Users rethink Web-based supply chain

Interest in Web-based supply-chain and procurement systems remains steady, but users and analysts this week said many companies are rethinking their business-to-business strategies due to the softening economy and the lack of fast returns from investments in online marketplaces.

There are still plenty of true believers who expect to get significant business benefits from Web-driven supply-chain projects, said attendees at the Supply Chain World conference being sponsored by Pittsburgh-based Supply Chain Council. But, they added, there are still many issues that need to be resolved by users interested in such initiatives.

Frank Campagnoni, chief technology officer at General Electric's Global Exchange Services (GXS) division, said too many companies initially believed that they could quickly make money by just throwing up an e-business Web site and not even bothering with things such as connecting the online storefront to their back-end systems.

But according to Campagnoni, factors such as the economic softening, the dotcom meltdown and continuing losses at business-to-business exchanges have left some users wondering just how to succeed at e-business. "This is not an easy problem," he said.

Internet-based supply-chain applications can address a number of business issues, such as reducing procurement costs and improving collaborations between manufacturers and their suppliers, Campagnoni noted. "But ultimately, it's a lot of hard work, and you have to roll up your sleeves and work with partners . . . to realise their capabilities," he added.

Larry Lapide, an analyst at AMR Research, predicted that 29 per cent of all sales transactions will be done over the Web by 2004. Indeed, he said, economic problems may even push some companies to invest in supply-chain automation projects as a way to save money.

AMR expects total sales of supply-chain management applications to grow at an annual compound rate of 45 per cent during the next five years, Lapide added. But, he said, there likely will be fewer big-bang implementations that cut across entire companies going forward, with users instead rolling out the software on a more incremental basis than they have been.

There are e-business success stories: for example, conference attendees said the automotive and high-tech industries are being transformed by super-fast collaborative supply chains.

"You need to leverage the supply chain for economies of scale," said Bernie Uhlich, director of global supply chain management and e-business at Celestica, a company that does contract manufacturing for computer makers. "In the business we're in, it's about time to market [and] velocity," he added.

That has led Celestica to set up a virtual supply chain based on applications from Dallas-based i2 Technologies and other vendors, Uhlich said. The company is connected via the Web to its customers and to key business partners, enabling the customers to automatically transmit data such as product specifications and lists of approved suppliers.

Uhlich said product-design changes, which used to cause weeklong development and production delays, can now be made on the fly. Celestica can also pool together purchasing orders from its different factories to get better prices, and Uhlich said the company is moving toward a collaborative build-to-order manufacturing model.

For many users interested in automating their supply chains via the Web, though, there are still plenty of doubts about the right path to take.

"The market is dazed and confused," said Jay Stephens, a consultant at Accenture who spoke at the conference. Despite the proliferation of supply-chain tools, he contended, many companies have neglected to think about the real business value that they're likely to get by using the software.

For example, Stephens said, too many users invested money in business-to-business marketplaces in response to peer pressure and still have nothing to show for their troubles. Others simply recast inefficient supply chain practices in a Web-based form. Now companies "are sceptical," he said. "They're saying, 'show me the money'."

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