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The Power of Positive Linking

The Power of Positive Linking

Picture this: The purchasing officer for ABC Construction - a BHP customer - fires up his desktop PC, which automatically accesses BHP's trading portal. The portal pushes out the status of his last 10 orders, along with the BHP share price (the membership database knows he's a BHP shareholder). It gives him this week's special on coated product (he's a regular buyer), and the day's specifications on steel building, coated and rural product (ABC Construction has a large regional contract in train).

Not bad for a start. But that's just one part of the near-term vision for BHP, as it seeks to exploit e-commerce and the Internet as a tool for interacting with trading partners, optimising its supply chain and increasing its value proposition. Another part will see ABC Construction's chief engineer visiting the same portal to access an "engineer's ready reckoner" to determine sizes and specs. A quick expedition with the virtual shopping basket will give him all required products and prices from across the entire portfolio of BHP businesses, and a single click will send the order. Behind the scenes, his order will be split by products and automatically included in three different BHP business master production schedules. Spec sheets and test certificates will be automatically e-mailed to the chief engineer, who will never even know he's dealing with more than one business.

BHP's Internet Trading Portal is the entry point into BHP for all Internet trading partners. As BHP develops the Internet as a tool for interaction with trading partners, this level of functionality is fast becoming the "norm" that BHP's customers expect. Improved supply chain management may have proved a boon to individual enterprises seeking to extend their competitive advantage, but in the words of the song: "You ain't seen nothin' yet."

Today's focus is on building "supply chain communities" that leverage and build on the core competencies of each member partner. Tomorrow will be a supply chain vs supply chain world, where companies will not only compete with each other but also against extensive webs of suppliers. The risks involved in falling behind are real, and the need for Australian companies to move on supply chain management is great.

Leading edge companies know e-commerce and the Internet offer their best hope yet of achieving effective management of the entire collaborative supply chain: from their raw materials suppliers right through to their end customers. They also know that done well, their supply chain efforts could in time effectively devour their competition. Like lions studying the herd for any sign of weakness, the more aggressive organisations are not proving backward in capitalising on that opportunity.

For BHP, a critical success factor is to impose order on a host of de facto enterprise Internet programs that have sprung up in departments and business units while delivering new, low-cost, integrated business solutions to the company and external markets. BHP IT product manager Supply Chain Solutions Steve Maxwell says the trading portal design will maximise reuse and be highly tuned to the speedy and less costly introduction of new Internet trading applications. It's all about exploiting the potential of e-commerce and IT&T systems to help players throughout the supply chain continuum increase their competitive advantage. That's an imperative more and more organisations are realising they can no longer afford to ignore.

Competitive Threat

Smart companies know the evolution and massive uptake of Internet technologies is making possible - perhaps even forcing - a fundamental re-engineering of the supply chain process, stimulated by unprecedented levels of interconnectivity between organisations. And they know that in future they won't just be competing with other organisations in the new competitive landscape. "Rather than competing business vs business, there's a growing trend towards supply chains competing against other supply chains," Maxwell notes.

Baan senior vice president Katrina Roche predicts velocity through the entire supply chain will become a key competitive weapon as companies respond to time-based competitive factors. "Even the best e-commerce strategy will fail in an organisation that has not addressed the speed-related supply chain issues that inevitably arise as a result of different demand patterns," she says. "Closer relationships with customers is clearly the number-one issue on the minds of CEOs today, and many companies believe the answer lies with the Internet. Successful organisations will recognise that e-commerce is part of a holistic e-business strategy that includes creating an ‘e-supply chain'."

Roche says the real winners in today's business climate will be the organisations that can synchronise and add velocity to the execution of all supply chain processes. But for that to work those participants - the supplier of raw material, the manufacturer of component parts, the assembler, the logistics provider and the transportation carrier - will have to align their supply chain in reaction to customer demand.

