Spring 1996 € Volume 1 € Number 1

The Supply Chain's Missing Link

When time is money, the Internet can be a valuable tool in quickly tying together the key participants -- supplier, customer and manufacturer -- in a supply chain transaction.

By David Flood


According to a recent survey conducted by CommerceNet Consortium and Nielsen Media Research, the use of the Internet has gone way beyond the traditional uses such as E-mail, chat groups and library searches. The survey points out that about 50 percent of all uses of the Internet for persons over the age of 16 have been for business purposes. The key uses and percentage of usage are as follows: Sure there is a lot of hype surrounding the Internet. While much of this excitement about the Internet is focused on the uses of the medium as a selling and purchasing tool, one can see that, to date, these requirements are at the bottom of the list for most businesses. Collaboration, communication, support and information comprise the important uses of the Internet in today's business model.

Certainly, buying and selling will increase dramatically as the WWW (World Wide Web) continues to grow as a marketing tool for most businesses. The key information in this survey, however, is the relatively high degree of usage in the area of service, support and communication between a business and its suppliers and customers.

It has been common practice for manufacturers to share information with key suppliers on the same media that was the most common for their system's output; i.e., tape, diskettes or paper. Fortunately, times are changing. Fast becoming a new norm is the Internet, and specifically the WWW, as a master source of information. Eventually, this new medium will be a rich avenue for sharing information between manufacturers and suppliers as well as customers.


Enabling Link
While far from today's primary use, the Internet will be the enabling link that ties together the key participants in a supply chain transaction -- the supplier for components, raw materials and capacity; the customer for source of demand, income and product usage; and the manufacturer linking together plants, distribution centers and warehouses that are geographically dispersed. These supply chain entities are involved in a tight relationship where information is vital to success. And the speed at which these participants become aware of changes in demand or supply will determine tomorrow's competitive advantage.

Historically, in-house networks, albeit expensive, have helped the manufacturer tie the corporate pieces together, but this same infrastructure did not easily accommodate customers and suppliers. With the advent of enhanced communications and low-cost servers tied directly into high speed networks, there is now an ability to use the Internet as the communications medium to bring the components of the supply chain together. Suddenly, the gap between making decisions and taking action on supply chain challenges can be closed and the ability to truly manage the supply chain becomes a reality.

In the arena of production planning, the ability to simulate, calculate and analyze impacts to a material, scheduling or capacity plan have been enhanced with fast, advanced planning tools in recent years. These tools provide powerful feedback to a single planner and help a manufacturer move away from disruptive reactive decision making.

The ability to share the results of proactive planning among groups of planners, among planners within a network of manufacturing plants, or between planners at all points in the supply chain, however, has been lacking. In fact, these tools have enabled planning to become a proactive activity for the manufacturer that has implemented them. However, without a common set of enabling capabilities, there are no assurances that key suppliers can improve upon their traditional reactive process. For the manufacturer who knows the question and the answer, there is still the need to communicate to the supplier or customer and await a response that addresses the supply/demand challenge once the schedule or demand changes are passed along.

External to the manufacturer, the other elements in the supply chain have to absorb the resulting fluctuations and, typically, shipment delays or increased inventories result when supply cannot be modified. Bringing suppliers into the strategic planning process (e.g., new orders, increased demand planning or product line restructuring) is not typically done, mainly because the application tools and the ability to communicate effectively have not been available.

Current supply chain operations do not involve planning on the scale that most Enterprise Resource Planning (ERP) systems provide. Supply chain theory typically involves qualifying vendors as to their reliability and commitment to meeting the needs of the manufacturer. The only planning involvement is rate-based approximations, often enabled by EDI connections, designed to satisfy a JIT style of operation. Or it involves the willingness of a supplier to accept a fluctuation in demand on short notice (not always a very economical prize for the supplier).


Understanding the Impact
Since change is still a constant in the manufacturer's world, having the ability to understand the impact of variations in demand and supply separates the winners from the rest of the pack. There is tremendous value in possessing this knowledge but only if it can be shared quickly with all the contributors to the process.

This knowledge loses its value if there is no immediate way to convey it to a supplier. And once you do provide this information to your suppliers, how quickly can they determine the impact of your information?

Traditionally, it takes a few phone calls and as much as a couple of days to change the quantity of a supply order. What is required is a fast communications network and compatible tools so that all the participants can communicate instantaneously.

If you and your supplier had the same base engine to simulate these scheduling impacts, you would both be better able to plan and truly take the well-worn intention of strategic partners to a new level. The answer then becomes a suite of common tools affordable to all participants regardless of size or location, and an inexpensive and accessible communications network to speed the dissemination and sharing of information on a real-time basis.

These capabilities are rapidly becoming available. Enterprise Planning Systems, for example, builds vertical application software for manufacturing firms to speed up processing of plans for the sole purpose of enabling planners and schedulers an opportunity to analyze, decipher and ultimately construct the best material/capacity plan for their organization. They have recently extended this capability to common Windows platforms with a new tool called webPLAN, a tool that resides at both the manufacturer and the supplier sites.

The webPLAN's base planning engine is free to manufacturers. Any firm can acquire and install it. Soon, a manufacturer's plan involving a supplier's parts can be linked directly to the supplier's system on the Internet. The supplier can determine the impact of the customer's requirements and, through an E-mail-enabled environment, immediately respond with a decision and an action plan.

This can be extended to the area of engineering product changes where new demands determine that a key component provided by at least two suppliers requires earlier deliveries in greater quantities. In this scenario, the manufacturer performs the necessary simulation and analysis once the revised demand is known. The two key suppliers' ability to respond to the manufacturer will then make or break the manufacturer's ability to respond to the higher demand. The simulations on the parts can be published and made visible to the suppliers who are also running webPLAN. Each of them can incorporate the new demand requirements and analyze the impact on their own production planning system. Once the suppliers have completed their own impact analysis, they can provide real-time feedback by either republishing their plan or electronically advising the manufacturer of their ability to meet the increased demand.


Real scenario
This scenario is reality in today's time-constrained efficient response environments. The enablers are the applications and the networks that tie the participants together.

The Internet is destined to become a critical means to quickly share demand/supply variations with all the participants in the supply chain. Resultant analysis, additional information, and critical and speedy feedback will turn time-critical situations into profit-making opportunities. Time is still money, and when more time can be squeezed out of the supply chain, more cost can be eliminated. Ultimately, this means more profits will be realized by all the supply chain participants.

Of course, equally important and just as compelling is the fact that bad news can be quickly analyzed and determinations made as to whether reductions in demand or supply will adversely affect other suppliers or customers. The information traveling throughout the chain is iterative and compelling. This type of news becomes impact-producing information. Internet-connected companies can make rapid determinations of the impact on business.

We are entering a new phase in this age of information. Business must respond more quickly. Demand variations must be rapidly deployed. Impacts must be quickly analyzed. Disruptions must be minimized and managed. Reactive situations must give way to proactive solutions. Time-critical businesses must be enabled to prosper.

The Internet and tools for decision support are the enablers and ultimately the compounds that fill the cracks in traditional organizations. Having them and using them allow supply chain management to become a reality.

David A. Flood is Director of Marketing for Enterprise Planning Systems. He has more than 20 years in manufacturing management, systems implementation and ERP systems product marketing.

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