Supply chain demands

Thomas Hoffman, Computerworld's business editor

Thomas Hoffman,

Computerworld's business

editor

Companies are in a fight every day. They have to respond quickly to changing business demands that are outstripping the ability of supply chain management technologies to keep up. So says Robert Betts, a senior vice president and global supply chain executive at SAP Labs Inc. in Atlanta. Betts and two other industry executives - Craig R. Jett, e-marketplace marketing manager of the B2B Solutions unit at IBM in Yardley, Pa., and Kevin O'Marah, service director for the supply chain strategies service at AMR Research Inc. in Boston - recently participated in a Computerworld/ebizChronicle.com roundtable to discuss key supply chain management challenges that managers across a wide swath of industries are facing.

Sarwar A. Kashmeri, publisher of ebizChronicle.com

Sarwar A. Kashmeri,

publisher of ebizChronicle.com

The roundtable was moderated by Computerworld's Thomas Hoffman and ebizChronicle.com publisher Sarwar A. Kashmeri.

Kashmeri: What are the key privacy and security issues surrounding supply chain management?

Jett: As you look across supply chains and what companies are doing, obviously they are becoming highly collaborative. You're talking about how you share data across companies. I think a lot of companies are dealing with those issues today and trying to determine what is the right kind of data that [you] can share without selling the farm, not giving up what's core to your business.

O'Marah: There are a few really big issues. Intellectual property - what do I own patentwise? What do I own designwise? What core competencies have I built myself? What about regulation? How much responsibility do you have for what you've sold out in the marketplace, such as Firestone tires or meat with E. coli?

Those kinds of things are the responsibility of the brand owner who ultimately took the money, and as the security and privacy concerns grow out, that becomes a longer-lasting threat to your stability.

I don't think people are clear about whether sharing design data is a good idea. They know they need to get connected, but they are not clear which one of these little pieces of data that they should share or make available to a supposedly password-protected component on an exchange or private trading exchange and how dangerous it is out there.

Betts: There's a bigger question here that we're not talking about: privacy. Right now, there is technology that basically tracks every movement that we make, whether you go to the gas pump and wave your little ticket, go to Kroger's [grocery store] and put your little card on the scanner. All of that identifies you, and we have this electronic shadow that follows us around.

In Georgia, they actually put our thumbprints on the back of our driver's license. It's a three-dimensional bar code. I refused to get my driver's license for three years because I consider that an invasion of privacy. If anyone got that thumbprint, I have no way to do anything else. I can't change my thumbprint.

I'm very uncomfortable with this, and I think we've got a lot of work to do about privacy - what gets known, what does not get known from the individual and then what goes into the networks.

So the question is, where does the electronic shadow become a utility vs. an enemy?

Kashmeri: How do you advise senior managers as they implement these supply chains across countries?

Craig R. Jett, B2B Solutions, IBM

Craig R. Jett, B2B Solutions,

IBM

Jett: CEOs we speak to are worried about what information they can and cannot share. At IBM, we look at what we've done within our internal supply chain and the information that we share with our partners and all the outsourcing that we do from a manufacturing standpoint, which is pretty significant. What information is shared varies so drastically by company, industry and geography. Look at consumer packaged goods and retail. Four years ago, in Europe, collaboration was a dirty word in that industry. You didn't talk about collaboration. The sentiment there was, "There is no reason why a retailer should know what kind of costs I have going into my products."

That type of thinking has changed pretty significantly in the past three to four years.

O'Marah: From our clients' perspective, they have an implementation problem. If they can't count on their people within the supply chain - truck drivers, dock workers, order entry clerks, home workers - to do what they need them to do, then the system will break down. And people don't like to be followed around. So anything we do philosophically with connecting functional applications, databases [or] business processes will break when people getting paid by the hour refuse to do what you think they're going to do. Then the data will be corrupted, and the whole database will be of no use.

Hoffman: What are the key challenges managers are facing in running their supply chains effectively?

Betts: They struggle. They're in a fight every day. And the fight they're in is that the businesses are changing and are adapting much faster than the technology. Frankly, it's outstripping the technology's capability to keep up. I hear that constantly, and it comes out in different ways: "I can't add this company fast enough to my software, " or, "It takes me six months to integrate this other company," or, "It took me eight weeks to bring on this warehouse."

Secondly, the need for better-quality information that's more readily available is key. And you can't do that unless all the facilities are connected.

Hoffman: Are there any companies that are doing this effectively?

Robert Betts, SAP Labs Inc.

Robert Betts, SAP Labs Inc.

Betts: There are a couple that have done a very good job. One of the things they've done is look for repetitive processes that can be replicated. So instead of trying to come up with a different process for, say, material tracking, they'll come up with a single process and simply copy it across their divisions as much as possible.

For larger companies like GE and others that are highly diversified across multiple industries, it's a little more difficult. But when you have a single, large company in a primary industry, that seems to be the easiest way to go.

Jett: A trend that we're seeing is that companies aren't looking to boil the ocean like they were a year or two ago. They're really looking at where their specific pain points are, looking through the microscope and saying, "This is where we see a lot of repetitive processes." They're also looking at where they can automate and make a more fluid process and also try to gain some efficiencies.

