[From iSource Business, July 2001] It would be hard to find a major manufacturing company that isn't feeling the urgent need to adopt competitive new technologies. And that's especailly true for farm equipment maker Deere & Co. In fact, for several years, the $13.1 billion Moline, Ill. giant has taken great strides in finding ways to deploy advanced technologies in its business, by doing everything from buying more than a dozen small technology firms to launching an Internet-based service to help farmers better manage their crops.
So, it's not surprising that the company has also turned its attention to enabling its supply chain in an equally ambitious way. Jon Stegner, director of supply management and strategic sourcing, talked to iSource about the strategies that manufacturers need to follow to successfully apply Internet-based technologies to the supply chain and the benefits they can reap as a result.
iSource: What's the key to using enabled technology effectively in the supply chain?
Stegner: The key is to see the potential, while keeping the technology in perspective. The potential for huge changes in speed and the lowering of costs is impressive, but that can be successful only if there's a larger strategy at play.
Let me explain. Some people look at a new technology and say, That's our strategy. But the more effective approach is to look at it as a tool, one step of a process. Technology is not a strategy, in and of itself. It's part of an intelligently designed, strategic supply chain.
iSource: Where do you begin?
Stegner: Each company has to evaluate the technology and tools out there and decide, first of all, whether they're going to use them, and then how to use them to compete.
Companies must also realize that using any of these tools requires a lot more than just installing them. It requires the transformation of business processes.
iSource: So, successful deployment involves fundamental changes in the business?
Stegner: We feel a company needs to transform its business processes first, and then select the technology that would best support those processes. As a second phase, form the backbone, and then apply the technology. If a company doesn't do that work up front, there's really not much to enable, other than just going from doing lots of transactions on an old system to doing them on a new one.
There's been a lot of hype and the promise that if you use these technologies you'll gain significant cost reductions. But that may be a hollow promise if you don't take the time and effort to transform your company's processes. The point is that the technology can allow you to create and use more efficient strategies. If all you do is automate or speed up an old strategy, however, you're not advancing.
iSource: What are the risks you might face if you don't follow through?
Stegner: Take auctions, for example. You can send conflicting signals to your suppliers if you embark on a strategy that says, Whenever I acquire materials I'll just auction off that request. In other words, whenever you have a need you just put out an auction. That doesn't build a lot of supplier loyalty and long-term partnerships, which you need if you're going to have long-term staying power.
iSource: What other risks do you see in the use of enabled technology? What about sharing information?
Stegner: If you have a solid relationship with your suppliers, there are probably more benefits to sharing information than there are risks, especially when it's done with a sound, strategic intent in mind. I suppose if you don't have that strong connection with your suppliers, there might be some risk when it comes to sharing information. If your supplier doesn't view the relationship as being long-term, he could potentially take the information gained and use it to his own end. If you're in a partnership with him, that lessens the risk.
At Deere, we've been building partnerships with our suppliers. Relationship building is really the foundation of what we do.
iSource: Tell us about the strategy at Deere.
Stegner: We've gone through a very rigorous process to establish a global commodities strategy. That's meant analyzing and understanding how to design a supply chain that can give us a competitive advantage. It has also meant looking for tools to help us execute those strategies. And we've been pretty diligent in trying different tools and different approaches.For example, we've looked at how to use reverse auctions to speed up certain steps of the process and reduce overall cycle time. We've done pilots, working with a range of materials, to find out where the technology works best. And we continue to look at other tools.
iSource: But you've done much more than just experiment with reverse auctions, correct?
Stegner: We began examining our strategic sourcing process several years ago, as well as transforming our business processes throughout the company.
First we take on a commodity, studying it in depth and looking at the industry and the requirements. Then we study how to change the business process and how suppliers' processes need to be integrated into our own. Then we create a plan for that area and form strategic supplier relationships.
Once we have a well-articulated commodity strategy and supply chain design, we're able to move to the next stage, which is adopting the best tool to enable the commodity. For example, we're in the process of a pilot test in our corporate headquarters with a core group of users in purchasing. They're replacing our 20-year-old system with new B2B software from Ariba. Once we have the infrastructure in place we hope to expand that throughout the corporation.
The ultimate goal has been to allow people who work for Deere to have access to our new, strategically sourced agreements from their desktop, and to get the goods and services they need to them in a faster and easier fashion.
iSource: What are the potential roadblocks companies face in these efforts?Stegner: You face challenges in many areas with employees, suppliers and even the technology itself. It means people must change their ways, and change is hard. The degree of the challenge depends on the company and its structure. But to one degree or another, anytime you're going through process design, people are going to have to change the way they do their work. People who have always done things one way are now asked to consider new ways. And that can take time.
The promise is that using enabling technology will make the supply chain, and business, more effective. But delivering on that promise is the real challenge.
iSource: How has that affected Deere?
Stegner: The company has been highly decentralized. Now, things are done in a more coordinated, collaborative fashion. We are radically transforming past practices. That's led to some change management issues we've had to face. For example, it used to be that individuals were responsible for making decisions that now must be made by a team. The team must make decisions based on the good of the whole, as opposed to each members' own, individual set of criteria. In the past, a factory may have selected its own suppliers; today, we'll have a common supplier who works with us to standardize the goods and services it provides to all factories. The change piece is that, before, each factory had its own system for getting materials, and that may have worked well for that factory. Now, however, factories have to work together. This means they have to change a basic, critical function of their operations. And if you run a factory, that can make you nervous. So, although the potential benefits are huge for both the company and suppliers, the process has taken longer than we'd thought because these issues are present.
iSource: What about moving this technology to other parts of the company?
Stegner: Our objective, as we've made arrangements with our new strategically selected set of suppliers, is to take what we've done and carry it down our supply chain, so our suppliers will experience the same benefits we experience. We're currently exploring with a small group of key suppliers to see how to take that model forward. We also want to offer these benefits to our dealers and employees.
iSource: Are these strategies possible for all companies?
Stegner: Probably not. What I'm describing depends on a critical mass of resources and a relatively high level of business activity. It's harder for a smaller company to do.
iSource: What else do companies need to do to reap the benefits of enabled technology?
Stegner: Internet years are like dog years speeded up. That means you have to constantly re-evaluate your strategies and be prepared to change. At the same time, much of this technology is very expensive. So, to get value on your investment, you have to implement quickly. After all, today's answer may be obsolete three years from now. You may have to look for returns many times greater than what a company might normally expect, because the chance of obsolescence is so great. And that calls for getting up and running as fast as possible.
iSource: What are your predictions for the future?
Stegner: We're at a very early stage, and there's a lot of confusion about the technology industry. There was the flurry of dot-com startups last year, followed by the demise of many of them. There probably will continue to be consolidation as those companies merge and work on delivering their long-term strategies. It's going to be an ongoing challenge for supply managers.
But, looking ahead, I think the connectivity between businesses and many levels of the supply chain will be much greater. Many companies are still struggling to implement EDI [electronic data interchange] with their tier-one suppliers. Five years from now, we'll be able to move well beyond that, connecting to multiple tiers in the supply chain, sharing information that will let us quickly react to customer demands, and executing orders. The electronic communication will go all the way through the supply chain, and the costs of implementation will go down, too.