New technologies

Whew! It Is Finally Happening.

by Lora Cecere on March 12, 2014 · 2 comments

I am an old gal. In six months, I will raise a toast to my sixtieth birthday. It is hard for me to believe that I am that old and still working. Many of my friends are retiring. The industry is in flux. Daily, I get notices from Linkedin of job changes. Sometimes, I ask myself, “Where has time gone?” Other times I celebrate how much I have learned.

It will be a long time before I retire. I have a long memory. It is good today to celebrate something that I wished could have happened 14 years ago.

Today, I want to celebrate progress. As an analyst, I watch trends and the progress of technology adoption. Many times it is slow, and I get frustrated. However, today I am currently involved in a research process where I am seeing fast and demonstrable results. It is the adoption of new forms of B2B networks for supply chains.

History

Let me start with some history to provide context. As background for the new reader, I have been an analyst in the supply chain management market for 12 years. First I was employed by Gartner Group and then by AMR Research. This was  followed by a short stint at Altimeter Group which led to starting-up my new company Supply Chain Insights. My research projects have been many, and I love new technologies. I often find that new technologies are overhyped and underdeliver on promises. I pride myself on cutting through the hype and getting to the facts. No fluff from me… I am known for telling it straight.

As we emerged from the Y2K cloud, there was exuberance about e-commerce and the promise of Business-to-Business connectivity. I actively followed the emergence of marketplaces and watched e-commerce blossom and B2B stagnate. In the period of 2000-2002, when I was at Gartner, I watched the evolution of a model that I violently disagreed with. It was the premise of ERP II. I could not condone investment in ERP as the path forward to building end-to-end value chains. I did not believe that it could happen from the inside-out. Instead, I felt that it needed to happen from the outside-in (from the network or channel back.)

 

Figure 1.

When Gartner Group bought AMR Research, I could not go forward. I had left Gartner because I did not feel that they were as serious about supply chain research as I wanted them to be. I wanted to write about cool technologies for the line of business buyer. I wanted to be uncorked and out of the control of dominant players in the market to write the unabashed truth as I see it. This journey has taken courage. It is tough to take a hard stand. Today, I want to take another one.

Celebration of the Evolution of B2B Networks

I am currently working on a series of reports on the state of Business-t0-Business Connectivity. The first published this week, and the second will publish next week in our newsletter. 

While many companies wax eloquently on the concept of building the end-t0-end value chain, I find that they are not clear on the meaning. It is often stated as a goal in meetings, and I see it used in many strategic plans. However, what I observe is continued investment in the automation of enterprise practices. We are busy working on process iterations and continuous improvement programs that I think only inch us towards business transformation. I am excited to state that today, I think that we finally have B2B Network alternatives that work. I am also excited to state that I think that they are one of the disruptive technologies that can help us get unstuck in delivering on corporate performance.

It is important. As we have outsourced logistics and manufacturing, I firmly believe that we need to get more serious about the building of Business-to-Business (B2B) networks. These are one-to-many and many-to-many architectures that connect logistics providers, contract manufacturers and suppliers into true supply networks. There is a community layer, an application layer, and a connectivity layer. In our recent research reports, line-of-business users are using these networks for 7% of their flows. The primary methods of connecting with trading partners are spreadsheets and EDI.

It is easier said than done. We have been at it for over a decade, and I see real progress in the evolution of these technologies in the last two years. An image representing this type of connection is shown above. (I use it courtesy of GT Nexus.)  Here is the essence of what I have found out:

