Chain Reaction

Clear's difficulties highlight one of the main challenges to developing e-collaboration. As Tradehub manager of business development and infrastructure Dr Robert Starling told a recent IES conference, while far-reaching connectivity will evolve eventually, it won't happen soon. Instead, what are emerging are "islands of connectivity" brought into being as the result of pressure from a major buyer or supplier, or through the efforts of new intermediaries like "portal/exchanges". Starling says business processes are becoming linked within and between organisations; but he finds the levels of interaction being driven by considerations of security and value. "The concept of linking supply chains is simple," Starling says. "However, the simple model is being complicated by the move from orderly - or at least perceived as orderly - supply chains to dynamic supply webs which are changing as buyers 'flit' between suppliers offering the best terms.

"Patterns in use of the Internet for trading are evolving. Organisations are like the pieces of a jigsaw puzzle - some are coalescing to form trading groups or islands [with] others remaining on the side and watching as parts of the ‘connected world' are linking and merging. These early alignments are forming, breaking apart and reforming as the benefits of connectivity are being tried and tested."

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Dawson Consulting claims collaboration represents a fundamental shift in the evolution of supply chain relationships likely to lead to profound changes to supply chain models and major benefits. Based on what it describes as recent ground-breaking work with Coles Supermarkets across a number of product categories and supply chains, the consultancy has achieved a number of insights into what collaboration really involves, which it shared in a recent Dawson Dialogue.

Collaboration represents the next fundamental shift in the evolution of supply chain relationships Within a wider strategic context the best opportunities currently available are in addressing fundamental supply chain processes Perceived difficulties can be overcome - it is all in the way you approach collaboration Collaboration should start by changing the way you work with trading partners and not by focusing on information sharing and IT Any IT investment should be made incrementally to reflect the trial-and-error nature of collaborative efforts.

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Sometimes it makes good business sense to buddy up with your rivals.Strategic alliances with contract partners start with a level of trust between buyer and seller, and can take many forms. For instance, suppliers have moved staff to their customers' premises to monitor product usage or, in the case of consultants and other service providers, inside the door of their offices and boardrooms, Guy Callendar of the University of Technology Sydney's School of Management told the recent Smart 2001 conference in Sydney. "Alliances have been forged between competitors in circumstances once regarded as unthinkable, the formation of the General Motors, Daimler-Chrysler and Ford e-commerce procurement empire being an outstanding and challenging example," Callendar says.

But he points out that Australia suffers under the disadvantages of being a small international economy: lack of internal market size and large-scale manufacturing and service provision. "Contracting clout has to do with being large enough to make the logistics of doing business worthwhile as well as achieving that elusive goal of ‘value for money'," he points out.

Then again, says Dr John Gattorna, managing partner in Accenture's supply chain practice, that simply illustrates one of the main differences between the southern and northern hemispheres: Down Under the benefits of huddling together are greater than the disadvantages of huddling together. But there are other big differences between what Gattorna calls the Rugby-playing countries of the southern hemisphere (South Africa, New Zealand, Australia and Argentina), that basically all have markets of between 20 and 40 million people, and our counterparts in the north. Gattorna says in the US and other countries in the northern hemisphere the issue of "co-opertition" is a thorny one. When organisations start joining together in collaborative marketplaces there, they are potentially tending to share information via skills and knowledge transfer while gaining less out of the deal than the organisations that join them. That's because it is far from unusual for such organisations to partner with suppliers in some areas and compete with them in others.

That makes trusting those partners with sensitive corporate information a perilous act of faith and raises the whole question of how far the organisation should lift the blinds on their organisation to the probing eyes of suppliers. Gattorna says most Australian companies are too small for that to be a real issue.

"I don't think ‘co-opertition' is as big a problem, funnily enough, in Australia," he says. "I think it's more black and white here because in Australia we've got smaller markets. I'm preaching the gospel: to hell with all this bull about differential advantage through better supply chain practices internally or better logistics practices. What we really need to recognise is Australia, in just about any market we look at, is sub-world class, sub-critical. Therefore we have no other alternative other than to join together, sometimes with vendors, sometimes with suppliers, sometimes with other people in our industry, and share the pickings if you like: any advantages that we might together create." Then again Streamlink managing director Martin Fisk believes many businesses are wary of opening up too much information about their companies largely because they don't have this information in a very accessible format even internally. "Look at the recent stock writedowns of Cisco and Coles Myer in the last two quarters," Fisk says. "If they couldn't predict their own issues, how could their suppliers' customers be expected to use/access/interpret their data?"

