ROI: Collaboration Equals Domination

[From iSource Business, October 2001] Working closely with your suppliers is hardly a novel concept, but the Internet and collaborative software are supercharging these relationships, says Lucine King, a senior analyst with Forrester Research in Cambridge, Mass. In fact, by 2003, 72 percent of organizations expect supplier collaboration to be critical to their success compared to only 34 percent today, writes King.


Collaboration efforts run the gamut from concept creation to post-launch support, says King, but most companies expect the greatest gains to materialize in the middle ground: prototype design and product launch. Forrester asked 50 large manufacturers to rank their top goals for online collaboration, and the reply was threefold. First, 74 percent hope to achieve a faster time to market; second, 48 percent want to see reduced product costs; and finally, 32 percent would like the levels of quality to increase.


Companies that distribute product development mixing internal talent with outside expertise are particularly ripe for these expected efficiency improvements and cost savings. Like the majority of early adopters, they aren¹t forming cohesive units overnight, tackling individual processes instead. For example, InFocus and Precor, which manufacture digital projectors and exercise equipment, respectively, are focusing their initial collaboration efforts on the product-build stage and product-change synchronization. 


A successful collaboration initiative isn't simply a matter of throwing the appropriate software at targeted processes. There are numerous prerequisites and obstacles, but companies that have given online collaboration a shot say reported savings thus far are well worth the effort. In fact, predicts King, in the future these efforts may spell the difference between market domination and company solvency.


Various software products exist to facilitate collaborative processes, but, in the case of InFocus and Precor, both decided the Agile Anywhere product from the San Jose, Calif.-based Agile Software Corp. best suited their individual business needs. And, thus far, their sizable software investments in the $200,000 neighborhood for Precor have paid off. Both realized a ROI within a year, but the long-term benefits unveil the software's true value: ongoing cost savings, improving products and, most importantly, beating competitors to market.


And that's where the big hit is, says King. You can reduce the cost of developing a product by securing lower prices, but if you can take a product from having one year of introduction to nine months, you've got a jump on the competition and, ultimately, you achieve greater market share. That's where the big opportunity is for companies, especially for companies in the high-tech industry.


Focus on Speed


Beating competitors to market is exactly what was on Document Control Manager Joyce Dixon's mind when InFocus clients began demanding lighter-weight and brighter products at a lower cost. InFocus, based in Wilsonville, Ore., has been designing, manufacturing and marketing digital projectors for the past 15 years.


The drive to more effectively collaborate was triggered by the firm's merger last year with competitor Proxima ASA, headquartered in Fredrikstad, Norway. The 1,150-employee company now maintains manufacturing facilities on two continents, as well as sales offices that serve 85 countries and are tallying nearly $1 billion in revenue annually.


The projection industry is expected to grow from $4.3 billion in revenue in 2000 to nearly $6 billion in 2002, says Dixon, and we want to retain our position as number one.


Thus far, InFocus' collaborative efforts have proved painless and fruitful, with a smooth software rollout and substantial reductions in product-build cycle time and engineering change costs.


We configured the product to meet our processes and requirements, during a four-month-long process, then went live without a hitch, says Dixon. We spent four hours creating Agile super users' people who are experts on the system and can answer questions. The more casual users received about an hour of training.


The system connects 300 users, various internal departments and two suppliers, which are drawn into the loop during the product-build stage, a partnership that has cut the new-product-introduction cycle time down from 18 months to 12 months. InFocus' cycle-time is so improved that it has been able to reduce the amount of time to approve a change from 10 days to three days. And, once the change is approved internally, they have cut the data-transfer time to the supplier from two to three days to possibly two to three hours, Dixon adds.


For example, InFocus used to spend anywhere from eight to nine hours creating hard copies of printed circuit board documentation schematics, assembly drawings, bills of materials and component specification sheets. Next, the company would courier the package to a local supplier that manufactured its prototype boards, which would then take 10 hours to 12 hours to hand-enter the information into the supplier's system.


Today, InFocus utilizes Agile's software by creating these packages and transfering them to the supplier's system via the Internet in less than three hours. While Dixon says quantifying savings in product-build cycle-time reduction is difficult, the firm estimates that slashing the change process from 10 days to three saves $1,000 per change. And for a company that tallies 42 major change during a six-month period, not to mention the countless minor alterations, the return on investment for the original software package is rapid.


