[From iSource Business, May 2001] How do you get 700 new suppliers of all sizes and shapes integrated into your automated supply chain as quickly and as seamlessly as possible?
No, wait. That's too easy. How about tackling this project during a major corporate reorganization, which is capped by new product lines and a new name? Given the circumstances, this project may seem daunting, but HomeBase thinks it has what it takes to tackle supply chain integration and, ultimately, turn a profit by the fourth quarter of the 2002 fiscal year.
In September 2000, the Irvine, Calif.-based home improvement giant (which is one of the West Coast's largest, with 10,000 employees, $1.5 billion in annual sales and 89 stores in 10 states) began its experimentation with the House2Home concept. It converted five existing stores in Southern California and Las Vegas to the new moniker, focusing on decorating rather than improvement.
The theory behind the shift is that the home decorating business is less dependent on fluctuations in the housing market than the home improvement business. Furthermore, the new stores feature flexible formats, so departments are better able to expand or shrink in size, according to fluctuations in consumer preference.
This new, flexible corporate mentality also necessitates tighter B2B linkages with supply chain partners; and Glen Hamilton, manager of the company's quick response, logistics and replenishment department, is in a unique position to help shape these vital linkages.
With well over 1,000 suppliers, more than $1 billion in expenditures last year and 500,000 purchase orders (POs) processed annually, Hamilton says the company is ripe for cost savings and improved efficiencies through procurement and supply chain initiatives.
The company's e-commerce application provider, IPNet Solutions of Newport Beach, Calif., plans to help the new House2Home step by step. By year-end, expect to see another 66 store conversions, as well as 22 store closures.
Behind the scenes, Hamilton and IPNet hope to achieve 100 percent trading-partner participation. The challenge: Each partner must be seamlessly connected, using as little technology as possible.
Up Close and Personal
Thus far, IPNet has helped hundreds of suppliers connect to HomeBase via three staggered methods that are based on supplier size and resources. Its eBizness Suite, an Internet-based solution, features:
- Transact Server for large partners,
- Transact Lite for medium-sized partners and
- WebForms for smaller suppliers.
The hub company, HomeBase, uses the Transact product, as does its large Electronic Data Interchage- (EDI) or Extensible Markup Language- (XML) based trading partners. Partners, or primary spokes of the hub, purchase the product through the hub or directly through IPNet for up to $50,000, with the expectation of a minimum of 25 partner licenses. The application facilitates high-volume business transactions among partners and integration with back-end systems.
Transact Lite, or PC-based, candidates purchase their product through the hub for substantially less than the Transact Server partners, at $2,000 to $3,000 per license. This product is an easy-to-use, Rturnkey' solution for businesses with limited IT resources, according to Ted Smykla, IPNet's senior vice president of products. Transact Lite customers may or may not be EDI-enabled, but they exchange low- to medium-transaction volumes with the hub.
The third product, WebForms, is a browser-based solution that requires only a PC, standard browser and Internet access, which is ideal for the supplier with limited technology. The hub generally picks up the tab to ensure speedy linkages with suppliers that may have tight budgets and/or minimal transaction flow, says Smykla. HomeBase incurred approximately $20,000, or $5,000 per document, in internal development costs to design customized WebForms for POs, advanced shipment notices, invoices and invoices from scratch, which are limited-use documents to be used for placing special orders.
Savings have been difficult to quantify given such obscure benefits as the reallocation of human resources into more efficient areas Hamilton says but concrete examples include a huge dent in HomeBase's $2-million-per-year value-added network (VAN), charges in favor of Internet-based EDI.
Huge Task, Small Product
An unanticipated benefit of the low-end WebForms product materialized when Hamilton was faced with the task of getting 700 new suppliers up to e-speed. While the Transact product touts a five-day implementation rate, which, in one case, stretched to three months for a HomeBase supplier that encountered Unix integration problems, the WebForms offering provides a speedier rollout and substantially lower costs.
So, in order to get the ball rolling, Hamilton decided to slam newcomers into WebForms to get the initial round of POs processed automatically, then transition the larger suppliers into EDI and the Transact product.
Hamilton says his ultimate goal is to have the most efficient supply chain out there. We want to be the low-cost retailer, he explains. But we also want to be the easiest and least expensive retailer for a supplier to deal with so that if a supplier has something new out there we're the company they come to.
The Word Is ...
Has the HomeBase/IPNet initiative impressed suppliers thus far? One WebForms user says yes and no.
One mixed reviewer is Tom Wilcox, office manager at the 10-employee American Windowsill Corp. in Orem, Utah. Wilcox says he previously received POs from a HomeBase-approved middleman who charged a fee for his services. With WebForms, the middleman is eliminated. Other benefits include fewer errors and fewer follow-up calls due to the use of Internet transmittal, since faxes, which are frequently used by this particular industry to communicate, sometimes transmit illegibly.
