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May 2001
Automating B2B Supply Chains
by Russell Letson
There's fear, uncertainty and doubt in the e-commerce world. First there was last year's bursting of the dot-com bubble. Then came the well-publicized problems of high-profile business-to-business outfits, such as the closing of the Chemdex Life Sciences Marketplace and the fingerpointing by athletic shoemaker Nike at its e-commerce solution supplier, i2. It's understandable that sober companies might pause and wonder whether they ought to hold back a bit from the likes of supply chain automation and electronic marketplaces.
Indeed, automating manufacturing supply chains or distribution or indirect procurement systems across the Internet is not a trivial job. Suppliers, manufacturers and customers need to see far enough into each other's operations to dicker over prices and schedules, synchronize production runs and shipments, fine tune logistics, and make plans for the near and far term.
All this requires the aggregation and exchange of diverse forms of content - not just catalogs and price lists, but all the information that surrounds a business deal: specifications, inventory data, back orders, invoices, shipping schedules and histories, contracts and agreements. In this context, content management becomes an extension of conventional document management, with many of the same requirements (creation, importing, updating, format conversion, version control, security, validation, repository maintenance), plus the need to publish via Web sites and other messaging systems.
The collaboration side of the equation requires the creation of mechanisms that allow business processes and procedures to connect across corporate borders, and human interactions to be automated or facilitated. This means integrating the alphabet soup of back-office IT applications (ERP, SCM and so on) with the content management solution in a way that allows buyers and sellers to see into their partners' systems. It also means adapting or extending workflows and messaging systems so that all the parties - buyers and sellers, suppliers and builders - get the right information at the right time, whether it's via XML exchange, an e-mail or a fax.
The question isn't really whether Internet-based supply chain management and marketplaces can work, but under what circumstances and with what combinations of features and services. Successful operations seem to be able to juggle three challenges: paying close attention to real-world business processes, adapting automated systems to human behavior, and integrating content and collaboration technologies with crucial information systems.
What the Doctors Order
Everything4MDs, Reseda, CA, offers a relatively straightforward example of the benefits of indirect online procurement. As its name indicates, the company supplies the needs of medical organizations, ranging from individual practices to general clinics and surgical and radiology centers. And "everything" means just that, says chief operating officer Robert Hess: "everything a physician would need to run his practice, whether it's a ballpoint pen or exam table paper or vaccines or janitorial supplies to scrub the toilets."
E4MDs brings aspects of the distributor, the purchasing agent, the one-stop superstore and the mail order catalog into the Web environment, and it then adds some distinctly unsuperstorelike amenities for its users.
What differentiates E4MDs from its rivals, says Hess, is the purchasing agent function. "As opposed to just being a link to [a supplier], we aggregate all our customers and go to the manufacturers and get special pricing on their behalf," he explains.
This collective clout can mean savings of 40 percent to 80 percent on many items. Further overhead savings result from E4MDs' virtuality; almost all orders are drop shipped, allowing the company to operate without a fleet of trucks or most of the physical assets of warehouses.
Customer interaction is kept simple and requires only a browser. Once a practice has an account and a password, ordering is a matter of going to the Web site, signing in and using the online catalog and an onscreen order template that can be tailored to the customer's preferences. Orders are shipped from the manufacturers, and all the intervening processes are transparent to the customer.
One customer is the High Desert Medical Group, with four large general-practice clinics in Lancaster and Palmdale, CA. Purchasing agent Terry Dahl says his group's primary reason for signing on was cost savings, but he adds that there were other rewards. Most significantly, High Desert was able to go from a central supply system to just-in-time ordering in which each department in each clinic maintains its own stock.
"Everything is ordered once a week by each department and sent to that department," says Dahl. "There is no central supply with backup. Any inventory sitting around collecting dust is just money sitting there, not being used."
Clerical personnel were redeployed from ordering and handling supplies to other duties, and the simplicity of the system meant that the training curve was "nonexistent," according to Dahl.
The application suite was designed by E4MDs and built for the company on the Oracle Application Server platform. "We weren't just looking to automate and e-enable an existing system," says Darryl Low, E4MDs director of information technology. "There are a number of competitors out there that have the basic shopping cart purchasing systems. We felt that to be competitive, we had to add value to our system. The cookie-cutter development tools didn't give us that flexibility."
The online catalog content and updates are sent by suppliers in spreadsheet or XML format. Incoming files, says Low, are "parsed and scraped" before being loaded into the database for publication on the Web site. E4MDs' real focus, he adds, "isn't so much bells and whistles on the front end as on the back end." Those features enable some significant user-side amenities. In addition to the customizable ordering template, the site offers tools for viewing, analyzing and managing purchasing data. For example, one feature allows analysis of expenditures on particular items instead of categories.
