Finally, a way to eliminate the guesswork of business forecasting.
Managers have long griped about basing key business decisions on guesswork. Purchases of raw materials and production of finished goods are often no more than best "guesstimates" developed months in advance, sometimes with no real way to gauge whether consumer demand actuallly exists.
Web-based supply chains are offering businesses a new way to curb the costs of selling their wares via automated links with customers and suppliers, while also offering forecasting that reflects actual market conditions.
Some enterprises are already looking to handle every step of planning, production and scheduling on an intranet as part of an emerging business model known as the Web value chain-integrated systems that link inbound and outbound logistics, operations, marketing, sales and service to automated systems for order entry, fulfillment and supplier feedback.
Experts say the notion of a supply chain that incorporates real-time demand not only is becoming a reality, but a competitive advantage for early adopters.
"Right now, these things are a competitive advantage for the few companies actually doing it,'' says Marty Gruhn, vice president of Internet Business Solutions at the research firm Summit Strategies Inc. "In 12 months, the integrated supply-and-demand chain will no longer be a competitive advantage. It will be the barrier, the cost of entry, for virtually every business.''
The Web value chain lets manufacturing and selling data interact in real time, freeing up suppliers, distributors and retailers from having to rely on error-ridden forecasting data."The Web value chain is an evolutionary process that has to happen in a revolutionary time period. In other words, it has to be done fast," says Bill Hester, senior IT project manager at Whirlpool Corp.
"Most companies have the back-office systems in place. What the Web allows you to do is have a fully integrated system that runs your company," Hester adds.
Indeed, Whirlpool, the $8.6 billion home appliance manufacturer, has moved sales configuration tools to the Web as the first critical step toward its Web value-chain deployment. By extending an application that lets major retailers and mom-and-pop shops fill inventories quicker and more efficiently, Whirlpool is driving toward the Web value chain ideal.
When it drives that sales data down to its suppliers for inventory and planning purposes, the true efficiencies of its system will be realized, Hester says.
Though the concept may appear simple, Web value chains mark a fundamental shift for big business. In the 1980s and through the '90s, corporate focus was on isolated, internal searches that would yield better returns on assets, better quality and cost reductions.
Shifting Focus
Most of the work centered on back-office systems, such as automated manufacturing resource planning used to manage the production of goods. The Web value chain shifts that focus outward beyond traditional corporate boundaries. In many cases, it requires changes in longstanding business pr ocesses that govern the supply chain.
When Bay Networks this year begins processing transactions for its resellers in a Web value chain project, its relationship will shift from not just collecting fees for products shipped, but sending payments for direct sales brought to its Web site.
This time around technology is viewed as one of the minor factors in deploying value-chain systems. Eliminating hierarchical business processes-which give ownership of manufacturing, finance, logistics and sales to functional areas-causes the biggest upheaval.
So how do these Web chains really tick? Usually they start with automated selling on the Internet.
For example, on the Cisco Connection Online site, customers can come into the extranet, configure a product based on their own requirements and get contract pricing based on pre-negotiated contract rates.
Then, as an order is being logged in, it drives into inventory to determine if the product or service is available from stock and checks existing busin ess applications that monitor inventories.
But the trail doesn't end there. Once an order is executed, the data from that transaction updates logistics, purchasing, finance and manufacturing department applications at both the site of the vendor and to suppliers to ensure that all companies are running strong.
For example, Wal-Mart Stores Inc. and Nabisco Inc. exchange data that compares sales to pre-arranged forecasts for products.
By sharing the data, Wal-Mart ensures that Nabisco never lets it run out of a product at a particular store, while Nabisco makes sure it never runs out of either raw materials or finished inventory to meet customer demand.
"The Web value chain encompasses both the demand chain and the supply chain," says Benchmarking Partners analyst Ted Rybeck. "Joined together, they form a value chain that encompasses all aspects of a business."
Rybeck explains that without the Web value chain, the supply chain is fraught with guesswork. For decades, buyers have based orders on internal forecasts that they share with their suppliers, who in turn pass on their own forecasts to their suppliers.