Unfortunately, if Andersen Consulting managing partner Asia Pacific Dr John Gattorna is right, many Australian companies may soon be on Roche's endangered list. Gattorna is scathing of the supply chain efforts of most Australian companies, saying barely a handful manage their supply chain efforts well. And long term, he predicts that 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. "And 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. But I think Australian companies have been relatively slow, particularly in the manufacturing sector, which is the one sector that really needs to speed up - [at least] what's left of it. There'll be even less left of it, if we keep going the way we are going, because more and more of it will move to Asia and elsewhere, because of scale purposes."

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. "I just wish companies would get out and do more and get more of a continuous improvement focus. We ought to be seeking continuous improvement rather than just plodding along, which is, unfortunately, what a lot of companies have been doing in Australia," he says.

Optimised Processes

Supply chain management is about optimising both internal organisational processes and relationships with suppliers and customers by enhancing the handling of the flow of information and material throughout the supply chain. It embraces demand forecasting, materials sourcing and procurement, inventory and warehouse management, and distribution logistics. There are plenty of case histories to prove that companies that effectively position their supply chains to perform these functions improve time-to-market and achieve significant-efficiencies, improved profits, or both.

But e-commerce is driving supply chain management further than it has ever been before. These days, making, selling and delivering products demand that all members of the supply chain collaborate to manage strategic planning, information flows, and full integration of the supply chain strategy with their overall corporate strategies, not to mention compatible design of the underlying IT. It also demands suppliers share their supply chain finesse with their customers.

"Optimising the supply chain requires supplier and customer involvement to the point of integrating the processes," says Michael Gering, director of KPMG Johannesburg Supply Chain Practice, in commenting on KPMG's 1998 Global Supply Chain Management Bench-marking Study 1998. "For organisations to benefit from an effective supply chain they need to work together at customer service."

A Manugistics White Paper, called "Manugistics Supply Chain Compass", reveals how leading-edge companies are working to create extended "supply chain communities" that leverage the core competencies of each partner. The result, says the paper, is increased growth with unparalleled efficiency. "Working together, these companies will be able to optimise their efforts. They'll be able to flow materials and information through the supply chain pipeline, gaining the ability to respond to customers faster and more accurately than ever before."

Continuous Improvement

Gattorna says the end game of all supply chain efforts should be a quantum improvement in the supply chain. One means to that end is a continuous improvement process, focused on achievement of operational excellence, with most organisations still having plenty of work to do in areas like warehousing, transportation, and inventory management. Another is for businesses to link infrastructures with other organisations to develop industry-wide logistics and supply chain solutions.

At the same time, organisations like BHP recognise that, thanks to the emergence of new information sharing and collaborative technologies, it's no longer necessary to own a significant part of the supply chain in order to control it. "Certainly, the experience within BHP and a number of large organisations is that there was once a view that in order to control the supply chain you had to own it," Maxwell says. "A great deal of effort in the 80s went into vertical integration or vertical ownership, so BHP would own many different companies along the length of the supply chain. Now, there's a growing realisation that businesses need to focus on their core activities, and there's a lot of divestment of businesses which aren't seen as core to a particular organisation."

Yet ownership of business units has some benefits, not least the fact that the numerous practice networks that arise across the various divisions of a company lead to efficiencies. With ownership of those former business units now ranging across a number of different parties, who is left to perform information gathering and optimisation across those businesses?

Maxwell says BHP feels the need for someone to be in charge of trying to optimise processes and functions across the supply chain. "To be able to do that, there is a growing trend towards infomediaries or information brokers that pull information out of a whole range of different businesses and/or business units, and try to optimise that particular supply chain overall."

Supply Chain Challenges

Big W and AAPT@commerce are working together to maximise the benefits of e-commerce for Big W's trading community. Merchandise logistics manager Darrell Ross says Big W is continuing to look at ways and means to achieve the economies it needs using all available technologies. "We have been trading with a number of our trading partners on EDI for some time. Now we're looking to expand that from the purchase order stage to a more two-way traffic and electronic receipt process, and we're looking at Internet solutions as separate from communication via VANs."

