By Alan Radding
It's spring. The birds feel it. So do the bees. The whole world, it seems, feels it — love, romance — yes, everyone and everything, including the consulting industry. And the object of the consulting industry's ardor and affection? Supply chain management.
Like the fabled girl-next-door who has been there all along, supply chain management has been a central part of business in one form or another since modern business began. But it has looked decidedly plain and unappealing during the last few years, as consulting firms and their clients chased after dazzling dot-coms, B2C and B2B initiatives, portals, and e-business marketplaces. After a drab, downright depressing winter, however, during which even the hottest of the hot stuff suddenly went stone-cold, supply chain management appears to have a new luster. "Supply chain is one of the fastest growing segments of the business. Not necessarily the biggest — that's still ERP — but the fastest growing," says James Kilpatrick, partner, Deloitte Consulting, Toronto.
The appeal of supply chain management today is money — specifically, direct savings. By better managing the supply chain, at the least by aggregating purchasing to drive bigger discounts, managers feel that they will get a fast return. "Supply chain represents one of the levers a manager can pull to take out costs," Kilpatrick continues. Until the economy turned sour, executives were happily willing to pursue the more nebulous benefits of on-line business — vague expanded opportunities or unspecified competitive advantages. Not these days. Beset by plummeting stock prices and falling orders, executives want measurable results fast.
Some observers already are dubbing supply chain management ERP II and touting a return to the glory days of big ERP implementations. Supply chain management promises to help organizations manage external processes the way ERP allowed organizations to manage internal processes. But many in the consulting industry were already distancing themselves from ERP — clunky, cumbersome, internal-facing proprietary systems that did not play well in the Internet economy. To supply chain management proponents, an ERP II label sounds like a bad movie sequel.
"You definitely don't want to think of it as ERP II," says Kate Murphy, research director, AMR Research, Boston. Rather than ERP II, a new buzzphrase for supply change management, partner relationship management, is beginning to catch on in some quarters, she reports.
Whatever you call it, supply chain management refers to a broad set of practices, increasingly supported by information technology, that address how the organization acquires the products and materials it needs to conduct its business. This ranges from the procurement of raw materials or production subassemblies to the purchase of MRO (maintenance, repair, operations) goods, everything from paper clips to toilet paper.
In the current economic turmoil, supply chain management software companies have been hammered along with the rest of the technology stocks. The two industry leaders, i2 Technologies and Ariba, took big hits this spring, announcing substantial layoffs along with financial results that came in below market expectations. The economic distress was so great that Ariba felt forced to cancel its announced acquisition of Agile Software.
The Courtships
Despite the dismal financial performance, consulting companies are flocking to partner with supply chain management software vendors, as the consultants scramble to catch what they hope will be the next wave of information technology consulting. For example, A.T. Kearney, a wholly owned subsidiary of EDS, joined with i2 Technologies, Inc., in a supply chain management venture called 2Source. 2Source combines A.T. Kearney's ongoing strategic sourcing and procurement consulting with i2's direct and indirect sourcing and procurement software.
"2Source is really focused on procurement," explains Joe Raudabaugh, A.T. Kearney vice president. Procurement represents a subset of the overall supply chain management process. Today, 2Source exists as an alliance, with the consulting firm providing strategic procurement strategy and i2 providing the software. If the alliance is successful, he adds, it "has the potential to become a joint venture."
A.T. Kearney already has a successful procurement practice that generates as much as $600 million a year in consulting fees. However, much of the company's best consulting efforts in the past suffered because its clients "didn't have the technology to enable and enforce the new workflows," Raudabaugh notes. The alliance with i2, he continues, gives A.T. Kearney technology that will support the new procurement processes it develops for its clients.
A.T. Kearney clients can buy its consulting services without i2 software or bundle the consulting and software together for single-source accountability. Similarly, i2 customers can hire A.T. Kearney for consulting services or use any other consultant. "Neither company wanted this to be an exclusive relationship," Raudabaugh reports. If systems integration is required beyond the strategic procurement consulting provided by A.T. Kearney, the consulting firm steers the work to EDS's eSolutions group.