On the demand side, data is typically not shared at all. The result is that a single forecast can be based on more than a dozen previous forecasts, each step introducing new errors. Inevitably, hot products are not identified quickly enough, leading to inventory shortages or gluts.
The corporate benefits of bringing the customer into the production process can be enormous. Here are a few examples:
Fewer people will be required to run an enterprise because self-service transactions over the Internet can reduce order-entry personnel and customer service.
Products can be re-engineered more quickly to meet customer response, or to drive down production costs.
Mass customization can be enabled, as in the one-to-one sales efforts of American Greetings, Disney Online, Hallmark Cards Inc., Interactive Custom Clothes and Levi Strauss & Co.
Shortages in inventory, raw materials or production capacity can be relayed to the customer quicker, avoiding disappointment and lost sales.
The value is so great that Steve Gold, partner in KMPG Peat Marwick Consulting's supply-chain strategy practice, advises clients to pursue the Web value chain ahead of everything else. He says the current corporate craze for Web procurement systems-used to auto- mate the purchasing of non-essential goods and services-may be misplaced.
"A lot of organizations are out there trying to fix MRO [maintenance, repair and operation] systems. They should really start to focus on key raw materials, business items and vendors-the big-ticket items. It is great to get toilet paper over the Web and reduce the cost of the transaction, but you want to get your biggest bang for the buck.''
Indeed, end-to-end inventory management-which includes the Web value chain-is already proving competitive advantages.
Saturn's Inroads
The Saturn Car Co., a unit of $177 billion Gene ral Motors, made inroads by maintaining lean inventories, producing only what is demanded and embracing customers as partners.
Saturn was one of the first to try the end-to-end inventory model for competitive advantage in the 1980s, before the widespread use of the commercial Web.
Now, others-especially in the high-tech industry-have taken the cue. Cisco says it will save more than $250 million this year through its secure Web site, which caters to resellers and customers.
Meanwhile, Dell Computer Corp., already a stalwart in build-to-order computers, has leveraged its Web site to seamlessly flow information across sales, inventory and product development.
And Compaq, which credited the efficiencies of end-to-end inventory management as the driving force behind its recent 18-percent price cut in personal computers, rounds out the list.
"This is a migration that has stepped up from mail to fax to EDI value-added networks, and now to the Internet," says Rick Bloyd, manager of North America n sales for IBM's QuickShip, a sales system that delivers high-end computer products to resellers within 24 hours.
IBM appears to be jumping into Web value chains in a big way with some 20 key business projects, all aimed at leveraging the Web for efficiencies in the supply chain. Still, most businesses face a heady proposition when tackling the Web value chain. In fact, Forrester Research issued a report in February stating that "corporate development groups are ill equipped to build the next generation of Internet apps."
Forrester called on companies to develop production teams, staffed by IT, marketing and business, to overcome "their diverse language, processes and metrics."
Technical issues also have to be resolved. The extension of the Web value chain requires compatibility among trading-partner approval processes, and automated responses to high-volume applications, for example.
In a recent report, Advanced Manufacturing Research says industry-standard protocols won't solve intercompany communications problems. Instead, supply-chain management application vendors such as i2 Technologies, SAP, Microsoft or another ven-dor will gain de facto standards through sheer marketing might. Vendors such as CrossWorlds Software and CrossRoute Software offer applications that provide integration interfaces for enterprise applications.
Meanwhile, the disconnect between existing technologies and the need for new business processes is slowing implementation. Most enterprises are trying out Web value chains piecemeal, with plans to join all of their operations over time and with experience.
One of the top applications being deployed is the product configurator, which lets customers shop for products and get predetermined pricing automatically.
Few could face a more demanding task automating its business than Ticketmaster, which sells tickets to music and sporting events across the country. The company took steps to custom design an interface that enables its Web customer to see exactly what a telephone salesperson sees, right down to seat location.
That's The Ticket
There is no question that an automated Web value chain drives down costs, according to Alan Citron, president and COO of Ticketmaster Multimedia, a unit of Ticketmaster Group Inc. The big question is how quickly.