But the relative size of Australia's markets and our distance from the northern hemisphere leave a legacy of other disadvantages too. Transport economist Dr Nariida Smith, leader of CSIRO's Transport Futures Project, recently worked Queensland's University of Technology on a major study on the impacts of e-business on transport, starting with the trends in e-business, for the National Transport Secretariat. She believes it is the widest scoping research of its type ever conducted globally. Dr Smith claims Australia suffers because of its financial institutions' and lawmakers' lack of technical sophistication. The SME wanting to install new infrastructure or the truck fleet operator wanting to build in m-commerce capability both typically have huge difficulty getting a bank loan because they can't point to a history of success for SCM or c-commerce. "We've got lack of understanding of technological issues in the financial and regulatory area," she says. "In the regulatory area we're very much governed by lawyers and accountants and that sometimes makes for difficulties in choice of new systems. In fact, we've got difficulties right up the chain in both the regulatory authorities and banking. We don't tend to have people from science and engineering in all of these decision-making roles to the same extent as some other countries, such as Germany."

She said the failings help to explain a recent Gartner survey that found more than half Australian CEOs see their Net strategy as a costly irrelevance, while a Compass & London Business School study found a similar number of European CEOs played a "major" personal role in their company's e-business strategy.

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According to Martin Fisk, managing director of Streamlink, it is important in considering c-commerce to distinguish between transaction management and "design" (for want of a better word) work. Most B2B companies focus on transaction management, even when they talk about collaboration, Fisk says. "On the one side, it means that transactions are structured and automated (no humans) such that changes in (say) a delivery date can ripple across all downstream or upstream suppliers," Fisk says. "On the other side, it is trying to provide some structure to essentially human interaction and decision-making - the sort of thing that the Web and proprietary technologies like Lotus Notes have been good at for years.

"From a purely technical perspective, these two approaches require vastly different technologies: on the one side, systems integration largely delivered through structured messaging (using, in the old days, EDI or the more modern ebXML equivalent); and on the other side, the Web."

Chain 'Em Down

"One of the main constraints on your e-procurement implementation will be supplier readiness," Don Cassagranda, project director of the New Zealand Dairy Board, and IBM supply chain management senior consultant Trevor Cameron told the recent Smart 2001 conference in Sydney. "You must constantly talk to suppliers during the business case development, lest you make recommendations on procurement categories that cannot be met because the supplier is not e-enabled."

The authors point out that from the supplier's perspective:

The supplier is being subjected to different e-procurement connectivity requests from a range of customers, large and small.

The supplier has technologies that are different from its customers.

The cost of providing connectivity independently to each of those customers is extremely high.

Each of those customers wants a different catalogue format, with different information and different language.

The e-procurement portals only want suppliers' business if the supplier provides a price that is lower than currently supplied to its leading customers.

The e-procurement portals want to disintermediate the customer relationships that currently exist between the supplier and its customer.

The e-procurement portals will want to establish greater competition and disintermediate the sole supplier relationships that currently exist in order to drive down the prices.

The cost of smaller deliveries to the customer will increase. The net effect for suppliers, the authors point out, is significantly increased costs, and costs that will be passed on to your business. But they say the issues will start to be resolved over the next 12 months as those who deal directly with suppliers achieve first to market advantage and drive technology for their competitors. They predict the emergence of a low-cost enabling technology that will allow connectivity through the Internet by smaller companies direct to their customers and customer catalogues, bypassing the procurement portals.

