InformationWeek
Defining The Business Value Of Technology
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June 11, 2001 |
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Supply-Chain Deployment Drops Off
Shaky economy and unfulfilled promises leave companies wary of E-marketplaces
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he slowing economy has left companies feeling skittish about launching major online business-to-business initiatives--and so has vendor hype about E-business software and Web exchanges that haven't yet lived up to expectations.
In its just-released E-Business Agenda survey of 375 IT managers, InformationWeek Research found that deployments of E-commerce applications have slowed in the last six months. After almost doubling from 36% in June of 1999 to 64% in December 2000, such deployments held steady in June of this year, at 67%. Installations of supply-chain applications and enterprise portals have dropped--from 61% and 65% in December to 55% and 59% in June, respectively. Two-thirds of companies surveyed are taking a wait-and-see approach to E-marketplace adoption.
Jon Crump, VP of E-business and process improvement for global supply-chain management at Lockheed Martin Corp. in Bethesda, Md., says the economic downturn is partly responsible for the reduction in IT spending on these fronts. But, he adds, "there were a lot of promises in the marketplace, and some of those failed to deliver, leading to disillusionment."
For example, manufacturers found that companies running E-marketplaces or selling E-commerce applications underestimated the complexity of integrating applications with the data in their accounting and material-requirements-planning systems. When it came to managing the procurement of direct materials, "it became clear that there's no silver bullet," Crump says. "Everybody was going through the post-ERP era, where they faced the difficulties and the cost associated with implementing complex ERP systems. The dot-coms were offering quick fixes, but when push came to shove, they simply weren't there."
But the numbers don't mean that companies have lost interest in leveraging technology to streamline their procurement processes. "It just means they're slowing the pace because they're waiting for the technology to catch up in some of these areas," Crump says. Using a more-efficient procurement system to cut expenses can contribute directly to the bottom line, after all.
Lockheed buys indirect materials only from Exostar LLC, the aerospace and defense online exchange it founded with BAE Systems, Boeing, and Raytheon. In late June, Lockheed will start posting purchase orders on Exostar as the first step in its direct procurement effort. "It's a Web version of the paper purchase orders we send out today," Crump says. By year's end, all suppliers will have to use Exostar to obtain purchase orders.
While nowhere near the size of Lockheed, Tripath Technology Inc. has one thing in common with the aerospace company when reviewing technology adoption: return on investment. Tripath sells components used in amplifiers for home stereos, digital subscriber line networks, and cellular phones.
The Santa Clara, Calif., company had $9.3 million in sales last year and does most of its business with manufacturers of the components it sells by telephone, E-mail, and fax. Besides using these processes to take orders and collaborate on design, the manufacturers, most of which are located in Taiwan and Korea, send weekly progress reports on orders.
The vendor is interested in Web-based collaboration software that would make its dealings with manufacturers--particularly regarding product design--more efficient. But it's proceeding with caution. "It's a return-on-investment scenario where you have to look at the productivity gains you're going to reap vs. the size of the investment in enterprise software packages that can be fairly expensive," says Neal Carney, VP of marketing at Tripath.
Respondents to the survey also report some downsides to collaborative efforts with partners, suppliers, and customers. Seventy-one percent say it increases competitive challenges, 47% note it can lead to complex and confusing processes, and 20% report security problems.
Still, companies shouldn't be so wary that they miss opportunities. The InformationWeek Research study found that leveraging extranets to share information with suppliers, customers, and partners pays off: 73% of respondents report that collaboration helped boost revenue. And 79% say collaboration increased customer satisfaction: 55% say it helped reduce costs, and more than 50% say it contributed to higher profit margins.
In fact, few respondents describe their efforts to collaborate with customers, suppliers, and business partners in their E-business supply chains as negative. Only 4% of those collaborating with suppliers say it's a highly negative or somewhat negative experience. Customer collaboration, partner collaboration, and supplier collaboration rank as a somewhat or highly positive experience among 72%, 70%, and 65% of the respondents, respectively.
Thus, it's no surprise that 67% of participants say they've increased the level or degree of collaboration in their supply chains in the last 12 months; 31% report the level of collaboration remains the same and 2% say it's decreased.
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