Safety in numbers: Supply chain networks bolster global business model

Does something get lost in translation when you try to communicate with your suppliers—particularly the smaller ones located halfway around the world? If so, you're not alone.

As supply chains reach farther, manufacturers may struggle to effectively collaborate with vendors and business partners.

“It's one thing to buy a product [from a supplier]; it's a whole other thing to actually subcontract and purchase and manage engineering changes and things like that in the far corners of the world,” says David Caruso, principal of David Caruso & Associates, a consulting firm specializing in manufacturing, supply chain, and technology strategy.

Part of the communication problem stems from the sheer size of the supply chain. It's not uncommon for a manufacturer to have thousands—if not tens of thousands—of suppliers located around the globe.

With such large numbers to manage, it's no wonder manufacturers have tried establishing one common process for communicating with all of their suppliers.

It's a strategy that many think is doomed to fail.

“A lot of the IT spend in the 1990s was driven by a sense of 'Standardization is automatically good for everyone,' ” says Anand Iyer, a director with management solutions supplier i2 Technologies.

But that action plan ended up achieving little, Iyer concludes, saying, “So all the money spent on doing this one-size-fits-all [strategy] eventually ended up accomplishing one-size-fits-a-few.”

Today companies are adopting a wholly different approach. In particular, says Iyer, some i2 customers are embracing a more evolved practice: supplier segmentation.

As with customer segmentation, supplier segmentation involves the realization that not all suppliers are alike. Most of the time, smaller suppliers have different communication needs than larger ones, especially since they're less likely to have the resources to deploy and manage expensive systems that automate information exchange.

Smart manufacturers are investing in technology that minimizes as much of the burden on their vendors as possible. Often this means focusing on the very simplest solution.

“Simple works; complex doesn't,” Mike Morel, director of manufacturing solutions for Adobe Systems, is fond of saying. Rather than “out-supply the supply chain vendors and out-ERP the ERP vendors,” Adobe's approach, he says, is to simplify how people communicate with one another.

Based on XML Web services standards, Microsoft BizTalk Server is seen by industry analysts as an effective, low-cost option for communicating with a large number of suppliers.

Morel points to a European manufacturer that while it already had an ERP system in place, decided to implement interactive forms (powered by Adobe technology) to gather information from its suppliers and stay on top of data about inventory levels.

Why would a manufacturer choose to use interactive forms for communicating with suppliers when it already had a sophisticated ERP system in place?

Simplicity, says Morel.

“Because it's interactive forms, I can automate the information,” he says. “I can take information from my ERP system and put it on the form. I can send this form out to my partners and they can fill it out and can return it to me. I can automatically upload that information into my back-end systems. I've got a very simple process that everyone understands, yet I can still automate it.”

According to Morel, it's an ideal solution for manufacturers that need to communicate with their less strategic but still vital smaller suppliers.

With those companies in particular, manufacturers “don't want to let them into their applications,“ explains Morel. “They're looking for more of a transactional relationship [that involves] a lot less infrastructure and a lot less cost.”

Sanjay Raveendranathan, director of global manufacturing industry marketing at Microsoft, also believes keeping costs down when communicating with a large number of suppliers is important—and possible. He describes Microsoft business-to-business (B2B) integration offerings such as BizTalk Server as low-cost options.

“That's where we are uniquely positioned,” says Raveendranathan, “because the cost of entry is pretty low with these solutions and it's all based on XML Web services standards.”

Analysts at Stamford, Conn.-based Gartner agree with this assessment. In the June 2008 release of Magic Quadrant for B2B Gateway Providers, Gartner writes, “Microsoft is having a significant impact on the B2B market, mostly because BizTalk is a reasonably priced and well-rounded B2B solution.”

Beyond cost, Raveendranathan says a solution that is easy for suppliers to connect to is important. Microsoft solutions work, he says, because they let manufacturers establish collaboration networks that are easy for suppliers to join—and actually use.

There are two reasons for this: “It's something easy that [suppliers] can participate in from a technology perspective, and it's based on the familiar Office environment, so training and getting folks into the environment also is lot easier,” says Raveendranathan.

Enterprise systems vendor SAP also describes its collaboration solution as being easy for suppliers to work with.

“Our goal is to provide easy-to-adopt technology to onboard any supplier in the world that you work with as long as they have an Internet connection,” says Richard Howells, an SAP senior director of supply chain management.

SAP offers this easy-to-adopt functionality through Supply Network Collaboration, one of the enterprise solution vendor's supply chain management solutions.

Mark Averskog, director of solution management for SAP, says Supply Network Collaboration can work with any ERP system, but what makes it interesting is the stair-step approach to collaboration.

Howells and Averskog describe Supply Network Collaboration as providing a menu of technological options to suppliers, each of which can choose how it wants to collaborate with the manufacturer. So if one supplier is more comfortable accessing demand data through a portal, while another prefers downloading flat files and uploading the data into its own back-end systems, it's up to the individual supplier to choose just how much it wants to automate communication.

“It's like a stepladder of sophistication as far as the tools are concerned,” Averskog says. “And the more you step up, the more automated you become.”

Supply Network Collaboration recognizes the multitude of suppliers a manufacturer may have, says Averskog, ranging from “highly automated organizations to the technologically challenged, or without an IT budget to spend on joint projects.”

By using the SAP solution, “The supplier figure outs the best way to automate the data. … You provide more of an organic platform where the communication can be automated to degrees,” says Averskog.

Giving suppliers options is important when developing a communications strategy, but no matter how many collaboration choices you provide, one key factor remains critical: Security.

It seems that while everyone recognizes how important it is to safeguard data, few actually follow through. According to a survey commissioned by Microsoft last year, a large percentage of collaboration is being performed using nonsecure public communication tools. Survey respondents admitted to even sharing proprietary information such as product plans and technical data through nonsecure channels.

“Having security in that supply chain collaboration environment is critical, especially when people are exposing some of their core intellectual property and their core operational metrics,” warns Microsoft's Raveendranathan.

When collaborating with supply chain partners, he adds, the key is to look at how well the environments are authenticated, because otherwise the transaction isn't happening in a way that for each step of the process only authorized people have access to that information.

Microsoft places strong emphasis on security in its collaboration products.

“For the environment we provide, security is key, where even if you're a small supplier, you can set up the right security threshold [to ensure] those interactions are still happening in a secure way,” says Raveendranathan.

In the aerospace & defense (A&D) industry, where a focus on security is a way of life, establishing a safe way to collaborate is at the heart of the Trusted Workspace from Exostar. Founded by large A&D companies such as BAE Systems, The Boeing Company, Lockheed Martin, Raytheon, and Rolls-Royce, Exostar developed the neutral hub as a secure community network of suppliers and buyers.

The key to ensuring the security of information being passed back and forth between enterprises, says Kevin Lowdermilk, CEO of Exostar, is establishing “security around who it is that you're communicating with, and with what certainty.”

That's why Exostar has, Lowdermilk adds, “been working hard on identity and access management solutions so that people connected into the Trusted Workspace have been vetted and their identifies have been tied to a PKI [public key infrastructure] credential that allows them to migrate through the Trusted Workspace and access the information they need within the community.”

With approximately 40,000 suppliers onboard, Trusted Workspace represents a scalable and cost-effective option for collaborating in a secure environment. And that's a compelling tool for gaining safety in numbers.