e-INSIDER

January 31, 2007

PLM Requirements for the SMB Market: Simple, Scalable, & Collaborative
From ARC Advisory Group/Dick Slansky

The small to medium sized business sector has clearly gotten the attention of the Product Lifecycle Management (PLM) providers. While SMB has always represented a significant segment of the PLM market, there is a renewed focus among PLM suppliers to go after this sector based on its size and potential business opportunities. PLM suppliers such as UGS, Dassault Systemes, and PTC are providing SMB customers with PLM solutions that have the same functionality and capability as their larger enterprise customers, but tailored more to meet the business and product development requirements of the smaller manufacturing companies.

At the recent PTC Worldwide Media Event, the focus was squarely on the SMB market as PTC presented their PLM solution set from the perspective of both their products and re-structured channel strategy. PTC's approach is to offer an integrated suite of simple (easy to use), yet powerful desktop-based applications that enable their SMB customers to navigate efficiently and cost-effectively through the innovation process of product development. Recognizing that out of a customer base of over 44,000, only 2,000 represent large users, PTC clearly understands the need to offer a product development suite that fits the design/build requirements of the small to medium company while scaling in functionality as the customer evolves their product development process in both complexity and product offerings. In other words, most small companies strive to become larger companies, and need product development solutions that can scale up as they grow.

SMBs face a new set of challenges in today's globally competitive market. They must continue to develop innovative products using increasingly complex processes and information, while the product development lifecycle becomes shorter in order to meet market demands. Moreover, this development process must be accomplished at lower costs and in a global environment that many SMBs did not have to deal with before now.

The landscape for the SMB has changed considerable in just the last decade. In the past, most SMBs developed their products for a local or regional customer base and did not have to compete in a global market. They built strong and familiar relationships with their customers, and even if this base grew beyond regional boundaries, their outsourcing usually remained local.

This has all changed with the rapid globalization of business at all levels. More and more often manufacturers in North America or Europe were faced with a lower price point for their product from competition from Asia Pacific and other low cost producer regions around the world. It became clear, that in order to remain competitive, an emphasis had to be placed on innovation and product improvement, and this process must occur more often and more efficiently. Additionally, SMBs face challenges in areas of knowledge management (capturing and retaining the process of product innovation, creation, and concepts), process and data management (PDM), and protecting the intellectual property so vital to their business.

For PLM to meet the unique requirements of the SMB sector it must be targeted and scaled to the company in term of solutions and applications, complexity, and cost of ownership. The SMB must have available to them the same capabilities of innovation, product design, process, and data management, and collaboration that are offered to the large enterprise level manufacturers.

Clearly PTC has recognized the needs of the SMB sector and is offering a PLM solution set that is easy to use, even for entry level customers, powerful enough to meet complex design requirements, offers process knowledge and data management, and can operate in a collaborate, connected, and global environment. Anchoring their PLM solution set with their flagship CAD/CAM/CAE product development application, Pro/Engineer, PTC offers a very scalable matrix of PLM capabilities to their SMB customer. This starts with basic 3D CAD design and modeling and can be scaled up to include Product Data Management (PDM), extended add-on modules for surfacing, piping & cabling, collaboration & project management, content & document management, all the way to advanced simulation & analysis engineering.
In 2006, PTC acquired two new products: Mathcad, an advanced engineering calculation tool, and ITEDO, which was re-branded to IsoDraw, a tool used to produce simplified CAD drawings for documents. Both Mathcad and IsoDraw are integrated with Pro/Engineer, along with their Arbortext content & document management solution. Connecting the content management layer to the process management layer, PTC offers Windchill PDMlink with change & configuration management, verification & validation, design collaboration, and technical publication capabilities.

In restructuring their partner channel strategy, PTC was again placing even more emphasis on their already established presence in the SMB sector. Their key focus areas are SMB manufacturing, emerging geographical regions, and strategic industries. They will support their channel partners through business development managers, channel specific marketing & maintenance programs, and channel operation & development. Their strategy for SMB manufacturing is to enable a combination of PLM solution providers and point solution value added resellers for the PTC solution set of PRO/E, Windchill, Mathcad, IsoDraw, and Arbortext.

