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01-09-2007
The Right TrackBackground information on IT management of the Supply Chain. Bruno Mussini, Co-Founder Partner of Joinet IT management of the supply chain has been the object of worldwide research for years. If we take, by way of example, the research that was co-financed by the European Union during the third framework programme (in the early 90s, the prehistory of Information Technology) there existed a research team known as IiM (Integration in Manufacturing). Dozens and dozens of research projects were realised under the IiM banner, all aimed at finding innovative ways of managing the supplier network through IT. The topic was dealt with from just about every angle possible (the virtual company, collaborative manufacturing, marketplaces), with enthusiasm peaking during the Internet boom times of 2000 and soon after. Over recent years the intensity of research has slackened. To illustrate the point, in the seventh framework programme of the European Community (2007-2011) the subject plays only a marginal role. A closer look shows, hidden inside the folds of the seventh framework programme, a research programme called “ICT in support of the networked enterprise” (Objective ICT-2007-1.3), a programme with a pretty slim budget. As with research, supply chain management software products are – following several years in which they looked like becoming commonplace – looking stagnant. Heavy investment in research has not had the desired effect. Massive outlays have generated microscopic returns. Diffusion of IT applications for supply chain management has, in Italy at least, been modest, as data from the Milan Polytechnic observatory shows all too clearly. So, how come? The answer is one that is extraordinarily clear and surprisingly banal: research and the IT industry initially underestimated one of the key aspects of supply chain management with IT: interoperability. The main points behind this statement are: a) An analysis of key, successful projects – both Italian and European – regarding supplier integration clearly shows that the bulk of added value was obtained in projects with a high level of integration (i.e. those where the suppliers import orders in electronic format and where the customer imports order confirmation and/or transport documents and/or invoices in electronic format). While pushing the supplier to generate documents in electronic format might be potentially intrusive, failing to do so means giving up most of the advantages. b) For the above-mentioned advantages all that was needed, apparently, was EDI (Electronic Data Interchange). That was how it was – and is – for those industries (automotive, white, large-scale retail chains) capable of defining communications standards. EDI definitely has some weak points, the foremost being high costs and the difficulties that small-medium size suppliers have when it comes to generating the data in the appropriate format. Hundreds of EDI projects have been active all over the world for decades; they have partially migrated to Internet-based applications and provide undisputed proof that the availability of electronic format supplier-generated documents still represents the area of maximum added value when it comes to supplier integration. c) The use of IT applications to manage suppliers with a low level of integration is initially considered, by the suppliers themselves, to be only a little intrusive. There exist both applications that allow suppliers to interact with the customer via a simple browser and applications that allow interaction via e-mail according to a set of regulations. The supplier initially prefers these forms because they are seen as less intrusive, yet an initial period of enthusiasm is often followed by tiredness because in both cases the supplier ends up with a customer that has to be managed differently from the others. The experiences of several Italian and non-Italian companies has demonstrated that the least intrusive approach is the one that pushes the supplier to generate electronic format documents and send them to the customer via the communications platform used by the customer himself. This approach requires a greater initial effort as there is often resistance from the supplier, yet once the initial difficulties are overcome the procedure becomes an accepted part of the supplier’s processes, is no longer queried and remains operative for extremely long periods. If this initial effort is not made the customer remains – apparently – less intrusive yet encounters flagging concentration on the part of the customer and loses out on the most consistent advantages of supplier integration. d) With the advent of design & assembly manufacturing companies (with extensive product ranges, outsourced production, variable demand, the need for short lead times and very small stocks) some sort of measurement of the quality of the supplier’s logistics service is of fundamental importance. A supplier must deliver punctually yet must also be able to react to the customer’s inevitable modifications to orders or plans and must be capable of informing the customer quickly when there is a problem. It’s now very common to witness frenetic management of suppliers where staff are largely engaged in impressing on suppliers the need to finish the job quickly. Despite the presence of these ‘naggers’ (the Spanish word persecudores explains the concept beautifully) there is often a disconcerting lack of clarity or agreement about where responsibility for supply problems lie; the customer accuses the supplier of delays and the supplier accuses the customer of excessive changes to orders and delivery plans. There is rarely a clear-cut winner because there is no measurement of the quality of the suppliers’ logistics service, nor is there any way of measuring the stability of customers’ orders. Formulas for calculating the quality parameters of logistics services do exist yet they are, unfortunately, nearly all based on histories of changes in orders that the customer sends to the suppliers. Normal ERPs do not trace order evolution (and the EDI requires a much greater effort). In the research world much interest was aroused by the article “An Empirical Analysis of Forecast Sharing in the Semiconductor Equipment Supply Chain”, published by Management Science in February 2005, where researchers from Boston, Berkeley and Philadelphia, headed by Christian Terwiesch, demonstrated that measuring suppliers’ logistic behaviour yields an inexhaustible mine of information compared to the analysis of customer demand variability. Note, however, that the analyses made by Terwiesch and company is, as the title says, “empirical” because it forced them to trace customer-supplier communications manually for three years. A few illuminated Italian companies (for example Ducati Motor) have already started defining sophisticated logistical specifications for suppliers in which the supplier’s logistic behaviour is contractually regulated and subsequently measured by a supplier behaviour detection system based on the export of the supplier’s electronic-format data. Summing up, the prime success factor in IT integration projects has been the years-long export of electronic format data from suppliers’ management systems. There are 3 main reasons for this: * Import of such data by the customer is the area of greatest added value for the customer himself * It allows the supplier’s reluctance to carry out manual tasks for a specific customer to be overcome * It allows implementation of systems for the traceability of customer and supplier logistic behaviour, systems that are essential for drawing up contracts that define the logistic behaviour expected of the supplier and automatically allow evaluation