O'Marah: The challenges we see our clients running into come in the following order:

Organizational: People don't want to do it; someone won't step up and own it - "Too risky, so I don't want it on my particular comp plan."

Data quality: Where is it? How much is there? Can I get it? Can I see it? Is it going to be transaction quality? Those types of questions.

The response to these issues is, "Baby steps work; big bangs don't."

You get over the data-quality issues by keeping the scope narrow, and you get over the organizational issues by finding someone who's actually got the guts and tapping him on the shoulder with your sword, like you're King Arthur, [and saying], "Go forth and conquer," and that person can be a hero.

Kashmeri: So is part of the problem that businesses are expected to move at cyberspeed?

Jett: Definitely. I just wish on a Friday I could have three hours to sit and think. Everybody wishes they could do that. And I think that's the nature of this problem: having the ability to really sit down and think through some of these processes. I think that's really what customers need to do.

Betts: Personally, I think it traces back to the financial markets. Everybody is responding to the quarterly analyst call. And really, that's a big problem, because we just talked about things that have to do with rolling out the technology or rolling out the organizational change.

Those things take time. If you're trying to respond to the quarterly financial requirements of Wall Street, you're going to end up shooting for that.

Betts: Later this week, I'm going to go talk to a board, a CEO, about this exact question, and what I've got to explain to this board is [that] basically, this company is being squeezed from both ends. Our friends [on Wall Street] expect this company to go from generating 3.5% of revenues into profit to 15%. This is a big jump. And this company is 135 years old. This isn't going to happen overnight.

First, you've got one battle front, where you must begin to compress the operation. You cannot continue to have multiple operations doing the same thing. And they've done that . . . because they can't compress the systems fast enough. They've bought five companies. You've got four different order processing systems.

Data processing systems, going back to the '50s and '60s, were primarily financial and accounting systems - what I call "bean-counting systems." Only in the last few years have they really been used for day-to-day operations data: taking orders, really accounting for things, doing hard inventories all the time. That's a very recent phenomenon. And as time gets compressed and these unrealistic expectations start to collide, we're in a very dangerous situation.

Kevin O'Marah, AMR Research Inc.

Kevin O'Marah, AMR

Research Inc.

O'Marah: But there's something that's changed, and that's the Internet. Granted, the Internet has gotten a big black eye lately. The reality is, the Internet is a . . . platform for businesses to do things across their boundaries [and] puts a lot more people in front of the screen and a lot more control into the hands of decision-makers via the data they gather.

Hoffman: What are some of the limitations of technology in addressing these supply chain challenges? Are there certain efficiencies that we have yet to reap?

Betts: Let's talk about the organizational aspect for a minute. I think we have done a poor job, from the technology side, of helping companies measure and align measurements. We have manufacturing sites whose idea of measurement is "pump stuff out the door." Not good stuff, not [the] right stuff - just stuff. And they'll overrun schedules, they'll do whatever they have to do, because they're basing these measurements on units out the door.

Jett: We also need to get visibility and decision-making down into all workers' hands, and I think it ties directly with [the need for] smaller software.

That's about getting tools into their hands to view the right nuggets of data, whether that's a truck driver who needs to find out that he's got a direct store delivery of 50 cases at the local A&P or whatever those decisions are.

Data collaboration is going to continue to be a big issue. Companies' data is different. What one person calls this SKU and another person calls this product ID number or whatever - these things don't always match up. There needs to be some kind of data synchronization that happens, and that's an ongoing problem.

There's also disparate system integration. As you implement new solutions into a supply chain, this is how a company runs a business. These are the back-end systems that are the day-to-day core of these business organizations. It's not simple to plug one thing in, pull one thing out and plug another one in. There is real heavy-duty, heavyweight lifting that happens behind the scenes to make sure that there is integration that happens.

Betts: One of the things that CEOs are struggling with, especially in heavy manufacturing in the U.S., as well as in Japan, is this construct about the machines: Why not just automate the machines more? Why not put a new robot in? Why not put a back end on a mail system?

The reality is, I think we've done just about as much of that as we can without it costing literally an order of magnitude more than we spent so far.

You can take those same dollars and exercise them against the supply network and get a much more significant return on investment than you can doing these things around the machines.

But because many CEOs have risen through the ranks in manufacturing, they're much more comfortable with buying the machine, because it's tangible. I can walk down to the plant floor and watch it being built. When it comes to software, they can't see it, they can't touch it. They're uncomfortable with that.

Kashmeri: What return-on-investment criteria do decision-makers apply to supply chain management systems? Is the emphasis on the materials side? Collaboration? Planning?

Jett: The initial criteria, certainly in this day and age, is fast: How quickly can you make a return on investment? And it's unfortunate, but it comes back to the [Internet] speed conversation that we've had, and I think CEOs and other executives are looking at this and saying, "Well, I've got to be able to show a significant return on investment during this calendar year."

There are also business transformation issues to look at. How can we work with a smaller number of suppliers, still be efficient, still get the product that we need, but be diligent and manage those relationships a lot better?

Betts: What we've seen is there's a stair-step approach to this, and [it's] outside of the quick hits that are relatively tactical, like e-procurement.

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