  • Confusion reigns. The term control tower confuses the market. It is used by Kinaxis in a one-to-one model and by E2Open in a one-to-many model and by GT Nexus in a many-to-many model. What I think that we are seeing is the evolution of different types of supply chain visibility as outlined in Figure 1. To solve the problem, we have to be clear on the type of connectivity that we are seeking. When people use terms loosely, we need to ensure clear definitions.
  • Why business networks over EDI Vans? In the words of one of my reference calls last week, “They work.” While EDI providers do point-to-point integration, the connections are fragile. Every time that there is a software upgrade at a point in the node, the connections break. This is not the case for the B2B business network provider. EDI VANS have consolidated and stagnated, but B2B Networks are maturing. It is for this reason that you should choose GHX over GXS if you are in healthcare or GT Nexus over Descartes if you are in logistics/commerce.
  • The answers are not coming from ERP players, and will not in the short-run. Yes, I know that SAP bought Ariba, and that they are hard at work on the integration of SAP APO, SNC and the Ariba business network. I just do not see that it will be a viable alternative in the short-term. (e.g., …less than five years.) Why?  It lacks the community infrastructure and the depth of application. However, it is important to note that SAP is trying. Oracle is not. As a result, I would invest my money in E2open, Elemica, Exostar, GHX, GTNexus, or iTradenetworks in the short-term. The specific choice depends on the requirements at the application layer and the desired community. But, look for more on this next week.
  • The business networks have evolved. I am impressed by the evolution of canonical models in these business networks. We have come a long way from the failed start-ups of over 300 marketplaces in 2001-2005. I am also stoked to see the use of non-relational databases and cloud-based computing to make B2B business networks for supply chain a reality. They have come a long way in the past two years. In fact they had matured faster than I had given them credit for. So the next time that you see an analyst compare an EDI VAN and a B2B Business Network on the same model, throw up a red flag. It is obvious that they just do not know what they are talking about. They are very different solutions with far-reaching implications.
  • We need to get on with connecting the value chain. The traditional roles of buyers and sellers make it difficult to get past traditional buy/sell relationships and start the work of building value networks. Less than 1% of companies have a resource aligned to drive this work. It is a gap. I think that we need to just get on with it.

So in closing, I would love to hear about your experiences with the Business-to-Business Supply Chain Networks. It will be a long weekend writing my report, so I look forward to your emails.

On a side note, if you enjoy our research, we would love to have your help on several of our open surveys. It is a good chance for you to benchmark your processes for free. And, as always, if you fill out a survey, we keep your name confidential and report in aggregate. In return, you get a copy of the summary document and a one-hour phone call to educate your team on the findings.  We also share these in monthly webinars and will showcase the findings at our Global Supply Chain Summit. The essence of open research is you raising your voice and letting it be heard. While I know that your time is valuable and you are busy, and that you might not have time for a lot of surveys, I am hoping that I can talk you into taking at least one.

When you give to us, we give back to you. That is our mission. The active surveys in the field are listed below:

Supply Chain Risk Management

Corporate Social Responsibility and Supply Chain Alignment

Digital Manufacturing

Vendor Managed Inventory

Use of Downstream Data

Planning Software Implementations and Success Rates

Piece Parts

by Lora Cecere on February 7, 2014 · 0 comments

You have brains in your head, and feet in your shoes. You can steer yourself any direction you choose. You’re on your own and know what you know. And, you are the only one that will decide where to go.

Dr. Seuss

In this blog we are going to focus on the word part.
By definition it is one of the pieces, sections, qualities, etc., that make or form something.

Merriam-Webster Dictionary

I love Dr. Seuss. When my daughter was six, I would beg her to let me read her another whimsical Dr. Seuss story before she went to bed. It was fun. The words from Seuss would flow from the pages as I held a promising young girl full of life and energy. We laughed at the illustrations. The sing-song words rang through the night air as we turned out the light and said good-night.

Tonight, as I return from a client, I thought that I would start with Seuss to lighten up a bad story.  It is a story of parts. It is a tale of pieces that do not assemble to build the whole. It is 2014. Leaders tell me the real story of monies spent and pennies saved. The consultants and technology vendors tell the stories of small dollars invested and large value gained. The advertisements in the airports boast of great gains. There is a disconnect. I do not see value when I am visiting clients. So I ask myself, “Why?” These leaders are well-equipped. They have brains in their heads and feet in their shoes. They can steer themselves any direction they choose. Why are we not making more progress?

Let’s start with history. We have been at this for at least thirty years. This is not a new topic. ERP was designed to deliver transactional efficiency. It accomplished this goal. It was not designed to be a planning architecture.

At the beginning of the last decade, the promise of the tightly-integrated enterprise was born. Companies invested in tight integration of ERP with supply chain planning (APS). It was a mistake. ERP vendors rushed to provide planning solutions that were less robust than best-of-breed providers. Consultants touted that 80% was good enough. Today, ERP investments have consumed IT budgets. The monies have flowed to the consultants. Today, only 8% of companies are satisfied with their “what-if” capabilities and only 22% of companies can get to cost data in making planning decisions.

Figure 1.

