Technology has enabled businesses to transmit data with ever-increasing efficiency, but moving physical goods has proved less tractable. The growing pressures of e-commerce, just-in-time manufacturing and deregulated transport make eliminating bottlenecks, inventory problems and errors increasingly important. In a fast-moving, highly competitive marketplace, companies must respond quickly to unpredictable events such as changes in demand or sudden unavailability of supplies.
The more complex a finished product, the more likely it is to contain materials from far-away suppliers. A supplier and a retailer may not even know of each other's existence, as each deals mainly with intermediates. Historically, companies have responded to this uncertainty by maintaining "just-in-case" levels of inventory at every link in the supply chain, tying up capital and slowing the flow of goods.
Supply chain management (SCM) is the process of ensuring that goods get to the right place at the right time. Companies are discovering that SCM can streamline external collaboration as well as internal processes. Consequently, they're searching for ways to cut costs and improve efficiency by working closely with their suppliers throughout the product cycle. They have begun collaborating on projects, archiving best practices, sharing across organizational lines and, most importantly, supplying information to decision-makers when they need it.
Smart to Share
While supply chain partners have long taken advantage of technology such as electronic data interchange (EDI) to streamline operations, new strategies extend information sharing to support collaboration and decision-making. Incorporating operations such as purchasing and procurement, scheduling, logistics and shipping, SCM touches all phases of the product cycle.
An organization's supply chain problems will vary according to the nature of its business and where it sits in the chain, but addressing those problems effectively often requires external collaboration. If a vendor regularly ships material to a particular customer, for example, both could benefit from sharing information, says Ed Sitarski, vice president of advanced planning solutions at J.D. Edwards & Co., a Denver-based provider of enterprise applications. "If I have to keep a $50 million inventory buffer so I don't run out of what you need, and you give me a better sense of what you're going to need rather than ordering erratically, I can get rid of that buffer and give you a discount," he says.
"Knowledge management is relevant to the day-to-day operations of the supply chain," says Mike Mikurak, an Accenture partner in Miami who specializes in SCM consulting. "You need to be able to share relevant information with the right people whether they're internal or external to your company."
Sharing can reap significant benefits at numerous points along the supply chain, says Jeffrey Berk, director of products and services at KnowledgeAdvisors Inc., a knowledge integration company in Chicago. For example, if a raw material or component is a critical part of a product being developed, the manufacturer might consider bringing the component's supplier into its R&D or prototyping processes.
Berk sees this as similar to bringing in customers to get their input. "Don't develop things in a silo," he warns. "After you get all the specs down, the supplier might say, 'If you had designed it this way, it would have saved you X amount of dollars.'"
Sitarski of J.D. Edwards notes that companies may benefit most from focusing on particular aspects of their supply chain, such as procurement or logistics. Identifying these strategic areas, he says, is the foundation for a successful deployment.
If and When
But first company leaders must decide what information to share with whom, when to do it and how to act on it effectively. "Some companies might say, 'My demand plan may be too strategic for me to share with the vendor,'" says Accenture's Mikurak. "Others believe, 'Not only should I be sharing it, I should be collaborating on it and building it with my partners, because then I reap the benefits of an end-to-end supply chain.'"
Not surprisingly, he advocates the sharing approach, particularly for businesses that depend on speedy time to market. "The more you maximize the full end-to-end supply chain, the more opportunities you have to reap the advantages of speed and integration," Mikurak says.
This doesn't mean that every company should share information equally or in the same way. For example, Sitarski points out, a cellular phone manufacturer deals with short product cycles and therefore needs large supplies of specialized components reliably delivered during a specific window. Every day that necessary components are unavailable translates not only to idled production facilities but to lost sales. Therefore, it behooves the phone manufacturer to work closely with its trusted suppliers in forecasting demand and making quick adjustments to unexpected developments. On the other hand, he says, businesses that deal in commodities are much less likely to share strategic information. If a produce vendor can't deliver a shipment of apples to a supermarket chain, the chain usually has other potential suppliers. And because the grocer wants those suppliers to compete with each other to offer the lowest price, it is unlikely to part with strategic information, such as its own demand planning, that would undermine this process.
Ford's First steps
The production and delivery of automobiles involves a multitiered supply process. Considering the length and complexity of this process, efficient supply chain operations are paramount. Shankar Kiru is director of business development at Covisint LLC, a Southfield, Mich., e-business exchange launched by the automotive industry to address global supply issues. He explains the need for such a service by citing an estimate derived from a combination of analyst reports that $3,000 to $4,000 of a finished car's cost to the consumer is due to inefficiencies in the supply chain.