PTC's overall message at this year's Media Event was clear and straightforward: Offer product development strategies and solutions for small & medium businesses, and make them scalable, easy to use, and powerful.
http://www.arcweb.com

Supplier Relationship Management: Benefits and Challenges
From Technology Evaluation/Al Bukey

More and more companies are requesting their suppliers to integrate their business systems and share information online and in real time. Integrated business systems enable sourcing companies to plan and execute their supply schedules within minutes and receive confirmation almost immediately. Integrated systems effectively reduce the cost of purchasing, which may range from $30 to $170 (USD) per order, down to a few cents. In addition, they almost completely eliminate the need for expeditors and they improve compliance with shop floor schedules, resulting in better customer service. An added benefit of integrated systems is their performance tracking capability and its associated improvement in supplier relationships.

Developments in information technology (IT) have required and enabled manufacturing companies to rethink and restructure their supply chain strategies. For example, customer focus strategies have led to the development of customer relationship management (CRM) tools, and back-office support strategies have helped develop enterprise resource planning (ERP). Other examples of integrated applications include electronic data interchange (EDI); manufacturing execution system (MES); computer aided design/computer aided manufacturing (CAD/CAM); Just-in-Time (JIT); vendor managed inventory (VMI); and warehouse management system (WMS). Finally, integrating suppliers' information systems beyond the EDI type connection has been necessary to shape this evolution into a more refined integration and relationship. Supply chain management (SCM) requires an outward view of company operations that extends to suppliers, customers, distributors, and beyond, as well as an understanding of the value of the contribution made by each element in the supply chain. A simple supply chain system includes three main elements: suppliers, a company, and customers.

Complex supply chain models evolved from this simple model, with developments in management and technology adding components across the supply chain. Many companies have come to realize that although the ultimate goal of making profit remains the same, relationships with suppliers are completely different from relationships with customers.

Supplier relationship management (SRM) includes information integration with respect to numerous areas: delivery schedules; inventory; capacity; commitment to schedules; delivery information; delivery; quality and financial performance of suppliers; quotation management or request for quotation (RFQ); credits; adjustment; and other related information in addition to its real-time tracking and monitoring. Unlike CRM, an SRM relationship generally evolves with each supplier over time based on the significance of the sourcing. An illustration of this relationship is shown in figures 2 and 3. SRM may place key suppliers at higher levels of integration, and perhaps even at strategic alliance levels, while keeping some suppliers at the procurement relationship level.

At its basic level, a purchasing transaction involves buying a product or service from a seller one time only and without any expectation of a repeat transaction. Buying items from a department store or gas at a gas station are examples of this type of transaction. The next level is where an expectation of repeat transactions and a resultant business relationship starts. The vendor is recorded in the buyer's database, the buyer is checked for credit worthiness, and a purchase order (PO) or invoice may be issued for the transaction. Thereafter, the relationship becomes more complex, with the vendor and the buyer entering into binding, long-term contracts and agreements and joint deployments of business processes.
Strategic drivers for SRM may include, but are not limited to, all of the following:
1. Consolidation of suppliers where better supplier capabilities are favored
2. Expansion into global markets
3. Pressure on price and profit from customers and competition
4. Pressure on value generation in supply chain
5. Performance requirements of shareholders

Changes in globalization and economic developments and significant improvements in quality, price, and delivery have directed many companies to shift their focus on suppliers that are located in other parts of the country and the world. In many cases, this has helped sourcing companies to develop new markets while sourcing from the same area. At the same time, however, increased global competition has placed enormous pressure on price and profit for products and services, as evidenced by global trade. Most companies are now faced with the challenge of sourcing and delivering the same products and services more quickly and at a lower cost. Coupled with the developments in IT and information management, some of these challenges are met by integrating the suppliers' information systems with customers' information systems, with improved visibility and timely decision support, while at the same time applying lean principles in order to improve their competitiveness.

In these days of rapid change, deciding the level of relationship to develop with each supplier has become increasingly important. Depending on the structure of the supply chain, strategic drivers, strategic priorities, and operational objectives, a relationship with each supplier must be established. The level and the type of relationship (buy and sell, contractual, strategic alliance, etc.) must also be decided. For example, some current strategic supply chain alliances may include third- or fourth-party logistics, service and warranty management, exclusive distribution networks, etc. All of these can be controlled and managed by SRM.

