Lifting the veil on supply chain integration

COMMENTARY--The concept of having total supply chain visibility--the ability to see up and down the supply pipe from raw materials to the end user consumer--has been around since the days of MRP (Materials Resource Planning).

The promise that companies could optimize their business processes, from sales inventory to procurement, with ubiquitous information became all the more compelling once the Internet took its place as the connective tissue of e-business.

The goal has been to close the gap between demand and supply. Simple as it may seem at first, the integration issues offer less than simple challenges. Notwithstanding the ultimate benefits associated with supply chain integration--lower costs, sharper forecasting, tighter inventory management, better customer service, and higher revenues and profits--most of the business community are still talking the talk.

Some progress has been made, but it is coming in fits and starts. There is no shortage of technologies that claim to provide some form of supply chain integration. But it is not technology that prevents faster progress toward total supply chain visibility.

As often is the case, the acceptance of technology boils down to issues of the industry culture, to those who have grasped the value of collaborative commerce and those who have not. An example can be seen in the retail sector which has been engaged in collaborative commerce since the 90's, using the ever-reliable electronic data interchange (EDI).

However, when it comes to moving to a more flexible, user-friendly environment such as the Web, the move opens a window to all parties, processes and relationships, creating some ambivalence in the process. In most cases, the collaboration that has been developed over the years is, in itself, a competitive tool that is not for public viewing, especially over the Internet.

Trust needs to prevail before companies will place themselves in the vulnerable position of exposing proprietary information for the world to see. True collaboration requires network-wide disclosure of inventory levels, workflow processes and capacity.

Manufacturers, for example, don't want to be taken to the cleaners by suppliers armed with information about their proprietary processes. Suppliers allowed to peek at manufacturers' workflow might discern the criticality of their components and then turn around and up their prices. A tier-two auto supplier, for example, might realize that its ability to provide just-in-time delivery of its components at the very end of the assembly process might warrant a higher price.

However, anyone with supply chain reliance knows that things must change. The change becomes more compelling and easier to manage when the strategy for higher visibility in the supply chain shifts from upgrading the supply chain to the Web, to solving customer problems with delivery, or enhancing customer service. So, in each of the links along the supply chain, a supplier has a customer who in turn is a supplier to another, and so on. Therefore, in the interest of better customer service, the connectivity proposition becomes one of differentiation rather than competitive discretion.

Information across the supply chain will flow freely. Visibility, however, will be reduced to knowing that there is capacity or demand, but just how you will source or fulfill will become the competitive secret. The analogy will be something like that of the finance industry: You can see who has what bank accounts and who has what creditors, but you don't get to know just how much they actually have.

However, this still requires an element of trust. The true measure of the desire to establish the trust that is required for visibility and collaboration will be the extent to which major supply chain players allow relationships within their trading communities to deepen.

If supply partners routinely rely on each other for engineering, design, inventory management and logistics, they must eventually come to the realization that these represent facets of a deeper ongoing relationship that cannot be auctioned off to the lowest bidder.

Frank Prestipino is Oracle Asia Pacific senior director for World Wide Marketing (B2B).