Collaborative supply chain systems 200% more difficult, but set to increase

Online supply chain and e-business initiatives, with the emphasis on collaboration between interested parties, are likely to creep up the IT investment agenda next year, but only slowly and largely on the back of existing enterprise system (ERP) enhancements, according to analyst AMR Research. At its European Executive conference in London this week, the firm revealed research indicating that although supply chain collaboration and e-business (loosely defined) are accepted by manufacturers as being theoretically advantageous, adverse economic factors will continue to hold it back. Simon Pollard, senior supply chain consultant at AMR, says “There will continue to be under investment. No one can dispute that if companies did invest in [supply chain] systems there would be a return, but manager have a portfolio of projects and the conditions mean there are smaller numbers of projects, smaller investments and lengthening decision cycles.” And he adds that the concept of collaborative commerce may well have been tarnished by the failure to date of e-business on the whole to show good ROI (return on investment) – a fact confirmed by UK manufacturing market researcher, Benchmark recently. He insists, however, that manufacturers, at least in the mid to large league, should be continuing to look outwards and put supply chain investment higher up their corporate agendas. “The problem is still islands of information,” says Pollard. “Less than 10% of companies have in any way integrated systems and supply chains. Sales and operations planning once a month is fine, but three minutes after the plan is agreed, everyone is going their own way and not telling anyone else – and all hell breaks loose.” And he continues: “Supply chains today are very, very inefficient. Less than 20% of mid to large companies are using sophisticated supply chain software.” And he adds that with the existing situation of poor measurements and poor grasp of key performance indicator before and after system implementations, establishing hard ROI is likely to continue to be a problem. In fact there’s more: other barriers include confusion in the market as to which aspect of supply chain systems and improvement manufacturers should invest in, and the fact that supply chains still comprise separate companies. “If you’re not the channel master it’s difficult to impose collaborative commerce on you ‘partners’,” concedes Pollard. “In fact it’s 200% more difficult because it’s not just your problem – it’s all the others too.” Pollard says users need to look carefully at their own businesses and their processes, manufacturing and supply chains today, and map those to the various levels of supply chain applications available – from network planning to logistics and transportation. And he says AMR is in the final throes of putting together best practice documentation to help users do just this – by adding detail in the form of the spectrum of existing to best processes across industry to its existing ECM (enterprise commerce management) IT framework concept. “There will be level of detail drilling down from ECM,” he explains. “It’s already been validated with several users.” And he urges manufacturers not to worry: “Less than 5% of companies are at the leading/bleeding edge of collaborative supply chain technology. 95% are not anywhere near there yet. “You only have to look at the application of supply chain software. Even companies that have bought sophisticated systems from Manugistics and i2 are often using less than 10% of it – the rest is on the shelf. Users need to consider their own and their partners’ ability and readiness to adopt the software. That’s what’s constraining progress.” But he insists that the last six months have witnessed almost a sea change in users’ attitudes to supply chain systems – particularly those based on their ERP systems. Its latest survey of about 100 users showed a striking increase in firms now bent on extending their ERP systems for this kind of purpose. “The scope of ERP’s integrated footprint is increasing and progressively embracing collaborative applications and processes,” says Pollard. And he is unequivocal: “Companies are developing their ERP systems to look externally – inside their four walls is already done.” It’s a notion that might cause the odd eyebrow to be raised, and AMR’s research is inconclusive as to quite where investment is going. Customer relationship management (CRM), CPFR (collaborative planning, forecasting and replenishment) and supply chain planning applications do seem to have turned on in the last six months. But internal areas of investment aren’t covered. Nevertheless, although coming from a relatively small sample base, the research certainly suggests that ERP is considered by the vast majority of mid to large companies as central to whatever happens to its collaborative e-business initiatives. With IT spending set to go back into growth mode again next year, according to AMR and Benchmark Research, and manufacturing’s boards of directors much more aware of the realities of IT initiatives, we can expect investment patterns to be a very mixed bag indeed.