Furthermore, the company has cut back on paperwork with HomeBase by one-third, but not on labor because I still have to enter purchase orders into our accounting system, Wilcox says.
Ideally, Wilcox says he gets notification via e-mail that POs have been issued. He then accesses a Web site, inputs a password and views and processes the purchase orders while he's online.
However, there have been some problems. One is that, I've been checking the Web site and the purchase orders are there, but I haven't been getting notification via e-mail, he says.
He must also send out an advanced shipping notice immediately after he opens a PO, even though the manual says I should be able to send it whenever I want. Hamilton says this paperwork issue has since been resolved.
And finally, lack of essential paperwork, including a password, protracted the rollout from the expected few hours to several days.
EDI Integration with Ease
Another supplier at the Transact Lite level, on the other hand, enjoyed a smoother, remarkable, four-hour implementation. Bruce Lineberger, controller of the Jasco Chemical Corp. in Santa Ana, Calif., says the product is remarkable in its ease of installation and use with EDI systems.
Lineberger expressed trepidation initially about straying from the company's existing EDI setup. Most Jasco customers are high-volume EDI users, he explains. Recently, we upgraded the EDI templates and accounting software, which required several months of trial-and-error testing before EDI was fully integrated.
It is understandable why companies that rely on EDI are very averse to change that could interrupt business for an extended period of time.
The IPNet solution, however, proved to be painless and did not require any modification to the existing EDI setup. After installation, he says, the software functions in the background during normal EDI routines. No further help or maintenance was needed.
The icing on the cake for the 34-employee wall and floor coatings manufacturer was the elimination of VAN fees previously incurred to send data to HomeBase.
At the server-based or Transact level, reduced VAN fees also proved enticing to Valspar, a much larger paint and coatings company with 4,600 employees in 50 locations around the world. The Minneapolis, Minn., company merged with former competitor Lilly Industries of Indianapolis, Ind. in December 2000, adding another 2,200 employees worldwide, as well as another layer of suppliers to integrate.
Its VAN fees, therefore, were proportionately higher than Jasco's, averaging $20,000 per month, says Valspar applications manager Rob McHattie. However, thanks to IPNet, this figure has dropped to less than $3,000 per month.
Other benefits include ease of use, a speedier order process and enhanced security, since Valspar's VAN data wasn't encrypted.
On the downside, McHattie says, are the initial costs a hefty $50,000 for Transact clients and, in his case, a botched, three-month rollout due to Unix interoperability problems that have since been ironed out for successive IPNet clients.
Connectivity and Communication
McHattie says Valspar's Unix platform also plagued the rollout of a competing product brought in at the tail end of the IPNet evaluation. Cyclone Commerce's connectivity solution was similar to the IPNet offering, but we had already worked through many of the same issues with IPNet, he explains. When it became obvious we would have to apply the same level of resources to Cyclone, we did not feel we could progress both efforts.
McHattie adds that one noteworthy surprise was the ease with which the IPNet package connected to the Cyclone package, and, in fact, Cyclone does not consider itself an IPNet competitor.
Most analysts categorize the two companies within the integration-broker space, says Rick Hofmann, director of product management at the Scottsdale, Ariz.-based Cyclone, but they can be complementary as well.
For instance, we focus on rapid scalability and connectivity among trading partners in a value chain, while data-transfer applications, such as IPNet's, may sit atop our architecture, he says.
Though, for the record, Cyclone does plan to give IPNet a run for its money in overlapping product areas, such as the WebForms solution, explains Thomas Blondi, senior vice president of marketing.
In the meantime, while companies such as IPNet and Cyclone battle for market share in the exploding B2B arena which Boston Consulting Group estimates will hit $4.8 trillion in U.S. online purchases by 2004 supply chain executives struggle to find solutions that best suit their companies' needs.
For HomeBase's Hamilton, regardless of product selection, the key to successful supply chain integration lies in open, frequent communication between the hub, your trading partners and the provider.
And, while he's been pleased with IPNet's Transact offering, he's eyeing the firm's XML-based Collaborate solution, which facilitates exchange of inventory forecasts, sales projections and product planning documents.
By involving the supplier in the creation and fine-tuning of the forecast in addition to making all inventory and sales visible, says Hamilton, the supplier should be better able to plan production and thus improve service levels while at the same time decreasing inventories.The net results are improved sales and decreased costs. I would say this is the goal of supply chain solutions.
Cherish Whyte is a freelance writer based in Redmond, Wash.