Buying onlineWritten by Craig Pearson Wednesday, 10 June 2009 15:19
Some of the "newer" supply chain techniques are built upon the established elements of the past, but they execute them in much different ways.
The new look of EDI
Electronic Data Interchange (EDI) has served as a foundation of supply chain management for years, and its benefits include manufacturing on demand, just-in-time delivery and vendor managed inventory. That's not to say that traditional EDI isn't also without its drawbacks -- it can be costly, it's usually restricted to routine transactions, it's inflexible and it doesn't process information in real time. Another shortcoming is that is has been a benefit primarily for larger players with their own value-added networks (VANs).
The Internet is changing EDI -- for one thing, the Web is cheaper and much more sophisticated than Vans -- and EDI software firms have turned to "Internet EDI." These newer Internet technologies are replacing traditional EDI, though the basic functionality of high speed, integrated, automated messaging systems remain. The key difference is the simpler format. No longer are separate software packages required to collect, define and organize data; to translate the information to an EDI standard; and then to communicate it. Now, it is all be done with just one piece of software -- a Web browser.
How does this work in real life? Here's an example. Each day, manufacturers need to ship products to their customers. They transact with their customers through purchase orders, the invoice flags a receivable and the company arranges for a carrier to deliver the product to the customer. For the customer, the carrier represents the manufacturer's service level -- meaning that the manufacturer is only as good as the middleman that links it to the customer.
Owens Corning, the company best known for its pink fiberglass insulation, uses Internet-enabled EDI for such routine transactions as enabling its customers to define their own orders. Customers can determine their order size based on cube/weight cost or whether they want to build a full truckload for their own order rather than split a load through a less-than-truckload (LTL) shipment. It's all done through the company's fully-secured, Internet based order processing tool that allows online pricing, truckload sizing, order entry, acknowledgment, invoicing and status checking.
As far as the company's customers are concerned, the EDI technology is invisible. They place their orders through Owens Corning's password protected extranet, and the software automatically converts the quantities entered by customers into truck loading logic. The customer is provided with a visual display of a cube truck showing the size of their order, together with the appropriate costs.
A growing number of companies are using the Internet to communicate purchase-order entry/tracking and inventory with their supply chain partners. These Web-enabled communications are expected to help reduce costs and improve performance. Some of the specific benefits they anticipate include stronger customer service levels, reduced inventory, lower supply chain costs, improved delivery date accuracy, enhanced management control, and decreased order fulfillment cycle times.
Cemex, a cement and concrete company that operates in Mexico, the U.S. and South America, links satellite technology to the Internet. It turned to Web-enabled Global Positioning Satellites to solve a delivery scheduling problem which had resulted in the company's customers either canceling, changing or rescheduling up to half of their orders.
Now, with the company's central tracking system, customers use the Internet which links to Cemex's GPS-equipped fleet via satellite technology. That solution has significantly improved delivery time accuracy -- to within 20 minutes of the scheduled time. Cemex has improved its fleet productivity by 35 percent, leading to savings on fuel, maintenance and payroll. Most importantly, however, is the fact that Cemex has all but eliminated the problem of customer cancellations.
One major Internet-enabled supply chain benefit is MRO e-procurement which targets commonplace problems of inefficient buying, redundant processes, non-strategic sourcing, and unreliable shipping.
Reining in the maverick buyers
One of today's hottest Internet-enabled supply chain benefits is being achieved in the area of MRO e-procurement which targets the commonplace problems of inefficient buying, redundant processes, non-strategic sourcing, an overabundance of paper and unreliable shipping.
Maintenance, repairs and operations purchases (MRO) typically represent more than one-third of all the indirect goods and services a company purchases -- everything from office equipment right down to nuts, bolts, nails and screws. These purchases can be costly, and average about $115 per transaction. The problem and costs are exacerbated by the fact that a considerable amount of the purchases are done through "maverick buying", where individual employees arrange their own purchases with suppliers of their own choice.
MRO e-procurement succeeds because it doesn't try to change employees' behaviour -- something that would be exceedingly difficult. While employees continue to be allowed to do their own purchasing, their purchases are now controlled through systems that automate the routing and approval processes, using real-time product and inventory information. This allows companies to increase their leverage with key suppliers by combining all their employee orders to enable them to negotiate better volume discounts.
