Now Where's That Mechanism?

Forrester sees emergence of network supply chains

London -- December 14, 2000 -- Companies engaging in e-business will increasingly need a mechanism to manage information flow between trading partners and will ultimately work through private or public e-marketplaces to form network supply chains (NSCs), according to a new report from Forrester Research B.V.

"Companies are struggling with outdated information and planning discontinuities across their supply chains," said Charles Homs, senior analyst at the Amsterdam, Netherlands-based division of U.S. technology consulting firm Forrester Research, of Cambridge, Mass. "European firms must transform their offline supply chain management systems in order to plan, optimize and collaborate with suppliers online."

NSCs will act as the prime facilitator in this online collaborative environment, according to Forrester, which defines an NSC as a network of inter-enterprise supply chain events connected through a private or public e-marketplace.

Moving to an NSC environment will not happen overnight, the Forrester report cautions. Firms will gradually progress to this online supply chain world through three phases. Firms must communicate production and sales plans online with their suppliers through XML. Once firms move beyond integrated procurement, the focus will shift to the synchronization of planning and production schedules. Online marketplaces must install top-notch advanced planning and scheduling (APS) solutions to handle business logic such as planning data from multiple participants and to allow users to shield data from other participants, thus ensuring corporate data privacy.

"NSCs will be in full swing once e-marketplaces become the information hub for all business processes," Homs added. "But large corporations will still require internal planning, for which they will run an in-house planning system. To achieve true benefits from collaboration, all steps of the supply chain -- from concept design through after-sales service -- must become one integrated flow of information. To facilitate that process, NSCs must offer a full-blown service of enterprise applications, from customer relationship management and supply chain management to ERP."

Forrester asserts that firms investing in NSC initiatives will need to gauge software providers' solutions and evaluate their own risks in order for the investment to pay off. For instance, the software investments a manufacturing company will make range from 1 million to 4 million euros ($0.9 million to $3.6 million), with ongoing maintenance between 200,000 and 400,000 euros ($181,000 to $362,000) per year.

"At present, vendors lack vision and not all of today's traditional supply chain software providers will deliver solutions for NSCs," Homs said. "Current mainstream enterprise applications will continue to evolve around internal business processes, and none of the leading software vendors truly support planning, scheduling and optimizing activities across networks with multiple participants."

But Homs warned that technology is just one part of the solution. In order to assess the impact of moving to an NSC, firms need to pre-empt the impact of collaborative production and design on their online supply chain solutions. As a result of heightened collaboration, information will become more complex and collaboration requires an approach supported by expensive enterprise applications -- forcing companies to face new liability issues as a result. But higher liability does not preclude companies from cooperating. To play it safe, firms will scrutinize contracts for individual and bipartisan liability and the ability to trace any action back to any player in the supply chain."

"With more partners, increased reach through the Internet and a 24-hour economy, companies must gear up for continuous real-time adjustments in their supply chain," Homs concluded. "A supply chain consists of more than just suppliers, manufacturers, and logistics -- design, sales, and marketing also influence the chain of events. By including all the business functions in an NSC, partners will take ownership to resolve product discrepancies swiftly. With NSCs in place, companies will decrease the chances of potential liability claims and improve intercompany collaboration."

For the report, "Network Supply Chains Emerge," Forrester interviewed 40 supply chain executives to understand their use of the Internet and e-marketplaces for supply chain management.