[From iSource Business, May 2001] Collaboration. Few know exactly what it means. Fewer still have any idea of how it works or what the potential obstacles might be to obtaining it. But a handful of pioneering companies are taking the first steps to bring the downstream and upstream links in their supply chains together by pursuing collaboration in the design process for new products. The goals, as always, are to offer customers products that are closer to what they want, to offer them the products first, and ultimately to generate higher revenues and shareholder value.
First Up: Definitions
Gartner Group Inc., the Cambridge, Mass., technology consulting firm coined the phrase collaborative commerce (or c-commerce) in an August 1999 report that predicted that collaboration would become the dominant business model by 2002. Perhaps not surprisingly, the dot-coms and e-commerce solution providers quickly rewrote their product descriptions and press releases to include collaboration as a key feature of their offerings. The result has been a great deal of confusion about what collaborative commerce really is, even as adoption has advanced at an unhurried pace.
Everyone is giving lip service to c-commerce and very few are doing it, says Scott Alaniz, vice president and financial and supply chain analyst at the Little Rock, Ark.-based investment firm Stephens Inc. The problem, he explains, is that collaboration is a broad term. Companies that send e-mails back and forth can claim they are collaborating.' Under this loose definition, nearly every e-commerce supplier can claim they offer collaborative solutions.
Beyond the hype, Karen Peterson, a research director at Gartner, says companies are focusing on a few specific types of collaboration that can make a difference today. In consumer goods and retail, for example, major players such as Wal-Mart and the companies forming the GlobalNetExchange (including French Carrefour; Kroger Co.; the United Kingdom's J. Sainsbury Plc; and Sears, Roebuck and Co.) are working to eliminate stockouts by utilizing the Internet to connect trading partners across extended supply chains and by integrating supply with consumer demand. Pilot programs have shown a 35 percent increase in sales due to reduced stockouts, according to Peterson. Similarly, companies across a spectrum of industries now look to the Internet to reduce their just-in-case inventories, by providing greater visibility within their supply chains and by more accurately forecasting demand.
But perhaps the application of collaboration getting the most attention today is in design where the focus is on involving both a company's customers and its suppliers in the creation of new products. Collaborative design, labeled collaborative product commerce (CPC) by Gartner, offers the potential for reduced costs and faster time-to-market, which is prompting major manufacturers in several verticals to undertake c-commerce initiatives.
The drive toward collaborative commerce in part reflects a shift in the focus of e-procurement, according to Jeff Bodenstab, vice president of worldwide marketing for automotive and industrial verticals at solution provider i2 Technologies, which recently announced a major collaborative commerce initiative in conjunction with Caterpillar (see sidebar At Caterpillar, an Alliance for the Future). Until recently, he says, e-procurement tended to be focused on MRO items and indirect materials. What we are seeing now is much more focus on direct materials, engineered materials and those components that make up the end products companies manufacture. That's an area where there is a lot of added value. It's also an area that is highly integrated into the supply chain, because it's the suppliers that make the components that go into your products.
For some manufacturers, c-commerce has become a downright necessity. For example, BAE SYSTEMS, a global systems defense and aerospace company with over 100,000 employees around the world, is currently implementing a system from PTC (formerly Parametric Technology) called Windchill that will allow its designers to work more closely with BAE SYSTEMS' suppliers, co-contractors on major defense projects and customers, with the British and U.S. governments. Nowadays, in the industry that we are in, you can't do it all yourself, says Paul Johnson, director of the company's Enabling the Extended Enterprise Program. The problem, Johnson says, is that BAE SYSTEMS must deal with other, major manufacturers building critical components of complex defense systems such as submarines, surface vessels and military aircraft. These co-contractors let alone the governments use disparate back-end systems and have their own internal procedures. Collaborative commerce provides the platform for communication and cooperation among the major players in the specific supply chain associated with any given project.
Moline, Ill.-based Deere & Co., on the other hand, recently began experimenting with collaborative design as part of ongoing efforts, started before the rise of Internet-based solutions, to get closer to the customers for its construction and agricultural equipment, as well as to the manufacturer's supply base. Says Jim Harl, manager for e-business in supply management at Deere: In our construction equipment division, a few years back they began to see that there was value in pulling the demand from our customers closer and tighter into our factory floors. The movement to get closer to the two sides of the supply chain was really rooted in some fundamental thinking along those lines. The objective of this effort is to come to market faster with new and improved product lines that better meet customers' needs, Harl says, adding that c-commerce will allow Deere to move more quickly toward accomplishing this goal.
