Making the e-business case

Oracle’s recent poster campaign boasts that the firm saved $1bn from using e-business software, and it’s certainly true that electronic operations can cut purchase costs and slash administrative expenses. But for manufacturers, there is much more at stake than saving money. Most obviously, Internet business has the potential to open up new markets – perhaps providing growth or profitability opportunities. There’s more to come. We’re familiar with the additional gains squeezed out of the system through major initiatives such as supply chain management. However, not every manufacturer wants to invest either in a hugely complex mesh of interlocking systems working in synchronisation – an inflexible arrangement that doesn’t readily accommodate changes in business partnerships and alliances – or in spectacular amounts of processing power running convoluted planning algorithms. Fortunately, there’s good news: e-manufacturing doesn’t necessarily mean vast complexity. “The market is starting to realise that there are much bigger benefits potentially to be had through relatively simple collaboration between them and their customers, suppliers and partners,” says Andy Sutton, regional director for the industrial sector for Oracle. Phil Wood, business-to-business applications marketing manager at Oracle, believes the key to unlocking those benefits is velocity. “It’s about trying to reduce the number of moving parts in a manufacturing value chain. We have very deep supply chains, but taking steps out is unrealistic. The manufacturing industry is mature enough that if there was a huge wasted process in the supply chain they’d have taken it out already.” Exchanges are the way So achieving that velocity will come about through one fundamental philosophy – that of exchanges. However, that doesn’t mean the sort of marketplace and auction exchanges we may be familiar with today. “Yes, with a procurement market site, all of a sudden you can go to the exchange and ask who out there can provide this product or service and at what cost,” says Wood. “This is a revolution in terms of ease of access to new potential suppliers, and that’s where most people focus because it’s easy to understand.” But that, according to Wood, is just the tip of the iceberg. “The philosophy can deliver much bigger benefits in three other areas – product development, production planning and logistics.” Simon Bragg, senior consultant at analyst ARC Advisory Services European branch, explains how web exchanges work. “You speed up the information flow by putting the data on one central database and giving everyone access to it – it saves the data from having to go through each company in the chain. For example, the processes involved from a distributor taking an order to final delivery involve lots of paperwork, and if that could be done on-line the process would be speeded up dramatically.” Just how dramatic is illustrated by Ford’s goal of cutting the design time for a new car from four years to merely 18 months. “All manufacturers have pressures to develop products faster,” says Sutton. “However, they are increasingly outsourcing more and more of the design to the supply chain. Therefore, any change means a lot of toing and froing of design information, and that takes time. If instead you have a central hub or product development exchange holding all the information, such as CAD drawings, then any change to a parameter is immediately visible to everyone involved in the design.” Product development is only the first of three areas where exchanges can revolutionise manufacturing. “There’s a similar serial flow of information up and down the chain in the planning process,” explains Sutton. “There are associated time lags, and to compound the situation, the demand at the top can suddenly change, or there is a shortage further down.” By making capacity and demand visible in real time via a supply chain exchange, manufacturers can start to plan more effectively across the entire chain. Immediately there is a demand change or a shortage, it is visible to everyone in the exchange. Slashing cycle times Once again, huge savings are possible. Currently in the automotive industry, the order to delivery cycle is around five weeks, of which four weeks is taken up with the manufacturing process and one week in delivery. “The target for the big vehicle manufacturers is to cut the manufacturing time from four weeks to just four days,” says Sutton. Finally, the third area where exchanges can have a major impact is logistics – that one week it takes to deliver the car. Currently, between 33 and 40% of all delivery capacity in the UK is wasted, according to Bragg. “Trucks are running around the country empty. Sharing information would undoubtedly lead to efficiencies in logistics.” A transportation exchange would match the supply and demand of transportation capacity around the road and rail network, by linking customers and suppliers. This would lead to lower costs and higher resource utilisation, but also to shorter delivery times. That final week in the life of a new car should come down to just one day. So e-manufacturing can not only bring about greater efficiency – saving administrative work, lowering costs, and ramping up utilisation of resources such as production capacity and transportation – but also greater effectiveness. Not every manufacturer will find appeal in all three areas. “There are differences in how you apply e-business depending on your industry,” says Bragg. “Automotive has one set of issues, and retail another.” The potential of exchanges to increase effectiveness is exciting, but does e-manufacturing stop there? Not according to Bragg. “It’s the ability to partner through collaborative e-manufacturing that will deliver key competitive advantage,” he believes. “Companies have to change from worrying about making a better product, to becoming a better partner.” And the collaborative way of life that exchanges bring about is the starting point.