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For trading partners just beginning collaborative relationships, success is likely to be greatest when all parties start with basic opportunities then parcel changes into easily digestible chunks before implementing as fast as possible. With runs on the board enterprises have greater freedom to adopt more advanced collaboration such as supply chain personalisation, product design or optimisation "on the fly". But achieving supply chain efficiencies also means looking at things more holistically, says Dawson Consulting managing partner Philip Cryer. Cryer stresses that organisations must conceive of the supply chain as running all the way from the goods the consumer touches right back to the manufacturer. "That's because the way the consumer interacts with a retail environment will drive the level of demand for goods. The supply chain must be set up to react to those demands," he says.

Dawson Consulting's work across traditional supply chains points to a level of disconnectedness in conducting even the most fundamental and long-standing processes. Cryer says that rather than being designed holistically, most supply chains have evolved on a piecemeal basis with a legacy of process and technological introductions layering ever-increasing complexity and cost. Taking a more holistic view of the optimum supply chain re-established under a common vision has the potential to allow significant savings. "The work we have undertaken in collaboration has pointed to a number of potential areas for either fundamental change or early wins. We have found that these can occur by leveraging across traditional supply chain relationships as well as non-traditional relationships," says Dawson Consulting strategy adviser David Anderson.

Dawson Consulting claims to have used collaboration to deliver efficiencies in four areas: efficient ordering, paperless supply chain, efficient storing and picking and efficient delivery. It points to the example of one of the most advanced supply chain collaborators, Procter & Gamble Company (P&G). As a leader in the field of collaboration, P&G has worked hard to develop efficient ordering with key customers - especially with Wal-Mart - as a way of releasing upstream efficiencies in the supply chain. P&G is notified every few hours by Wal-Mart as to how many SKUs of products have been sold by store. This information goes all the way back to some of its key suppliers - particularly labelling and packaging - and in some cases the makers of ingredients that go into the soaps and detergents. As a result, the entire supply chain has saved millions in cash related to inventory. Beyond these basics there seems no shortage of opportunities for more advanced forms of collaboration, Dawson Consulting claims. P&G has recently started on an ambitious program to fully implement a complete standard for collaborative planning, forecasting and replenishment (CPFR). This will organise all relevant forecasting and demand data that is collected by retailers and made available to suppliers over the Net. P&G will roll out this system to all retailers and expects to reduce cash investment related to inventory by an additional $US4.5 billion or a 50 per cent savings.

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Organisations also need to make their supply chain planning process less enterprise-centric, and instead take into account the true end-to-end supply chain. Tim Cavill, managing director Viewlocity Australia and New Zealand, says in the past most SCP has been driven for the particular brand owner or the particular organisation that plays a role in the overall supply chain. "But one of the basic principles is that all of the players in that supply chain must be able to participate, they must be able to connect regardless of their systems, regardless of the technology," he says. "The first thing you've got to do is get all of those players in that extended supply chain talking to each other." Agility is the key, he says, and that agility means being able to hook up with anybody without it taking months but only hours or days, and regardless of their technological sophistication, systems or size. "There are a couple of things that can be done," Cavill says. One is by having a central non-client/server-dependent or non-intrusive integration broker, which enables you to suck data, as opposed to relying on a client/server end each time you hook up from a customer.

"The other [thing that can be done] is for the smaller companies. Some of them don't even capture the data you need to get that visibility of what's happening in the supply chain. So you need to have complementary to that a system which enables the SMEs to enter data and that needs to be through some kind of browser-based transaction/execution system." In that sense, it seems, c-commerce must be driven from the top, with those with the skills and resources to make it all happen.

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Supply chain efficiencies definitely begin at home. Experts say organisations at the top of the supply chain must get their own systems working well before even thinking about linking with the IT systems of others. That's exactly the process being undertaken at Johnson & Johnson (J&J) Asia Pacific over recent times. Senior business analyst Chris Gladwin says the company has had a three-year project to implement SAP in conjunction with MerciaLincs Client Server (MLCS). It is now live with 12 companies in Asia-Pacific, all on a single SAP database and a single MerciaLincs Client Server database.