"[Customers] now have a management tool that allows them to break down further their overhead expenses and get some control over them," Low says. "Before, they just saw a check, and someone had to spend an outrageous amount of time trying to manage the overhead manually. Now the information is in a database, searchable, sortable and filterable."
Still pending is a supplier-side electronic data interchange (EDI) connection, which will further automate order placement and shipping confirmation for the E4MDs back office. (It currently uses an EDI clearing house for this function.) Also planned is online integration with managed-care software systems and a customer-side inventory management function that will monitor orders and usage and alert the user when it's time to reorder an item. The latter function is a version of one that E4MDs uses to manage its own small inventory.
Even with features still being added, Low says that the company is happy with the site. He believes that, thanks to the decision to keep the system simple and not run up big development bills - "no jets, no debts," as he puts it - E4MDs may be the only medical supply site that actually has a profit on the books.
The Virtual Rep
Adapting technologies to the realities and complexities of human and business behavior may be the most underappreciated aspect of getting an electronic market or supply chain system to work. Dallas-based aviation parts distributor Aviall felt strongly that its online operation should respond like, in e-commerce manager Dar Hackbarth's phrase, "a customer service rep on the Web." So it scrapped its existing (and award-winning) Web site and rebuilt it using the One-to-One Enterprise solution, from Broadvision, Redwood City, CA.
"We represent more than 180 different suppliers, and our customers can be anything from large airlines, where we're dealing with sophisticated buyers, down to one- and two-person businesses, where the guy who orders the parts is also the guy with grease under his fingernails," says Aviall vice president Joe Lacik. "The one-to-one capability allows us to reach out and touch each of these entities and provide appropriate information."
Aviall's core business is distribution, and it used One-to-One Enterprise to build an electronic catalog with content on more than 230,000 parts, classified by manufacturer, type of part, group of part. While data on inventory levels, pricing and availability is fed from its ERP application, the company found that it needed a new department to set up and maintain the other content required.
One of the challenges in building the catalog, Lacik explains, is that many manufacturers build parts such as tires or brakes not for a particular aircraft but to specifications, and aircraft builders will call on those specs for replacement parts. The new department has set up lists of manufacturers and categories and subcategories of parts and is establishing the cross-references that will allow even inexperienced sales people to find the right part for a given aircraft without a time-consuming manual search.
But Aviall had to worry about more than just assembling content or even bringing parties together. "We have some very high-demand, high-priced items, and literally from the moment it's available we can have 10 requests for one item" Lacik says. "If we didn't have a real-time site, we'd have some pretty upset customers, all trying to order the same thing and not getting any feedback."
To cope with simultaneous demand and the need to keep track of orders, Aviall integrated the Broadvision piece with a range of back-office solutions: inventory and warehouse management from Catalyst International, Milwaukee, WI, and Xelus, Fairport, NY; enterprise resource planning and supply chain management from Lawson Software, St. Paul, MN; customer relationship management from Siebel Systems, San Mateo, CA. By the end of the year, Aviall will have invested more than $30 million in these systems, against annual revenues of $550 million.
The financial payoff is clear. "We know for a fact that each order taken by a customer service rep costs about $6 over the phone," Lacik says. "Over the Web it's about 40 cents. So we have real savings we can pass on."
On the operational side, the high degree of integration means that "all pricing, all inventory, any information that's brought up to the Web is real time," says Lacik. Increased functionality for customers means more orders come in via the Web. "Last year we had $30 million [in online orders]," Lacik reports, "and we will increase that number significantly this year - current forecasts would at least double it."
The focus on the user remains a driving force. "If a customer were in front of a live service rep," Lacik says, "what kind of service would [he or she] request? Some customers like to keep track of the parts they're going to order on a spreadsheet, so we developed a function that lets you import and export an Excel spreadsheet into the order-entry system and get fulfillment within seven clicks. That's gone over very big with customers who do large orders."
The list of services and functions goes on - access to certification documentation and material safety data sheets; a request for quote function that dramatically shortens the cycle of getting supplier commitments on hard-to-find parts; a customer relationship management (CRM) application that provides customers with individualized information about what they might buy or need based on what aircraft they have. Coming soon will be connections between the Aviall inventory system and supplier systems, so manufacturers can feed the information into their production planning.
Siebel CRM workflow is used to track and resolve order conflicts and discrepancies. In fact, Aviall is looking toward making CRM a driving application for the whole business as part of a larger strategy aimed at making Aviall not just a parts distributor but also a service-and-logistics company. The application already tracks all customer interactions and has access to account information; its next project is wrapping CRM around the order-entry application. Eventually, it intends to integrate CRM with the inventory system and the purchasing agents.
"For us, the magic is that we're going to integrate all the [branch office] call centers," says Lacik. "[The call centers] all act independently, and when a customer is passed from one to another it's not a very smooth process. [By the end of the year,] we'll be able to pass the phone call and the screens that we're working on."