"No matter where you are in the process, making decisions at the right time depends on the quality of the data you have in front of you," says Kevin Shea, president of Binary Engineering Associates Inc., a consultancy in Holden, Mass. Shea, who has been working for a year with Ford on streamlining its supply process, says, "Historically in the supply chain, information arrives a little too late. If the version has been changed and you get the information too late, you're out of phase and out of date, and as a result your decision-making starts to fail."
Leading the initiative to improve this situation is Ford's research and development operation, where the process of designing and developing a new car stretches over four to five years and can involve thousands of people. At Ford's electrical and electronic systems facility in Dearborn, Mich., supervisor Mark Aaron oversees a variety of product development projects. Building these products requires collaboration among not only Ford employees but suppliers with local and foreign facilities. At different stages, decision-makers at Ford and their counterparts at outside suppliers need access to information such as design verification, schematics, computer-aided design drawings and captured discussions.
In the past, Aaron says, employees commonly developed a piece of knowledge, incorporated it into a document and stored it on his or her hard drive, where it remained unknown and unavailable to most colleagues. Ford wanted to build a platform to allow its disparate technical infrastructures to communicate in a common environment. Further, when one person would enter a document into the system, the system should make it accessible to all appropriate people.
Part of the project involved setting up an environment that presented information to the various teams in ways they were accustomed to. "If you're a purchasing person, you aren't necessarily looking for engineering documents, you're interested in commercial activities," explains Binary Engineering's Shea.
Using software from eRoom Technology Inc. of Cambridge, Mass., Aaron, Shea and others worked with each supply team to establish what types of information it needed to share and how it wanted the information presented. For example, engineers, purchasing agents and suppliers could retrieve the same part specification from their own environments and receive notification if information changed. Similarly, while one team might want a parts catalog with detailed information, another might prefer the information presented as a simple list of item numbers, with each number linked to more data.
To ease the transition to collaboration technology, the project team involved employees and suppliers in the design process. Aaron says that many have rushed to embrace the software because it expedites their work. While productivity is sometimes difficult to quantify, he says, his colleagues are finding they can get more work done because they spend less time chasing information. "No longer does anybody just sit in their office and work 40 hours a week," he says. "When we're doing design reviews at a supplier location, we can get to the information we need right away."
Ford is just beginning to integrate its suppliers more fully into the process. The goal is reciprocal benefit, according to Aaron. "If I can improve productivity on the supplier's side, that gets them to help me out at the end of the day, too," he says.
Shea characterizes the process of developing supplier relationships within the automotive industry as slow and careful. Ford is identifying sensitive issues and determining what it hopes to achieve rather than approaching its suppliers with a poorly conceived implementation.
Setting up a collaborative environment with supply chain partners requires investments of time and money from customers and suppliers. Therefore, says KnowledgeAdvisors' Berk, "Make sure you have a valid business partner in place before you go to sharing this type of information with them." He recommends establishing a mutually agreed-upon set of terms that should outline each side's goals and how they can work together.
Sitarski suggests that would-be partners start with low-risk, small-scale collaborations and expand as the results warrant, setting up checkpoints at each step. For example, he says, a customer might provide a supplier over the Web a list of future dates when the customer expects to need new stock. If the vendor delivers these goods on time without overstocking, the customer might give the vendor access to its inventory levels and allow the vendor to take over restocking. If that proceeds harmoniously, the customer might ask to view the vendor's production capacity to assess its ability to supply a large order.
Monitor the supplier's knowledge needs at each stage of the process, Mikurak cautions. "Share only what you need to share," he says. "I may forecast and buy multiple products from that company, but I'm not sharing everything with them, only the specific data required for the business decision at hand."
However you proceed, there's no substitute for establishing a high level of trust, according to Berk. He adds that if one partner demands that another share information that it's reluctant to part with, the resulting suspicion and resentment can derail the entire collaborative effort.
One of the major potential pitfalls in this process is the notion that tools are a substitute for relationships. "I tend to be skeptical when people say that sooner or later companies will be able to electronically order anything they want from any vendor they want, and you won't need human involvement at all," says Ken Vollmer, director of business-to-business e-commerce at Giga Information Group Inc. in Cambridge, Mass.
To the contrary, he asserts, "The relationship is more important than the technology nearly all the time. If the relationship doesn't exist, the project wouldn't even get off the ground." The success or failure of efforts to use knowledge management techniques to enhance supply chain management depends in large measure on laying a proper foundation.
The motivation to improve is clear. "I don't think anybody believes their supply chain is as efficient as they'd like it to be," says Vollmer. "It's widely understood that they're not, and it's widely understood that there's a potential impact to the bottom line if you can get it fixed. And you need to have a good working relationship with your trading partners to get it implemented quickly and efficiently."