Biz Intelligence Turns To Suppliers

Concerns about recession and reliability of supply chains lead companies to analyze links

InformationWeek Staff, Contributor

October 12, 2001

7 Min Read

When the U.S. economy was booming, companies focused their business-intelligence efforts on their customers as they sought to understand who was buying what and why. But businesses are now confronting a recession as well as new concerns about the reliability of global supply chains, raising the importance of cost-cutting and operational efficiency goals. As a result, they're increasingly turning business-intelligence tools toward analyzing their supply-chain processes and suppliers.

Badger Technologies Inc., a small contract manufacturer with limited resources in the troubled high-tech market, must carefully manage expenses to stay competitive. Using business-intelligence software to track and analyze transaction costs, the Penn Yan, N.Y., assembler of printed circuit boards and interconnect products can see the price of doing business with each of its many suppliers. "The more-sophisticated companies are looking at total acquisition costs rather than just purchase-price variance," says president Rick Cirincione. Purchase-price variance measures how much the price of purchased components differs from a standard cost.

With Supplystream Inc.'s Autotran activity-based cost application, Badger can track inventory or billing expenses associated with individual component suppliers, Cirincione says. The application makes it easy to identify suppliers that bill for individual shipments-a big cost for a small company-and which ones consolidate multiple shipments into one invoice. Additionally, Autotran and Supplystream's AutoQ bid-request application help Badger understand which vendors can supply what component at what cost. That puts Badger in a better negotiating position and helps hold the line on costs, Cirincione says.

Not every company has caught on yet, however. Business intelligence, which combines transaction data with historical data for analysis, is the missing piece in the supply-chain puzzle at many companies, says Tom Harwick, supply-chain management research director at Giga Information Group. Without it, supply-chain managers can't answer questions such as "What's the on-time performance of my biggest supplier? Or, "Are we holding enough safety-stock inventory to guard against supply-chain interruptions?"

A wide range of business-intelligence tools can help companies get those answers. Enterprise resource planning, customer-relationship management, and supply-chain management vendors now market accompanying business-intelligence products, such as SAP's Business Information Warehouse and PeopleSoft's Enterprise Performance Management Suite.

Some companies are deploying mainstream query and reporting tools such as Business Objects' WebIntelligence and Cognos' PowerPlay online analytical-processing software. There are also new business-intelligence tools specifically targeting supply-chain applications, such as SageTree Analytic Applications and PowerMarket Value Chain Intelligence.

However, applying conventional data warehousing and business-intelligence processes to supply-chain management can have its drawbacks, says AMR Research analyst Kevin O'Mara. Most data warehouses are updated only weekly or even monthly. Analyzing historical data may be useful for long-range planning and discerning trends, he says. But analysis of supply-chain operations on a day-to-day basis requires more up-to-date information and even real-time data feeds for uncovering, say, shrinking levels of raw material inventory.

Schneider Logistics can analyze records to see which suppliers need to improve, VP Braddy says.

Contract manufacturing giant SCI Systems Inc. wants to run as lean as it can in terms of inventory. To do so, the company is deploying demand, supplier, and materials performance measurement software from SeeCommerce as part of its initiative to increase component inventory turnover from seven times per year to 12 to reduce expensive inventory.

The Huntsville, Ala., company has already reduced excess inventory by 2% and expects that to reach 15% in 18 months once all SeeCommerce applications, including inventory and production modules, are running in all plants. SCI is counting on the system to reduce raw material order quantities by 5% and procurement costs by 2%, says Carl Ray, worldwide programs manager for IT.

But SCI also is hedging its bets against supply disruptions by creating a continuity-of-supply database containing information about suppliers, such as country of origin and methods of transportation. The database also will contain performance data from the SeeCommerce applications. With the system, SCI can quickly find alternative suppliers in the event of disruptions such as natural disasters or terrorist attacks, Ray says. SCI experienced several logistics disruptions resulting from the Sept. 11 terrorist attacks, but Ray says SCI has no plans to increase inventory stocks.

As manufacturers in all industries look to reduce shipping expenses to stay competitive, logistics vendors are using business-intelligence tools to see which suppliers are contributing to the efficiency of their freight-management operations and which aren't. Schneider Logistics Inc., which provides logistics services to companies such as Ford and General Motors and their suppliers, uses Cognos Inc.'s PowerPlay to this end. Managers at the Green Bay, Wis., company can analyze shipping records in its data warehouse to determine which suppliers have the best on-time delivery performance and which ones need to improve, says Bill Braddy, VP of engineering and knowledge services at Schneider.

Earlier this year, Schneider built PowerPlay into its hosted Supply Chain Integrator application, giving its clients the opportunity to do their own data analysis. Supply Chain Integrator lets them see what shipments are in transit, expected delivery times, and invoice and payment status. They can analyze 24 months of historical shipping and billing data and judge how efficiently Schneider is managing their shipping operations.

Some companies say it makes sense to share the data they gather on their suppliers with those same companies-Ford Motor Co. is doing that, with the aim of improving quality control. Since 1992, Ford has collected information about product-quality problems in an IBM DB2 database known as the Common Quality Indicator System. The information comes from 30 different sources, including dealers, warranty reports, and customer complaints. It's analyzed using Focus business-intelligence software from Information Builders Inc. Ford is developing an application for Web Focus, the Web version of Information Builders' Focus software, to provide Ford's suppliers with limited access to the database. That will let the companies that supply Ford with everything from alternators to xenon lights analyze data and identify quality-related problems with their products.

Suppliers "need this data as much as Ford engineers do," says Tom Foster, who manages the database system. Work on the application will begin early next year; he expects several suppliers to use the system on a trial basis by the end of the first quarter.

Consumer electronics retailer Best Buy Co. early this year also launched a Web application that lets suppliers check their performance. It's an extension of an analytical application the company developed last year that tracks and grades suppliers on their ability to correctly fill orders and ship merchandise on time.

Last year, the Eden Prairie, Minn., retailer told suppliers they would be charged for costs resulting from late or botched orders, says IS leader Randy Mattran. That incentive has resulted in a tremendous improvement in vendor performance, Mattran says, and in multimillion-dollar savings for Best Buy in the last year. "Our business competitiveness comes from our ability to manage costs, and that comes from our ability to manage the supply chain," he says.

Best Buy developed its application on MicroStrategy Inc.'s business-intelligence platform. The applications run with a 3.5-terabyte Oracle data warehouse and data-processing software from Informatica Corp.

Businesses are walking an increasingly fine line as they seek the right balance within their supply-chain operations. While they must operate in a lean-and-mean fashion, they also have to be flexible enough to respond to unexpected interruptions in the chain, whether it's a problem with a single supplier or a major disruption such as the repercussions that followed the Sept. 11 terrorist attacks. The growing arsenal of business-intelligence tools for analyzing supply-chain operations should help managers get the information they need to make the right decisions.

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