes ERP suppliers will simply adapt to the times: “The marketplace for IT in the supply industry is as strong as ever and there’s a slow change in the profile of the kind of functionality that people need. You’ll see all the big ERP vendors moving towards CRM and e-fulfilment type functionality.” At last the distinctions between all the artificial initials are starting to melt away. Besides, says Fokinther, ERP has two key bits of functionality: it provides a financial audit trail, and manufacturers will always need to explode a bill of materials and convert demand for a finished item into demand for component parts. Equally clear, Stubbs adds, is that many supply chain problems come back to how efficient the processes are inside your own four walls: “If you or I go to order a car and there’s a 12 week lead time, it’s probably likely that very little of that lead time is actually to do with materials or build. It’s because they’ve got an established 11-week queue of orders waiting to go in the factory.” And his advice is: “If you’re a manufacturer there’s optimisation to be gained from just getting your internal supply chain synchronised. It’s simple stuff but a lot of companies aren’t doing it.”