I was reading Dennis Howlett’s “Irregular Enterprise” blog on ZDNet recently and found his entry “Is your supply chain gonna kill you?” quite compelling. His entry is based on Jason Busch’s “Friday Rant: Beyond SarbOx – Waiting for the Big One to Hit” at the site spend matters. Jason’s entry also makes one really think. Their offerings are intended to make people reconsider the state of their corporate supply chains to see if there is a catastrophe waiting to happen.
In the past few years we’ve seen global scandals involving lead paint on toys, anti-freeze ingredients in tooth paste and heart medicine, wall board with fly ash and numerous other examples of products that could be, or are, considered health hazards. In one of the worst examples, six Chinese babies died and nearly 300,000 more became quite ill when their milk was tainted with melamine. Situations like these can costs companies millions of dollars, force closure of a business and – in the case of some of those found guilty in the tainted milk case – lead to death sentences.
The above results are bad. To help during investigations into products that violate US laws, the Consumer Product Safety Commission has the authority to research the chain of ownership of any product shipped to or within the United States. This means that companies that are involved in the chain of ownership of products must be identified and the CPSC might go to any member of that supply chain during their investigation. They’ll want to know who had the product, when they had it and what was done to it under each ownership.
If your business can’t comply with providing that supply chain information, and comply quickly, what are your risks? If, as Jason suggests, an issue such as “50 Deaths in 50 Days From Tainted Products” comes to pass in 2010, will that lead to the collapse of the offending organization when the business fails to provide information to the CPSC in a timely fashion? Will there come a time when new regulations are crafted that require all companies to feed all chain of ownership information for all products to the government in real time? Would you be able to comply?
Supply Chain Data Today
Companies have been complaining that the Customs and Border Patrol’s 10+2 Security Rule is too difficult to comply with, yet if your business doesn’t have the information required by 10+2 today, what does that say about your understanding of, and visibility into, your supply chain? Hey, that’s a business I don’t want to invest in. And potential stakeholders shouldn’t want to, either. Can lack of ownership of your business processes in the supply chain lead to a falling stock price? It should.
Considering that top performers in supply chain – as recognized by AMR Research in their annual Supply Chain Top 25 analysis – regularly outperform the market, I’d say that those who are “supply chain challenged” are already seeing the effects of their ineffectual efforts as their business performance and stock price is probably not keeping up with those that are just average, let alone those that are recognized leaders in supply chain performance. Don’t look for a falling stock price, necessarily. Look to how you are performing against your competition – especially those recognized by AMR Research. If your relative performance is lagging, you are already paying the price.
Compliance, stock performance, operational efficiencies and more are all benefits from a strong supply chain automation program. While Jason looks at risk in terms of tainted products, hedging problems, forged paper documents and other hazards, I, as a supply chain automation professional, prefer to think about the day-to-day operational inefficiencies and the potential threats to corporations that under-developed or unreliable supply chains can bring.
Supply Chain Automation Maturity
I was lucky to spend some time with Benoit Lheureux from Gartner recently. Amongst other things, he talked about existing B2B systems and outsourcing infrastructures in respect to cloud computing systems and SOA. During the conversation, he mentioned the benefits of “Mature” B2B infrastructures and he clarified that he really did mean to say “Mature” and not “Legacy”. The reason he clarified this was to place emphasis on the idea that the term “Legacy” denotes an IT system that is past its prime, something that needs to be replaced. In other words, existing B2B technologies shouldn’t be considered as outdated, rather they are robust, capable and right for the job – they are “Mature”.
This is the second time in the last year or so that a respected analyst discussed “Maturity” when it comes to supply chain automation. In 2008, Lora Cecere of AMR Research noted the increased value brought by “Mature” B2B solutions. In fact, in her research note (Want to Increase Revenue? Invest in B2B) mentions that the more mature a B2B solution is, the greater the value it brings – increased revenue, decreased costs, improvements in compliance and more. And in a real world example, Wal-Mart has decided to pursue long-term relationships with suppliers (as opposed to seasonal suppliers) in part to help develop long-term and mature business relationships that will yield better overall performance in the long run.
