Supply chain collaboration: managing the most-effective supply chain.

Over the past several years, U.S. manufacturers have been developing strategies and techniques for supply chain collaboration in an effort to remain competitive in the face of increasing global competition. Supply chain collaboration is a sound, financially advantageous strategy/investment, but the process of achieving and maintaining a successful collaborative environment is not easy.

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When engaged in collaborative supply chain initiatives, manufacturers have encountered several obstacles, including:

* No common understanding: Trading partners have different definitions of collaboration and expect to achieve different goals as a result of their collaborative efforts and expenditures.

* Not knowing where to begin: Where do we start? This question paralyzes companies with disturbing regularity.

* No chain-wide buy-in: Convincing the entire relevant supply network that the effort and expense required to build a collaborative infrastructure will generate a return on investment (ROI) for everyone involved is difficult. What's in it for me? is a common question that often goes unasked.

* Trust issues: Many manufacturers may think, "If I give you my proprietary information, you will use it against me in some way." This old-school mentality still infects the manufacturing community.

* Poor technology: Systems are still centralized, unintelligent, inefficient and unreliable.

The Gap Between Planning and Execution

Multiple generations of materials resource planning (MRP) systems have gone a long way toward refining the supply chain planning process. But, as the old military saying goes, "The first casualty of war is the plan." Manufacturers must adapt quickly and deftly to varying operational conditions while executing their plans to the best of their ability.

Manufacturers must secure, and emulate, the cooperation and dedication of relevant supply chain partners to adapt in the most cost-effective way. Effective adaptation requires near-real-time collaborative monitoring of far-flung, mostly disconnected operations. It also requires near-real-time access to reliable, dispersed information to make quick, accurate, proactive decisions that can dramatically improve supply chain performance. True collaboration goes far beyond sharing forecasts and automating the purchase order (PO) process. It requires sharing data regarding sales orders, manufacturing runs, inventory levels and purchasing activities.

Trying Out Technologies

For at least a decade, the information technology (IT) world has been trying to figure out a cost-effective way to get systems to talk directly to each other. Electronic data interchange (EDI) was one attempt to accomplish this communication. Many manufacturers agree, though, that EDI is not always cost-effective, flexible or open enough to warrant large capital expenditures.

The problem with this type of peer-to-peer data transmission lies not in sending data to a target system, which is easily accomplished. The problem lies in the target system's inability to understand complex shared data and to generate valuable decision-aiding information for the user. For this reason, EDI is generally limited to order transmission and confirmation, a set of functionalities that is relatively simple to enable, yet incredibly costly to deploy. And so, while this limited functionality saves some money and reduces the risk of miscommunication, achieving ROI using EDI is difficult.

Because of this and other reasons, portals have become the technology of choice to support collaborative efforts. Portals are an excellent vehicle for posting forecasts and other information of interest to the supply chain. They also work well for collaborative engineering and product development. They truly shine when used internally, allowing employees to create customized dash-boards that cleanly report the critical information they need to do their jobs better. However, manufacturers that have attempted to apply portal technology to the problem of operational supply chain collaboration have found that the technology may fall short in multiple ways (Figure 1).

Unreliability

Portal-based systems rely heavily on manual data entry throughout the supply chain. The process is not far removed from the older technology of expecting trading partners to pick up the phone and verbally provide regular updates. IT history has proven that reliance on this type of interaction is highly susceptible to human error, including incorrect and incomplete inputs, forgetfulness, indifference and hidden agendas.

Inefficiencies

Portals may create more work. Suppliers' employees must regularly log into the portal and update it according to the requirements of the channel master, who is the owner of the system. At times, several workers must update the same portal because the requested data is spread across separate departments within the company. In many cases, companies are updating a laundry list of separate portals for several different trading partners. This portal proliferation can be inefficient, cumbersome and costly. A fax machine, which is at least universally compatible, may actually be a better choice.

Use of portals most often means someone is reentering data that has already been recorded in an enterprise resource planning (ERP) system. IT history again tells us any system that requires redundant data entry is probably doomed to failure.

