There's no better place to conduct buyer-supplier relationships than on the internet. The technology would seem a natural fit for companies looking to get closer to their suppliers and streamline supply chains in the process. So why has the road to supplier portals been marked by so many obstacles?
In the late 1990s, at the height of the dot-com mania, hundreds of entrepreneurs stepped forward with Web-based "solutions" for enabling buyer-supplier transactions. Some were industry-specific; others took a broader approach. Some involved an intermediary; others didn't. In addition, there was a split between portals meant to serve the needs of a single large retailer or manufacturer, and those that invited multiple participants.
It has taken time for this hodgepodge of approaches to sort itself out. And questions remain about the best model for particular companies or industries. But one thing is clear: most of the surviving channels for buyer-supplier collaboration look radically different from those of a decade ago.
Supplier portals were cheap and easy to set up in the early days, says Jane Barrett, research director in the Value Chain Strategies team of AMR Research in Boston, Mass. But designers didn't think strategically. "Companies weren't taking a holistic view of supplier performance management and collaboration," she says. Many portals, especially those that featured auction capability, seemed bent on getting buyers the best deals. An initial focus on indirect procurement, such as office supplies, as well as on spot-buying and excess inventory, only served to heighten the sites' obsession with price.
"The leaders were hopeful that they could set up a toll booth along the information highway and collect," says David Hope-Ross, senior director of procurement and supply chain management with Oracle Corp. "As a result, you saw companies come out with ill-founded business models. The only barrier was a business card."
Suppliers, not surprisingly, pushed back. Many saw portals as just another means of boosting discounts for buyers. ("Auctions," says Hope-Ross, "were like the Super Bowl of procurement.") Highly touted efforts such as Covisint in the automotive industry fell short when many suppliers refused to sign on.
A transactional mindset doomed other efforts. Early portals-also known as trading exchanges-looked to automate basic, day-to-day processes without seeing the bigger picture. Since that time, says Barrett, successful ventures have taken on value-added services such as the exchange of data for forecasting, product design, shipment tracking and point-of-sale.
These new networks share a few attributes, says AMR. They offer a single transaction backbone. They feature common instances of software for multiple users. They provide scalable communications platforms, utilizing standard message formats. Their members share customers, suppliers and service providers. They allow for common applications to be added to the platform. Most importantly, they create a business network that includes retailers, manufacturers, logistics providers, suppliers, contract manufacturers and other channel partners.
As a result, AMR says, buyer-supplier portals are finally beginning to yield the promised benefits of a decade ago: more disciplined spend, shorter lead times for orders, less wasted inventory of raw materials and finished product, and more efficient document flow.
Portals can help to reduces prices and improve supplier quality, Barrett says, but it's no longer a one-way street. Suppliers who fall short on key metrics might be offered guidance on how to implement quality measures. Enlightened buyers "actually help suppliers to get things on track, rather than beat them up or go to someone else," she says.
Automakers Try Covisint
Covisint was one of the most ambitious attempts to create a platform that would involve multiple suppliers and buyers within a particular industry. It was launched in 1999 by six of the world's biggest automakers: General Motors, Ford, DaimlerChrysler, Nissan, Renault and Peugeot. They were seeking a central place for dealing with their armies of parts and component suppliers, representing billions of dollars' worth of spend.
The effort didn't pan out as expected. Many suppliers, especially those beyond the major Tier 1 players, declined to participate. The entity's auction services were eventually spun off to FreeMarkets, which later became part of Ariba Inc., a vendor of spend-management software. The remaining technology went to Detroit, Mich.-based Compuware Corp., which has turned Covisint into a collaboration hub that can be applied to multiple industries.
On the automotive side, Compuware Covisint serves major players such as Ford Motor Co., GM, the newly split Chrysler LLC and Daimler AG, Mitsubishi Motors Corp. and Suzuki Motor Corp., along with a host of Tier 1 suppliers. While automotive makes up most of the business, Covisint provides its on-demand collaboration software to companies in the healthcare and financial sectors as well.
The provider stresses data security, a sticking point in the early days of trading exchanges. Rival companies balked at the idea of running their data through a common system, even one with secure firewalls. The new venture's heightened security mechanism "is one of the reasons that we've been able to grow from a revenue standpoint," says Mike Minelli, vice president of automotive marketing and sales. "Fierce competitors ... need a trusted third-party if they're going to use an on-demand service to federate applications or users across their community."
One big advantage of Covisint, says Minelli, is its "single sign-on" design. A supplier can log on to the portal once, then access the individual portals of its various customers in one session. Yet sensitive information never moves between competing companies.
