[From iSource Business, October 2001] The cover story of iSource Business this month examines the future of the supply chain and proposes a series of steps that companies can take to advance toward their own next-generation supply chain. In this month's The Net Best Thing, we offer profiles from companies on three continents that already have begun adopting enabling technologies to improve the efficiency and value-add of their supply chains. In each case, the company found a personal Net Best solution, a unique combination of software and process that best addressed that enterprise's supply chain challenges.
Let's start our voyage of international discovery in the North Central United States, near Detroit, where The Budd Co. sees its supply chain future in electronic sourcing.
First Stop: MotorCity e-Sourcing
Chris Flum is certain that The Budd Co. will never do 100 percent of its purchasing online. Flum should know, since he is corporate manager of strategic sourcing, as well as e-business team leader for procurement and supply chain, at the Troy, Mich.-based Budd, a tier-one automotive supplier that is a unit of $6 billion German industrial group ThyssenKrupp Automotive. The utopia where everything is bought online won't happen because we won't be buying everything, he explains. Automatic replenishment will cover some items through electronic data interchange (EDI) notifications to Budd's suppliers under vendor-managed inventory (VMI) programs, for example.
EDI notwithstanding, Budd, which manufactures parts found on approximately 100 different vehicle models, has undertaken to define and execute an e-business strategy for its supply chain. In mid-2000, Budd worked with a consulting firm to develop seven broad goals for the company's strategy (see The Budd Company's Seven e-Business Strategy Goals on this page), as well as five high-level strategies that include e-procurement, participation in B2B exchanges and supplier-facing B2B initiatives. By July 2001, Flum says Budd had touched 80 percent of the 24 subinitiatives the company defined to support its strategy, piloting projects addressing such areas as the procurement of indirect maintenance, repair and operation (MRO) goods through an e-marketplace, the use of online competitive bids to buy direct materials, and communications with smaller suppliers through Web-EDI connections.
Among the initiatives, Flum likes to focus on e-sourcing, which he views as the key to achieving the reduced costs and cycle-times required to remain competitive in the auto industry. For Budd, e-sourcing has meant using FreeMarkets to hold Web-based competitive bids for various materials and services. While Flum declined to quantify the cost savings that have been achieved using FreeMarkets, he noted that the efficiencies of the online sourcing processes allowed Budd's sourcing team to accomplish in four months what previously would have taken two years. Consequently, Budd has moved from a pilot program to a long-term engagement with FreeMarkets.
Flum hastens to add that e-sourcing means more than just online auctions. That online bid is just one part of the process, Flum says. You've still got to manage the supplier. You've still got to work with him to remove costs from the supply chain to give back to the customer. And while much of the hype surrounding online auction events has focused on lower costs, Flum notes that the lowest bidder has not won in about 50 percent of the events Budd has run, and incumbents have been retained 50 percent of the time.
Second Stop: Optimization Without Disintermediation