All Systems Go

Over the last several months, software applications have reached new heights in functionality and sophistication. Integrating these applications to produce the desired results, however, is another story.


[From iSource Business, March 2001] The mandate handed down by the board of directors at your company is clear: To cut costs, the research and development necessary to create the next line of the company's computer components must be done in part by your suppliers. Intimate planning, strategizing and collaboration will be required over the next several months. And it's a smart strategy. Studies have shown that this type of collaboration leads to a better product as well as greater supply chain efficiencies.

In the short run, however, it means a lot of work.

It means the company must re-evaluate suppliers and perhaps identify new companies that are better able to conduct such activity. It means the company must integrate with said suppliers for more sophisticated demand planning. It must collaborate with them on a whole new level product design and even marketing. It must incorporate these external functions into the company's own, internal back-end operations, such as accounting, cash management and transportation.

Most of all it means, as director of procurement operations, you are in the hot seat.

Time to cash in the options and finally retire to the Bahamas?

Not quite. In at least one respect the timing for your new responsibilities could not have been better. Over the last 16 months or so, software applications for direct and indirect e-procurement, strategic sourcing, supplier allocation, demand planning, configuration, personalization, catalog management, channel management, and supply chain management have reached new heights in functionality and sophistication and some combination of these applications can surely handle the task at hand. Integrating these applications to produce the desired results, however, is another story.

True, as a procurement or supply chain professional that may not officially be your headache. But, in reality, it is. While you can hire a systems integrator (or as the second generation of such IT service providers are known today, enterprise application integrator) to do the wiring, you are still responsible for the end result. Is the purchasing data integrated properly into your accounting functions? Is your supplier able to access your internal demand projections? Are you able to access your supplier's system to check the progress of your order? You need to know the answers to questions like these, because, in the end, you will be accountable, fairly or not.

"When e-transactions are 'misplaced' or mishandled in an operational environment, years of relationship-building and business dealing can be damaged," says Chuck Phillips, a partner with Forest Hill Consulting, a Chicago-based management consulting firm that specializes in business integration. "Oftentimes, your company's credit and business reputation is on the line."

Nor is this strictly a tech project anyway, he says. Any successful e-procurement or supply chain implementation requires input from the purchasing department. "Bolting on an 'e-anything' to a company's legacy system requires extensive business design and planning," says Phillips. "Business rules, procedures and decision-making processes must all be analyzed to determine if and/or how the new e-business environment can fit into the existing purchasing or supply chain environment."

So because these seemingly 'tech' issues have become integral to supply chain planning strategies, iSource Business magazine has decided to develop a primer for non-technical management on all the different ways your $100,000 e-procurement project may go wrong and what you can do to prevent such glitches. We also talk about what can go right for as software systems become ever more able to interact among companies, the possibilities to create new supply chain efficiencies and intra-company collaboration are growing exponentially.

Understanding the Problem

The problems of systems integration are not new. Most companies became painfully acquainted with the difficulties of creating interfaces and points of integration for application and data sources when ERPs were installed a decade or so ago. At that time, their functionality was nothing short of amazing. They were able to integrate all the major business processes of a company, such as finance, accounting, human resource functions, customer service management, manufacturing resource planning and scheduling, materials management, and data warehousing. But actually implementing these systems was costly, both in time and money, and glitches often remained no matter how customized the configuration was.

Now we have second and third generations of best-of-breed applications that do everything better. The e-procurement and supply chain applications that have been introduced over the last two years can make a phenomenal business case, with promised rates of return averaging 300 percent over the life of a system. But the issues surrounding systems, or enterprise applications, integration are largely the same as before. And so the lessons learned a decade ago need to be reviewed.

"If you have to copy files off of a legacy ERP to run an e-procurement system, there needs to be a lot of thinking and planning before designing that type of interface," Phillips says. "Ask yourself, 'What are the business rules that make my legacy systems work? Is that data sufficient to run the e-procurement system?'"

Unfortunately, many companies find it is not.

"Most ERP applications are not built to support an e-procurement function," says Dale Peterson, general manager of eSourcing management technologies in eBreviate's Plano, Texas office. Common problems, he says, include data that is not cleaned up before it is loaded, difficulty in aggregating spend, and difficulty in integrating procurement cards and travel and entertainment cards into the system. Too often "you lose visibility to a good part of your spend. And all of this information is necessary for strategic sourcing."

Here are some of the other problems that can potentially arise:

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