"So we have 12 of our J&J consumer companies linked, all using the same regional business model, and we have taken the attitude that this is about business process re-engineering rather than the implementation of software. So yes, we have implemented SAP and MerciaLincs Client Server in conjunction with the business process re-engineering, and the business process re-engineering was what was crucial to us," Gladwin says. "We said let's get it all bedded down, let's get our business processes in order, let's design them so they can work with the whole of Asia-Pacific, then let's get this thing called SAP and MerciaLincs in. We had the commitment from the highest level in the organisation and then were able to roll it out to 12 J&J companies across five time zones with five different languages, all on the one instance of SAP and one instance of Mercia. Now that's our base platform into the 21st century." Once the organisation does have its own systems working efficiently, the next step should be to agree with partners on governance issues.

Accenture's Gattorna says CorProcure is a good example of a collaborative network that failed because its 14 members couldn't agree on anything. He says an important lesson from recent experiences is that you can't take a dozen or so companies, as was done with CorProcure, put them in a collaborative marketplace and expect to extract the benefit that you can see on paper. "You get into a situation where you don't even get to square one because you're still fighting over the spoils you haven't even generated yet," he says. Gattorna is now advising clients to start with smaller clusters or perhaps just two or three companies - even one company that has several divisions - and get a little marketplace working. Once the technology is proven, the processes are working and everyone understands and sees the value, you can start to "spread out like a ripple", taking onboard other companies incrementally. "It is inexorable," Gattorna says. "The way the world works is that you've got a whole bunch of suppliers trying to talk to a whole bunch of customers. Even if you took five suppliers and five customers and worked out the number of links between them, the combinations and permutations would run into thousands, so you can imagine the spaghetti you've got in the middle.

"So the idea is to have some sort of marketplace in the middle that acts as a virtual company through which various communications pass. The world will be simplified by marketplaces, but only if you can agree certain business rules. That's really where we're at now: various companies are going back to the drawing boards and saying: ‘Why don't we just start off with two or three companies we obviously get along with rather than starting with a whole bunch of people who are outriders'. That's the big learning: you start small, and once it's working, scale up."

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The model of SCM success The Supply Chain Operations Reference-model (SCOR), owned by the independent global corporation Supply-Chain Council, is a reference model that allows companies to introduce standards to business process re-engineering, benchmarking and process management. In the absence of ISO certification for collaboration, companies must introduce SCOR internally and into intercompany supply chains. Companies should adopt SCOR for a current re-engineering project that crosses multiple entities inside the company. Also, they should incorporate SCOR into hiring procedures to fill open positions. The US Defence Department has been implementing the SCOR-model for several years, with every branch of Service having now applied the model in some way. It says implementing the SCOR-model is helping it provide cost-effective and responsive logistics support to ensure readiness and the sustainability for the total force across the spectrum of military operations.

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Dr John Gattorna, managing partner in Accenture's supply chain practice, is scathing of the supply chain efforts of most Australian companies, saying barely a handful manage their supply chain efforts well. Long term, he predicts, that could be disastrous for Australia's competitive edge, particularly in the manufacturing sector. "Integration within companies is improving because of the IT that is now suddenly becoming available," Gattorna says. "IT and the supply chain, therefore, across companies or between companies, is improving rapidly because of the Internet and the ability to communicate up and down the chain. Australian companies have been relatively slow, however, particularly in the manufacturing sector, which is the one sector that really needs to speed up - that is, what's left of it."

Gattorna says that just as IT has improved integration within companies, the Internet can improve the supply chain both across and between companies because it makes it much easier to communicate up and down the chain. He says too few Australian companies have a continuous improvement focus, however, and even fewer are showing the kind of leadership required to take advantage of c-commerce. "A lot of Australian companies have had a few runs of things in the e-commerce world, chucked a few million dollars in here and there, and tried things out. Now, because it hasn't worked, they've all gone back into their shells and they're not making decisions about anything," he says. "Australian senior managers must begin to show leadership in developing marketplaces which are appropriate for this area of the world rather than sitting back and waiting for international marketplaces to reach Australia. We simply cannot afford to lose the benefits by delaying implementation and operation of new supply chain collaboration and marketplaces for two to three years," he says.

Still, as Dulux's experience shows, removing cataracts from the eyes of senior executives won't be enough to overcome the many barriers to efficient Internet connectivity between business processes within supply chains, and e-collaboration has a long way to go.

