Working on the Chain

With profits down and perils up, companies are focusing on supply-chain management.

Judging by a recent AMR survey, suppliers and their OEM (original equipment manufacturer) customers have a ways to go to achieve that level of trust. When asked what cost discount would cause them to change suppliers, the average OEM response was 7 percent; suppliers thought 10 percent. The suppliers, says O’Marah, have less breathing room than they think.

From Supply Chain to Keychain

When it comes to getting detailed forecasts out to scores of suppliers, technology can make a difference. In high tech, where supply chains have been disaggregated through outsourcing and contract manufacturing, some companies are experimenting with Internet hubs, or private networks, to establish faster collaboration with trading partners.

One of the more successful experiments is Hewlett-Packard Co.’s procurement and supply chain exchange, dubbed KeyChain. For the sprawling computer multinational, newly merged with Compaq, with thousands of suppliers and more than 100 operating sites, the trading exchange is the answer to a conundrum: how to bring common processes and companywide visibility to widely distributed supply chain operations.

KeyChain has four components: order-forecast collaboration, inventory collaboration, auctions, and sourcing, according to Craig Flower, vice president and group information officer for worldwide operations. The exchange supports some CPFR, for inkjet supplies, and plans to do more. During its 18 months of operation, more than 100 trading partners, including contract manufacturers, have plugged in. That’s a small part of HP’s supply chain, yet Flower claims the exchange has already saved the company $100 million. How did HP calculate that sum? “Very carefully,” says Flower with a laugh, adding that the savings come primarily from materials costs and inventory-driven costs. (Increased productivity isn’t factored into the ROI.)

That kind of savings is enough to make any CFO smile, though supplier CFOs may be forgiven for frowning in suspicion. Indeed, HP is so enamored of its trading-exchange approach that it’s offering it, in tandem with PwC Consulting, as a supply-chain solution. (It remains to be seen how IBM’s purchase of PwC will affect that partnership.)

Getting Visible

Even the best-laid plans may go awry, and that’s why visibility is so important to supply chain managers: if you can see something isn’t going as planned, in close to real time, you can minimize the damage. Sapient’s Macey says companies can’t attain supply chain transparency unless they resolve their systems-integration issues first. “Companies will have warehouse, order, and transportation management systems, and in many cases they don’t share data easily,” he says. “So the first problem these companies have is integration. That word can turn a lot of people off, but you have to get these systems to talk to each other.”

And to ERP systems. “Every one of the Fortune 500 has some component of an ERP solution today, but very few are fully integrated,” points out Leffler of PwC Consulting. “They may have a financials solution from one vendor for several business units, if not the company, but then they may have disparate order management and fulfillment systems, disparate [SCM] systems. For us it’s probably our biggest market, helping customers integrate their processes and the technologies that support those processes.”

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