In January of this year, Fujitec America Inc. took what could be seen as a first step toward the elusive goal of total supply-chain alliance management. The maker of elevators formed a project management group to centralize control of its materials and component suppliers.
The task had been the partial responsibility of Fujitec's branch offices. Now they would be freed up to perform their intended role of sales and customer support. The burden of overseeing the company's many supplier relationships would be borne by headquarters in Lebanon, Ohio.
Compared with the ideal of total supply-chain management, the move might seem modest in scope. But supplier and project management is a huge task unto itself. Elements include product engineering, project scheduling, vendor monitoring, task synchronization and seamless communications among all design and supply partners. It was enough of a piece to bite off, for a start.
True alliance management isn't about handling commodity suppliers. It's about long-term strategic partners, who must work closely with their customers to solve inevitable glitches in supply.
For a software and systems platform, Fujitec turned to Structural Dynamics Research Corp. (SDRC), now part of data- management giant EDS and doing business as UGS. Joe Malloni, director of corporate strategy development, says the job involved collaborative management spanning a product's lifecycle, from engineering all the way to decommissioning.
Using SDRC's web-based package known as TeamCenter, Fujitec hopes to achieve complete oversight of a complex process. Previously, the company had a tough time managing its vendor base from 17 offices, says Murray Taylor, vice president of engineering. Field personnel lacked the necessary technical expertise. Vendors might be overwhelmed by multiple, uncoordinated orders for everything from small parts to entire elevator cabs.
Now, says Taylor, "we can look across all these projects. We can see where we're potentially getting into difficulty. The broader role is made possible by the technology."
There's a human angle, too. Along with the software comes the need for executive control of product management, both inside and outside the company. Reporting to Taylor is a senior manager of the Project Development Group, who provides "the glue that binds" the effort. Taylor, who previously ran Fujitec's purchasing operation, has also taken on broader responsibilities for product design and development.
But Fujitec's strategy is only the beginning of a long road. Even companies that see the value of a unified supply chain have yet to appoint one person to oversee all of the alliances that fall under that heading. Instead, says Malloni, companies are proceeding in stages, unifying such discrete tasks as procurement, design, engineering and product maintenance.
Walls Still Stand
For all the talk of collaboration, the many entities that make up a supply chain remain divided by technological and organizational walls. "Every trading partner has a different way of communicating," according to Jonathan Tice, senior vice president of global marketing with Waterloo, Ont.-based Descartes Systems Group Inc.
"There are different terminologies, protocols and devices," Tice said at the Eyefortransport conference in Las Vegas earlier this year. Second- and third-tier suppliers, many of whom are small businesses and lack sophisticated communications tools, present a special problem, he said.
Money is another barrier. Tice cited a report by RosettaNet, the high-tech industry's joint effort to create standards for data exchange, which puts the average cost of connecting with a single trading partner at $15,000. That could easily drive a company's efforts at total collaboration into the millions.
But the biggest obstacle remains the size and scope of a typical supply chain, which spans the business cycle from raw materials procurement to after-sales service. Moreover, as supply chains extend beyond national borders, companies have a growing need for global visibility of inventory. Anyone trying to get a grip on the entire process at once is courting disaster.
"Collaborative commerce begins with a focus on a portion of the organization," agrees Sharon Nelson, managing director of KPMG Consulting Inc. in Tampa, Fla. For the most part, she says, companies are still locked into a "typical silo situation," where communication between internal processes, let alone independent partners, lags.
Software vendors have rushed into the market with a huge selection of tools that promote collaboration, mostly via the internet. In theory, the internet alone, with its ease of access and minimal hardware requirements, should go a long way toward linking all alliance partners in a real-time, seamless fashion.
So what's missing? One problem is the deceptively simple nature of words like "alliance" and "collaboration." Companies with a true supply-chain perspective don't treat them lightly. More than a standard business relationship, collaboration implies a reliance on the resources of outside partners, says Nelson. And, contrary to a standard outsourcing arrangement, it typically allows the customer full access to the provider's engineering expertise, as part of the service package.
