Six years ago hardly anyone had heard of the internet. Today, some 250 million people worldwide are online, web-based sales are exploding and companies are collaborating with thousands of trading partners in vast virtual marketplaces.
The speed and scope of this revolution has put tremendous pressure on traditional business practices. Old ways of operating - including managing supply chains in a linear, sequential fashion - no longer work. Driven and enabled by the internet and its technologies, supply chains are morphing into something more akin to intelligent webs.
"What the internet definitely does is force us to think in terms of a network model, one that is comprised of multi-dimensional, complex nodes and links," says Richard Sherman, senior vice president of EXE Technologies, Dallas. "This model is more organic, more like a strand of DNA."
Different models require different solutions. "Order fulfillment in the internet age versus the telephone age is akin to rockets versus draft horses," says Steve Christensen, vice president of sales at Renaissance Software, Lake Success, N.Y. "Certainly they are both methods of travel. Yet, the underlying technology and resulting speed could not be more different."
The transition to an internet-enabled, networked supply-chain model has many facets, all of which play off one another and most of which cut two ways.
One is the sheer ubiquity of information. "Everybody has access to better information, which means their standards and demand for customer service and quality exponentiate," says John Geraci, senior vice president of global marketing at Industri-Matematik International, a software vendor based in Tarrytown, N.Y. It also means that information, and the supply-chain visibility it enables, become a part of the service.
This is most obvious in the business-to-consumer (B2C) sector, where buyers have shown little tolerance for less than perfect response. "Consumers essentially expect perfection in the fulfillment process," says Robert Mann, associate partner in Andersen Consulting's supply-chain practice. "And because of the visibility they expect with web-based selling, a company's ability to perform or lack of performance is a lot more transparent to their consumers, so that puts a premium on accuracy and being able to execute."
It is no longer good enough, he adds, to have good performance across all pieces of the chain; the entire chain as a whole has to function essentially perfectly.
Fortunately, the information and visibility that consumers demand also is part of the solution. Using the internet and latest advances in software, companies can extend their view of inventory up and down the pipeline and use dynamic messaging capabilities to keep partners and consumers informed.
"If we can actually see what is available and what is coming and going, we can notify the customer properly," says Henry Bruce, vice president of global marketing at software vendor Optum, White Plains, N.Y.
More importantly, companies can plan work to eliminate unnecessary delays. "Often businesses have product coming from multiple suppliers and it is crucial to have that information in advance so they can time their work to do in-transit merging of products and to facilitate flow," he says. "If you know what is incoming, you can more easily move that product straight out the door."
Velocity of product flow contributes to what is perhaps the key characteristic of web-enabled supply chains: speed.
"The buying public expects internet orders to be fulfilled much quicker than traditional orders, but in an environment where the pull-through of goods from manufacturer to ultimate consumer is being dictated one and two at a time," says Todd Carter, senior vice president of sales for GATX Logistics, Jacksonville, Fla. Traditional distribution centers, accustomed to dealing with pallets instead of packages, are not set up to handle this type of operation. "Now companies have to figure out how to do it one piece at a time. That makes for a very different looking supply chain than in past."
Dan Trew, vice president of product strategy at Milwaukee's Catalyst International, agrees. "Traditional companies accustomed to sending full pallet quantities out to stores don't have a warehouse set up to do a lot of single-item or open-case picking," he says. "To configure a warehouse to do that type of picking requires a lot of physical changes in the facility." It also is far more labor intensive and requires different work flow patterns, he notes.
These trends are apparent in business-to-business (B2B) commerce as well. "Every industry is experiencing the pressure for speed so they can get to market faster with shorter cycle times, and also the movement from pallets to pieces," says Bruce. The latter "is a fundamental change which has been brought on by the internet and this information age," he says. "Now I know my demand better, I can just order what I need for today and tomorrow, then order again. I don't have to hedge my bets by keeping inventory because I lack information. This transforms everything and it ripples back up the supply chain to my suppliers and they all have to adjust accordingly, which is becoming a painful process."
One indication of this change, he says, is a "will call" mentality on the part of business customers. Cable manufacturer Anixter, one of Optum's clients, has had to develop a process to deal with customers who call in the morning and want an order the same afternoon, Bruce explains. "Companies are having to change their culture and their systems to deal with these types of demands, because if they lose one customer, that might become a stream, and the stream might become a rushing torrent, and the next thing they know they're not growing anymore."
E-speed is pervasive and seen at every level of the supply chain. "In the internet environment everything happens instantaneously," says Sherman. "A one-second response time on the web is becoming intolerable. That changes the way we look at time."
It also dramatically changes customer loyalty and the value of brands. With competition only a click away, companies spend huge amounts of time and money trying to learn everything possible about their customers so as to increase the "stickiness" of their web sites.
The bottom line, says Optum's Bruce, is that "speed is everything; size no longer matters. It used to be in business that the big would eat the small," he says. "Now, it's the fast that are overtaking and eating the big."
The greatest time pressure actually may be in the rush to stake out a space on the web before competitors get there. Early adopters have been richly rewarded with amazing market valuations. "What we are seeing now is a land grab," says Geraci. "For dotcoms, the time to market is crucial. Their mantra is get big quick or die, and they are beginning to understand that death not only comes from a failure to get market share, but a failure to execute on delivery and customer service."