It took 16 months for Ticketmaster's E-Commerce team to complete Web interfaces and for information brokers to reach existing host-ticketing systems, he says. Custom development was required to provide automation between Web orders and inventory, and financial and fulfillment systems.
One of the driving factors behind the Web value chain is the advance of enterprise application vendors into the Web space. Vendors such as SAP AG are providing an increasing array of connectors between their financial and manufacturing applications and the Web, making it easier for companies to take the Ticketmaster approach without the expense of custom development.
Ticketmaster stayed with it because it had already id entified a business benefit. Thousands of people staff its telephone lines, seven days a week, 12 hours a day. Instead of continuing to scale as a labor-intensive operation, it opted to build a Web system that might alleviate the pressure, Citron says.
"It is still expensive to start these types of businesses, and it can take years to make up those expenses," Citron says. For Ticketmaster, critical mass was at a run rate of about $64 million in Web sales annually, though the figure would vary company by company.
Although Ticketmaster's sales configuration engine was developed internally, there is an emerging field of configuration vendors.
Calico Technology Inc. was one of the first to sell Web-enabled sales configurators. It counts Cabletron Systems, Cisco, 3Com and Rockwell International Corp. among clients, and Dell recently signed an agreement.
It won't be long, however, before the big boys move in on Calico's turf. SAP will release a configuration application as part of the R/3 enterpri se application platform before the end of the year. Meanwhile, Trilogy Development Group Inc. is shifting from client/server to Web technology.
Whirlpool didn't waste any time jumping on this technology. It soon plans to implement its sale configuration tools on its Internet site for direct sales to big trading partners like Sears, Roebuck & Co. and Circuit City, down to mom-and-pop shops. Hester, the Whirlpool project manager, says the sales configuration application was a critical first step in the move to a complete Web value chain.
"The first thing we had to do was fix our front-office processes," Hester says. "We needed an integrated front-office tool, linked directly to SAP. Once you put that on the Web and link it to a fully integrated back-office system, the data is all there."
The front-end slice of the Web value chain is not to be underestimated either, says Henry Bertolon, president and chief executive officer of NECX, a computer storefront on the Web. The distributor is developing a list of frequently asked question areas for each of the 60,000 products it sells on its site. The idea is to cut the number of calls to NECX call centers by pre-empting questions with a superior knowledge base.
Done correctly, this Web value chain can drive up total revenues per employee-a hefty $1.4 million per person at NECX. Last year, the company shipped from stock 94 percent of the $60 million in products ordered from its Web site, a high rate considering that it offers 30,000 products.
Bay Networks is starting to use a Web value chain to correct some forecasting mistakes. The networking company is completing a pilot with 80 suppliers, giving trading partners access to a secure Web database of Bay's forecasted product demand. The Web application provides an ongoing outlook for a nine-month period; previous distributed forecasts gave only a three-month view.
The biggest concern of suppliers was forecast information and getting reports on a regular basis, says Richard Kuramoto, Bay's manufa cturing project manager.
Now "a good number of suppliers on [the database] come back to say that they couldn't live without it," says Tom Kelsch, another Bay project manager. "They've told us that none of their other customers are providing them with this system today. The information internally has been valuable in price negotiations, but also helpful in management of excess and obsolete inventory."
But the tendency of Web value chain players is to try to minimize inventory to next to nothing, when in fact there may be some value in bearing some of the risk up front, says Toby Lenk, chief executive officer of eToys Inc., a toy superstore on the Web.
The key to successful Web value chains is serving the customer. Filling orders exclusively through trading partners can sabotage the process, Lenk says. "It's a beautiful thing. You have real-time information that allows you to make better decisions on what you buy."
Let our Solution Center help you find the
network products you need. Then, receive customized proposals from
qualified suppliers -- fast! MORE
Looking for technical information, white papers
and analyst reports on CRM, wireless, enterprise networking, and more?
Don't miss Tech Library's collection of 14,000+ white papers.
