In a time of global, multi-tier supply chains, manual, paper-based processes just don’t cut it anymore.
Continental Tire knew it 10 years ago. That’s when it began exploring ways to automate its communications with key suppliers.
Their numbers were vast – around 1,500 at last count, according to Michael Okon, head of inbound supply chain management for the purchase of direct materials in the company’s rubber divisions. Most suppliers are located in Europe, but a growing number come from Asia as well as the Americas.
On the raw materials side, Continental’s method of communicating with suppliers was decidedly manual. Purchase orders and other messages were sent via fax or e-mail, often in the form of printouts from the company’s enterprise resource planning (ERP) systems.
The results were hardly surprising: long processing time for orders, snags in communication and the inability to confirm whether key information was properly received. So it goes in the world of paper.
Continental began discussing how it could improve the situation through the use of electronic data interchange (EDI). It was motivated in part by requests from automotive manufacturers, who wanted to connect to their own suppliers via the format. The company had two choices: either acquire the capability directly, or access it through an intermediary platform.
The second option prevailed. Okon says the company believed the use of an outside vendor would bring more benefits, linking Continental to every one of its first-tier suppliers.
Fittingly, Continental chose RubberNetwork, a global sourcing company with expertise in its own sector: the tire and rubber industry. Soon after, though, Continental found itself with a different partner, when RubberNetwork merged with Elemica.
A Question of Synergy
Elemica’s focus was on process industries, still a good match for Continental if broader in scope. The acquisition took place in 2009, bringing together two entities with both complementary and overlapping areas of service. “There were a lot of synergies to be captured between the two,” says Omar Nadi, director of supplier product management with Elemica.
From the outset, Elemica worked hard to understand Continental’s specific supply-chain challenges. “Continental has been a very close partner from the beginning,” says Nadi.
For its part, Continental needed to demonstrate the benefits of partnering with an existing supply-chain network before it could implement the platform. “We had to have a clear business case,” recalls Okon. Internally, the effort required buy-in from top management as well as corporate and plant-level purchasers – “the people who finally have to operate that system.”
A similar outreach took place with Continental’s supplier base. The company focused first on those partners with the most volume, as well as the ones that were most open to innovation.
It was essential that Continental design a realistic time plan for completing the implementation. “We saw from the beginning that it would not be a sprint, but rather a marathon, to connect our suppliers to the system,” says Okon.
Considering the obvious drawbacks of a manual system, one might think the company had an easy sell. But there was a certain degree of pushback from purchasers, some of whom were reluctant to embrace a new method of negotiating with suppliers. What’s more, they had to be convinced to trust that the new means of communication would supply the necessary information in a timely and reliable manner.
They came on board when the initial implementation showed quick results. Having connected with the first group of suppliers, “we had fewer problems, and could show [the benefits] to more skeptical parties,” says Okon.
How to Coax Suppliers
On the supplier side, Continental didn’t threaten to abandon suppliers that failed to adapt. But it did pointedly inform laggards that their competitors were already in the system. In the end, it was able to bring over the lion’s share of its supplier base to EDI communications via Elemica.
Continental and Elemica started with the basics, automating the order-to-invoice process, says Nadi. Subsequently, they moved on to incorporate logistics signals, linking up with freight forwarders and third-party logistics providers. Nadi calls the initiative “a great example of how purchasing has evolved from cost management to a process-engineering discipline.”
Suppliers interact with the system according to their level of I.T. sophistication. Some link up with Continental’s ERP system, exchanging messages such as available-to-promise confirmation. Others get their information from Elemica’s Web portal via a standard browser.
The partners continue to seek opportunities to automate Continental’s supplier relations. Currently they’re working on incorporating risk management into the mix, a move that will draw on “big data” feeds from the network to provide additional insights, Nadi says. Other possibilities include expanding more collaborative replenishment processes, such as vendor-managed inventory and scheduling agreements.
Elemica is more than a pure EDI vendor, Nadi notes, adding that the provider incorporates multiple messaging formats, including XML and flat files. “We consider ourselves a business network,” he says. “Our job is to make sure we can connect any partner independent of how sophisticated their I.T. capabilities are.”
Okon says the system has allowed Continental to do a better job of supply-chain planning, and reduced its need for “firefighting.” The use of expedited freight, for example, has dropped “significantly” over the last couple of years, with the company’s ability to detect problems earlier. It has realized “seven-digit” savings in that area alone. And while headcount reduction wasn’t the goal from the start, Continental has saved additional money by reducing the number of new hires it would otherwise have needed to keep pace with growth.
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