On the online auction block
Infomediaries are virtual third parties that bring buyers and sellers together. With online exchanges, suppliers get the chance to expand their customer bases, manage excess supply, and cut their transaction and marketing costs. The process, which works particularly well at matching fragmented suppliers and buyers in markets for near-commodity items, operates in real time with a bid-ask matching process and provides market-wide price determination and clearing.
E-Steel, (www.e-steel.com) is such an exchange. Users work their way through a series of Web screens to select and configure the product type they wish to purchase, specify sales terms, select potential suppliers, confirm that their bid is match with a supplier, receive an order confirmation, and track their order as it moves to them from the manufacturer.
Auctions, another interactive means of matching buyers and sellers, are expected to account for more half of online business transactions within the next two years. They work best with unique, specialized or perishable products and services, and provide a means by which buyers and sellers can test prices. There are a number of them around. iMark (www.imark.com), for example, helps companies deal with excess capital equipment, used products, and unsaleable returns.
Large contract bids can also be facilitated through auctions such as FreeMarkets (www.freemarkets.com) that offer live on-line business-to business auctions for energy, chemicals, industrial parts, raw materials, food products and commodities.
With the Internet, supply chain techniques are "e-volving" towards two or more companies working together to reduce costs and increase efficiencies throughout the entire supply chain.
Within the manufacturing sector, the focus is shifting away from rationalization. Companies are concentrating on increasing their agility through lean manufacturing, configure-to-order, concurrent engineering and collaborative product design, and outsourcing non-core functions. Currently, manufacturers are using the Internet for e-CAD files and automatic transfer to product data management (PDM) for multi-location companies, virtual plant tours, and concurrent manufacturing execution systems (MES).
For example, General Motors has provided its dealers with Web-related tools. GM Access is a Web-based configure-to-order tool that historically models trends to help dealers order the appropriate number of vehicle models and their features based on past popularity. If a customer's choice of vehicle isn't available on a dealer's lot, the dealer can use GM Buy Power, a Web based network that identifies all available GM products (by vehicle type and dealership), to locate vehicles that match a customer's specifications across GM and its dealerships. If no such vehicles exist, GM Prospect is a point-of-sale, spec-to-order tool that a sales associate can use to input the customer's order directly into GM's production facilities.
Collaborative planning, forecasting, replenishment
The most sophisticated supply chain technique involves the full virtual integration of organizations, normally described as CPFR, in which each company's internal systems are fused to those of its suppliers, partners and customers. Such linkages only work when all players use common languages, have integrated Web, EDI and internal information systems and, not least, have a willingness to collaborate.
Managing your own supply chain
So, what do many organizations want in the way of Web-enabled customer and procurement solutions? Here are eight favourites:
- online cataloguing;
- pricing by customer contract and other criteria;
- online customer history from quote to delivery;
- customer self-maintenance of their information profile;
- online quote generation;
- automatic, real time sourcing from the nearest location;
- integration with EDI (on customer/vendor preference);
- electronic billing, collection and payment.
When it comes to addressing your own supply chain, remember that manufacturers are using e-based solutions to do the same things with their supply chains that they have always done, they are just doing it differently. The basics -- POs, invoices, bills of materials, etc. -- haven't changed, but they are being done faster, better and much cheaper using the Internet.
While it can be frustrating to watch new technologies reduce the impact of your significant past investments and efforts, remember that by continuing to take real steps to optimize your supply chain you will further minimize costs while also maximizing services. Automating routine and non-routine transactions, and improving collaboration with your customers and suppliers are key ways of achieving this.
Remember, that your EDI investment isn't obsolete. You can build upon it. How far you actually want to go with it, and how you do it, really depends upon your company and how much it wants to try.
You must also keep an eye on what others are doing. With its potential for large savings and fast payback times, e-procurement is a current top favourite, and likely to remain so in the immediate future. There are 228 net-markets or e-marketplaces to date, and they are beginning to grow rapidly. The Covisint (www.covisint.com) automotive trading exchange between GM, Ford and DaimlerChrysler, and the more recently announced mining exchange, are just a few of the Internet-enabled techniques receiving widespread attention.
Routing transaction features will be the next focus, and things will move into the mid-market. Also watch for improvements in reverse logistics. Though returns have yet to be perfected, when this occurs buying confidence (especially at the consumer-level) will increase.