However, Ross says with many of Big W's trading partners having a much less sophisticated understanding of electronic commerce that it does, and with trading partners ranging from large organisations to small, the challenge is to find the right solution for the right situation. "Technology in this area is moving at such a fast rate that it poses both a benefit and a source of challenge in terms of people coming to terms with that, and how they can best turn those opportunities into positives for [themselves]," Ross says.

Whatever the technical difficulties ahead, this is one challenge neither Big W nor any other leading organisation can afford to ignore.

Food for Thought

A recent Andersen Consulting study of the supply chain practices of some of Australia's largest consumer products manufacturers suggests Australia's food manufacturers, at least, remain relatively unsophisticated in their management of the supply chain.

According to Peter Moore, associate partner with Andersen Consulting's Supply Chain Practice, Australia has reached a turning point in the development of the grocery supply chain. "Within a few years a supply chain ‘revolution' will require manufacturers and retailers to have developed new supply chain capabilities in order to survive," Moore says.

Yet the study highlighted significant shortfalls in best practice across all the capabilities that support supply chain integration. While the companies interviewed all had ambitious targets for change, Moore found their change projects failed to support those planned improvements. Worse, none of the companies could articulate a supply chain strategy that responded to the changing market environment and provided direction to the internal change initiatives.

Moore says manufacturers have limited time to act in preparing for the supply chain "revolution". They must:

* Take immediate action to respond to the ECR (efficient consumer response) programs of the retailers.

* Look to the longer term by appointing senior managers with cross-functional responsibility for the supply chain.

* Develop an explicit supply chain strategy that sets out how the company will derive business advantage (efficiency, customer service, or competitive advantage).

* Position the company to gain advantage from the shifting industry structure.

* Capture the value of the change within the business.

* Provide for a focused implementation around a small number of high-priority supply chain capabilities.

- S Bushell

Ford has a Better Idea

There are some significant technical challenges to overcome before organisations can rely on the Internet to optimise the supply chain, says Ford Australia process re-engineering manager Steve Waldmeyer. A supply chain is a complex system. Since fooling around with one globally runs the risk of producing unexpected results, Ford Motor Co in Michigan is launching a series of pilot supply chain projects, while resisting executives' demands for speedy global rollouts.

Each project is run under organisational learning methodology principles. Meetings are held with managers in various parts of Ford's supply chain to discover what they really think about how the system works. Those managers' assumptions and process flows are then fed into a simulation model. Ford's ultimate aim is to use its suppliers as part of its competitive advantage as a manufacturer.

Locally, Ford is looking for ways to overcome the inherent Internet-related issues surrounding not only security and reliability, but also speed. To help resolve some of the problems, Ford Australia is pinning its hopes on a new industry-wide extranet, the Australian Automotive Network Exchange (AANX), which will link suppliers, manufacturers and dealers. "That gives us a way of overcoming the security and reliability problems with the public Internet on the supply side, while obviously on the consumer side we can use the public Internet the way it stands to allow the consumers connection into us," Waldmeyer says.

There are still obvious risks. But Waldmeyer insists Ford would expose itself to more risk, if it took no steps to optimise the supply chain. "Our advantage as a manufacturer in the past has been that we've set up these fairly efficient distribution channels through our dealerships as a fairly exclusive way to get our product to market. We've got a very extensive distribution channel that extends right throughout Australia," he says.

"The risk for us now is that the Internet provides many other players with the opportunity to offer parallel distribution. You can see the threat for us. They can create a distribution arrangement using the Internet which targets a set of consumers that we could potentially miss, and they could then distribute our product through that distribution channel more efficiently than we can through the channel we've built."

Ford can't afford to - and won't - let that happen.

"One of our strategies will be to offer connectivity through the Internet from the consumer directly into our legacy system. That way we can show an actual commitment on delivery, and we can place that commitment on complete visibility right down the supply chain through to tier two and tier three suppliers," Waldmeyer says.

- S Bushell

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