The mandate to get up fast has, in turn, forced technology vendors to accelerate their implementation times. "In the past companies ordinarily would have allowed nine to 12 months for implementation of warehouse management, says John Fontanella of AMR Research, Boston. "Today, dotcoms are requiring implementation in two to three months."
"We have done four or five dotcoms in the past six months and implementation time has averaged 10 to 12 weeks," says Sherman. EXE soon will announce an off-the-shelf fulfillment capability in the B2C area that will allow companies to get up and running in 90 days or less. Third parties are coming up with similar approaches. And this compressed timeline is not limited to small start-ups - Optum installed 303 sites at industrial giant W.W. Grainger in just five months.
This rush to market also results in an attitude that Andersen's Mann refers to as the "Nike School of Just Do it." The idea is that no one can afford to wait until they know all they should. They have to act now and learn in the process.
"Winners are recognizing that you never get it right the first time, you learn by doing multiple iterations quickly," says Bruce. "You get something up, learn from it, and adapt, adapt, adapt."
Fontanella agrees. "More and more with the speed things are changing, companies are not always going to get it right the first time or even the second time," he says. "You have to be able to learn from your errors and not be crushed, but come back with alternatives."
Mann warns companies not to misinterpret this, however. While Andersen's studies have confirmed that consumers are tolerant overall about the learning curve associated with new technology, that doesn't change the picture in terms of relative competition between companies. "Just because consumers are tolerant of e-commerce as a whole doesn't mean they will be tolerant of a specific company's poor performance," he says. "They will go to somebody else."
Yet another factor crucial to e-chains is a high degree of flexibility, both in products and services. The enabler, as always, is technology, which is itself becoming far more configurable. "Today software is being designed so that users can go in, using plain English, and put in complex business rules, instead of having a program or systems integrator go through a complicated customization program," says Fontanella.
This allows a degree of personalization not possible before, on the back end as well as the front, and in a way that allows companies to do business the way they have always wanted, says David Mars, director of e-business operations at QAD, Carpinteria, Calif. "Say, this company wants to do business with buyer or supplier A one way, and with buyer or supplier B in a completely different way. All those preferences can be configured into the technology and automated."
New systems that are being built for the internet, he says, "are based on objects and designed all around Java, which allows this kind of flexibility. Traditional enterprise systems weren't designed for that at all."
Agility and adaptability are a must, adds Bruce, because "responsiveness is to the internet age what efficiency was to the industrial age."
Vital to visibility, speed and flexibility are the fast and cheap communications links provided by the internet.
"The internet is very scaleable," says Fontanella. "It can allow the very largest to the very smallest business partners to communicate on a fairly equal level, whether through industry standards or EDI standards. And the more people or partners that you have connected electronically into a community that can communicate real time or near real time, the more powerful your supply chain will be."
New Business Models
J.B. Hunt Logistics, Lowell, Ark., uses simple internet communications to gain better control of inbound transportation from its clients' suppliers. To achieve this without the internet, says President Jun-Sheng Li, "we would have had to tie the suppliers' and distributors' systems together using traditional EDI, and if you have thousands of suppliers, that's a very expensive information linkage." In addition, he notes, many older EDI systems are equipped to send orders, but not information on transportation activity. "So you would have had to go back through and change the system and get all those thousands of vendors involved in making it work.
"With the internet, you don't have to mess with all of that. You broadcast information on the internet and each supplier puts in their user ID and password and accesses their specific information. It doesn't require any special wiring, just a few hundred dollars for a computer and browser. Just think of the money this saves."
Large companies are not going to walk away from their huge investments in EDI overnight, however, so some software vendors are focusing on ways to help smaller companies that don't have EDI look as if they did. EXE, for example, has a product called e-Probe that takes messages entered on a personal computer and translates it into an EDI format.
Impress Software, a German company, has come up with a solution for automaker BMW in South Africa that may be adopted as an industry standard in that country. When BMW sends out EDI messages to its suppliers, those that are not EDI capable automatically receive an e-mail telling them to log onto the web site and view the information. When an individual does read the message, the event is recorded so that BMW knows it has been seen.
Many industry players believe that EDI eventually will be supplanted by the internet's extensible markup language (XML), which is more open and flexible than EDI as well as being less expensive.
"We have adopted XML because by so doing we can communicate to disparate systems and trading partners without having to go through a lot of customization and coding to interpret messages," says Optum's Bruce. As a result, he says, the cost and time of system implementation have gone down.
"Basically, I think we ultimately will see EDI go away," says Bruce. "Right now, in industrial distribution, the cost per order for these transactions is something like $25 and with new technology you can take it down to $4 - that $21 difference is pure profit."
"What we are seeing is that the internet, and the technologies around the internet - Java, object-oriented modeling, XML, browsers, security firewalls - all are being put together to form e-business solutions that have just overwhelming potential to improve supply-chain performance and reduce supply-chain costs," says Mars. "These are not small improvements. They are really transforming how people do business."
The following articles provide a closer look at how such transformations are taking place.
Timely, incisive articles delivered directly to your inbox.