InformationWeek
Defining The Business Value Of Technology
January 18, 1999
Global GravityCompanies seek end-to-end information systems
By Gregory Dalton
he gravitational pull of globalization--new trading partners, cheaper supply sources, emerging markets--is compelling IT managers to create end-to-end information systems that give companies a full-field view of their worldwide operations.|
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Companies seek end-to-end information systems |
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System conversions still lag in currency transition |
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Emerging enterprises use IT to go international |
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But the reality is something less. While many companies use electronic supply-chain or value-chain systems to interact with suppliers or customers, most limit that interaction to their own backyards. According to a recent InformationWeek Research survey, only 36% of U.S. companies that purchase or sell data, products, or services over electronic networks do so in countries outside the United States.
Still, IT managers are reacting to the global pull with a variety of innovative ways to extend their supply chains internationally. Intranets and extranets provide relatively inexpensive ways to exploit the global nature of the Internet. But the Internet is also making it easier to find and do business with small and midsize suppliers, particularly in remote areas of the world. Enterprise applications, in particular enterprise resource planning apps, are being used as standards for supply-chain interaction. Electronic data interchange is still the business conduit of choice for most of the world, and local EDI service providers offer multinational companies much-needed expertise in local markets.
Corporate cultures, government regulation, and local market preferences are just a few of the obstacles. Also getting in the way, according to the InformationWeek global survey: personnel issues, the need for custom app development, high costs for unreliable telecommunications, and resistance to sharing data.
Some observers see the biggest challenges on the technical side. "For large multinationals, the integration game gets really complex," says Chris Jones, senior VP of marketing and corporate development at supply-chain software vendor SynQuest Inc. "When they start talking about a global supply chain, they may as well be talking about boiling the ocean."
Others see automating a global supply chain as more of a cultural challenge. "There are no technical barriers," says Lew Platt, CEO of Hewlett-Packard. "It's just hard."HP's Singapore office, for example, is using Manugistics Group's supply-chain software to manage inventory at 11 resellers in three Asian countries and plans to add another 21 resellers in three other Southeast Asian countries this year. To better predict the market for HP laser printers and peripherals, the company is looking to connect the resellers' warehouses back to the factory, says Michael Chuang, an HP regional commercial services manager.
To help facilitate that, HP is asking resellers of toner and cartridges to share business information with HP so the company can better predict demand using its supply-chain software. Chuang says the resellers experience "IT culture shock" when asked to collect data and share it with their supplier. "They're reluctant," Chuang says, "and that's the toughest challenge today--verifying the inventory."
Nike's interest in developing a global supply chain is motivated partly by its recent problems with inventory forecasting, which negatively impacted the company last year. Nike outsources most of its manufacturing overseas, and requires retailers to "forecast" their orders five months prior to delivery. During the period from order to delivery, a lot can change. "Consumer demand is very fickle," says Faye Landes, a Salomon Smith Barney analyst. "Anything Nike can do [with its systems] to get a better look at what suppliers have, or to stop orders from being produced, can help the company."
Harris has been working on a strategy to improve Nike's supply chain via IT since he joined the athletic footwear and apparel maker last March. The global supply-chain project will involve "a dramatic shift and increase in IT spending at Nike," he says.
Though the company does transact business over EDI with many of its partners, some supply-chain communications and business processes are still manual and paper-based, Harris says. For example, Nike often sends product design specs to suppliers and manufacturing partners via "snail mail." But the company would rather send its partners digital images of products in development, along with the specs, says Harris. The goal is to move "100% of our partners" to a streamlined electronic supply-chain process, Harris says.
Global ConcernsMany companies realize that the opportunities presented by global markets make international communication paramount. "There's a growing recognition that an improved flow of information is necessary for us to continue to be a trailblazing retailer," says Patrick Ballin, MIS manager at the Body Shop, a $994 million retailer of skin- and hair-care products in Littlehampton, England. At the Body Shop's most recent international franchisee meeting, the issue was ranked a top priority by franchisees.
Body Shop is creating an intranet to link the head offices in each of the 47 countries in which it operates, including headquarters in the United Kingdom. Ballin says the company has been developing network applications with an integrator in Canada, and the intranet will exploit globally available and supportable hardware, servers, and databases. "For the first time, the Body Shop is investing in systems projects on a global scale, in all 47 countries in which we trade," says Ballin.