Setting up SRM starts with deciding which level of relationship your company will have with each of its suppliers. Then the rest of the steps will follow the sequence below.
1. Strategic approach and partnership level: Buying companies must identify which level of relationship they need to establish with each of their suppliers. Some suppliers will be of greater importance than others, and the development of strategic relationships with them may already be underway. Some suppliers may either be too large or too dominating, making it difficult to enter into a desirable relationship. Still others may not be significant at all. So, strategically speaking, positioning each supplier is key to the start of SRM. Negotiating a win-win proposition with each supplier is the next item to accomplish at this strategic level.
2. Supply chain preparation: It is essential to evaluate and establish a relationship with each significant supplier. At this stage, it is preferable to have a uniform business process already established. A company and its suppliers may be part of a larger chain, major suppliers may have their own business process, and smaller companies may not be willing to commit to the terms and conditions that are required. Evaluating and preparing the supply chain is a long process that may take a few years to accomplish. Once the objectives and strategic goals are established, appropriate business processes must be developed. Bringing each supplier on board one at a time may make the task easier. One must understand that this is a journey that requires time to learn and adapt to the changes in the business relationship.
3. Enabling technologies, IT, communication, and integration: There are literally thousands of technology solution providers out in the market. Companies (sometimes together with their suppliers) must decide which tools, platforms, software, etc. that they need to use. Some tools may only work in limited environments. Solution providers today are web-based, open systems and can connect with almost any other system. Considerations must also be made in relation to such integrations as level of automation, contractual obligations, real time versus frequent updates, and communication standards. The sourcing company must decide on the enabling IT to fit the needs of its supply chain strategy. The information tools must provide a necessary advantage for a successful SRM implementation.
4. Information visibility and level of sharing: After technology selection, the level, security, timing, frequency, and amount of information-sharing must be decided on and implemented. Some companies (especially those in the automotive industry) require automatic visibility into suppliers' systems and their capability to supply the requirements. For some suppliers, this may cause conflicts within their internal operations, business processes, confidentiality policies, or business culture. Issues like these must be addressed individually with each supplier.
5. Monitoring performance of operations and certification requirements: SRM software packages offer numerous tool sets to monitor the performance of suppliers. Supplier performance can be used to verify the agreed upon certification requirements.
6. Contractual obligations (such as rules, penalties, rewards, etc.): Because each supplier is different, rules and contract terms may vary from supplier to supplier. Although the goal is to bring everyone on board with the same business process, this may not always be possible. Therefore, penalties and rewards are useful in bringing suppliers in line during the process of SRM development.
7. Certification: Certification is a set of rules, business conditions, and performance requirements that is established as a general policy and defined specifically for each supplier. Certification may also be chosen to bring suppliers on board quickly. It requires extensive evaluation of a supplier's capability and ongoing performance. Based on the agreement with each supplier, contractual obligations and their related execution with rules, penalties, and rewards must be put in place. The conditions for certification must be satisfied by ongoing performance. As a resultant benefit, for example, incoming products (or services) become exempt from inspection, are delivered to point-of-use, and are paid upon use.
8. Implementation and continuous improvements: As SRM implementation begins, business processes and supplier performance must be constantly monitored, with improvements or adjustments made as required.

Once business processes have been correctly established and are working properly, they become standard, as they will facilitate improvements to the SRM process. Most companies, unless they are start-up operations, already have established supplier bases, ongoing business relationships, and sourcing-related databases. Once a company decides to establish an SRM environment within its supply chain, the process described above should begin.

SRM tools are generally used in complement to such systems as ERP. While SRM tool sets enable the sourcing company to manage its suppliers, these tool sets have many uses, and some examples are given below:
1. Collaborative forecasting, planning, and scheduling
2. Web-based connection, private trade exchange (PTX), EDI, extensible markup language (XML)
3. Request for quotation
4. E-cataloguing
5. Logistics interface with carriers such as global positioning system (GPS) tracking
6. Corrective action and improvement tracking
7. Communication repository such as e-mail

An auto parts manufacturing company automated its entire purchasing cycle using an SRM system. Purchasing was expedited, and cancellations and delays were almost eliminated. Time saved is now used to focus on strategic management. Generating 5,000 POs each year, the company saved an average of $50.00 (USD) per PO. It has improved its on-time delivery by 65 percent because it is ensured of reliable deliveries from its suppliers.

The application of an SRM solution for a manufacturer of consumer products helped to significantly reduce "panic-buying" when changes to the daily schedule would call for a change in requirements. Optimizing transportation costs further increased savings by allowing trailers to be fully loaded with needed material, requiring minimal communication. The company realized a 500 percent return on investment (ROI) within six months.

An automotive original equipment manufacturer (OEM) implemented an SRM solution. In the following three years, 90 percent of its 200 key suppliers were added to the SRM application. The OEM manufacturer no longer calls, expedites, or cancels orders via fax or e-mail. It is just a simple EDI-based communication that updates all suppliers' schedules daily.