A joint team of about 40 employees from both companies works the alliance. Many of them are located together in Dallas, although others spend most of their time at client sites. A governing committee consisting of top executives from each company oversees the alliance. EDS, having bought out Sabre's hosting business, also handles any hosting.
KPMG's Private Exchange
Targeting a different aspect of supply chain management is a new alliance of KPMG, Manugistics, and Microsoft. This alliance is focusing on the private trading exchange segment of supply chain management. An on-line trading exchange connects buyers and sellers over the Internet to drive supply chain efficiencies. At the peak of the dot-com craze, public Internet trading exchanges were multiplying like bunnies. Each week brought a flurry of announcements, with the total steadily mounting — 400, 600, 900 exchanges. At one point, industry analysts projected 1,500 trading exchanges. Some industries, such as retail, saw dozens of exchanges announced (although not necessarily built).
The proliferating on-line exchanges were flawed in a number of ways. Not only were there simply too many to survive, but they did not initially offer much value other than the promise of lower prices. The lower prices were achieved mainly by beating down suppliers through reverse auctions, where a buyer posts a request and suppliers kill each other by competing to offer the lowest price. Suppliers stayed away in droves. The exchanges also suffered from poorly conceived business models and daunting integration challenges. The rapid collapses of all but a few on-line public exchanges have left many doubting the entire concept.
But the concept of an on-line exchange among buyers and sellers has taken root in the form of private exchanges. In a private exchange, a buyer and a selected group of its favored suppliers share information and forecasts and participate in a range of collaborative activities via the Internet, from planning and forecasting to product design. The private exchange promises to eliminate real inefficiencies of traditional supplier management and therefore reduce costs for all parties, rather than simply enable buyers to beat up suppliers over price.
AMR Research predicts that the private exchange (PTX) market will create the largest application software market to date, reaching $35 billion by 2005. AMR also "expects the PTX market to surpass the public and consortium exchange markets, becoming the cornerstone of the $5.7 trillion in commerce transacted via the Internet," according to a report issued in February. Furthermore, the researchers predict Fortune 500 companies to spend anywhere from $50 million to $100 million to build a PTX. By 2005, AMR anticipates that one-third of all companies with over $1 billion in revenue will have a PTX.
This is the promised pot of supply chain gold targeted by the KPMG-Manugistics-Microsoft alliance. "Private exchanges are not new. They aren't much different than EDI except that now we can use optimization software on both ends," explains Jeff Maness, managing director, KPMG Consulting, McLean, VA.
The only thing lacking to make private exchanges take off "is a prescriptive, quick implementation," adds Jeff Holmes, senior vice president, Manugistics Group Inc., Rockville, MD. Manugistics is a 20-year-old supply chain management vendor that is bouncing back from a recent rocky period. To cap its comeback, Manugistics has teamed with KPMG and Microsoft to fill this perceived need in the market. The objective is to integrate Manugistics' supply chain offerings with Microsoft's .NET Enterprise Servers. KPMG will provide strategy as well as technology and software integration services.
Using the alliance solution, suggests Holmes, companies will be able to get their private exchanges up and running in 90–120 days. The initiative will focus primarily on large companies, with the three partners conducting joint marketing and sales. He expects the alliance to capture multi-million-dollar deals, but $50M to $100M deals seem unlikely.
Not to be left out, Cap Gemini Ernst & Young has teamed up with PeopleSoft to initiate HealtheValue, a supply chain procurement initiative for the healthcare industry. HealtheValue is delivered through PeopleSoft's ASP operation.
It is easy to dismiss the current infatuation with supply chain management as a puppy love that will quickly succumb to the same fate as those of the dot-coms and the public trading exchanges. Great expectations can fizzle faster than you can say IPO. But then again, supply chain management may be differ
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