Tricon Global Restaurants Inc. is standardizing back-office systems at all 30,00 of its KFC, Pizza Hut, and Taco Bell locations worldwide. When the proprietary system--which is based on Microsoft's SQL Server database and Active Store retail package, and Computer Associates' SCA forecasting software--is rolled out in the fourth quarter, stores that have access to EDI will order supplies through one global clearinghouse.
"This is the first time we tried to unify all the brands with one system and one approach," says John Kleban, Tricon's chief restaurant process officer. "Traditionally, our IT developments have been focused on company-owned stores domestically." But as Tricon is looking overseas for revenue growth, Kleban says it decided to create one global platform, despite the difficulties with currencies, calendars, languages, and more. One benefit of the system, says Kleban, is the ability for Tricon headquarters to give ordering guidelines to franchisees worldwide in an effort to reduce inventory.
Even companies used to working internationally are reacting to changes in their markets brought about by globalization. Customers of SeaLand Service Inc. in Charlotte, N.C., used to think only in terms of the major trade lanes across either the Atlantic Ocean or Pacific Ocean, says Jim Watkins, VP of IT at the shipping and logistics company.Now, Watkins says, customers "are doing a lot more integrated work around the world."
To keep up, SeaLand is prepping a proprietary shipment management system that automates the process of dealing with customers, such as order taking and document management. That system, in turn, is linked with functions such as tracking shipments on land, handling payments, and moving containers at cargo terminals. "We're viewing this as one complete integrated process worldwide," says Watkins.
Worldwide AimsIn the same way, DHL Airways is altering the way it interfaces with its customers' information systems. "We used to plug into country-level systems," says Stephen McGuckin, IT director of Asian operations in Kuala Lumpur, Malaysia. "Now we're plugging into the global level." For example, DHL Asia manages warehouses for Toshiba Medical Systems in Miami, Singapore, and Brussels and ships the inventory to Toshiba's clients around the world. DHL provides a Web interface so Toshiba's suppliers can check inventory in the warehouses. Communication between warehouses is over DHL's private frame relay network.
The increased deployment of sophisticated enterprise applications such as SAP's R/3 has helped establish standards for exchanging data, especially among closely knit supply chains. "There is an extensive use of SAP in the pharmaceuticals business," says Derek Newman, corporate IS director for Zeneca Pharmaceuticals, an $8.6 billion U.K. manufacturer of pharmaceutical and specialty chemicals. "That helps manage the internal supply chain to intermediate chemicals suppliers by shipping information from one SAP system to another."
Hans Tromp, head of information management and logistics at Philips Display Components in Eindhoven, Netherlands, plans to connect the ERP systems of his suppliers and customers to consolidate capacity information throughout the value chain in Europe. Ten of the 20 sites of Philips Display, which manufactures tubes for TVs and PCs, act as suppliers to the others. Suppliers deliver glass or metal parts such as electrodes; customers assemble the tubes within the monitors. The European sites will be connected to the Eindhoven system via EDI.
European aerospace consortium Airbus Industrie is in the middle of a reengineering project, known as Airbus Concurrent Engineering, intended to create a standard communication and collaboration platform for its four member companies and their thousands of suppliers, to support the development of the consortium's new 555-seat jetliner. At a cost of about $180 million, the system should shave 30% off production times and 30% off recurrent costs, says Wildreied Rieckmann, manager of DaimlerChrysler Aerospace Airbus, a Hamburg, Germany, a member of the group. "Supply-chain planning is of core importance to ACE," he says.
Because Airbus is outsourcing not only the production of parts, but also the development of components to its suppliers, it plans to use Parametric Technology Corp.'s product information automation system, Windchill, to store all data down to product geometry, as well as some parts of the bills of materials. Even though the four Airbus partners--DA Airbus, Aerospatiale, British Aerospace and the Spanish CASA--use SAP R/3, data sharing will be done via the product data management system. How the ERP systems will be integrated into the supply chain has yet to be determined. "The gap between ERP and CAD is the main playground," says Rieckmann.
The Internet is also making it easier to do business with small and midsize suppliers, particularly in remote parts of the world. "It's been fabulous in allowing us to find and source things quickly," says Peter Solomon, president of Tamarind International Ltd., a Hong Kong firm that sources products for companies such as FAO Schwarz and OshKosh B'gosh. Solomon uses Web-based catalogs from Asian Sources, a Hong Kong company that also operates supplier catalogs for Emerson, Home Depot, Toys "R" Us, and others.