We are stuck. We have not been able to build the planning architectures that effectively let manufacturers plan from the customer’s customer to the supplier’s supplier. As shown in figure 1, the gaps in the value chain network are large. In this blog, let me share some insights based on work with clients and augmented with data from two recent studies that we have just completed at Supply Chain Insights. (We will also be sharing more insight on this topic on our webinar next week.)

The Problem

The goal was to automate the process of planning from the customer’s customer to the supplier’s supplier. However, today, we have pieces that do not fit together to make a whole. Sadly, our architectures are a compilation of piece parts. Most companies have defined enterprise architectures that are inside-out, but lack the ability to take them outside-in. The focus is on the enterprise not the value network.

With the investment in transactional systems for order-to-cash and procure-to-plan, many have lost focus on planning. As a result, they are not effectively able to connect to customers and suppliers. We have talked about it for a long time, but we are not making much progress.

The Dilemma. How We Got Here.

-Outsourcing Is Growing. It Is Here to Stay. It Is Growing More Important. In the study of 63 manufacturers, the average company has outsourced 49% of logistics and 30% of manufacturing. Physically, the supply chain is becoming a network. Logically it is not. Companies are more dependent on each other and there is less excess capacity. It is more brittle and less flexible. Upstream companies have systemically pushed costs and waste backwards on suppliers. While EDI is used to share transactional data, and progress has been made in this area, the software of choice to share plans is an excel spreadsheets. Yes, we have brains in our heads and feet in our shoes, but we communicate most of the important information about the supply chain in an Excel spreadsheet? Does this make sense? I do not think so. I spoke to one client last week that gets 13,000 spreadsheets from one customer that has 72 manufacturing plants with changes two to three times a day. After these discussions, I am amazed that we have made as much progress as we have.

-Nine out of Ten Companies are Stuck at the Intersection of Operating Margin and Inventory Turns. We have automated the enterprise, and 90% of companies have a supply chain organization, and have implemented supply chain planning. Most have multiple systems, but lack a clear understanding of planning architectures. New forms of analytics and cloud-based solutions are emerging, but companies are not clear how to use them. There are a number of science projects. Current investments are enterprise focused. They do not focus on automating the value network.

I am convinced that the greatest opportunity to unstick the supply chain lies in the value network. We have got to break the cycle of pushing costs and waste backwards in the supply chain and paying a higher price for materials. Modern procurement practices have lengthened payables by 30 days and made it almost impossible to have a true relationship. 

-ERP Was to Be the  Solution. We have naively gone down this path. ERP vendors were to build the architectures to extend the enterprise to their trading partners. It has not happened. As shown in Figure 2, connectivity of planning information with trading partners for third-party logistics, transportation and material suppliers is important to companies, and supply chain leaders have lost confidence that this gap can be closed by an ERP vendor. The investment in supply chain planning is growing by 55% in 2014, yet 56% of supply chain leaders report that it is focused on the work with their strategic vendors which are most often the ERP provider.  The selection of IT solutions is typically a joint decision where IT is involved 80% of the time and the line of business leaders are involved 85% of the time. This just does not make sense to me.

-Supply Chain Business Networks Are New and Promising; Yet Only Represent 7% of the Flow. Today, there are a number of cloud-based supply chain planning solutions and new forms of business networks that offer both applications and communities to facilitate these planning flows; however, the awareness of these by line-of-business supply chain leaders is low and the ability to get funding for these projects is tough because most of the corporate funding is locked into ERP programs.

Where Do We Go from Here? What Do We Do About It?

Supply chain leaders have brains in their heads and feet in their shoes. Only they can direct what they do. They need to act. Ownership of the extended value chain is more important to drive differentiation and improve Corporate Social Responsibility initiatives. What steps to take?

1) Get clear on a planning road map. Put the parts together to make the whole. Build a multi-year road map.

2) Recognize the reality. Stabilize ERP investments. Recognize them for what they are. You need them as a planning system of record and to automate transactions. The gap in current state to automate the value network is real.

3) Take ownership for the signal that you are sending your suppliers.

4) Partner with emerging cloud-based solutions and business network technologies to connect the extended value chain.

Today, there is no perfect solution. However, the path that we are going down is not closing the gap. It reminds me of the old saying of “no matter how far you have gone down the wrong road, that when you realize that it is the wrong road, turn back.”

I would love to hear your thoughts. What do you think?

For additional writing on ERP and supply chain planning check out the blog posts:
End of the Fairy Tale, Part I

End of the Fairy Tale, Part II 

Dancing with a White Elephant