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Issue of January 2003 
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Techscope 2003: SCM
Automating the Supply Chain link

Many have tried to automate the supply chain link in the past, but were not very successful. Organizations can learn from past mistakes and use new technology for automating the value chain. by S.R. Balasubramnian

A good part of the last decade saw information technology rising to dizzying heights. New technologies were unleashed and, in an era which saw global markets opening up to competition, many organizations thought it appropriate to use technology to give them the much needed competitive advantage. The rapid spread of the Internet created its own hype, which none could escape, and had its effect on the IT vendors' drive to sell and on the users' perception of information technology.

During this period we saw companies get into a technology buying spree, and spending cautiously was perceived as a sign of backwardness. For many a CEO it became fashionable to be IT savvy and to speak on technology trends at various forums. All this led to a boom and then the bubble burst. Having learnt from experience, organizations are now taking a very realistic view of IT. They are no longer impressed by the hype but demand real benefits. Various options are analyzed and their feasibility and applicability examined in detail before according an approval.

The various technologies discussed today include mobile computing, CRM, SCM, storage solutions, BPO, enterprise portals etc. But it is essential to define our needs and priorities before we embark on any of these projects. Though all of these could be useful, I will specifically discuss the automation of the supply chain link, falling under the purview of SCM.

Many organizations have worked on it in the past, but perhaps not with enough success. Though many have connected their suppliers to the distribution link, there may not be many cases where this would have given practical benefit to business. I list below a few fallacies of past implementations.

  • Big plans for connecting business partners, but in reality merely connecting for sharing some information. This was done through private networks and information was updated periodically. The main advantage was transparency and convenience in accessing information, but it did not significantly lower transaction costs or the cost of doing business.
  • Implementing some of these initiatives without reviewing or changing the way we work—i.e. business processes within the organizations operated the same way as before notwithstanding changes/enhancements in connectivity.
  • Hype on e-procurement, reverse auctions etc. Companies would close a couple of deals, claim savings and then become inactive. Such processes did not become a regular exercise and a part of procurement processes.

New implementations for automating the value chain incorporate the lessons learnt from the past and will also use new technology solutions for deriving benefits. Let me discuss a few technology areas that would be in the forefront.

ERP is certainly not dead and will continue to be an important part of business processes. ERP implementations of the past have to move over to newer versions so as to exploit new features, and also to bring in efficiencies through integration and better processes. Failed implementations shouldn't deter us from re-evaluation. Standard ERP packages need not be the only route—organizations with sound in-house systems on industry standard platforms are also good enough. Product Lifecycle Management is also an important area that many organizations would look at and try to compress the time cycle for bringing out new products in the market.

Supply Chain Management
Going beyond ERP and connecting business partners is a critical need today. Companies may choose between extended solutions from the ERP vendor or best-of-breed solutions, but it is certainly necessary to pick up one of these solutions rather than to try customized solutions. The usage could start with sharing information but has later to extend to transactions over the Net which will speed up the process and also bring down the cost of doing business.

However simply connecting for transactions without changing our business processes will not yield any advantage to business. For example, if we were to place regular orders on suppliers electronically and get quick deliveries, the process of quality check and the resultant delay would defeat the very purpose of automation. A system of self certification could be introduced, obviating the necessity of holding the goods for verification. Similarly if we do not have an efficient order processing mechanism, orders from customers on the Net may get serviced in a time span that may leave customers dissatisfied.

Enterprise Portals
This facility, in my opinion, would be used extensively in the coming year. Organizations can create portals for specific purposes. These portals could be meant for external parties like suppliers, customers and stakeholders, or for use by employees.

Enterprise Portal is an excellent tool for creating transparency and for simplifying business transactions. For example a portal for suppliers could extend a self service facility where he could access details of order schedules, payment status, stock position, rejections—and also post his entries on order acceptance, shipments, and bills. A similar portal for dealers/distributors could give him access to details like order status, dispatches made along with shipment details, and outstandings, plus he could place orders, amendments, payments transfer etc. All this could tremendously reduce hassles in carrying out day-to-day business and the efficient exchange of information could reduce mistakes and improve material availability, demand fulfillment etc.

Portals for employees can give them access according to their pre-defined roles/responsibilities. Through the portal they could seamlessly operate on the ERP systems, legacy systems, intranet or the Internet. All this would go towards de-layering and reduce bureaucracy in dealings as both the external parties and employees can do business as if they are part of the same setup.

Business Integration/ Collaboration
We have talked about the various modes of doing business with partners that ease/simplify business dealings. However the main benefits accrue when we collaborate and optimize operations with each other. Operating a separate front to enter transactions or to gain access, amounts to duplication of work, and is not a seamless environment. Integration of systems at both ends could provide real benefits as the results of transactions get automatically reflected in the partner systems. The new business integrator, the middleware, is really going to be the hot technology to use in the coming year. These provide adapters that can link various platforms as long as they conform to industry standards. For example, a purchase order from Company A can automatically be relayed to Company B and get reflected as the sales order, and they can process it immediately. The sales manager in Company B can view the order position in his native systems and monitor execution. And payment from Company A gets automatically reflected in Company B as a receipt along with automatic credit to their bank account—using the payment gateway.

There is another mode to these dealings. Companies could collaborate on demand planning, production scheduling, which would help firms to respond to the markets faster and synergize their operations. Often companies produce goods based on their estimates and then try a push strategy to effect sales through dealers, but this may no longer be possible as markets get more competitive with several players jumping in. Similarly, there could be collaboration in design and product development; the sequential methodology of today when designs are finalized and then forwarded to fabricators and suppliers, and then the prototype and testing is no longer considered feasible. Collaboration through simultaneous engineering could compress the time cycle tremendously.

Such collaboration would mean a good degree of automation. Processes would have to be rule based and not based on individual discretion and ad-hoc decision-making. For instance, order processing would be successful only if a dealer placing an order is able to configure his order based on the availability of stocks and the quantity that he is entitled to. If the company officials continue to allocate quantities or change deliveries on their own, the service provided to the dealer becomes meaningless. Similarly the supplier should get access to the production plan or his delivery schedule so that he can respond and supply the materials on time.

Such data has to be automatically calculated based on production plan, stocks, and items in transit, and cannot wait for a purchase official to calculate and apply his judgment. The principle of 'Just-in-time' or direct delivery of the materials on the production line would take away the relevance of stores and recording of stocks. Vendor managed inventory and payment-on-use are other concepts that can reduce work tremendously. The question here is what happens to the officials in marketing who keep on tinkering with sales orders received or purchase officials who constantly chase suppliers to deliver, or from manufacturing who liaise with marketing and purchase several times during the day to dynamically change the manufacturing plans? The HR aspect of such transformation is often ignored and needs to be considered.

All this places a responsibility on the CIO to evaluate and absorb new technologies that add value to business. The start of projects should be preceded by careful assessment of work and the resultant changes, and carried through efficiently, and in a short period. These measures however call for considerable adaptation to the new automated environment, and for bringing about a change in the work processes adopted by organizations. These lead to change in the roles of people and work hands get a richer work content and become more responsible. Those who cannot be re-trained for their new roles, or those who are rendered surplus will have to be relocated. These are difficult situations that organizations face when implementing technology but not tackling them reduces the effectiveness of the new solutions.

The writer is Vice President-Information Systems, Hero Honda Motors Ltd.

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