If we expect to be a growing enterprise, we have to continue to pursue business performance improvements. We must take advantage of every innovation to stay in the game. Higher margins are in—as well as market share. So, responding to markets—in the fast lane is critical. So, there is a case for real-time—we call it small smart and fast. In the supply chain there is time-free interdependency, which means we must have up to the minute data that reflects the reality of the source—what is happening at that source—now. And we must be able to depend on the accuracy of that source data. Even though a process ‘changeover’ may not occur (like tearing down a line to build a different product), the knowledge that that data is available is critical to businesses’ planning and execution. Many business processes do depend on instant data, and though some organizations may not always ‘act’ on this, possessing that data limits the propagation of error—which is the leading source of the staggering supply chain waste we have in most industries and the loss of market share.

Evolution of Information Cycle Time
The current buzz around execution systems does not invalidate the purpose of planning. We need planning and execution—but the whole process must happen faster. Assumptions during planning cycle can be wrong. These assumptions migrate from the planning system and get baked into the execution systems driving poor promotion management, excess procurement spend, etc.

And for some companies who have implemented planning, the numbers are looking better.^[1] (Figure 1) But there is still much to be done. Benefits are not shared equally across the chain—which means costs and prices are still higher than need be, and the imbalance is leaving some firms very exposed. (Figure 2) Retailers are doing very well in general, but down the chain there are challenges.

FIGURE 1

Though the cycle times have gotten better, the dollars baked into those times are still in the billions. And expect cycle times to go up with various global trade compliance regulations and issues^[2]. Especially from the mid-tier firms, who frequently are not early adopters of tech, the cynical responses that sometimes get airtime on not needing ‘real-time’, don’t have legs. You are the ones who are being hurt the worst. And the reluctance to adopt tech (i.e. startup costs, etc.), have basically gone away with many of the SCM network providers.

FIGURE 2

The Trading Network:
Network components are: The planning layer is Marketing/and SCM Strategies. The execution layer is Sales and Fulfillment. This can be composed of both internal and external components- a commerce front end and the fulfillment supply chain network. This total network requires real-time reasoning and the ability to seek out subscribers of information to perform their roles, based on process and policy thresholds required for the business interaction in play. We call this the Trading Network. Here is where the operations of the SmallSmartFast firm are executed. My planning activities may be in my core—conducted for the benefit of revenue and strategic planning, but tactical supply chain planning is an element that I share with the network. S&OP can also be built on a cross-enterprise consensus platform—like real-time smart conferencing, simulation and reasoning.

But my SmallSmartFast technology needs just that—a very fast interaction/information bus to conduct commerce—that is not being provided by the ERP systems we have today. Too many layers exist between reference data (customer lists, pricelists, etc.), so these have to be exposed to the trading network. Possibly, the data can be managed at the network hub—a.k.a. UCC standard, plus Semantical remapping services to translate me-to-you. A sharable hub can also eliminate the data propagation, screening, updating, etc. etc. that happens when data is moved from company to company.

This architecture needs absolute scalability if it is to host as a system of record, as well as speed to deal with the traffic of RFID and instant messaging. It also needs to manage the convergence of voice, radio frequency, Internet, wireless transactions. Visibility and Synchronization, please-SmallSmartFast! Here in the following chart (figure 3) we see the evaluations of information cycle time and the resulting support chain metrics. It is getting wayyyyyyyyyyyyyy better!

In this article, we are just focusing on the business case—at a high level. Think about which SCM operating metrics will be impacted due to the reduction of information cycle times.

FIGURE 3

Business Case Concepts:

Many of these new software firms derive their revenues from set-up costs and transaction fees. Many users are excited about the low set-up costs but find transaction fees to be the ‘hidden costs’.

Think about these things:

• When initiating a relationship:
  • Cost Avoidance
    • While getting new capabilities—you are now engaging with world-class software with out capitalizing, managing complex accounting activities etc.
    • You do not have to buy hardware, software and a programming support staff.
  • Activation fees are usually based on the number of processes and documents you will manage—clean up your act and you will have very low set-up fees
  • Business Value:
    • Expect operational improvement in these areas:
      • On-time delivery-Customer Sat
      • Inventory Turns
      • Cycle times
      • Responsiveness
      • Delivery times
      • But beyond that, look to the long-term opportunities of having an end-to-end system of record. This will allow you to evaluate not just your performance, but also that of your trading partners—suppliers, carriers, etc.
• In operation
  • You do not have to focus on upgrades and maintenance issues again. The costs of maintenance of hardware and people is not yours.
  • You can significantly reduce the number of transactions by cleaning up your data! Although many of the network firms tell us that after going live, the number of transactions goes way up (trust in the system), which they love. Users get antsy on this front. But you can manage this by making sure that these transactions are trade activities—not error corrections, which are the predominant number of transactions.
• Get your trading partners to participate. This enhances the value to the whole trading network, of course:
  • Speeds up commerce
  • Reduces admin costs
  • Improves data quality
  • Improves operating metrics.

Conclusion:

Living in the network means to leverage existing capacities and investments. That gives you a small investment profile for a smart platform. And as time goes on, more and more capabilities will be put into these platforms.

It appears that the global economy is beginning to pick up some steam. That’s great. But it also means facing up to speed—you have to be fast—in all the activities in your business.

[1] Stay tuned for our up coming report on SCM success

[2] Next month, Parallax View will cover Global Logistics as well as updates from the CLM conference

©2003 ChainLink Research, Inc.