A long time coming
Honeywell Garrett, Rockwell Automation, CellPoint Systems automate supplier communications and collaboration
By Paul Mann, Contributing Editor -- Manufacturing Business Technology, 8/1/2001 12:00:00 AM
Declining demand in many markets is re-acquainting manufacturers with the challenge of quickly matching supply and demand across complex, global supply chains. It's easy enough communicating the changing demand signals to Tier 1 suppliers via established electronic data interchange (EDI) links. But cascading new demand signals to your suppliers' suppliers is anything but easy.
Estimates vary, but most analysts put EDI penetration at just 10 to 20 percent of most supplier bases—almost exclusively Tier 1 and Tier 2 suppliers. "Beyond that, the predominant communications medium is the fax machine," says Thomas Ryan, practice leader for the enterprise application integration group at eSYNC International, Toledo, Ohio. "If you've got 1,000 suppliers, there is no way you can communicate with them quickly."
The challenge of communicating across the supply chain is complicated by stand-alone applications, competing communication standards, duplicate data entry, and a general lack of agreement on how to proceed. It's no wonder that, for the most part, supply-side collaboration remains a dream for most companies.
"If you don't have your information integrated, you can't begin to cope with changes in demand," Ryan says. "Double and triple key entry can only do so much. Inevitably, something is going to get klutzed up. The only way to go is to integrate the flow of information electronically."
Failure to integrate information electronically can result in high levels of inventory during periods of declining demand, or high levels of stock-outs during periods of increasing demand. Either way, the cost of conducting business as usual is too high.
If that sounds like a market opportunity for software vendors, you're right. Over the last year, scores of vendors have announced solutions to address the challenge of supply-side collaboration and integration, with Internet technologies at the forefront of these efforts. At this point, some of these solutions are little more than press releases, while others are in the early stages of implementation.
One manufacturer that's well down the road to working collaboratively with its suppliers is Rockwell Automation, the $4.4-billion producer of factory automation products and systems. The Milwaukee-based manufacturer got a jump start on its competition by developing its own tool for managing a network of 1,000 suppliers and approximately 100,000 stock keeping units.
Achieving balance
"The challenge we faced was having far more inventory than we wanted, or not having enough of the right parts," says Chris Biermann, Rockwell Automation project manager at the Mequon, Wis. plant. "At one point, we measured 100 times during a year in which we ran out of materials."
The fax-based system just wasn't delivering the kind of results that Rockwell demanded. "We wanted to move to a pull-type supply chain," Biermann says. "We wanted to get better fill rates, and drop our inventory levels. What we really wanted was a way for suppliers to manage inventory for us."
The answer came in a home-grown, Internet-based, supply-side collaboration solution called Web Pull. Through Web Pull, Rockwell's top 40 suppliers immediately see the company's material requirements planning (MRP) recommendations, daily consumption, and inventory on-hand.
Color-coded screens provide suppliers with the information they need to more efficiently plan their Rockwell shipments. "Red screens indicate they've sent us too much," Biermann says. "Green screens mean they should have started production, because we're halfway through the lead time. Yellow screens mean we're below the minimum inventory, but we're not yet out."
Today, Web Pull manages approximately 1,600 items, representing one-third of total purchase dollars. First-year savings on inventory alone were approximately $2 million. Inventory turns jumped from 3.9 to 7.9. Stock- outs dropped from 100 to 12. Productivity also has increased through the elimination of some clerical tasks.
CellPoint Systems had no interest in building its own supply chain collaboration solution. The San Francisco-based provider of wireless and network solutions is a big believer in focusing on core competencies, and software development is not a CellPoint core competency.
"Our niche is providing cost-effective, higher-end solutions with short lead times," explains Bryan Ware, director of operations. "We do the engineering work here, and collaborate with a bank of 10 key suppliers and as many as 50 other suppliers via phone calls, faxes, or e-mail."