To the consultancy Accenture, formerly Anderson Consulting, "alliance" describes partners who "go to market together," says Myra Valenzuela, program manager for supply-chain ventures and alliances in El Segundo, Calif. That is likely to involve joint product development, marketing and sales. And it requires a long-term contract, which might include performance incentives and the sharing of monetary benefits that arise from the partnership. As outsourcing becomes more prevalent, the need for tight coordination among partners becomes crucial. Yet the reality becomes increasingly difficult to achieve.
Certain companies, especially in the high-tech sector, might have mature infrastructures in place to unify pieces of the supply chain. Among Accenture's clients, however, Valenzuela hasn't seen one individual who oversees the entire process in a detailed sense. More common, she says, are executives with deep expertise in one or two links of the chain.
Companies need to do better, Valenzuela says. Centralized alliance management "is a requirement now. You need to communicate more outside the walls. And you need one person with overall focus on end-to-end solutions."
She sees progress toward that end. Software providers in the area of supply-chain event management, which allows users to spot glitches anywhere they crop up, are helping to tie the pieces together. One semiconductor manufacturer has asked Accenture to take an end-to-end perspective of its alliances, both in services and technology.
But Valenzuela believes total alliance management is something that shouldn't be outsourced. The job is far too central to a company's success to be handed off to an outsider, no matter how skilled.
Titles Don't Tell All
The business world doesn't lack for executives with titles such as vice president-supply chain or vice president-alliances. But that doesn't mean the individual in question exercises day-to-day management over alliance partners. More likely, a number of experts, each focused on a small number of alliances or processes, reports to that high-level manager. "The title or appointment can fall far short of the desire to actually pull it off," says Foster Finley, vice president of consultancy A.T. Kearney Inc. in Atlanta.
He sees broader alliance management in Asia, where companies tend to exist in a complex series of interlocking relationships, often including shared ownership. Examples are Japan's powerful keiretsu, which may involve common management of raw materials, production, distribution, logistics and retail outlets.
Western business is beginning to see the value of tighter alliances, says Finley, if not along the lines of the Asian model. More often the partners remain independent, sharing only what's necessary to sustain the relationship. 1-800-flowers.com, the merchandiser of gifts and flowers through multiple sales channels, embraces a network of nearly 2,000 florists, only a handful of which are owned by the company. It also boasts 30,000 online affiliates for marketing and distribution.
"It's the largest network of partners of any operating company in the United States," says Finley. Still, the closest the company comes to centralized alliance management is an individual who is responsible for all outbound supply-chain activities.
What a Network Needs
Companies may talk of the need for a tightly controlled, multi-tiered network of supply-chain partners. But turning that talk into reality is quite another matter. Foster Finley, vice president of A.T. Kearney Inc., lays out seven "strict requirements":
On an industry-wide basis, a move toward better alliance management can be seen in the Collaborative Planning, Forecasting and Replenishment (CPFR) project, which aims to improve the flow of supply and demand data between consumer- goods producers and retailers. In its initial stages, however, CPFR didn't include all of the supply-chain partners - carriers, forwarders, consolidators, warehousers - that help to ensure a steady demand of product, Finley says. That lack of a comprehensive approach is mirrored in individual companies.
Effective alliance management got its start on the inbound end of the supply chain, says Joseph Martha, vice president and leader of Mercer Management Consulting's supply-chain strategy practice in Cleveland, Ohio. Drawing on strategic-sourcing agreements dating back a decade or more, manufacturers have sought closer ties to their raw-materials suppliers.
In particular, automakers such as Honda assembled teams, including suppliers far up the chain, to examine overall production costs. Industry leaders such as Cisco Systems and Dell Computer have nearly perfected the process of feeding production lines according to customer demand. "It's a natural evolution from [seeking] pure cost and price concessions to getting better value," Martha says.