A major hotel chain in the Mediterranean region implemented SRM as a stand-alone system for its extensive number of suppliers. Daily purchases (as well as capital purchases) can now be placed online with various certified suppliers by the users of the hotel chain. This has saved the company substantial amounts in time and material.

Today's SRM tools are marketed as stand-alone or add-on options for ERP systems. Most first tier ERP systems are already integrated with an SRM solution. Some examples of these systems are mySAP's SRM, Oracle's iSupply, and Infor's Supplyweb. These systems are typically referred to as supplier web portals. Smaller ERP systems offer them as separately purchased solutions in cooperation with stand-alone solution providers such as vSRM, Supplyworks, Supplysys, and Intelex. Based on the selection of choices and the ERP system used, prices may vary from $500 to $250,000 (USD) in license fees plus the cost of maintenance. Low-cost solution providers are available in the market that can be integrated with full functionality into any system for a license fee of $500.00 (USD) and up with a nominal user-based fee (less than $75.00 [USD] a month) for each supplier.

Even with a best-in-class ERP system, your beautiful morning can quickly turn into chaos due to unexpected problems that can arise. One of your suppliers may not be able to deliver as originally requested, and you may not know it yet. RFQs may be late or lost on a supplier's crowded desk, but you think everything is progressing as it should. You may have completed a material resource planning (MRP) run the night before and the action report recommends that a couple hundred POs be changed, canceled, delayed, or otherwise expedited. A typical procuring company has a handful of suppliers that communicate electronically through integrated systems, with the remaining suppliers communicating through a variety of manual methods such as faxes, e-mails, snail mail, voice mail, and phone calls--very costly solutions these days. SRM tools can resolve most of these problems automatically.

The SRM solution tools available today can provide many added benefits to companies. These benefits may include
1. a cross view of a supplier's inventory;
2. bar code on the go;
3. real time supplier performance view or dashboard;
4. corrective action form and continuous improvement;
5. RFQ;
6. connect anyone anywhere with any format;
7. multiple languages for each user;
8. transportation tracking;
9. EDI; and many more.

Finally, an SRM solution must be able to enhance the relationship between procuring companies and suppliers so that procuring companies can focus on best practice efforts. A correctly selected and implemented SRM solution will help companies to overcome most, if not all, of the above challenges.

Al Bukey, P. Eng., CFPIM, CIRM, CSCP, has over twenty-five years' experience in supply chain, ERP, and JIT systems, as well as in industrial engineering, manufacturing applications, management consulting, and training. President of Canadian-based ABCO Engineering and Operations Management Ltd., Bukey has been a consultant for manufacturing companies in establishing supply chain systems, implementing ERP systems, JIT sequenced delivery applications, production planning, industrial engineering, and training. He is the past president of APICS Toronto chapter, a subject matter expert of APICS CSCP program, and a frequent guest speaker at organizations. He can be reached at abukey@abcoeng.com.
http://www.technologyevaluation.com

Key Drivers For BPMS Growth
From BPM Institute /Forrester Research/Ken Vollmer

Forrester has predicted that the BPMS (business process management system) market will grow from $1.2 billion in 2005 to over $2.7 billion in 2009. What is driving this growth? The tools are forging tighter links between IT and business users and significantly enhancing the effectiveness of process improvement efforts.

Specifically, BPMS tools support:
1. Capturing process models as business metadata. A key function of BPMS tools is to support the documentation of business processes in a tool suitable for business users or business analysts. Earlier tools were able to document process models, but not in a format that could support easy reuse and/or modification. BPMS tools capture processes as business metadata and store the metadata in SOA-enabled repositories for use by IT and the business.

2. Connecting the physical and digital worlds. Advances in process-related standards are making it possible to directly connect what a business analyst models to the code that actually executes within the process server. This linkage minimizes a significant barrier to successful process improvement efforts: misunderstandings that arise from inherent limitations in communications. Expect this situation to improve even more as modeling tools and repositories become more tightly integrated, providing business users, business analysts, system architects and developers with process modeling views that are customized for their individual roles, enabling them to directly reference shared artifacts and services stored in the underlying repository.

3. Enabling real-time, end-user process monitoring. BPMS tools provide business activity monitoring (BAM) features that let business users monitor their executing processes in real time. This means that operational problems can be detected and corrective action can be taken much sooner than in the past. For example, a supervisor in a loan processing operation could detect a spike in workload causing a bottleneck in a particular operation and temporarily assign more resources to it.

