The Reality of Real Time

Don't let the hype confuse you: Real-time enterprise technologies offer operational more than strategic benefits.

Real-time enterprise (RTE) technologies have emerged as the new "hot" IT solution area: Technology vendors and analyst communities seem to include references to RTE in most of their marketing materials. A Google search on "the real-time enterprise" came back with more than five million hits.

Once an emerging or new information technology gains visibility in the popular press, expectations for it become wildly optimistic. RTE is no exception. It can deliver an immediate and measurable impact in reducing operational and transaction cycle times, especially across supply chains. But its ability to strategically affect a corporation and its supply chain is unproven. This column will look at where RTE technologies can deliver immediate value and examine its constraints in delivering value across the supply chain.

Old Made New

The RTE concept has been around for many decades. The goal of early information systems was to capture transactional and operational data as it was created and share it instantaneously across the enterprise and its supporting supply chain. But technology limitations made RTE elusive. And although RTE technologies in some form or another have been around for a while, their use has been limited to a specific customer service function — such as credit verification at point of sale. Even then, paying by credit card in certain parts of the world can take anywhere from 15 to 20 minutes. (Lacking real-time connectivity to a credit verification bureau, a store clerk must phone a credit bureau to get approval for the purchase.)

Now, the increasing availability of affordable high-speed network connectivity and extensible markup language (XML) and its derivatives is letting certain functions within the enterprise interact in real time. The business drivers for RTE technologies continue to drive adoption: Reducing the amount of time it takes for information to be transmitted between functional areas within an enterprise and its supporting supply chain will yield significant business benefits. RTE ideally would provide these business benefits at the operational, managerial, and executive levels. Looking at two examples — one from the financial services industry and another from a manufacturing supply chain area — will illustrate the realities and limitations of the RTE.

Real Benefits of Real Time

RTE technologies that reduce cycle time in customer-facing functions can and do provide immediate business benefits (although any competitive advantage from RTE technologies is short-lived as competitors can easily roll out similar technologies). Consider the mortgage application process of just a few years back: Once mortgage applications were completed, it would take many weeks for decisions to be made and communicated to applicants. Today, mortgage brokers, enabled by RTE technologies, give applicants conditional approvals when the applications are completed.

Using RTE technologies, applicant information is shared in real time with credit authorization bureaus, financial institutions, and risk assessment functions to get preliminary approvals by the time applications are completed. By granting all stakeholders real-time access to applicant information, cycle time is reduced from days to minutes. This impact on customer service cycle times will continue to be steady and ongoing.

In contrast, manufacturing companies and supporting supply chains for years have been at the forefront in trying to share as near "real-time" information as feasible to reduce cycle time and improve operational efficiencies. Just-in-time inventory management practices have used EDI, XML, or even daily faxed production schedules to reduce ordering, procurement, manufacturing, and distribution cycle times steadily over the past decade. Daily consolidated point of sale reports from retail outlets to upstream suppliers and warehouses have substantially reduced inventory warehousing and transportation costs.

A continuing challenge is gathering sales data across stores belonging to different retail outlets. This structured information exchange occurs within the RTE and its supporting supply chain and has its foundations in contracts, agreements, and terms and conditions. Reducing the latency of information flow within an enterprise and its supply chain is meaningless without the context of terms and conditions that outline permissible actions by supply chain partners.

Some industry analysts recommend that legacy systems be phased out because they can't integrate with RTE technologies. In my opinion, this advice is similar to the flawed justifications for replacing legacy systems with ERP, CRM, and supply chain management (SCM) systems. You must first define business processes backed by contracts (terms and conditions) that leverage real-time information to achieve operational and managerial benefits. You don't need to replace legacy systems if EDI or periodic information exchanges will achieve agreed upon cycle-time goals.

Although finding areas where RTE technologies can deliver operational efficiencies and cycle-time reductions will be relatively easy, discerning where real-time information can assist managers and executives in their decision-making processes will be much tougher.

Again, an obvious parallel is to technologies such as ERP, SCM, and CRM. In general, they've delivered on their operational promise of reducing cycle times and improving productivity. But they've have had a difficult time providing actionable information to managers and executives for achieving strategic objectives. The technologies aren't necessarily to blame; rather, the problem lies in asking the right questions that will help managers and executives in the decision-making process. Even if you ask the right questions, integrating data from multiple systems during state transformation to generate a coherent answer was and is a major challenge. (See "Supply Chain Intelligence," May 13, 2003.)

Real-Time Confusion

Data is being generated at an ever increasing rate across the corporate world. A survey of corporations across 23 countries revealed that the largest transaction-processing database doubled in size from 10.5TB to 18.3TB, and the largest decision-support database grew from under 10TB to 29.2TB ("Contents Under Pressure," May 1, 2004). Imagine adding data from RTE systems across the enterprise and its supporting supply chain — it would be like throwing fuel onto a raging data integration fire. Extracting meaningful and actionable information for executive decision-making from existing databases is still a work in progress. Without solving this data integration problem, realizing managerial and executive business benefits from RTE technologies will be difficult.

Allowing data transfer from RTE systems without contracts, terms, and conditions to support the supply chain could conceivably make a bad situation worse. Consider an example where upstream suppliers to retailer A have real-time, zero latency visibility to point of sale data from all of retailer A's outlets. This visibility has been provided without the context of a contract, terms, or conditions. Upstream supplier B sees a sudden spike in retailer A's sale of widgets, which supplier B procures and distributes to A's retail outlets. Supplier B's management, realizing that its on-hand stock won't support this sales trend, orders additional inventory in anticipation of increased sales volume from A's retail outlets.

Days go by and yet orders for widgets don't increase from retailer A. During a call with retailer A, supplier B management discovers that widgets from a particular batch were defective, and sales for that week were overstated by 100 percent. The data about returned widgets was entered into retailer A's warranty system. Supplier B argues that it needs to be compensated for the rush order that was placed to ensure that the retailer's store shelves had widgets to sell. Retailer A refuses compensation to supplier B, stating that checking the real-time warranty information that was available would have alerted supplier B that something wasn't right.

This example may seem simple, but it illustrates the difficulty managers and executives face when gathering, understanding, and acting on meaningful information from terabytes of data. Even now, most managers and executives across the supply chain are suffering from information overload — courtesy of legacy, decision-support systems, ERP, SCM, and other information technologies. RTE, if implemented without specific objectives backed by contractual terms and conditions, will add to this confusion and fail to deliver business benefits.

Focus On Cycle Time

RTE technologies promise meaningful and measurable business benefits — as long as the focus is on reducing cycle times and improving operational efficiencies. In some instances, especially in service industries, RTE technologies also can deliver managerial benefits by automating routine decision-making, such as credit authorization and approval. For manufacturing enterprises and supporting supply chains that have been exchanging information using traditional mechanisms such as EDI, RTE technologies will have to demonstrate a clear ROI from incremental time reduction to zero latency. Until the difficult problems of data cleansing, integration, and supplier relationships are solved, strategic benefits from RTE technologies will be limited.

Ram Reddy is the author of Supply Chain to Virtual Integration (McGraw-Hill, 2001). He is also the president of Tactica Consulting Group, a technology and business strategy consulting company.