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Organising the supply chain to take maximum advantage of developments in e-commerce promises many competitive benefits, including added value, reduced cost, greater efficiencies and improved customer service. At the same time, c-commerce transforms rigid, linear supply chains built on static information sharing to interactive dynamically changing environments capable of responding in short order to real-time events occurring among trading partners and customers. The outcome is likely to widen the gap between the successful companies and the poor performers. Nevertheless, while the theory is gloriously simple, many organisations are struggling - and will continue to struggle - with the reality. Internet connectivity between business processes within supply chains has been labelled a Holy Grail, but then Sir Galahad found nothing easy about retrieving the Grail, either. Achieving the desired gains requires building infrastructure, trusting your supply chain partners with proprietary information and maximising your use of the Internet as a tool to strengthen the extended enterprise. The early birds are already hard at it.

Take nutritional supplement and health-care supplier Blackmores, which has purchased JD Edwards' OneWorld Xe software to create a business-to-business (B2B) supply chain and sales-order system. Blackmores plans to allow its retail partners and sales force to use standard browsers over the Internet to place orders and check stock through a B2B Web site - with no proprietary software needed on the enquirer's side. The system will be implemented progressively over a two-year period. Blackmores' remote sales representatives will be able to make orders using the same interface screen as retail customers, while large customers, such as supermarkets and department stores, will be free to use their pre-existing EDI (electronic data interchange) front ends to communicate with Blackmores. It's a similar story at ABC Retail. ABC recently implemented Connect's CommercePlus e-commerce system to simplify order transmission and control the procurement costs of dealing with up to 300 different suppliers of products to ABC Retail stores. The e-supply chain solution caters for ABC's large corporate suppliers with sophisticated EDI systems and also provides for the needs of smaller, Internet and fax-reliant suppliers.

"We are developing the e-supply chain management system in phases," says Doug Walker, head of ABC Retail. "The next step is functional acknowledgement from the EDI-enabled suppliers. From there we hope to evolve to a full two-way trading system where suppliers can check orders and can replenish stock levels depending on their supply status." Neither Blackmores nor ABC Retail are unique in wanting to implement electronic payment and invoicing to create a fully electronic supply chain management system. Others are equally hard at it.

Yet the organisations that currently have that goal would seem to be amongst an elite minority. A recent Accenture report, "eCollaboration: How Supply Chains Will Drive the New Economy", shows that in Australia supply chain is a blind spot for many senior executives, despite accounting for between 60 and 70 per cent of a company's ability to add value. The report shows that whereas adoption of the Net in business presents tremendous opportunities, many businesses still have a way to go in "Webifying their value chain".

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Enterprises embarking on collaborative commerce expect to replace the traditional business relationships of old with new, more transient alliances designed to position them to seize new trading opportunities. To work, however, e-collaboration requires a degree of IT strength from every link in the chain and/or the help of a strong IT provider at the top of the chain. One emerging solution to helping SMEs take advantage of c-commerce has come with the rise of ASPs that can stand in the market with the applications that big companies can afford but small companies can't. Small companies can simply log onto that application through the Internet without even having to install their own demand planning systems. For the model to succeed, experts say, participants must determine a common set of standards across the board and stick to them.

Vinod Parmar, implementation manager e-commerce solutions with Connect.com.au, points out that in the history of packaged applications the usual scenario is that it cost $X to buy application software/hardware and $2X to implement them. "This $2X is the catch," Parmar says. "That is, to play in this game and gain the similar benefits to large counterparts, a company still has to invest a lot on implementation and business processes change. One can argue that a small player does not have the complexities of a major player, but relative costs are still significant for a smaller player with no clear benefits in sight." Parmar cites the example of a supplier with a large customer that has committed to a B2B marketplace. The customer will approach you with a simple request to participle in this marketplace (mostly for free) to continue trading, saying all you have to do is to log on to "www.marketx.com.au" and register yourself, provide your e-mail/EDI address and upload your product catalogue. Simple!, the large customer says.

"Now, if you are a supplier, then you probably have more than one customer and expect similar requests from them soon," Parmar points out. "You have to digitise and customise your content (for example, Catalogue with UNSPC product classification, price reflecting contract, unit of measure, description, SLA, terms, and so on) for each of the requesters with no guarantee of success and liquidity of marketplace business for yourself. You have no integration with your systems and you will have ongoing content maintenance problem. "What would you do?," Parmar asks. "Wait," he says. "In the scenario above even when the marketplace is a hosted solution, there are significant impacts on trading partners."

