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6/21/2002
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Business Technology: The $40 Billion Question

How big is 40 billion? Well, in a grid, it would be 200 million up one side and 200 million out the other, but that image is a bit tricky to project in your head. If we use dollars as our unit, it could almost approximate the total value of compensation and perks raked in by the CEO of Global Crossing in the past couple of quarters, but that image doesn't lead to productive thoughts. But $40 billion spread out over a year would mean about $110 million every single day, or about $5.5 million per hour, 24 hours a day for 365 days. That has a certain toothiness to it, I think.

Now imagine that your industry (and therefore, in some proportion, your own company) wastes, squanders, burns, loses, and flushes that amount--$40 billion a year--to correct errors created in the manual entry of ordering and shipping and purchasing and receiving millions of products. Wouldn't that trigger a vein-throbbing, spittle-spewing, fire-breathing tirade from the CEO, who'd seem to have good reason to threaten to fire every person in the company--starting with himself--unless fixing the problem became the top priority of the entire organization? What if you could cut that loss by just 1%--that would be a $400 million annual savings industrywide! Surely something can be done, right?

It's never a bad idea, I guess, to take a stroll in the other side's shoes. So, while some of us choose to believe that the United States military courageously drove sadistic butchers out of Afghanistan and liberated the Afghan people from tyranny, others in this country see it quite differently. For a glimpse into their world, go to notinourname.net and check out the "Pledge to Resist."

Here's an excerpt: "Not in our name will you wage endless war; there can be no more deaths, no more transfusions of blood for oil. ... Not in our name will you invade countries, bomb civilians, kill more children, letting history take its course over the graves of the nameless. ... Not by our hearts will we allow whole peoples or countries to be deemed evil." This stirs up many thoughts, but this one seems most appropriate: What a truly wonderful country this is. --Bob Evans



Well, yes and no. We seem to be at that fuzzy point where elegant and seamless theory meets the messy and sometimes almost intractable world of reality. The scenario outlined above is all too true and describes the jumbled world of the retail industry and the millions of products created by manufacturers and ordered by stores--and misnumbered by manufacturers or stores or both. Where 30% of the information in catalogs used by retailers and manufacturers for replenishment of stock is incorrect, and each error costs around $70 to fix. One $500 million retail chain had to send out 100,000 purchase orders manually each year, and in turn could match only 53% of those to supplier invoices, kicking open the door for some manufacturers to employ the time-honored practice of padding the bill by tacking on items that weren't ordered. The good news is that with an automated system now coming up to speed, 93% of purchase orders and supplier invoices can be matched, which will let the company cut out not only the extra expense caused by suppliers padding the bill, but also the unethical companies that have used such practices.

That sort of business-technology solution is only a tiny element in a vast and sweeping series of technological changes that are slowly coming together in the massive retail industry. From CPFR (collaborative planning, forecasting, and replenishment) to VMI (vendor-managed inventory), the retail industry and the hundreds of thousands of manufacturers that sell to it are embracing a comprehensive set of data-synchronization tools that should permanently relegate to the Museum of Business Horror Stories the manual processes and resultant errors that have allowed $5.5 million to be dumped down the drain every hour, every day, every week, every year. So when a company introduces a hot new product, retailers' systems will be able to see it, order it, stock it, and merchandise it immediately, instead of six weeks later, which is now the norm.

The full story, replete with amazing details, anecdotes, and in-depth analysis of the business-technology solutions that should spell the end of this $40 billion sinkhole, will appear in next week's issue, courtesy of senior writer Steve Konicki. In the meantime, the staggering numbers behind this story point to a question that's been around since hides were first swapped for roots: Where in your company are the pockets of seemingly inextractable inefficiencies? How are those preventing you from innovating, getting closer to customers, being a nimble and agile business leader as opposed to a glacial-paced fat-ass follower? What are you doing to root them out? It's not just a matter of doing the same thing more rapidly or less expensively--that's the easy part. The big payoff comes from unlocking information and pushing it inside and outside your company in a forward-looking way to let you spend more time understanding, developing, and selling what current and future customers want and need. It's the promise of truly collaborative business.

Bob Evans
Editor-in-Chief
bevans@cmp.com

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