Insufficiencies

Portals may not meet the requirements of an effective collaborative solution. For instance, manual data entry does not approach near-real time. This disadvantage may be fine in certain situations in certain supply chains. However, the drive toward lean manufacturing and the proliferation of just-in-time (JIT) and make-to-order business models leave little room for error. Timeliness is imperative.

More importantly, portals cannot meaningfully tie in suppliers' suppliers, limiting the chain's ability to make fully informed decisions. The more supply chain members a single collaborative system can include, the more valuable that system becomes.

Channel Master-Centric

The entire focus of portal technology is to help the owner of the system, also known as the channel master. Participation is not always beneficial to the supplier's operations. In fact, it is likely to be quite time consuming and troublesome, which is why suppliers are not always motivated to provide complete, timely data. In addition, logging into a single customer's portal does not give the supplier visibility into other trading partners' systems.

All these issues point to the fact that a more applicable form of technology is required to fully enable operational collaboration. Any feasible alternative must overcome a good number of these problems while remaining cost-effective, simple and lightweight. Only then can a manufacturer justify investing scarce resources in yet another IT initiative.

Distributed Collaborative Systems

Collaborative supply chain systems must be reliable, efficient, valuable, cost-effective and beneficial to every participating trading partner. Distributed collaborative systems (DCSs) represent a technology platform that can, in most cases, address these issues. These systems represent a fundamental paradigm shift in supply chain IT.

DCSs can form large networks that link disparate systems for the purposes of visibility, monitoring/alerting and intelligent decision aiding (Figure 2). Separate yet connected distributed applications talk to each other and understand each other because they speak the same language and think about data in the same way. Such distributed virtual networks can span the entire supply chain and may be superior to current technologies in several ways

Trust

Each trading partner owns and securely manages its own data and intelligent computing resources. Peer-to-peer information sharing is usually handled locally and dynamically, so each trading partner decides on the type and amount of data it is willing to share at any given moment. Information-sharing arrangements can be negotiated, monitored and even revoked to ensure maximum benefit at minimum risk.

Reliability

Data collection is automated and performed locally at each site, reducing the probability of human error.

Efficiency

Automated data collection eliminates redundant data entry. In many cases, this feature itself can save a company enough money to financially justify the system.

Distributed analytical functionality helps each user make sense of both internal and shared information. Jockeying back and forth between multiple systems to piece together the data required to make a decision is not necessary. In some cases, manufacturers are able to cut back on licensed ERP seats, gaining additional cost savings.

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Most importantly, manufacturers are able to link directly to multiple trading partners, representing multiple supply chains, via a single application (Figure 2). This feature has the potential to solve the problem of portal proliferation. It improves the cost-effectiveness and ROI of the system because each trading partner can reuse the application with a virtually unlimited number of suppliers and customers.

Depth of Reach

Collaborating with Tier 1 suppliers is an excellent place to start. However, reaching deeper into the supply chain can pay big dividends. A DCS can link in the supplier's suppliers and give the user far more insight into the cause and effect relationships that drive the supply chain. Timely problem recognition and resolution are improved.

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Inclusive Benefits

With a DCS, each trading partner has access to a complete collaborative decision aid designed to help it improve its own operations. A DCS has the potential to generate ROI at every linked site, motivating everyone to participate.

Near-Real Time

Because data is drawn directly from each company's backbone systems, information and alerts can be shared in near-real time. This feature is crucial in a complex, high-velocity chain.

Cost-Effective

The DCS provides a means to distribute the data collected and generated by each company's backbone systems in a targeted, meaningful way.

A DCS can also be hosted offsite (Figure 2). While riskier from a security stand-point, the hosted model foregoes large upfront license fees in favor of monthly subscription fees. Companies can pay as they go. More importantly, the hosting service provider manages and maintains this complex, enterprise-level system.

The distributed nature of the application encourages each trading partner to pay its own way and manage its own role in the collaborative effort. If the pay-your-own-way model is used, each company's cost of owning the system will not necessarily increase as additional trading partners come online.