The various providers offering c-commerce solutions can be split among those targeting aspects of collaborative planning, including Adexa (recently purchased by FreeMarkets), i2, Manugistics, QAD (through a partnership with Adexa) and webPLAN; and those focusing on collaborative product commerce solutions, such as Agile Software, Enovia, MatrixOne, Metaphase and PTC.
Collaborative planning applications are oriented toward integrating the various links in a supply chain, regardless of the systems at work in trading partners' back offices, and giving a company better visibility into, and control over, its supply chain. QAD's flagship collaboration product, eQ, provides automatic purchase orders and sales orders for direct materials between trading partners, regardless of which Enterprise Resource Planning (ERP) system a company is using or even whether they have an ERP system or not.
The solutions focused on the design side evolved primarily from product data management (PDM) applications. But while PDM solutions were Web-aware or Web-enabled, CPC applications are Web-centric or purely Web-based, leveraging to a greater extent the opportunities for open communication among entities using different standards, such as Electronic Data Interchange (EDI) or eXtensible Markup Language (XML), and different means (from a mainframe ERP system to a desktop PC with a Web browser) afforded by the Internet.
And Now ... the Expected Benefits
The point of the collaborative design application is to bring suppliers into the production process at a much earlier stage. The classic purchasing model vis-à-vis suppliers, says Mike Adami-Sampson, vice president of product strategy at MatrixOne, is that when your product is cooked or nearly cooked, you give suppliers exposure to it, and you let them give you a price quote or make some comments on the design or tooling. Under c-commerce, manufacturers provide suppliers with access to the earliest stages of the design process, Adami-Sampson explains. If you can let those same suppliers have access directly into your development, you can engage them from the get-go. In essence, the old purchasing model managed suppliers as outsourced production resources while the collaborative model engages suppliers as in-sourced knowledge and innovative resources.
This early access allows manufacturers to take account of suppliers' suggestions or recommendations up front, rather than having to correct design errors or redesign parts at a later stage of the production process. The classical thinking is that change is bad, but the reality is that change is only bad if it happens too late, says Adami-Sampson. If you can get the change to happen early, it's actually very positive.
Suppliers engaged in collaborative commerce projects benefit from the increased use of Internet communication rather than face-to-face meetings. If a manufacturer can meet with a supplier's engineers through a Web conference, the supplier incurs less of what Adami-Sampson calls windshield time the time that the engineers would otherwise have to spend traveling to client meetings. Tom Sears, director of strategic marketing for PTC's Windchill product, further asserts that suppliers can increase customer loyalty by offering c-commerce capabilities that bring the buyer and supplier closer together in a collaborative environment.
The most obvious benefit for all parties in the supply chain is the faster time-to-market that the collaborative solutions allow. A company can work through its dealer or distributor networks or directly with end users to learn what new products or changes in current products its customers want. Once collected, that information can be sent to the company's engineering department for the necessary design changes, with the purchasing department notified of changing sourcing needs and the marketing department of new products coming down the line. By bringing new products to market more quickly, a company will be more likely to beat competitors to the punch and charge a premium price or gain critical knowledge from in-market experience while the competition catches up.
But Wait ... There are Some Obstacles
With all these potential benefits from collaborative commerce, one would think that everyone would be doing it already. The reality is that several obstacles stand in the way of any company that would march down the road toward c-commerce. These obstacles include infrastructure issues, immature standards and applications, questions about security, and cultural barriers to closer collaboration.
The infrastructure issues relate to the variety of legacy systems operating in trading partners' back offices, whether it be an ERP, supply chain management or customer relationship management system. Solution providers say they tackle this problem by building software interfaces capable of finding, extracting and translating data from the different systems. PTC's Windchill, for example, lets a group of companies create an information umbrella, or a virtual single system based on a relationship map of how all the participants' business systems operate. A company running Windchill can designate the type of information that is to be shared and with whom it is to be shared.
Immaturity of standards is also stymieing companies that look to engage in c-commerce, according to Gartner's Peterson. We have to have some standards around not only what are the data, semantics, nomenclature and information they are sharing, she says, but also what the actual process is for sharing with trading partners. Gartner views initiatives like RosettaNet and the Collaborative Planning, Forecasting and Replenishment (CPFR) Committee as helping to develop standardized processes that would let companies roll out collaborative initiatives much faster. At the same time, Peterson argues and Stephens' Alaniz concurs that the applications available for c-commerce are still immature. Alaniz states flatly, There aren't but a handful of collaborative applications that exist on the market, despite what the suppliers are telling us.