Similar efforts are under way on the outbound end, he says. Manufacturers and retailers are setting up systems for automatic replenishment. Marketing and customer service are additional areas being mined for long-term alliances with service providers.
Outsourcing is the logical result of that effort, but it can both help and hinder the notion of centralized control over supply-chain alliances. Some companies have relied on third-party logistics providers to be their alliance managers, says Martha. Only later did they realize the importance of keeping such responsibility in-house.
The person who presides over these alliances, if anyone does, is not senior-level management, says Martha. The likeliest candidate remains one or two levels below the vice president of strategic sourcing or purchasing. As the concept of alliance management bears results, such managers are likely to rise a rung or two on the corporate ladder. He believes companies will gain a better perspective of their partners as they come to rely more heavily on outsourcing and a "virtual network" for getting product to the end customer.
The idea of a true alliance manager, with full visibility of both ends of the chain, "makes a lot of sense," says Martha, but requires two conditions: better information-technology systems linking customers with suppliers, and major changes to corporate organizational structures.
The Software View
Software vendors are divided on the existence of such a powerful individual. "More and more people are creating single positions to have supply-chain oversight," claims Marcus Ruark, president and chief executive officer of Optiant Inc. Based in Somerville, Mass., Optiant specializes in strategic supply-chain design for high-tech companies.
The design phase - including supplier selection - is an area where good partnerships are especially crucial. Some 80 percent of supply-chain costs are locked in at that point, says Ruark. For example, many companies realize the importance of optimizing inventory levels throughout the chain. As a result, safety stocks at multiple locations are going down. But to make that happen, a manufacturer or retailer needs centralized oversight and a broad view of requirements system-wide.
Technology is less of a roadblock today than organizational realities, Ruark says. The consolidation of corporate power is gradual, pushed forward by the need to better manage multiple partners, as well as install software that cuts across the supply chain. Slowing things down is a natural resistance to change, in the form of an ongoing struggle for internal cooperation among procurement, manufacturing, logistics, marketing and sales.
Frank Infelise, chief marketing officer of Apexon Inc., hasn't encountered a true supply-chain alliance manager. But Apexon, which sells software for strategic management of design, manufacturing and supply, is nevertheless focused on linking supply-chain partners. Its web-based product, Business Relationship Management, is being used by companies such as Garrett Engine Boosting Systems to manage a broad network of procurement and supplier relationships.
True alliance management isn't about handling commodity suppliers, says Infelise. It's about long-term strategic partners, who must work closely with their customers to solve inevitable glitches in supply. Better management can bring a degree of predictability to such situations, allowing companies more options than simply expediting shipments when stock levels fall. But that's only possible when a company has a view of its entire supplier base, and the way in which product moves from manufacturing to sales.
Ironically, the biggest obstacle to alliance management may still be internal. A company the size of IBM faces huge challenges in unifying its suppliers and other global partners. Recent initiatives include a fresh approach to long-term alliances, stressing mutual risk and reward, says Deborah Kirchoff, director of customer solutions alliances with IBM Global Procurement. But getting all of IBM's 300,000-plus employees on the same page is a hard enough task.
Kirchoff supports IBM Global Services, which embraces consulting, information technology services, data-management outsourcing, and web hosting. She aims to use IBM's purchasing power to achieve better deals with suppliers, as well as build alliances that draw upon the strengths of each partner, and offset their weaknesses. (Global purchases of goods and services across IBM's business units totaled $44.5bn in 2000.) Her efforts go well beyond procurement; IBM is seeking business partners on the marketing and sales side as well.
Global companies with more traditional manufacturing operations will find it at least as difficult to get a handle on their own alliances. One key, says Infelise, will be the unification of supply-relationship management (SRM) with customer-relationship management (CRM) systems - the opposite ends of the supply chain. He doesn't expect that to happen for another 18 to 24 months.
Others think the wait will be longer. "Some organizations have folks who have been doing broader pieces [of the supply chain] for a couple of years now," says Nelson. "But to reach the full extent, it will take another three to four years."
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