4. Process optimization. Several BPMS products support the ability for end-users to change business rules on the fly, thereby enabling them to directly optimize operations without having to involve IT. This is done through the use of a library of pre-authorized and pre-tested rules that are restricted to "power users." As opportunities for additional process optimization arise, it is a simple matter of modifying the original process model to implement improved features or functionality.

5. Using an SOA registry/repository. The ability for organizations to capture and effectively re-use their business metadata is a key requirement for achieving their digital business architecture. BPMS products directly support these efforts. Process models, business rules, semantic data and pre-defined business services are examples of business knowledge that can be captured in SOA-based, metadata repositories and accessed by BPMSs using Web services. By making process models and business rules readily accessible to business users, the business side of the house can be more actively involved in the definition, monitoring and optimization of its business processes.

6. BPMS tools are providing significant benefits for both IT and the business that stem from the improved ability for both groups to collaborate more effectively. At the same time, the business personnel obtain more direct control over the design, monitoring and optimization of their core operations.

Ken Vollmer is a principal analyst in Forrester's Application Development & Infrastructure research group, covering trends, issues, and strategies related to all forms of integration, including business process management (BPM), enterprise application integration (EAI), B2B integration (B2Bi), and electronic data interchange (EDI). He has assisted hundreds of clients in North America and Europe with their integration projects, drawing upon his knowledge of vendor offerings and emerging integration trends, including the latest developments related to Web services and SOA. He is a frequent speaker at technology conferences on a wide range of technology subjects and has 18 years of management-level experience in the IT industry.
http://www.bpminstitute.org

One-Stop-Shopping" Concept in Shipping Industry Not Necessarily Popular
From Unisys

Despite the billions spent on shipping industry consolidation in the name of efficiency and better customer service, almost three-quarters of large shippers would rather do business with several shipping providers than centralize their operations with one major supplier, according to a Unisys Corporation survey of global shippers released today.

The survey, which tackled questions relating to logistics services, information technology, security and regulations, found that 70 percent of those surveyed answered "no" when asked whether they expected to move to a "one-stop shop" provider. Rather, many respondents indicated that they had an intentional, specific logistics strategy to diversify their business among multiple providers so as to encourage competition and lower prices. They felt that multiple suppliers keep prices and services competitive, and that often niche logistics providers deliver a better service, communicate faster, and are more flexible.

"These survey results demonstrate that costs and reliability are key priorities for shippers, so they understand the best services and modes to use for their business," said Christopher Shawdon, vice president and partner, Logistics Solutions, Unisys.

The Unisys survey consisted of in-depth interviews with senior management from 52 major intercontinental corporations in industries such as technology, pharmaceuticals, food and retail. More extensive survey findings will be presented at the Unisys Logistics Seminar in Nice, France, October 3-6.

Other key findings of the Unisys survey include:
Concern over fuel costs. Shipping customers are concerned that increasing fuel costs will force them to consider other alternatives--including diverting air freight to the sea - as a way to offset the rising costs of moving goods through the supply chain. When asked what would drive them to use more air cargo, three-fourths of respondents surveyed indicated that it would have to cost less.
Air capacity an issue in Asia. The peak season surge in air traffic continues to be a significant problem for companies who have shifted their manufacturing or suppliers to Asia. Survey participants expressed mixed support for making long term capacity agreements.
Bigger not always better. Respondents overall felt that the bigger a logistics provider was, the less flexible and user-friendly its systems were. Survey participants were generally satisfied with the real-time information received from integrators and perceived them to have an IT advantage with one company managing the information chain.
Security and regulations necessary evils. While most respondents believed in improved IT security, many respondents, concerned about the increased regulatory and security environment, asserted that anti-terrorism security and related regulatory requirements put the most pressure on their supply chains. However, they were resigned to the fact that security and regulations are here to stay and will likely continue to become more stringent.
Supply chain visibility works. The majority of respondents surveyed felt that IT helped move things through the supply chain faster. The faster shipments moved, the less chance there was that goods would be stolen, they said.
The interviews for this survey were conducted by Triangle Management Services, a leading independent specialist management services company within the global mail, express and logistics sectors. The respondents in this survey have responsibility for intercontinental freight, distribution, logistics and supply chain management. The companies in this survey have, on average, annual global sales of $28 billion and annual intercontinental transport expenditures of $150 million.
http://unisys.com


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