Can we take these ideas from analysts and form a view of what constitutes a mature supply chain and, if so, what is the end result? Along the way, can we identify the challenges to establishing that maturity and what might keep us from maintaining it? Below is a beginning. If you can attend the fall NEECOM event on October 25th, I’ll be discussing this topic in one of the sessions and hope to have a good open dialogue with you on the subject.
Establishing and Maintaining a Mature Supply Chain
There are two trends from the past decade or two that are really impacting the ability of companies to establish a mature supply chain automation program. These are the emergence of XML and the globalization of the supply chain.
XML has emerged as a technology that is relatively easy to develop standards in but that same ease of initial use has lead to enormous complexity through volume as it seems like anyone who uses XML wants to develop his or her own standard. The promulgation of “standards” has lead to a dizzying array of niche XML offerings that make it difficult for companies to keep up.
At the same time, the trend towards outsourcing manufacturing to companies far removed from where products are sold has lead to challenges never before considered. Cultural issues, country-by-country legal differences, language barriers, lack of local experience and more make on-boarding trading partners very difficult. The inclination for companies to move their manufacturing outsourcing whenever they can find a less expensive supplier (often in a different country) also contributes to the challenges in setting and meeting community on-boarding and integration goals.
The fact is that globalization of supply chains has occurred faster than businesses have been able to acculturate. That and the long tail of B2B standards make it difficult to deploy and maintain a mature program. The key hallmarks of such a mature and successful automated supply chain include:
• Comprehensive community management program that includes customers, suppliers, carriers, customs, distributors and others within your supply chain
• Comprehensive automation of supply chain documents including forecasts, orders, order changes, shipping notices, invoices, carrier status, export/import documents and more
• Worry free movement, translation and management of those automated documents
• Leveraging the data within the supply chain to enable active business decisions in real-time along with longer-term trending intelligence
• Valid information – complete, accurate, normalized and standardized – available to everyone who needs it when they need it
• Reliable, scalable and available core infrastructure that supports all of the above
It was hard enough to implement something like this when companies were just doing business with local or regional partners. Now add in new cultures, languages, laws, customs, transportation modes, technologies, and questionable infrastructures, and businesses are hard pressed to achieve any semblance of success and mature automation. Yet these things are needed to fulfill government reporting for everything from national security to product safety to green/sustainable requirements. And these mandates don’t stop with the government. In some sectors industry leaders like Wal-Mart are likewise making their requirements known…and dropping suppliers if they can’t comply.
Quite frankly, the hallmarks of a mature and successful automated supply chain are also the things that enable increased sales, reduced costs, improvements in customer service, reductions in inventory, reduced paper usage in support of corporate sustainability goals, and reduced compliance problems with their associated penalties, and more. These things won’t just significantly reduce risk, they also improve overall business operations and financial performance.
Moving Forward
The challenge still stands as to how to make these 6 hallmarks something your company can be proud of. Hiring a staff to manage this on a global basis – and be able to shift that staff from country-to-country as your buyers change suppliers – is nearly impossible. Your staff will always be lacking in language skills, cultural relevance or legal/customs knowledge. Many companies are outsourcing the management of their business in developing countries to companies with local expertise. The same option – outsourcing – is one that can be considered for your supply chain automation. In fact, one study has shown that outsourcing B2B programs in Asia, for instance, have yielded a four-fold increase in the number of trading partners automated with. Likewise, outsourcing B2B has been shown to cost as little as 50% of what doing it internally does. In a global market with ever shifting suppliers, this cost might drop even lower.
This can’t make the B2B practitioner comfortable. Outsourcing might mean losing one’s job. Yet most B2B practitioners who have been around a while have strong process skills and know, probably better than most people in the company, where all the data resides, what’s good data and what’s bad data, and what types of problems are likely to be encountered because of the bad data. A shift in role will help fix internal problems and make outsourced solutions more productive. This isn’t the only answer – but it is one.
So, is there a crisis waiting to happen in your supply chain? Will that crisis topple your business completely or will it just do in a few of your customers and leave your business crippled? On the other hand, do you have a mature B2B program where most of your partners are integrated and you have few manual processes left when it comes to the order-to-settlement process? If so, perhaps you have the maturity that reduces overall risk and improves stakeholders equity. Congratulations if this is you!
Bryan Larkin is the Director of Industry Marketing for GXS. Bryan can be reached at Bryan.Larkin@gxs.com.