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New Zealand telecomms company Clear Communications started out as an innovator and now renders New Zealand's most advanced intelligent fibre-optic network, providing secure and robust nationwide coverage. With explicit instructions from management to start "walking the talk", Peter Davies, general manager supply chain group, is driving e-commerce internally as hard and as fast as he can. Trouble is, he says, he keeps hitting stumbling blocks laid by suppliers who don't want to go down that path, are simply not ready for it, or can't understand what it is all about.

"The hardest thing we've found is that while we're driving ahead with all this, we're finding a hell of a lot of our suppliers are not e-ready at all and they don't really know how to get there. So half of what we're doing is helping our suppliers become e-enabled as well," Davies says. Clear went down the exchange/procurement/portal track before deciding to try something else. "Nothing has fitted. Nothing has really worked because of the cost involved," Davies says.

"What we're looking at now - and, in fact, we're in our third month of trialling and using it - is building a software platform: a little grey box thing. One side of it sits between us and all our suppliers, and what that does is maps all their various IT systems into our Oracle Financials - we use the whole Oracle suite of products here. The idea is that the suppliers download data into this little grey box.

"So the suppliers will supply their catalogue in electronic form and maintain their own catalogues. Every time there's an update they export it into our little grey box that remaps everything then downloads it into Oracle. So we have the latest, ‘you beaut' catalogue sitting on the system."

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Don't think of it as a chain. Think of it as an intricate network of suppliers, distributors and customers who share information. Think you can do it? If so, it's not going to be easyWhen Dulux Australia began trying to capitalise on its spanking new, fully integrated procurement system by encouraging suppliers to link into its Ariba network, it found the work heavy going. In fact, national purchasing manager Rod Davies admits the company is still to "kick any goals" in its efforts to collaborate with suppliers under an initiative aimed at reducing costs through more effective purchasing.

With its suppliers developing their e-activities at their own pace, Davies says the entire process is taking much longer than he expected. Sure, many suppliers are developing their own Web pages and the capacity for customers to place orders on those Web pages, but Davies says it's not enough: Dulux is still asking for more than most are currently able to give. Encouraging them to go the extra mile eats up huge amounts of Davies' time, and at any rate suppliers need to be at a certain stage of readiness before they can hope to link up at reasonable cost.

Even those complications are but a comparatively small problem in the bigger picture: Dulux is but one company under the Orica umbrella and Orica is implementing a core strategic procurement program across all its business units - chemicals, plastics, explosives, Selleys and Incitec, as well as Dulux. To be optimally effective, the program will require every business unit to get all suppliers on board. That way, where products or services purchased are consumed by more than one business, spend can be aggregated to achieve a common approach to the market. It's a noble plan, but also a tall order. All-embracing enterprise software solutions, business process re-engineering, knowledge management and other IT trends have all essentially addressed the internals of the enterprise. The next promise of efficiency lies in linking the enterprise's internal systems to those of its suppliers, partners and customers. That requires levels of collaboration almost unprecedented in the history of trade. Some organisations have been quick to realise - and capitalise on - this fact.

"The shift to deployment of marketplace infrastructure is starting to draw the interest of those that want to take advantage of SCM collaboration to enable end-to-end business processes from the customer's customer to the supplier's supplier," says Gartner analyst Lora Cecere. "Leading enterprises are moving beyond the enterprise focus to undertake collaborative pilots, partner with vendors to develop more responsive applications in SCP (supply chain planning) and SCE (supply chain execution), as well as to develop and deploy industry standards that will enable true recombinant business models." Pundits predict collaborative commerce (c-commerce) will replace rigid one-to-one forms of electronic supply chain management, with applications allowing true Internet-based colla-boration and problem solving between trading partners and a wider trading community. Achieving the goal, however, will force enterprises to make strategic decisions regarding the structure of doing business and to overcome inevitable inertia while struggling to build new levels of trust with trading partners.