[From iSource Business, April 2001] Q: In your opinion, what are the most important value propositions in the supply chain?
A: As always, cost reduction and service improvement, although the tools have changed significantly.
In just the past few years, corporate supply chains throughout the world have undergone massive transformations. Market changes, rapid advancements in technology and the rise of the Internet have played major roles in this evolutionary process. Today, businesses are increasingly focused on supply chain activities and processes as they seek to leverage the power of Internet computing to deliver the core supply chain value propositions of cost reduction and service improvement, which have always been important.
In other words, the game remains the same. But what has changed is the game plan and the tools and technologies available for the execution of that game plan. So, what are the key tenets that today's supply chain professionals need to know as they call the plays for their organizations? Here are three to keep in mind.
1. Inter-firm coordination is the foundation
The supply chain consists of the companies, processes and personnel involved in the flow of products and services to the end customer. Consequently, an organization's ability to deliver fully on the core value propositions in the supply chain is heavily dependent on coordination and collaboration with its supply chain partners. Yet, even today, a typical supply chain is too often a sequence of disconnected activities, both within and outside of the organization. To remedy this situation, it's important that an organization and its suppliers, manufacturers, customers and other third-party providers engage in joint strategic planning and operational execution with an eye toward minimizing cost and maximizing value across the entire supply chain.
2. Data exchange is key
The underlying enabler of supply chain integration is the fast and timely exchange of information between supply chain partners. This information may take the form of transactional documents such as purchase orders, ship notices and invoices; as well as planning-related documents like demand forecasts, production plans and inventory reports. It's this sharing and coordination of information and planning activities that can enable cost reduction, value enhancement and the execution of advanced collaborative planning activities such as supplier-managed inventory and auto-replenishment. Whereas in the past the cost and complexity of executing EDI transactions made this type of information exchange suitable for only the largest corporations, the ubiquity of Internet-based communication tools now makes it possible for organizations of all sizes to exchange information.
Nevertheless, challenges still exist and, paradoxically, successfully dealing with the proliferation of technologies is one of these challenges. While automated system-to-system data exchange between supply chain partners enables cost-reductions and service improvements, the wide range of business systems and file types used across the supply chain can make accomplishing this data exchange a daunting task.
The good news is that this data exchange challenge can be overcome; and the opportunities become endless once companies are able to exchange information efficiently with their suppliers, customers and partners. Applications like vendor-managed inventory (VMI), collaborative planning, e-procurement, shipment tracking and tracing, electronic order management, and bill presentment and payment can be built upon a core data exchange platform, enabling companies to reap true cost reduction and service improvement within their specific supply chain.
3. Getting started is critical
When it comes to e-enabling your supply chain effectively, it's important to analyze all your options. But on the other hand, given today's competitive landscape and the rapid pace of innovation, it's equally important that you avoid the paralysis of analysis. Pick an area on which to focus, pick a solution and work on the implementation.
Many companies today are starting with e-procurement, and many of them are already generating huge returns on their investments. For example, after implementing an e-procurement system, one large semiconductor company was able to slash its requisition and purchase order costs from about $130 down to about $25 per transaction. Estimated annual savings? Over $12 million. Yet, despite well-documented success stories such as this, it's estimated that only 7 percent of the world's 2,000 largest companies have chosen an e-procurement solution.
If your company is the cautious type, consider starting small, with a limited number of supply chain partners. Then, as a solution proves itself to your satisfaction, you can eventually roll it out across your entire supply chain.
But the key is to get started. After all, the best game plan in the world won't do you any good at all unless you get in the game.
Matt Verghese is the president and COO of ECOutlook.