But EDI is still the conduit of choice for most supply chains reaching out to remote foreign markets. "The economy is bad, but everyone is pushing for more EDI," says Padimani Sivalingam, a senior program analyst at Taiyo Yuden Singapore, a $241 million subsidiary of international giant Taiyo Yuden Ltd. that manufactures electronic components. Taiyo Yuden Singapore is using EDI provider Singapore Network Services to interact with about 60% of its customers, which include Fujitsu, Seagate, and Sony.
Singapore Network Services and Asian Sources are examples of local service providers in IT centers such as Singapore and Hong Kong that give local and multinational companies an alternative to companies such as IBM and GE Information Services, which used to be the only choices for companies installing infrastructure for regional and global projects such as supply-chain management. These service providers offer international companies in particular a knowledge of local markets that the global giants can't match.
These local supply-chain vendors sometimes partner with U.S.-based vendors. ECNet, for example, has GE Information Services as a partner and is providing EDI services to companies in Hong Kong and China. The growth of these companies will be key to the adoption of EDI for supply chains that reach into remote areas because they're building the necessary network nodes.
"China is an information black hole," says ECNet managing director Elsa Leung. But she says that is gradually improving as Hong Kong companies extend EDI networks into the mainland, where about $6 billion of manufacturing was done last year for the American market.
Asia Manufacturing Online (AMO) gives companies such as Sony and Matsushita a single point of contact with small suppliers in Southeast Asia. The Singapore company, which specializes in supply-chain solutions and also hosts online catalogs, takes EDI transmissions such as purchase orders and routes them to suppliers using the Internet or FTP. Asia Manufacturing Online is responsible for handling the business rules and creating a single interface for all suppliers.
Knowledge Needed
Matsushita, which makes consumer electronics under the Panasonic and National brands, is outsourcing supply-chain management for the Southeast Asian region to AMO because it doesn't have the expertise itself, says Koichi Doui, manager of the company's global information systems center in Singapore. "We have no idea how to implement a supply chain," he says. The company, which has 1,000 external suppliers in Southeast Asia, has identified supply chain as a critical area to reengineer as it tries to keep pace with rival Sony, which has a more sophisticated electronic supply chain. Doui estimates that Matsushita lags Sony in EDI adoption by 10 years.
One way manufacturers use EDI to automate their supply chains is with advanced shipping notices, which notify a buyer when a particular product being made at a certain factory has been packaged for delivery. Home Depot Inc. is working on a Web-based advanced shipping notice system that it plans to use with its overseas suppliers that don't have EDI. The system will really help as a communication vehicle for the company's small and midsize suppliers, says Gary Cochran, VP of IS at Home Depot, which has about 300 external suppliers.
The Asian recession has prompted Home Depot to improve its supply chain system in another way. Home Depot is deploying custom-built software to improve how it forecasts demand for certain products, so that it can better predict where and when it will need cargo containers. Getting those containers from shipping companies at exact times and locations has become more difficult as trade across the Pacific has slowed during the financial crisis, says Cochran.
Most businesses are focusing on the supply side of the supply-chain equation because that's where companies typically exert more influence, says Bud Mathaisel, CIO of Ford Motor Co. "We more directly control our own purchases of supply," says Mathaisel. "Getting into the customer side of the value chain involves other parties."
However, some companies are looking forward to working the customer side. Stride Rite Corp. has deployed software from Rockport Trade Systems Inc. to act as a central repository for the shipping and logistics information that accompanies the company's products as they make their way to international wholesalers and retailers. At the same time, Stride Rite is working on a front end to automate interaction with customers during the ordering process. Eventually, the company would like to connect the two processes. "The ideal situation for us is to be able to manage from the time a merchandiser wants product until it is delivered," says Ken Surdan, VP of application and system development at Stride Rite.
DuPont & Co. is integrating its worldwide systems for both incoming supplies and outgoing shipments to customers. "The grand vision is to have electronic business applications across DuPont integrated globally from front office to back office, including both suppliers and customers," says Jim Sinex, manager of customer care in DuPont's newly formed global services business unit.Sinex's group centralizes business support for several U.S. operations, such as order fulfillment and sales. Next up: international operations.
"Most of our strategic business units are already operating in a global supply-chain environment, even though they don't have their systems integrated," says Sinex. "Now you're going to have all the supply chain integrated with demand forecasting."
The company is furthest along with its back-office integration based on a worldwide rollout of R/3 beginning this quarter. On the front end, DuPont is in the early stages of using sales-force automation systems from Vantive Systems and others. Custom middleware is being developed as the vehicle for integration between those front-office and back-office systems. "We need to have those integrated so we cut down on cycle time--that's dollars," says Sinex. "There's a tremendous amount of money left on the table not having those direct links to suppliers."
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