Eye on inventory
A challenge for CellPoint has been tracking consignment inventory on various spreadsheets. "We need to provide a regular update to account for this raw material," Ware says. "What we found was that every month there would be discrepancies. Over the course of a year, you'd find 50 here and 100 there that weren't accounted for. At the end of the year, we'd pull out all the spreadsheets and figure out where everything had gone."
CellPoint also wanted a system where suppliers could view real-time demand and inventory levels across the enterprise. The company selected scProfessional from theSupplyChain.com, a Newport Beach, Calif.-based vendor of Web-based supply chain solutions. "For us, the biggest benefit is on the consignment side," says Ware. "The system will give us a good view of where all the pieces are—what's been shipped, when they left the plant, when they're going to arrive. Next, I'd like to see us get the first three or four suppliers up on the system and using it consistently."
Meanwhile, theSupplyChain.com recently rolled scCommunity Server, a server-side product for hosting a community of enterprise systems for extended supply chain partners, or adding components to existing applications. "This integrates the last mile of the supply chain," explains CEO Rob Rennie. "This is where 80 percent of the supply chain resides, and that's where most of the collaboration problems come from.
"Everything you read about connecting the supply chain assumes that you have two ERP [enterprise resources planning] systems hooking up," Rennie continues. "That's not the reality. Typically there's one ERP system and Access, Excel, or QuickBooks at the other end."
Rennie believes the answer is to have large enterprises sponsor a community of enterprise systems that all speak, in effect, the same language. "It's tantalizing to think about the advantages," Rennie says. "When you share your demand schedule with your supplier, then that supplier can create a purchasing plan that meets your requirements. Then you start to see inventories dropping across the supply chain."
Apexon, a San Jose, Calif.-based vendor of Web-based supply chain solutions, takes a holistic approach to collaboration hubs. "Our Business Relationship Management [BRM] product goes beyond just managing suppliers," explains Frank Infelise, chief marketing officer. "We believe a powerful business network must also include manufacturing, design, and logistics partners.
"Today, there is tremendous diversity in the supplier base with regard to their IT [information technology] sophistication," Infelise adds.
Apexon's BRM solution is said to offset this diversity. "What we offer is a single interface for all suppliers," Infelise says. "Our BRM product suite provides a zero-client footprint solution for suppliers."
Rather, the solution is typically sponsored by a channel master and deployed across its business network. One early adopter of the Apexon solution is Honeywell's Garrett Engine Boosting Systems, Torrence, Calif. The $1.3-billion business unit is the world's largest manufacturer of automotive turbocharging systems.
"Garrett provides air management systems that increase power and fuel economy, and enable cleaner emissions," explains Jerry Rockstroh, vice president, worldwide supply chain. "A turbocharged 2.0-liter engine can be boosted to perform much like a 3.0-liter engine."
While Honeywell Garrett products pack a wallop, the company's supply chain needed a boost in the form of new tools to respond to increased growth and changing customer requirements. "This is a market with a lot of volatility in demand," Rockstroh explains. "Our planners struggle to communicate quickly the changes that occur in our customers' demand plans to our supply base, primarily using EDI and fax.
With such rapidly fluctuating demand, pressures in the areas of speed, cost, and quality—and 25-percent growth for the unit—systematic change was needed. So, two years ago, the company embarked on an implementation of Newtown Square, Pa.-based SAP's ERP system, a business process reengineering initiative, and the implementation of the Apexon solution.
Garrett liked the BRM solution because it didn't just post information on the Web. "What we wanted was a truly interactive, collaborative process," Rockstroh says. "We also wanted a solution that could be rolled out in an incremental fashion, and integrated with a wide range of solutions. Our product requirements can now be downloaded to both a large and a small shop, where the information can be integrated into an ERP or MRP II [manufacturing resources planning] system, or even a simple shop-floor planning system."
