Desire and funding challenge integration

Among the myriad business processes before manufacturing firms, supplier integration might be one of the more challenging. It requires not only technological know-how to bring together disparate supply chain management systems, but also a level of trust among network participants that can be difficult to foster. Bernard Trottier, a Toronto-based senior manager specializing in supply chains at consultancy Capgemini Canada Inc., knows well the obstacles that manufacturing firms face.

IT Focus: What are technological pitfalls for companies looking to create closer ties with suppliers?

Bernard Trottier: I think the biggest pitfall or obstacle is really just desire and funding. A lot of shareholder value can be created in two organizations when they consider collaboration. But companies often hesitate to move forward because one side might get more control. It’s one of those things, a lack of trust and a lack of desire to move ahead with collaborative arrangements with suppliers, just because of that fear that someone won’t get the right amount of the value that’s created.

IT Focus: Are there also difficulties making technology underpinnings work together?

Trottier: Absolutely, although times have changed. Historically EDI was the main mechanism for companies to exchange information in this kind of format. Increasingly people are moving to Web-based, XML-based applications. The technological barriers become smaller. It’s really the desire, the funding and the trust barriers that become the most important ones.

IT Focus: XML is an open standard. That must have some impact on companies’ trust in the technology.

Trottier: That’s part of it. Also, XML is much more easily adopted by small suppliers. You don’t have to have a major investment to be up and running with XML, compared to the large investment often required to get an EDI engine up and running.

IT Focus: XML sounds like one of the technologies companies use to streamline their supply chains. What else can they use?

Trottier: The other one would be around, as a supplier, setting up customer portals to exchange information, and as a customer, setting up supplier portals to exchange information. Those are the two areas being developed in all kinds of companies. And it’s not just a question of PDF-type reports on a portal. We’re talking about being able to download live information from a portal…the kind of information you wouldn’t typically find in an EDI transaction set. For example, historical point-of-sale information, or a unique SKU at a location. That’s not an EDI transmission. But having that data available to a supplier so they can gain information around what products are selling at locations, that’s eminently valuable.

IT Focus: Supply chain management is a function of two parameters, you’ve said: collaborative planning, forecasting and replenishment (CPFR); and global data synchronization. How well do Canadian companies tackle these things?

Trottier: There’s an entity, the ECCC, the Electronic Commerce Council of Canada. They really play a role as a facilitator for all this. They’re particularly interested in data synchronization. It’s really a prerequisite for really effective collaborative planning and forecasting. You need to have that static information in place.

There are simple things that you’d think well-performing companies could do, but they all seem to have problems with. For example, case dimensions: if you’re a supplier and you ship things in a certain case-quantity. When a customer receives the item in their distribution centre, they need to do transportation planning afterwards. Say they’re receiving case-dimension information from all kinds of suppliers. They want to be able to plan loads as quickly and efficiently as possible. Having that information always available and updated makes their operations run that much more smoothly.

IT Focus: What challenges do companies face in regards to CPFR and global data synchronization?

Trottier: The key challenge is really figuring out ownership and responsibility. With so many different partners in a supply chain, who’s going to have the ultimate responsibility and accountability for making sure that information is maintained? In some cases there are third-party entities that have positioned themselves as holders of that information. Sometimes there’s a lead customer or supplier that maintains the information. The challenge is setting up a structure between companies with its own governance, responsibility and accountability.

IT Focus: What are the risks of that structure?

Trottier: The one risk — if you’re a customer I suppose it’s a risk; if you’re a supplier it’s more of a reward: when you have tighter collaboration between trading partners there’s much more of an element of lock-in. It’s much more difficult to change suppliers. Now you’ve got a certain process; you’ve got technology that’s tightly integrated. If you’re a customer and you want to change suppliers, it’s more difficult. A lot of suppliers, in fact, would push for that responsibility. They know it’s much more difficult for the customer to leave them at that point. Imagine the effort of re-implementing all those processes, and systems, and legal contracts. The notion of increased switching costs (the cost to switch suppliers), that’s a risk that many customers consider before marching ahead.

IT Focus: Are there times close supplier ties simply don’t make sense?

Trottier: It depends on the type of product one is buying. If one is buying a commodity and there’s a need to change suppliers very often, then it’s difficult to justify putting in place a highly collaborative type of program. The customer is better off going to an auction type of program, establishing the delivery requirements and doing it from more of an arms-length perspective. But if a customer is really committed to working with a specific supplier, and they feel the risks of switching are minimal, the only risk is making the investment to get the benefits of collaboration.

IT Focus: Any best practices for companies looking at supply chain management software?

Trottier: There’s an entity called the Voluntary Interindustry Commerce Standards association, VICS… They’re the ones trying to drive some standards that will be adopted as leading practices for collaboration between trading partners. The members of VICS tend to be large manufacturers and large retailers. They’re establishing the baselines for methods around which companies can set up collaborative programs. Retailers tend to be more in tune with what VICS is doing. If you’re a manufacturer selling to retail, it would definitely be worthwhile to take note of what they’re publishing, in terms of standards.

IT Focus: What do you think of this “demand-driven supply network,” wherein end-user demand drives all activity in the supply chain?

Trottier: Does it make sense? Absolutely. Are there any technological issues?…There’s a large volume of information to manage. The technology isn’t straightforward. Although it looks nice on paper, the technology has to be designed to be able to manage that incredible volume of information. If you’re a manufacturer selling to a large number of retail trading partners, you could have 100,000 different unique points of demand. Are you going to capture that unique demand in weekly or daily buckets, to try and do some planning around that? Probably not. It’s really about figuring out how to use all that information that’s coming at you, to do some planning based on the demand you’re seeing.

IT Focus: So it’s not just a matter of gathering info, but knowing what to do with the info.

Trottier: Yes. What you see with some manufacturers is they’re buying bigger and bigger boxes (computers) when it comes to IT just to manage the information…but it really becomes a big data management exercise. And there’s another component to it, too. You may have a lot of data, but you have to make sure it’s good data, employ data cleansing. For example, every time you go to the super market you’re buying 10 different jars of baby food. At the checkout they might just be calling it one type of baby food to make it practical. As a manufacturer you might think it’s demand for one flavour when it’s demand for 10 different flavours.

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