Suppliers, once suspicious of the portal concept, have embraced the new version of Covisint, Minelli says. The portal currently hosts some 45,000 trading partners and supports around 2 million linkups, or "federations," per month. They include smaller suppliers with access to nothing more than a telephone or dial-up internet connection.
Participants use the network for exchanging information related to inventory management, ordering, invoicing, production and other key supply chain activities. A global logistics application lets carriers, freight forwarders and logistics service providers feed in data about the status of shipments. Manufacturers can obtain real-time information about delays in the chain, while ensuring that critical documents are conveyed to customs in a timely manner.
The Boeing Experiment
Other portals have experienced similar growing pains. Herndon, Va.-based Exostar LLC specializes in software and collaboration hubs for the aerospace and defense sector. It is owned by The Boeing Co., BAE Systems, Lockheed Martin Corp., Raytheon Co. and Rolls-Royce. More than 34,000 trading partners communicate on the system.
Most significantly, Exostar acts as the hub for communications between Boeing and its suppliers on the 787 "Dreamliner" project. The project is a radical step for Boeing, which is relying on suppliers to build large sections of the new aircraft, which are then assembled at Boeing's facility in Everett, Wash. The expanded role for suppliers puts additional responsibility on the shoulders of Exostar, which ensures that thousands of partners involved in construction of the 787 are tightly linked each step of the way.
Recently, however, that plan hit a snag, when Boeing announced that delivery of the aircraft would be delayed due to problems in coordinating global suppliers. Originally scheduled to debut in the summer of 2008, the Dreamliner has been pushed back to the middle of 2009 at the earliest.
Peter Scott, vice president of marketing and corporate development with Exostar, says the principals realized that they needed even more visibility into the supply chain than they had envisioned. "We need to deploy deeper and faster," he says. Boeing and its suppliers on multiple tiers require quick information so that they can react to schedule changes without disrupting the entire chain. The manufacturer had found itself coping with parts shortages and out-of-sequence deliveries, which can play havoc with a system that is designed with little margin of error.
In fact, supplier portals like Exostar are being asked to carry out far more complex tasks than their prototypes of 10 years ago. Scott says the ventures were quickly forced to depart from a transaction-based model in favor of addressing the true complexities of global supply chains. Meanwhile, technology advanced to the point where portals could support a "network-centric business model" involving the two-way transfer of information among a universe of partners. In a sense, Scott says, the exchanges became a business-oriented precursor to the social networking sites that exploded in popularity shortly thereafter.
E2open, based in Redwood City, Calif., provides the software that underlies the Exostar platform. Senior vice president Lorenzo Martinelli says it took a while for his company to find its footing in the marketplace. Created in 2000, E2open originally offered auction capability, but that turned out to be less popular than elements of the "procure-to-pay" lifecycle: collaborative forecasting, inventory replenishment, vendor-managed inventory, logistics. E2open's niche turned out to be the execution of key supply chain activities, including end-to-end tracking of orders.
Glitches that arose in the 787's supply chain actually showcased the value of the Exostar venture, Martinelli believes. It's all a matter of deciding which suppliers and parts need the highest degree of monitoring, and adjusting priorities when problems arise. "No matter what you do, you always run into issues," he says. "The fact that there is a platform in place means you can correct it in a matter of weeks, instead of taking months to figure it out."
From the start, many businesses underestimated the technology that would be required to create true supplier-buyer collaboration. They assumed their enterprise resource planning systems could handle the job. That's fine for managing internal processes, Martinelli says, but it's insufficient for communicating with a wide range of partners outside the organization.
The advent of software as a service (SaaS), whereby applications are hosted by vendors from an outside location, has helped to promote the development of portals. The technology avoids the need to invest in elaborate in-house systems, Martinelli says, while making it easier for companies to adjust to changes in the market, and install updates.
Turmoil in Retail
In the portal wars, the retail industry has seen its share of turmoil. For a time, two entities - the Worldwide Retail Exchange (WWRE) and GlobalNetExchange (GNX) - vied for sponsorship from big retailers. Neither ended up delivering on its promised value. In 2005, they were merged into Agentrics LLC, which today boasts participation by more than 50 of the world's top retailers, including Carrefour, Kroger, Tesco and Walgreen's.
Wal-Mart Stores sparked the concept of supplier portals with creation of its proprietary Retail Link software, says Mike Reardon, director of collaborative solutions with Alexandria, Va.-based Agentrics. Another trigger was the industry effort known as Collaborative Planning, Forecasting & Replenishment (CPFR), which provided a means for suppliers and retailers to get together on promotions and other activities. The idea, says Reardon, was to "encourage the supplier to participate in demand planning and the supply chain process that had previously been owned by the retailer."