Honeywell Garrett is sharing demand forecasts and other information with 36 suppliers located in North America, and also plans to implement the BRM product in Europe and Asia. "Our suppliers have better visibility of requirements sooner," Rockstroh says. "Now they see consignment inventory levels and MRP requirements, and can respond on-line with delivery commitments. With this information, they can take more ownership of our relationship and manage production more efficiently. As a result, they are able to respond to our customers' demands much faster and with higher integrity."
Next up for Apexon is the October delivery of a new Collaborative Issue Resolution module. "This proactively identifies any deviation from plan in the supply base, notifies the stakeholders when a glitch exists, and provides resolution paths to solve the problem," says Infelise.
Supplier power
Meanwhile over in Pleasanton, Calif., Ironside Technologies recently announced an offering that puts suppliers in a position to integrate with the enterprise systems of their trading partners. Called Ironside Buyer Integrator, the system accepts files directly from purchasing systems and translates them into the required format for Ironside customers' ERP systems. The result is system-to-system communication and a substantial drop in human intervention, Ironside executives contend.
"Where we saw the need for this solution was in looking further down the supply chain, where an order was being prompted by a customer's customer sending an electronic purchase order [PO] to buy something," explains David Dalton, an Ironside vice president. "The problem is that someone has to re-key that PO information for it to become an order. That's an extra step that slows down the process and introduces errors. Any kind of inaccuracy at this stage has a ripple effect because suppliers are making commitments based on that, possibly erroneous information."
While Rockville, Md.-based Manugistics Group acknowledges the importance of easy integration and quick-turn implementations, its current message stresses one component left out of most supply-and-demand discussions: price. "You can try to respond to unforeseen demand, both up and down, with manufacturing or inventory adjustments," says Greg Cudahy, an executive vice president for Manugustics. "But only when you bring price into the equation can you really influence demand to provide a better match with supply. Early this year, manufacturers could have gotten over some of the hurdles better than they did if they'd been prepared with the pricing lever."
Cudahy points out that airlines already are masters of pricing and revenue optimization. "They know how to allocate capacity and use price to influence it," he says. "On an airline, if you don't fill that empty seat by the 9 a.m. departure with enough revenue to cover the variable cost, then it's lost forever. The same applies any place you have perishable capacity."
Pricing's complexity
For many manufacturers, the challenge of optimizing manufacturing, distribution, and supply was complex enough. Add price into the mix and the possible combinations become overwhelming. "No human can dynamically manage and optimize all these factors," Cudahy says. "In one case, a Manugistics customer was evaluating 22 million possible combinations."
Manugistics' Enterprise Profit Optimization (EPO) suite, which consists of supply chain management and profit & revenue optimization solutions, attacks this pricing question. One early adopter of the EPO technology is Ford Motor Co., Dearborn, Mich. "By its own estimate, the value of promotion pricing is approximately $200 million a quarter to the bottom line," Cudahy says.
Citing analyst estimates that EPO solutions could return as much as $95 billion in annual incremental operating margin, Manugistics confidently predicts, "EPO is strongly positioned to become the next major wave in enterprise management and value creation."
Maybe, maybe not. Most manufacturers have become more than a little leery about predictions that this or that technology will become the next big thing. One thing is certain, the dream of a collaborative supply chain won't be here tomorrow.
"You have to remember that one of the big collaborative success stories—between Proctor and Gamble and Wal-Mart—took 15 years to get to that point," cautions eSYNC's Thomas Ryan. "Most retailers say they want to collaborate with suppliers, but they don't want suppliers to have too much visibility into inventory. The same applies across the entire supply chain."
Cultural hurdles aside, the technology is now in place to help build truly collaborative supply chains that link trading partners to everyone's mutual benefit.
| For More Info: | ||
| Apexon www.apexon.com |
Honeywell www.honeywell.com |
Ironside Technologies www.ironside.com |
| Manugistics Group www.manugistics.com |
Rockwell Automation www.automation.rockwell.com |
SAP www.sap.com |
| theSupplyChain.com www.thesupplychain.com |
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