Enter the Supply Web
The 1990s saw ERP (enterprise resource planning) or back office programs taking center stage in the enterprise applications market. The increasing awareness of what constitutes ERP software and the growing acceptance of information technology as a competitive advantage saw the ERP market experiencing phenomenal growth during the last decade.
At the same time, event-driven factors such as the globalization of economies, escalating cost of ownership and concerns over obsolescence of systems helped fuel the growth of the ERP segment.
Today, the ERP market has reached a state of near maturity in the large enterprise market. While early adopters used it to gain a competitive advantage, employing such systems has approached prerequisite status for entry into the business world as a major player. According to Fortune Magazine, more than 50 percent of the FORTUNE 500 corporations today have already implemented ERP systems. And most of these ERP adopters are now realizing significant internal efficiencies throughout their enterprise.
The next natural step or challenge to gain that sought-after competitive edge is to reap the same benefits gained from controlling their internal efficiencies and by extending them beyond the four walls of their company, which in turn means revisiting the whole supply chain model.
Supply Chain Management (SCM)
The growing complexity of supply chain processes and the increasing need to include parties external to the organization gave rise to the traditional supply chain management model. SCM utilizes ERP as the basic infrastructure to coordinate the flow of materials and products across the enterprise with trading partners. SCM helped reduce the complexity of the supply chain processes, and answered the increasing call for customer responsiveness, by anticipating demand, managing inventory levels, scheduling activities, and coordinating the manufacturing and distributing process.
Today, channel dominators and mass market retailers are wreaking havoc on their suppliers by pushing inventories up the supply chain. Meanwhile, retailers and distributors are demanding shorter order-to-delivery cycles from manufacturers. A survey conducted by Forrester Research with Fortune 1000 companies found that customer demands are forcing these firms to adopt new supply chain models to overcome key logistical issues like rapidly changing customized products and shorter time-to-market expectations. To survive, enterprises must look beyond their traditional ERP and SCM models. The turmoil facing the traditional supply chain industry is once again forcing companies to look outward and develop a model that requires them to cooperate with customers and suppliers in a new way.
Controlling External Efficiencies
The advent of the Internet has forced companies to re-evaluate their existing business models, and change or forever be left behind. But on the other hand, it presents a solution for many supply chain companies seeking to improve customer responsiveness, shorten product cycles and accelerate time-to-market. But these companies then face the problem of how they are to strategically harness the potential that the Internet presents. Whichever way we look at it, one thing is for certain, as US Federal Reserve Chairman, Alan Greenspan, acknowledged in his testimony on the high-tech industry in the US, "the nature of the Internet is promising to significantly alter the way large parts of our distribution system are managed".
An early study conducted by WEFA Group backs up the widespread consensus that the services and manufacturing sectors will be the largest users of business-to-business e-commerce. Their research also revealed that while the Internet accounts for over 95 percent of e-commerce activity, by 2003, 27 percent will be carried out over extranets, which refer to computer networks that link a company to a supplier or supplier network. Clearly, the Web is shrinking markets and demolishing geographical and market barriers to level the competitive playing field. Companies are now looking beyond classic ERP/SCM programs to software that could help them gain competitive advantages on the Internet and form stronger relationships with their customers. Hence, in today's e-business world, companies are fast realizing that ERP and SCM alone are not enough to provide the level of competitive advantage a company needs.
Beyond ERP and SCM
With ERP backbones in place for most organizations, they now need to add value by leveraging the Internet and other external networks to extend the boundaries of enterprise applications and supply chains far beyond the enterprise, to encompass entire trading communities and their interconnected supply chains. This is what we call the Supply Web. Beyond ERP and SCM, the next challenge is in gaining control of the enterprise's extended supply chain to fully harness the potential of e-business. Even in ERP and SCM environments, there is still a relative amount of unproductive activity and processes that add little or no value to the production or distribution process. According to the Forrester study, over 80 percent of respondents collect some of their inventory and order data manually, and 48 percent update this data less than once a day. In the world of e-business, maximizing supply-chain efficiency is the key not just to success but to the very survival of the enterprise. In the Supply Web environment, organizations need to work at Internet speed, and optimize the capacity of their total supply chain in order to maximize information and materials flow. The question is how.
The E-Chain Challenge
Integration has always been the fundamental problem facing companies deploying ERP and SCM. According to Forrester, 60 percent of respondents have three or more different software applications managing their supply chains. While most plan on moving towards a packaged solution by 2001, 69 percent of users feel that their current supply chain systems will not make the grade in this multi-enterprise world, citing applications' lack of e-commerce capabilities and integration with internal systems as the biggest setbacks.
This problem is compounded for enterprises integrating the Supply Web because their systems now need to manage much larger supply communities, and many more disparate environments than before. The growing number of systems, platforms, applications, databases and their underlying data formats and logic, have resulted in a technology jungle that is obstructing the exchange of information within the enterprise and throughout the Supply Web. From having to previously deal with just their disparate internal and distributed systems, organizations now have to ensure that they are able to communicate efficiently with a multitude of their suppliers' and customers' systems as well.
The typical approach of in-house development of point-to-point connections between applications and systems is an inefficient integration method in terms of both the cost and the time involved. Furthermore, integration software developed in-house needs to be maintained in-house, posing an ongoing cost burden that is extremely difficult to forecast. According to specialist reports from leading technology analysts from Gartner Group and Yankee Group, 30 percent to 40 percent of a typical IS budget is currently being spent on this uncoordinated approach to application integration.
A Future-Proof Solution
Open technology is the key to the Supply Web equation. To overcome the problem of heterogeneity in distributed computing, it is becoming increasingly apparent that enterprises need to adopt a future-proof solution that provides them the flexibility to tailor and scale their IT infrastructure in today's uncertain and rapidly changing business environment.
More specifically, organizations need to find a Supply Web enabler or an e-infrastructure that can bridge the gaps that exist among multiple islands of conflicting technologies. An open approach must be taken in designing this system in order to integrate extremely heterogeneous architectures asynchronously in real-time, where communications need to accommodate an extremely diverse range of applications, languages, operating systems, protocols and data formats. Additionally, this solution must be able to work as a flexible and intelligent mediator, not only converting messages from one format to another, but forwarding, validating and storing them as needed by applying business rules to the content in the messages passing between applications.
In today's technology-driven environment, companies are struggling to adapt to the paradigm shifts afflicting the business world. As with Darwinism, it will not be the largest corporations that survive, but organizations quickest to adapt that will prevail. While there is no universal solution to the dilemma of rapid integration and information exchange, organizations that strategically adopt an open and flexible approach to e-business will be better prepared to adapt to new challenges and therefore reap greater rewards.