Security concerns, too, may be giving some companies pause as they consider the possibility of giving trading partners access to increasing amounts of information. I can have all the technology in the world, says Peterson, but if I don't trust my trading partners then it becomes very difficult. It's not just about putting a purchase order out there and beating my supplier into submission. It's about actually sharing information, some of it competitive.
Johnson, of BAE SYSTEMS, notes that the major solutions in collaborative design rely on host network security. This is a serious problem when you are working with other customers, because they want to know what security they have on their intellectual property rights, Johnson says. And you have to tell them, Whatever my system has.' And they say, It's your system, and I'm not very keen on that.'
The solution providers respond that their systems provide for security by allowing a company to control the types of information that are shared and to designate varying degrees of security for different trading partners.
It's That Cultural Thing Again
But perhaps the greatest challenges to collaboration are cultural. Companies that want to engage in collaborative commerce will need to take a hard look at their processes both internally, among their departments and divisions, and externally, with their supply chains. As an example, Adami-Sampson says that by using a collaborative design solution, a company's engineers can now interact directly with suppliers, which may cause conflict with the company's purchasing department. The purchasing community has to be prepared to step aside from that conversation and not get in the way of it, he says. The thinking has to change so that the purchasing community becomes aware of the communication but doesn't block it.
In terms of relationships with supply chain partners, Adami-Sampson asserts that most companies opt to introduce a collaborative solution over time. The typical maturation is that as the communities on both sides of the equation begin to understand what's possible, they start to adjust their thinking about how they can work in a different way. The result is an evolutionary change in the roles of the partners in the supply chain.
BAE SYSTEMS' Johnson is more blunt about the pace of change: I've seen glaciers move faster. The reason is that c-commerce makes companies work all too closely with competitors. We are forced to collaborate with people we wouldn't normally give the time of day to because they are going to bid against us for the next one, he says. We're having to learn to love each other.
Harl, of Deere & Co., notes that the marketing, purchasing and IT sides of the equation all are coming at the issue from different perspectives. When you sit down at the table, you're coming at it from different viewpoints, he says. But if you focus on what is best for the customer, that becomes your rallying point. For this reason, he recommends that a company start small and build on successes. Start with a small pilot project in one section of the company. Observe that, look at the results, and identify the hurdles that they met and how those hurdles can be overcome or avoided. Then expand the project. Over time you begin to understand what truly is possible versus what you thought was possible.
To Collaborate, or Not?
Opinions regarding the eventual success or failure of c-commerce vary. As might be expected, the solution providers are optimistic about the potential of collaborative commerce. The ultimate goal, says Sears, of PTC, is the virtual corporation, where the boundaries between trading partners start to disappear, where my supply chain becomes part of my product development organization.
i2's Bodenstab points out that what differentiates c-commerce from other types of e-commerce, including e-procurement, is that it produces benefits for all parties involved. What's different about collaborative procurement is that it is a positive-sum game, he says. Because the objective is to eliminate inefficiencies throughout the supply chain, all the links in the chain will benefit.
The analyst community is somewhat less optimistic. Some are going to succeed and some are not, says Peterson, adding, Our visions of everybody collaborating together are utopian at best. The keys, she feels, are trust and enterprises' ability to adopt c-commerce. Suppliers' capabilities their ability to include sufficient functionality and security in their applications are also important, but supplier capability does not equate to enterprise adoption, Peterson notes.
Alaniz, too, is doubtful: There is a lot of talk given to collaborative relationships, but the reality is that it just doesn't work that way. There are only so many dollars of profit in a supply chain to share. A buyer is going to want to look at his suppliers' costs and then share in any savings that accrue from e-procurement. Even with those guys that say they are working together, there is a very large propensity to hide things so that you can keep more of the profit dollars yourself.
Peterson acknowledges that those companies that do succeed in implementing collaborative commerce will enjoy significant competitive advantage because they will be able to drive rapid response, mass customization and closer integration with suppliers. The key success factors will be a company's ability to be responsive as an enterprise and the ability to move information throughout the enterprise quickly and efficiently.
Currently, the best bets to be winners in the collaborative commerce race are the channel masters, those companies that have a footprint in the supply chain sufficiently large enough that they can dictate to the other players in the chain a situation that Peterson refers to as coercive commerce. This puts smaller enterprises at a disadvantage for the moment, but it is not necessarily going to be in the channel master's best interest to put everyone else out of business while they gain competitive advantage. Everyone loses if all I am trying to do is drive price down without looking at how I share the value with my trading partners, Peterson says. She concludes that the only real losers will be those companies that don't participate at all.