<B>Intelligence in Supply Chain Management</B>

Luis Solís

16 December 2002

Does disillusion reign at the unfulfilled promise of e-business and the rapid loss of value of e-markets? Not necessarily...

The end of the 20th century saw dramatic rises and falls of B2B and B2C companies. Among these are suppliers of e-business technology and innovative companies using e-business processes to revitalize their supply chains. At the height of their popularity, e-markets were considered invincible, and it was believed they would dominate global trade. At the beginning of 2002, many e-markets were showing poor financial results, were a long way from producing profits and were losing investor confidence. Numerous e-markets have disappeared, there has been strong merger-and-acquisitions activity in the sector; those that remain are fighting to survive.

[*D Successes come from firms that have gone beyond the superficial use of the Internet for business processes *]Yet at the same time, we are also witnessing the success of many companies using e-business processes and private e-markets for reengineering their sales and procurement processes. Large savings have been made and no signs exist that the e-business era is ending. Lessons to be learned from successful cases show that e-business still has great potential and value for supply chains. Successes come from firms that have gone beyond the superficial use of the Internet for business processes (communications and simple transactions). It is true that perfunctory use of the Net has its value, but this is limited. Use of the Internet to replace paper, phones and faxed orders will generate savings due to greater cost efficiency, staff reductions and the elimination of errors, but these applications are far from the savings and value that e-business is capable of generating.

Companies must go further to see the difference. The innovative ones will pursue three avenues of e-business that transcend replacement of transactions and communications and will let them enjoy e-business’ true potential.

Intelligence is what makes e-business so powerful, and the change needed to integrate intelligence into e-business processes is fundamental. Cisco is a pioneer in use of the Internet for managing its supply chain. It is considered best in the world in Net use for processing customer orders, making purchases, testing products and managing manufacturing subcontractors.

Nonetheless, Cisco also recognizes the need to integrate intelligence in its private e-market, known as eHub. Its new eHub will have the necessary intelligence to detect imbalances between supply and future demand, identify potential problems at supplier levels, issue warnings about possible problems to members of its supply chain, and create contingency plans or possible problem-solving routes. This represents a new line of e-markets, one with the intelligence to effectively enhance supply-chain management.

Intelligence will help buyers and sellers draw up adequate contracts, with correct prices and terms. Ordinary e-markets allow buyers and vendors to carry out transactions only when contractual terms have been established, which is usually done offline. Consequently, the scope of these transactions is limited. An intelligent e-market must have a decision-support system to evaluate alternatives for the contract’s terms, thereby enabling both parties to rapidly reach an agreement. Moreover, contracts established this way will be monitored by the e-market to guarantee their fulfillment. In the future, we shall be seeing many developments in this area as progress is made in research centers. Stanford University’s center for research in decision-making technologies for contracts is one example.

The next level of intelligence will connect price with supply-chain management. Price Revenue Management is expected to be the next emerging technology, after SCM and CRM . Through it, companies can optimize prices of their products and services and all associated revenues. But this optimization needs to be based on detailed knowledge of the supply chain’s costs. At the same time, the supply chain’s operations must be optimized to reflect revenue gained by the corresponding product groups or customer segments. Hence, price decisions and supply-chain decisions must not be independent, as has been the case in the past.

Finally, intelligence must enable e-markets to collaborate in design. Ideas, new product concepts, manufacturing interfaces, use of new materials, and reception of materials are all examples of transactions that can be made easier with use of e-markets. In a study by Andersen Consulting on 100 food manufacturers and distributors, collaboration in design and joint development of new products was identified as the next important battlefield for obtaining competitive advantage. A second study, by Stanford University on the semiconductor industry, also identified collaboration in design as one of the most important opportunity areas that e-markets can offer their users.

e-Business will continue to be a main force in the definition of supply-chain management throughout this decade. Those e-markets that only provide their users with communication and transaction capabilities will not be future leaders. Their place will be taken by those who know how to exploit intelligence to release the full potential of e-business.

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