of whether contractual parameters have been observed. Following the end of the speculation binge of 2000 – which was based on electronic pseudo-commerce that, in truth, never really got off the ground in the b2b world - awareness of the above has grown over the last five years. While the diffusion of IT applications for the management of production suppliers looks far from exciting, the marketplaces that have survived in b2b are very few. So how come IT research and industry have failed to attack the problem of customer integration in the supply chain more decisively? Because a naïve mistake was made, one that now appears evident yet at the start of the millennium did not seem so: supposing the possibility of defining true standards. The key question was and is: how can we extract and enter electronic format data from heterogeneous managerial systems of every kind so as to allow the exchange of data between such systems (used by suppliers) and the numerous customer-supplier communication IT platforms? The answer in 2000 was: let’s define a standard format for orders, transport documents, invoices etc, so that suppliers working with lots of customers (each with his own communication platform) can develop a single interface that will be acceptable to all customers, whatever communication platform they use. It’s pointless to say that this didn’t happen and is unlikely to do so for at least another 10 years. The individual characteristics of customer companies are virtually endless. Despite enormous investment in research there is, today, no standard. Having realised this, in 2005 the focus shifted back onto the right track: to facilitate integration with a multitude of heterogeneous platforms in every way possible. It now seems that research and industry (IT and manufacturing) have definitively taken cognizance of the following: 1. Every customer or OEM has the right to choose the platform he feels is best for communicating with suppliers; however, that platform will only yield significant advantages if it is possible for the supplier to send electronic format data, automatically exported from the supplier’s own managerial system, to the platform. 2. Communications platforms must, however, still allow the supplier to interact via browser. This aspect retains added value for the supplier (and the customer) if reserved to consultation-related activities (e.g. order status) or non-routine communications (e.g. last-minute variations), or for low-volume suppliers. From this point of view the traditional EDI is undoubtedly inadequate. 3. If the customer or OEM wants to migrate supplier management from traditional contracts to contracts that regulate the supplier’s logistical behaviour, the communications platform with the suppliers must also have a traceability system. 4. In nearly all cases the supplier will be working for several customers who each uses different, heterogeneous communication platforms; nevertheless the supplier has the right to retain his own managerial set-up (often a critical success factor for small-medium size businesses) and communicate with the various heterogeneous customer platforms with suitable start-up costs. These four simple observations (now clear only thanks to 10 years of mixed-result supplier integration projects) have changed the focus of both research and the IT industry, taking us down the above-illustrated track, which can be summed up in a word: interoperability. Taking, as a further example, the seventh framework programme of the European Community, the sector with the highest budget is the ICT, and within the ICT the key word is interoperability: a considerable budget has been set aside for this topic. So are networked enterprises no longer of any interest? Quite the contrary. The full evolution of networked enterprises inevitably involves the establishment of interoperability mechanisms that are affordable to all the companies in a supply network. The dream of defining universal (or, at least, industry) standards has been shelved in favour of XML, a technology that allows each customer to define his own document format and suppliers to adapt to such format at reasonable cost. If we look at the IT industry, a recent analysis by Gartner indicates how one of the fastest-expanding markets is “Multienterprise/B2B Infrastructure”, which has over 100 players on the North American market and where major companies provide solutions to the integration problem using a service suppliers approach (so-called IaaS - Integration as a Service - suppliers). Europe, for once, is not lagging behind. For example, interoperability already played a key role in the sixth framework programme. Italy too is doing its bit. Producers of medium-to-low grade managerial systems (i.e. those generally used by suppliers) have made their products more open and numerous tools allowing minimal-effort integration of suppliers’ systems are already commercially available. These technologies range from the most sophisticated (based, for example, on web-services) to simpler print command interception tools that generate electronic format documents. Research also plays its part – the faculty of Management Engineering, for instance. Finally, there are now Italian products offered in IaaS mode, where customer-supplier integration is a service on a par with telecommunications services. It is therefore time for manufacturing companies that have not yet thought or re-thought their supplier integration plans to migrate from systems that are apparently non-intrusive (e.g. those exclusively based on e-mail) to systems that are truly non-intrusive, which require that the supplier make a small initial integration effort but which subsequently make the customer’s tool fully acceptable to the supplier and, finally, give the customer significant advantages. It is also time for Italian manufacturing companies to make efforts as regards management of suppliers’ logistic behaviour. A winning company’s supply chain will be a supply chain characterised by extensive IT integration, where customer-supplier relations are regulated by framework contracts that allow the supplier’s logistic behaviour to be modelled according to customer demand of regulated variability (thus overcoming the fixed lead time concept) and where observance of contractual agreements will be electronically monitored by the same application that handles IT integration. In Italy there are already some highly interesting examples of ‘enlightened’ companies that have not been afraid to invest in electronic data exchange with suppliers. These include leading firms such as Ducati Motor, Bticino, Emerson Network Power, Lombardini motori (which, for example, has decided to use MaNeM, the supplier integration platform developed and marketed by Joinet Srl. MaNeM was created with a XML-based data exchange system that allows it to be interfaced with over 100 different managerial systems and just as many suppliers). This activity has, however, always requested the participation of the company that equipped the supplier with the managerial system. In an attempt to interpret the (finally clear) needs of its customers and, more generally, Italian and European manufacturing companies, Joinet recently enriched its product range with an innovative application (JoinToPrint) that allows simple yet effective exportation of electronic format documents from suppliers’ managerial systems; the system requires no participation on the part of the company that supplied the managerial system. Joinet has also developed several supplier logistic behaviour indicators (automatically detected via daily use of MaNeM), which Joinet customers are starting to use as parameters for logistics contracts entered into with suppliers. |
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