InformationWeek.com

Welcome Guest. | Log In| Register | Membership Benefits

June 15, 1998

Extending ERP

continued...page 2 of 4

According to an InformationWeek Research survey of 200 IT executives currently using or deploying ERP or supply-chain systems, supply-chain collaboration is critical to their companies' current success and future survival. Some 52% of readers polled say they are creating or plan to create a business supply chain using ERP software, allowing suppliers, partners, and distributors real-time access to the ERP system. These executives say the most strategic advantages are lower operational costs, better collaboration with partners, and reduced cycle times.

Vendors are also rolling out products such as demand-planning applications. Take packaged goods manufacturer Nabisco Inc. According to Joe Andraski, VP of customer development, the company has consistently failed to accurately gauge product demand and develop reliable forecasts. That means Nabisco makes a lot of product that never gets sold, and when products are selling well, the company doesn't make enough to meet demand.

The solution: Using software from supply-chain vendor Manugistics Inc., Nabisco set up Internet pilots with large retailers such as Wal-Mart and Wegmans to do collaborative forecasting. The program is expected to reduce cycle times, cut inventory costs, and ensure that customers never leave empty-handed. "To improve our forecasts, we have agreed to share our business plans with our trading partners," explains Andraski. "We exchange information, like our advertising plans, what our new products are, and whether we have new packaging." All the elements have a value associated with them that helps Nabisco devise a baseline forecast. At the same time, its trading partners share proprietary information, such as store closings and openings, as well as local promotional campaigns. This information is communicated, updated, and constantly revised in real time over the Internet.

Nabisco is kicking off the pilot with items from its Planters product line. Although Andraski won't make any predictions, he's confident that forecasting accuracy will skyrocket. "Not only will we see increased sales, but by being more efficient we can take weeks of inventory out of the system," he says.

Streamlined communications with suppliers will help Bristol-Myers Squibb Co. achieve its goal of cutting costs by $1.5 billion annually, company officials say. Improving supply-chain management and linking the company's bulk manufacturing and finishing plants to materials suppliers was the major driver behind the company's three-year, worldwide rollout of SAP R/3, slated for completion next year.

Bristol-Myers Squibb purchases about $7 billion worth of raw materials, supplies, and services annually, and its 65 production sites worldwide suffered high production backlog, resulting in an inability to meet demand. "To us, the process runs from our suppliers all the way to our consumers," says Dana Cooper, Bristol-Myers' VP of demand management. "If you don't have effective supply-chain management, it will affect your earnings per share."

If the benefits of electronic collaboration are so obvious and concrete, why have companies waited so long to do it? The first issue is cultural. Few organizations are accustomed to trusting their business partners, and they have a real and justified fear that information-sharing can turn into a competitive disadvantage. "If one of your customers knows you're behind on your production schedule, they may turn around and try to negotiate a more favorable price," says Harry Tse, an analyst with the Yankee Group Inc. "Or if you know your supplier has an overload of inventory, maybe you'll try to get a lower price."

There's also the frightening issue of control, or the lack thereof. By placing strategic data such as financial reports and manufacturing schedules online, companies open themselves to security breaches. There are also concerns with bandwidth and reliability. Many companies don't have the network infrastructure to support the large number of new users who can access these applications over the Web.

Bill Whitmore, IS director at Fairchild Semiconductor, admits that he sleeps a little less easily knowing that the information his business makes available to its supply-chain partners could be used against it. Fairchild's system automatically delivers its customers' demand forecasts to the company's PeopleSoft manufacturing system, allowing Fairchild to better plan its production schedules and more accurately identify delivery dates. Automating this previously manual data-entry process has helped Fairchild increase its on-time delivery rate by 5% to 10%. But the information flow isn't two-way--Fairchild doesn't release key information, like inventory levels or production reports, to business partners. "There could be some major issues lurking there," says Whitmore.

Define Goals
Robert Rodin, CEO of Marshall Industries, a $2 billion electronics distributor, says that before any open system is put into place, the participating business partners must define the goals and objectives of their collaboration. Then they must define exactly what information will and will not be shared. "If you plan it out first, you won't have the natural fears and concerns," he says.