Weak Link: Small Suppliers Loath to Spend On Business Partner Connectivity

Computerworld - Most executives acknowledge that it makes business sense to fully connect and automate their organizations' supply chains.

It's getting there that's the hard part.

"In an ideal world, I buy into it," said Ted Jackson, CIO at Sport Chalet Inc., a Los Angeles-based retailer that sells sporting goods online and at 23 stores in Southern California. "In practice, it gets difficult."

Jackson was one of several IT executives attending an educational seminar last week who sounded off on the challenge of working with small to midsize suppliers that haven't quite grasped the need to automate their supply-chain activities. The event was sponsored by St. Paul, Minn.-based SPS Commerce Inc., a supply-chain connectivity services provider.

The need to create a fully connected supply chain with end-to-end visibility has become more important than ever, observers said. Patricia Seybold, president of Patricia Seybold Group in Boston, told conference attendees that customers doing business via the Web want to be able to do things such as check the delivery status of products they have ordered online.

Supply chains, she said, are "beginning to collapse around the customer."

Automated supply chains can also shore up the bottom line. Advanced electronic ordering systems can slash inventory and operating costs and improve a company's earnings by 8% to 12% annually, according to a Seybold report based on seven companies using SPS's services.

This kind of end-to-end connectivity can increase inventory turns and slash supply-chain costs by improving efficiencies turns, Seybold claimed.

The problem is, a supply chain is only as strong as its weakest link, and small suppliers have demonstrated little interest in investing in the necessary IT systems, training and business process changes that are needed to fully connect with their core business partners, said Larry Smeltzer, a professor of supply-chain management at Arizona State University in Tempe.

"We don't have large-to-small-company connectivity taking place," Smeltzer said. With so many small companies reluctant to spend money to implement electronic data interchange (EDI) or Web-based transaction links, he added, it's important for larger business partners to do what they can to share resources and simplify the connection process.

Moreover, noted Jackson, when a behemoth like The Boeing Co. in Seattle or Dearborn, Mich.-based Ford Motor Co. signs on a supplier, the supplier is married to the larger company's data formatting methods, making it harder for the smaller supplier to connect with other companies.

And divisions of large companies can also face financial constraints. "We're a small to medium-size enterprise, even though we're owned by Viacom, a billion-dollar company," said Charles Eigen, director of order processing at Simon & Schuster Inc. in Riverside, N.J.