An Exercise in Outsourcing


Similarly, Precor estimates it saves $50,000 a month as a direct result of implementing the Agile Anywhere product. The 500-employee company, founded in 1980, now processes product design changes in five days on average, compared to 22 days previously, says Tom Moran vice president of engineering.


Precor, based in Bothell, Wash., with subsidiary offices in the United Kingdom, Germany and Hong Kong, manufactures exercise equipment for home and commercial clients in more than 100 countries. While Precor does not publish financial statistics, its parent company, Illinois Tool Works (ITW), of Glenview, Ill., chalked up approximately $10 billion in sales last year.


Several factors lead to Precor's collaboration initiative, but the smoking gun was ITW's acquisition of the firm in 1999 and the resultant desire to better operate manufacturing activities, says Moran. In particular, Precor sought to focus on core competencies, reduce time to implement manufacturing design changes and shorten time to market. Consequently, the company now outsources a third of its manufacturing processes, and implementation of the Agile product has enabled the company to better communicate product design changes among its supply chain partners.


The previous offline change process involved in person meetings and written signatures, which often created delays. Now we can Rredline' BOMs (bills of material) online, attach updated engineering drawings, and communicate and coordinate these changes throughout the supply chain via e-mail, says Moran.


Moran adds that, while the Agile rollout was the most flawless software implementation we've ever done at this company, steps were taken to help ensure success. Moran's key advice to those considering similar initiatives at their own companies is to have an owner for it. You need a champion for a large software implementation.


You also need to secure support from senior staff, adds InFocus' Dixon. Additionally, she says, you need to practice due diligence when selecting a supplier, and make sure the goals of both organizations are in alignment. InFocus did its homework prior to selecting the Agile solution, evaluating 22 different suppliers, short-listing the top eight, and then further examining and visiting the three final contenders. Agile's client list includes Dell, Compaq and QUALCOMM.


While InFocus decided the Agile product best suited its needs, the field faces stiff competition. And the software solutions are rarely apples-to-apples comparisons, with most providers specializing in specific collaborative processes. One Agile competitor, Parametric Technology Corp. (PTC), headquartered in Needham, Mass., primarily targets design collaboration with its flagship Windchill product, although it also provides manufacturing solutions that compete head-to-head with Agile. Mary Hodson, PTC's senior vice president for contract manufacturing, says, With Windchill you can enter the collaborative process much earlier in the game, and the greatest opportunities for cost and time savings are in product design. However, Precor, which examined both products, decided it needed a simple solution to target a specific process: change control. Agile emerged as the winner in that category.


Beware the Pitfalls


Practitioners, researchers and software providers say defining and prioritizing targeted processes are vital to a collaborative initiative, but there are other considerations. Real and perceived obstacles abound when supply chain partners tighten their links and exchange sensitive data.


Carol Schrader, vice president of worldwide marketing for Agile, says companies need to promote a culture through business policy and practice where trusting relationships are reinforced. If companies can't figure out how to trust their partners, they're going to lose out, she says.


Additionally, Schrader continues, companies need to have a good working  understanding of their business relationships in order to structure their processes  correctly. Before Agile, or any other software enabler specializing in collaboration, can assist in software implementation, she encourages companies to define and foster these relationships.


Forrester's King concurs that companies should  identify and categorize the capabilities of suppliers, then tailor software tools so that each supplier has a different level of access to information. In her report, she encourages organizations to establish three different levels of collaboration for suppliers:



  • Involved: Provides components that aren't critical to customer requirements. King says 60 percent of a firm's suppliers will fall within this category.

  • Integrated:  Represents 30 percent of a company's suppliers. Provides components that truly differentiate a product. Manufacturers should make these partners full members of development teams for specific projects.

  • Interdependent: Just 10 percent of a company's suppliers possess strategically important capabilities for making high-value components. King says manufacturers should empower these suppliers in every part of the development process. 


Once your collaboration goals are outlined and your strategic partners are categorized and connected, companies will be positioned to accelerate new product introduction, King says. And, according to Agile, doing it faster than the competition is what collaboration software is all about.

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