Platform - What's a chain without a link?

Supply chain management (SCM) is about management of the chain as much as supply. The real world challenge is to create a value chain using disparate business and technological links and doing it well.

If you have ever tried ordering a fridge on-line from the US you will appreciate the lack of true end-to-end focus that the Web has. However if you have ever bought a lounge at the local department store you will also appreciate the importance of being "local".

Hopefully the following will shed a little light onto the complexities which are being introduced to traditional supply chain management. The aim is also to provide a few considerations for IT management to take into account before leaping onto the terminology bandwagon.

An end-to-end chain

The ultimate theoretical supply chain is a direct pipe from buyer to seller, with the company entity only counting transaction (cash) flow. There are few true examples of this model in reality. Stock exchanges perhaps come close in moving content (stock information) from suppliers to buyers. Anyone dealing with the physical world will realise that the practicalities of fulfilment, banking and perishable products contrast with this utopia in many ways.

The supply chain end of this chart can be broken into two distinct aspects:

· Direct purchases, typically being handled by term contracts and EDI; and · Indirect purchases using ad hoc buy cards or more sophisticated e-procurement systems.

The client relationship end of this chain can also be split into separate links like selling and servicing, Each aspect of this should be underpinned by the same infrastructure, but clearly deals with the customer in totally different ways.

Stretch the links

A new set of terminology has been introduced to the Web world: eMarketplaces or is that portals or trade hubs or buyer aggregation? These are all different concepts but do have the same implications. The supply chain is not constrained to one channel and can therefore be very complex.

For example, competitors in your direct sales channel could be customers to your wholesale channel. A marketplace which you supply could be a major competitor to your whole business. We have customers today with direct sales channels and intermediaries participating in a generic marketplace who are establishing their own selling portal. The challenge is to make all these channels complementary and to leverage existing supply chains to prevent channel cannibalisation and/or supply duplication.

Multiple chain, multiple gain

One company's CRM is another company's SCM challenge. In effect the market is a extended chain of individual company chains. This creates the confusion that companies often face in setting strategy in this electronic arena, ie, are we addressing selling or buying issues? They are essentially the same problem but seen from either side of the e-commerce transaction. Integration of the transaction benefits buyer and seller. On a one seller to one buyer basis these benefits are relatively clear and "safe" as demonstrated by the adoption of EDI.

However, widespread adoption of e-commerce and Web standards introduces another layer of complexity: sell side aggregation. Essentially, once a buyer automates the buy process across multiple suppliers, the potential to leverage price becomes apparent. It is possible to maintain the win-win in these situations, but it involves new ways of attaining the benefits.

I built a market and nobody came

So should companies seeking to automate their supply chain, skip a few steps and create a marketplace? The school is still out but companies who seem to be successful in this area are specialising in one industry or vertical, ie if your company has a strong market position, expertise and influence in a sector then creating a marketplace in that sector may be effective. However positioning one's company as the pre-eminent expert in a supply chain (against all your competitors) is unlikely to be successful without some form of dominance in a particular brand. Note also it is unlikely that other brand players will participate as marketplaces, and certainly generic marketplaces, significantly erode the value of brand.

Start simple, grow fast. Focus on the key priority that gets the best value for the company. If this is automating your direct contracts management then do it, if this is implementing electronic procurement of indirect purchases then do that, if it is online selling or sales force enablement then do that. The list goes on. The key message is to prioritise the most important and work it through.

Is IT helping?

From an IT perspective the options around automating the supply chain are going to become more complex before longer term winning options become clear. SCM providers are moving to incorporate ERP. SCM players are extending call centre offerings deeper into the ERP world. Traditional ERP/Business Operations providers are attempting to enter the CRM/SCM world.

You, as a decision maker or influencer in this area, will be required to do the research. Simply put, most vendors can't do it all and a Best of Breed solution in one area does not ensure value in others. This fact is demonstrated by the very active buy-out and merger activity under way across the IT industry. Many traditional players are buying up success stories as a means of moving along the chain, whilst newer players are seeking to at least partner with traditional ERP vendors to provide a better end-to-end solution for companies.

Closing the loop

So what are the takeaways?

· Understand where your sit on the chain and what are the priorities to the business;· Leverage the information, assets and channels the company has today;· Buy solutions based on a sound foundation, because the requirements will change;· There is no such thing as an "A" supply chain solution; a welder is still required to join the chains (sorry that's good old system integration).

Over the past 15 years John Banks has worked with industries ranging from insurance to tourism in both IT management and non IT related roles. An active Member of the ACS, he has served on the NSW Branch Executive Committee..

John has applied his tertiary qualifications in IT and Marketing from warehouse rationalisation, through to development of small enterprise business and marketing planning, always with the view to using IT as an enabler of business. He has significant experience in the development of e-business related strategy and implementation, with companies such as Lend Lease and MLC.

He heads up IBM Australia and New Zealand's, Northern Region, e-Commerce solutions team.

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