The Internet has prompted many changes in the way companies do business - from e-mail to e-commerce web sites. An increase in the level of hype that applications receive was another, unwanted, change. Hype instils unrealistic expectations in the market, without educating potential users about the capabilities of the hyped application. This can lead to, for example, the rise and fall of the dot-com and the business-to-consumer e-commerce web sites. Supply Chain Management (SCM) has also seen a good deal of hype - and potential users are also beginning to become confused about the capabilities available to them.

Until recently SCM was available only to the large companies, who are typically the '800lb supply chain gorillas'. The upshot was that they could reduce inventories and increase delivery reliability by moving the problem onto their suppliers, who often managed to move the problem one step further onto their suppliers. The problem is the measures had not actually improved the efficiency of the supply chain, merely changed where the costs arose. Those costs ultimately have to be paid for by the OEM's customers. To achieve positive results for the customer at the end of the chain, it is necessary to optimise the efficiency of the entire supply chain, rather than simply moving margin and risk between two partners in that chain.

Which SCM application to implement has also become a difficult decision. There are now many different applications cashing in on the 'SCM boom' - and most of these do help to improve the efficiency of the supply chain. Design collaboration, sourcing and e-procurement solutions, supply chain planning and optimisation solutions all claim to increase the efficiency of your supply chain, or reduce the associated costs of managing it. There are other solutions that impact the supply chain - CRM is the sales counterpart to e-procurement's buying process, and the integration of shop floor data with the rest of the enterprise improves the accuracy of manufacturing information.

To prioritise applications, companies need to go back to basics - look at the Key Success Factors (KSFs) for their industry. Typical KSFs include: reduced time to market, procurement or sourcing efficiency, manufacturing efficiency, sales effectiveness, and distribution effectiveness. For example, if you gain a competitive edge by getting your new designs to market quicker than your competitors, then maybe design collaboration should be the starting point. Only once these areas of major gain have been addressed, should companies start looking at getting the incremental gains from addressing other functional areas.

Ultimately, supply chains should be looking to improve all these areas, across the entire supply chain. It's likely to be 10 years before we get there - the current 'state of the art' addresses only one or two of these KSFs across only one or two tiers of the supply chain. The problems that need addressing in the meantime are primarily integration problems: integrating the diversity of applications, and integrating multiple levels of the supply chain. The answer may lie in exchange technology.

Exchanges hit the business leader consciousness with the high-profile public exchanges (or e-marketplaces), such as Transora, designed to bring a large group of suppliers together, along with a large group of buyers. Vendors such as Ariba and Commerce One in the US, and Izodia in the UK, grew at astronomical rates until the public exchanges started to hit problems. Companies weren't signing up. The vendors were still doing good business providing e-procurement solutions, though, and discovered that the exchange technology could be put to good use in private exchanges. These are designed to connect one buyer and its many suppliers. The exchange technology aids the integration of the disparate ERP systems of these companies. It also provides a central point of contact.

One of the problems with automating the supply chain is the instability caused by changes. These changes need to be propagated up and down the supply chain, but conflicting changes propagated from different parts of the chain can cause chaos. Ironically, human intervention used to provide the damping effect that prevented these inconsistencies from causing problems. The automated systems have no such damping effect.

One solution to this problem is to add damping factors to the automatic systems. But this will slow down response times. Another solution is to ensure that all nodes operate with the same information all the time - the 'real-time' solution. A third solution is to change the supply chain model from a chain to hub-and-spoke. This enables the hub to decide when damping and real-time solutions should be used.

The 'supply chain hub' exchange champions will have to work hard to provide incentives for the smaller suppliers to sign up - after all, the commercially viable suppliers will have many customers, each potentially wanting them to join a different exchange or e-procurement scheme. However, it looks increasingly likely that exchanges, whether public, private, or supply chain hub, are here to stay.

Dan Roberts

Now available: enterprise applications market review at the Cambashi Seminar 2002

Other supply chain articles from Cambashi:

What are PLM and SCM?

Supply chain communications

Supply chain what?!

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