Keeping Supply Chains Responsive
The Electronics Manufacturing Group (EMG), of Alberta and Toronto, Canada, could be the poster child for Internet-based supply chain management. As contract builders of electronics, it has to move fast in a field where not only the models but also the categories turn over rapidly, from cell phones to personal digital assistants to telephone switches.
"We may be the most chaotic of the industries, because we're not just dealing with multiple customers and suppliers but also with a very rapidly changing customer and supply base," says CEO David Snell, who helped found the company in 1996.
Early in the company's corporate life - just 18 months ago - EMG executives recognized the importance of automating manufacturing and supply chain management. They chose the Collaborative eSupplyChain Optimization (CeO) solution, from Webplan, Ottawa, Ontario. A little more than a year later, all of EMG's planning systems touch CeO. In fact, EMG even replaced its ERP system's manufacturing resource application with Webplan's planning engine.
In volume production, Snell explains, "you need to be at your best price all the time so you can move materials very rapidly and cost effectively. It's also important from our risk management point of view. It's not just about moving materials, but about planning for risk - analyzing your supply chain. The last thing we want to be caught with is an extra $5 million in inventory because we weren't able to react."
Snell attributes EMG's having the lowest number of weeks' inventory of any publicly traded electronic manufacturing services company in Canada to the company's "e-business, e-collaboration strategy."
Webplan's combined focus on electronic collaboration and planning makes it a perfect fit for EMG's situation. According to Webplan vice president Darryl Praill, his company's arena is not the public e-marketplace but the private exchange, where manufacturers, suppliers and customers come together to form "a kind of family" for the exchange of information, materials, documents and design components. It's an extended family though.
"Your supply chain isn't just your own four walls," says Praill. "It's your suppliers' and your suppliers' suppliers' and your customers' and your customers' customers'."
Webplan differentiates itself from other players by forming what it calls a "collaborative trading network" that operates under its "adaptive planning model."
Webplan-style collaboration emphasizes not just communication but negotiation. In the old model, Praill explains, a big manufacturer might put out an EDI order for materials, but there is no negotiation. If you can't produce, you're not a supplier anymore. So suppliers promise compliance whether or not they can really deliver, and late deliveries slow production. This, in turn, annoys customers, and "nobody wins," says Praill. A negotiation model allows parties to adjust their demands and responses as conditions change.
In adaptive planning, a real-time planning engine reassesses the supply chain and formulates responses whenever there is a change in conditions. Based on what it knows about the plant's capacity and the supplier's inventory and pricing, a Webplan system can suggest ways of fulfilling the order. This can happen in seconds because the application sits in memory on a big, powerful server.
New requirements can be published directly to the manufacturer's Web site, where suppliers can view them and negotiate online. Or the information can be formatted as importable spreadsheet files and emailed as attachments. For a completely automated process, the manufacturer can send an XML-tagged file (via Webplan's Xtreme server) that the recipient's XML-enabled ERP system can accept.
At EMG, Webplan speeds the process of coping with rapid and unexpected shifts in production demands from customers. At any given time, for example, EMG may be building several variations of products for a single customer, and these will use the same family of components. It's not unusual to have a customer ask for an increase in production of Product A but a cutback in Product B, which will mean increasing stocks of parts for A and decreasing them for B.
Webplan's CeO system will identify parts common to both units that can be used in A, generate a report of no-longer-needed items from B, and notify suppliers and request critical parts needed for A. If necessary, the system will also offer premium pricing to expedite the deal. At the same time, it will notify the purchasing staff, which doesn't need to do all this by hand.
"Rather than have 50 man-hours of work to analyze those products and reconfigure the supply chain, the system does it on the fly and keeps people notified so they can make intelligent decisions," says Snell. "The system becomes a real lever for speed and accuracy."
Webplan's WebBooks publishing tool makes product plan and design content available to customers, but connecting to component suppliers is a complicated business. "The system has to track not only the parts," Snell says, "but the person from whom it wants to get the parts, and [it has to] know how to communicate with the person."
There are a variety of supplier systems to deal with; some are already using XML or EDI, while others only respond to email or fax. In the latter cases, the Webplan-generated email is handed off to EMG's other messaging solutions (including Lotus Notes and Domino), which will reformat and route it as needed.
EMG's decision to deploy Webplan early in its corporate life meant investing 15 percent of its then $10 million in revenue. It was a commitment that was "huge by industry standards, says Snell. "[But] it's a year and a bit later and we're looking to do $75 million in revenue, so that investment looks pretty shrewd. It's a substantially smaller part of our current revenue, but we wouldn't be at our current revenue without those tools."
Russell Letson (rletson@cloudnet.com) is a freelance writer based in St. Cloud, MN.
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