Bringing It All Together

Everyone in manufacturing should be familiar with these phrases: reduce costs, do more with less, reduce inventory levels, improve reliability and improve customer satisfaction. These statements should be the goals of every commercial manufacturing organization in existence. Systems such as ERP and MRP have helped the industry make great strides in these areas, but they must be leveraged to make the next great step. The same functionality that has made MRP systems so successful can be expanded and applied to the entire collaborative supply chain in a distributed collaborative system.

RELATED ARTICLE: Data Exchange Standards Improve Supply Chain Communication

Richard Kubin and Dana Korf

The highly distributed development and manufacturing environment of today's electronics industry, combined with accelerated lifecycles and drastically reduced workforces, makes the efficient exchange of product data a differentiator. The need for efficient, industry-standard mechanisms for exchanging data among nodes of the product realization network has never been higher.

The Product Data eXchange (PDX) standards (IPC-257x) and the newly released IPC-2581 for computer-aided design (CAD)/computer-aided manufacturing (CAM) data exchange cover two important areas of interaction between product development and manufacturing. The XML-based PDX standards define requirements for multiple elements of product data exchange, including bill of materials (BOM), approved manufacturers lists (AMLs), as-built product data (genealogy) and product test and quality data. Considerable work has also been done with RosettaNet to support data exchange by defining and utilizing related RosettaNet Partner Interface Processes[R] (PIPs[R]).

IPC-2581 defines an intelligent XML-based data file format for describing printed circuit board (PCB) fabrication and assembly products with details sufficient for tooling, manufacturing, assembly and inspection requirements. This standard can be used to transmit information among PCB designers, bare board fabricators and assembly facilities.

The PDX standards, most of which were initially released in late 2001, have made inroads among early adopters. A number of key original equipment manufacturers (OEMs), including HP and Lucent Technologies, and electronics manufacturing services (EMS) providers, such as Celestica, Flextronics, Sanmina-SCI Corp. and Solectron Corp., are supporting the use of PDX standards and/or the related RosettaNet PIPs. In 2003, approximately 2,000 users downloaded the free PDX viewer offered by Agile Software, which indicates increasing adoption. IPC-2581 was released in March 2004, and the industry is just beginning to work with the new specifications.

Until these standards have been widely adopted, EMS providers will have to continue the costly practice of supporting multiple proprietary formats and exchange mechanisms. The National Electronics Manufacturing Initiative (NEMI, Herndon, VA, www.nemi.org), which helped drive development of initial specifications for both standards, is organizing efforts to bring together users and solution providers to accelerate adoption. NEMI is encouraging solution providers to incorporate the standards into their products and is facilitating user adoption by documenting pilot deployments and associated value propositions to support the business case for change. This process will verify that the standards are meeting their goals of minimizing error rates, improving time to market and reducing costs. It also identifies any shortcomings so that the standards can be improved and solution providers can provide additional value.

To this point, NEMI and IPC have begun work on PDX 2.0, which will expand and enhance PDX capabilities. New features will include BOM-level capabilities such as tracking of material composition data for environmental compliance, role-based access, cost data and support for archiving. The ability to track environmental attributes is especially important as industry faces pending regulations in Europe that will require manufacturers to provide detailed information about materials used in their products as a necessary input for end-of-life disposition.

Even though most manufacturers understand the benefits of industry standards, achieving the desired results can be elusive, as a critical mass must be reached to drive overall improvement. This critical mass will be achieved by: (1) developing standards that are driven by industry needs, (2) providing clear examples of real benefits to support change and (3) implementing a revision process that ensures that standards meet new requirements in a timely manner.

Richard Kubin ([e-mail]) is vice president of product lifecycle management for E2open (Redwood City, CA) and heads NEMI's Business Leadership Team. Dana Korf ([e-mail]) is director of product engineering for PCB operations at Sanmina-SCI (Santa Clara, CA) and co-chairs the IPC-2581 committee.

Paul Mounkes is director of supply chain solutions at Applied Systems Intelligence, Inc., Roswell, GA; [phone]; email: [e-mail]