[From iSource Business, May 2001] Supply management has always been about data and information: volumes, price, delivery, quality and technical specifications. But getting, storing, formatting, consolidating and analyzing data in today's decentralized multinational corporation is a mammoth task. The people who can master the data issues by mastering the information technology tools available today will be the winners in supply management, because they will be able to turn the data into information and eventually into a profit.
The Internet is about relative market muscle, representing a substantial shift of power from the seller to the buyer due to a fundamental shift of relevant knowledge from the former to the latter. To begin, we must recognize several facts: First, the average company (or educational or governmental institution, for that matter) is decentralized. Second, purchases from third parties usually make up more than half the cost of goods produced by a company, and that percentage is generally rising. And third, the indirect costs of purchasing inventory, quality and handling costs push this percentage even higher. At my company, United Technologies Corp. (UTC), our total spend of $14 billion in 2000 was more than 65 percent of our total cost, split into a 60/40 ratio between product and general procurement spend.
A growing number of e-business general procurement systems are addressing the complexities of procurement. Some have a broader scope than others do, but the intent is essentially the same: to use the aggregating power of the Internet to transfer power to the buyer. All the price and volume data about suppliers must be collected, stored and shared among the many people who need it. Unfortunately, a lot of this is sheer grunt work. However, once this information is aggregated and digitized, the Internet enables it to be made available to the whole company on a real-time basis.
Apart from volume, price and production-specific information, data, such as performance metrics, forecasting and scheduling, are of interest not only to you but to your supply base as well. The Internet permits access to this information for the entire supply base, providing suppliers, for example, with online access to your production schedule, or giving you access to your suppliers' production situation and the bottlenecks in the available inventory.
The next horizon of business will be to use artificial intelligence or powerful expert systems to perform in a remote environment many of the routine tasks people do today people who could be far more productively employed if they were working with suppliers on cost-saving projects. The application of currently available tools is limited only by our own imagination and the ability of our organizations to change.
But let us not underestimate a few key points: First, evaluate relationships. If you do not have an open and trusting relationship with your suppliers, you can forget about the technology or any move forward from the status quo. Today, relationships have to be based on real, mutual benefits to both sides.
Second, process re-engineering. Not only do Internet processes have to stand on top of robust processes, but these processes also need to become standardized and disciplined. Take quality, for example: If you want to share quality information with a supplier who is working with several of your own divisions, the definitions of what you are measuring and the scores given need to be consistent.
Finally, we should never forget that business is also about direct, personal interfaces, and technology needs people who know how to use it properly. I have always said the winners in today's race with the best supply chains will be those who can best manage the human and technical interfaces, and that means those with the best systems and best people.