The Gartner report earlier this year Supply Chain Management: Evolving Beyond Linear Interactions, claimed that new SCM technology allows companies to move toward real-time operation by sharing information and interlacing processes with trading partners. Author Karen Peterson, Gartner’s vice-president and research director, Enterprise & Supply Chain Management, elaborates on some of the points she made in the report.
IT Focus: You write that “linear, latent interactions will give way to interactions that occur at the same time, in parallel.” Can you give me an example in the manufacturing, wholesale, retail space of parallel interactions as opposed to linear?
Karen Peterson: A good example would be Cisco going out and building a supplier e-hub. When it gets a command from a particular customer, rather than just sending that to the contract manufacturer, it actually sends it to the contract manufacturer’s suppliers as well. Rather than the linear where Cisco gives it to the contract manufacturer who does something and gives it to the component supplier – instead Cisco is going out and sending it to everybody.
It just means that instead of us doing one-off integrations with everybody and them doing integrations with others, we’re talking about expanding that realm of interaction.
It might be I’ve got a retailer linking into a transportation provider and a distributor and maybe even sending information to the manufacturers sourcing to the distributors.
IT Focus: And the advantage to that is speed?
Peterson: Shrinking the latency. But not only that, increasing the information reliability and accuracy. It’s kind of like you play Secret as a child where you whisper it to one person and they whisper it to someone and over time it gets garbled. That’s what we saw with information being shared in a linear fashion as well. Number one, we had latency so what tended to happen – especially in planning but it could also be in execution – every single person who got that information had to go through their own cycle and that could be a weekly cycle. So it might take a week just to go from one node to another. Furthermore, as we’re introducing the information, it gets mashed around with other information and we can now have even more inaccuracy because of the way we’re sharing it.
So hopefully we’re going to non-linear where we’re increasing the accuracy of information.
We’re also alleviating the bull-whip effect. When I’m sharing information in a linear fashion, all that latency and inaccuracy ends up making it more difficult at the lowest level in the supply chain, the ultimate supplier.
Those are some of the reasons why this is going to non-linear and why companies are trying to do it. A lot of the automotive manufacturers have had pilots so they not only provide information to their tier one [suppliers] but went down to [tier] two and three. Being able to integrate more rapidly and more accurately are some of the goals to moving to non-linear supply chain.
IT Focus: Where do you place collaboration tools in terms of hype and full adoption?
Peterson: Our ability to deploy technology is usually ahead of our ability to accept and take advantage of it. One of the things we saw with collaboration was that people weren’t willing to lower their barriers to share that information. In a lot of cases they felt that was a competitive disadvantage. They didn’t trust their trading partners and they didn’t really understand the value of being able to share that information. Furthermore, we saw technologies that were really immature.
Ultimately what happens is the tools begin to mature and people become more realistic about technology and begin to understand what it takes and we begin to see rules of the road being developed. In other words, there are expectations that it’s okay to share certain data and in fact everyone’s doing it so you’ll be at a competitive disadvantage if you don’t. So we start seeing pressures put on companies to collaborate and also we see the value of deploying and using these kinds of tools and capabilities.
That’s really where we are now with collaboration: we’re still coming around that and some of the early adopters are putting more effort into first collaborating internally – like the sales force, for example – but then ultimately most companies are talking about in the future they want to collaborate with trading partners.
Right now in collaboration we’re doing more information sharing – ‘where is inventory’ type of stuff rather than joint plans and stuff like that.
IT Focus: You write in your report: “enterprises are under pressure to work more closely with trading partners.” What are the drivers here?
Peterson: Some of it is because others are doing it and they are being forced to get products out faster. Our product lifecycles are shorter; our competitive pressures are greater. We’re seeing more competitors whether that is because of globalization or companies that didn’t compete with us beginning to expand into our particular areas. So, ‘I’ve got to do things faster and I’ve got to do them at a lower cost as well.’
In general, the bar keeps being raised. It used to be that if I had a good warehouse management system, that was good enough. But now, I’ve actually got to do something a little bit better. We never can just stand still with technology nor the deployment of it to enable new processes.
We’re seeing chemical companies moving into specialty chemicals. We’re hearing biotech companies talking about specially tailored drugs for particular individuals – granted, years away yet, but we’re seeing more mass customization.
In general, companies are saying it’s going to get worse. ‘I’m going to have greater demands than I have today and I’ve got to do it at a lower cost.’
IT Focus: What supply chain management technologies are emerging here and what will their impact be?
Peterson: Definitely we’re seeing collaboration and inventory visibility as hot now. Inventory visibility is being able to see where items are and not only that but being able to have an alert when things deviate from plan. Now we’re seeing it being done more automated and having an understanding of what’s going on outside of my enterprise.
Going forward, we will continue to see things like peer to peer technologies like Groove Networks, Instant Messenger – although we’ll see more sophisticated structures where people can actually share information rather than go to a centralized hub. Marketplaces will become important in certain areas. We will see capabilities around extending our enterprise and having smarter transactions sets.
We talk about the convergence of analytics with transactions and decision support. We mean that we’ll start having real-time problem solving. For example, I had a forklift crash into a pallet. Rather than just alerting me, if I knew that particular pallet of finished goods needed to go to a certain customer, I could go out and look within the network and see where could I source that demand from instead and provide the logistics person with options to satisfy the customer demand. We’ll start seeing more of that automation with decision support. Where historically we saw transactions as standalone; we did planning as standalone; and analytics standalone – we’ll start seeing these three come together.
IT Focus: Can you elaborate on the inefficiencies of enterprise boundaries?
Peterson: People end up doing things ‘just in case’ when we have enterprise boundaries. What that usually means in the supply chain is that we end up storing a lot of inventory just in case somebody else doesn’t have it. There’s a suitable clich