WWRE and GNX were attempts to translate the Wal-Mart model into a pooled entity with multiple customers. Because major retailers were split between the two, however, neither had enough clout to achieve desired economies of scale. "It made sense for them to come together," Reardon says.
Earlier this year, Agentrics further boosted its influence by joining with Germany's SINFOS GmbH, another retail data pool, to create SA2 Worldsync. The new effort will help small and mid-sized suppliers to synchronize their data with retailers. The deal creates what Reardon claims is "the world's largest global data pool for data synchronization."
Agentrics is paying special attention to private-label merchandise. Its platform allows users to share information on product ingredients, growers, packaging and design. Auctions can be conducted through the vendor's electronic sourcing application, although the main focus appears to be on guiding private-label brands through their entire lifecycle, while allowing for the sharing of relevant business processes. Suppliers, for their part, "can streamline their operations and build better business relationships with the retailer," says Reardon.
Some portals have found success by pursing more narrowly defined missions. Alameda, Calif.-based GT Nexus got its start as an electronic means for the exchange of messages and documents between ocean carriers and shippers. It chose the ocean mode "because it's so central to global trade," says president John Urban.
Some 90 percent of international commerce moves via ocean, Urban notes, with thousands of potential trading partners at hand. GT Nexus comes into the picture at the moment a participating buyer creates a purchase order with a supplier. The P.O. is sent and acknowledged via the portal, which provides visibility of that order across the various stages of transit.
GT Nexus also facilitates carrier bookings as orders become ready to ship. That functionality emerged when the portal adopted a reservation system similar to those found on travel-oriented web sites. Customers can place bookings and submit shipping instructions online. From there, GT Nexus moved into transportation management, so that shippers today can follow the progress of orders all the way to the store shelf.
GT Nexus has since added other modes of transportation, especially airfreight. Now it's moving in new directions. In 2007, it announced GT Nexus Trade, offering trade and financial services with the help of several large banks as partners. Urban says the company wants to help companies move from letter-of-credit to open-account financing, obtaining better terms in the process. More recently, GT Nexus acquired Metaship AG, a German provider of logistics management software for shippers and third-party logistics providers. The deal also represents a bigger push into the European marketplace.
From All Directions
Portal technology can come from many kinds of vendors. Some maintain the actual portals, while others create the software that runs it, or allow buyers and suppliers to fashion their own communications links. Oracle, one of the world's largest "enterprise" vendors, offers an online, self-service portal for suppliers. "It picks up where strategic sourcing leaves off," says Hope-Ross.
Suppliers get a single interface for such things as managing banking details, conducting contract negotiations, sharing manufacturing forecasts, and supporting vendor-managed inventory programs. But the actual system that a company deploys for extended procurement activities depends entirely on the user and industry. "It always ends up horses for courses," Hope-Ross says. "There isn't a winning model."
At the very least, a working portal must go beyond purchasing to include the exchange of vital information. Glovia Services Inc., based in El Segundo, Calif., offers a variety of business software, including applications for operating customer portals. Jim Errington, director of sales support, says his customers want more than a site that lists items for sale and solicits prices. While that idea might work for commoditized items, it is less valuable for the sophisticated components in which Glovia's customers specialize.
Glovia's portal offers, not just information on outstanding purchase orders, but real-time advisories on whether a given order is achievable. Based on the answer, users can adjust delivery dates or split quantities. The resulting information is then fed back into purchasing and planning systems. In addition, companies get information on which items have been received, which are about to be returned, and the status of accounts payable. Finally, suppliers can use the system to view forecasts and production requirements.
Glovia also offers an electronic kanban feature that allows for automatic reordering when parts reach a certain level. Suppliers receive notification and are asked to confirm the order and specify a delivery point. "Those are the things that we're finding suppliers are looking for," says Errington. "They want that [level of] partnership."
Irvine, Calif.-based Epicor Software Corp. is a vendor of ERP systems as well as related supply chain software. Its applications serve as a "back office" for supplier portals, linking users to various exchanges via electronic data interchange standards. Rod Winger, senior director of product marketing, manufacturing and supply chain management, says portals didn't come into their own until they began to embrace collaboration between buyer and supplier. Their development has been aided by the maturing of software and the internet and increased bandwidth to move data around the world.
The mechanisms will continue to grow in value, Winger says, as traders embrace global standards for identifying products and exchanging documents. Ten years from now, he says, "we could have one massive data repository-it doesn't matter where it exists-where you simply publish and subscribe. You never define anything internally. Everybody is on the same parameters."
AMR Research, www.amrresearch.com
Compuware Covisint, www.covisint.com
Glovia Services, www.gsinnovate.com
GT Nexus, www.gtnexus.com
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