Brushing Up on Supply Chain

Poirier's toothpaste solution, and projects like it, are today only a subset of the burgeoning market dubbed supply chain, a term that expands in scope as consulting practices continue to grow up around it. Having long been the grist of many traditional consulting mills, supply chain challenges are growing in magnitude as supply chain strategy intersects the emerging electronic economy and opens doors for e-business-savvy consultants.

A Whole New League

At its root, supply chain is heavy-duty mathematical algorithms that optimize the flow of supplies within a single enterprise. "This stuff is usually outside a company's core competence," says Jack Maynard, analyst with the Aberdeen Group in Boston, MA. Of course, this is why customers readily turned to consultants for help. "The old model here was to create strategic sourcing models within an enterprise," says Steve Keener, consultant with CSC. "Now we are trying to optimize entire supply chains between companies.

"Supply chain consulting used to be more about fine tuning," says Keener. "But with inter-enterprise supply chain optimization, more companies can theoretically operate with virtually no inventory. Companies that have maintained warehouses full of supplies suddenly find that they are threatened by an upstart that can supply the same products without ever taking possession."

Keener says this does not imply that warehouses will disappear altogether, but that "people are wrestling, more than ever, with the issue of whether or not a brick and mortar warehouse makes sense." The implication for the consultant who understands these issues, says Keener, is clear. "There is opportunity to create dramatically new business models for clients."

One example Keener cites involves manufacturing. "Take a manufacturer who has been shipping pallets of goods to a retailer (or wholesaler)," he says. "Suddenly, in the new electronic economy, they are shipping directly to consumers. This kind of transition requires intense management and IT consulting. It is a very big change to go from shipping truckloads to shipping single items."

And such a transition would not be possible without the aid of supply chain software and consulting.

Technology is Only Part of the Solution

Since the term supply chain morphs constantly, it needs a closer look. "Before there was supply chain there was Advanced Planning and Optimization [APO]," says Aberdeen's Maynard. This is where technology companies such as i2 Technologies, Manugistics, and Red Pepper first found their door of entry into the market and began laying the ground work for many of the large e-business opportunities that surround supply chain today.

These software firms quickly came to be known as "supply chain" vendors, to distinguish their specialized offerings from the more general-purpose business software from Enterprise Resource Planning (ERP) vendors, such as SAP. But, according to Maynard and many consultants, the demand for more and better automation of materials and resources has pushed the concept of supply chain automation beyond the APO functions of the traditional supply chain houses.

Robin Palmer, partner-in-charge of supply chain management for KPMG, explains it as follows. "The advanced planning and optimization tasks within an enterprise are now a subset of what a supply chain solution needs to be," he says. "You need to connect these functions with back-end ERP systems, but even that doesn't go far enough. The ultimate goal is to integrate entire supply chains."

According to Palmer, supply chain–related practices will soon account for fifty percent or more of KPMG's revenues, a number now being driven by the consultant's fast-growing supply chain workforce. "Out of 8,000 consultants in the U.S., I would say that easily over 2,000 are now in supply chain," he says.

The Internet and the Supply Chain

"The ability to see and manipulate the supply chain from raw, source materials to the final consumer product is a nice concept," says analyst Catherine Jones, also with the Aberdeen Group.

But Jones says there are pitfalls waiting for the unwary supply chain enthusiast. "Supply chain software is not just a trivial extension of ERP," she says. "Some customers don't immediately understand this — they want supply chain functions as part of their overall ERP package."

Jones says that, for this reason, consultants and vendors need to be able to explain to the customer just what a supply chain automation solution is, and why it is so costly. She adds that the best way to do this is to draw on something that is already familiar to many customers, ERP. "You can cut through a lot of the rhetoric by simply saying supply chain automation is already implied in your existing business process automation solution. It is the next logical step."

But it is not a small one. Supply chain automation should ideally extend beyond the enterprise. "You need something that sits on every supplier's desk," says Jones. This sounds like an impossible dream when you consider that such software ubiquity has proven impossible even within a single organization, and that the supply chain solution outlined by Jones necessarily penetrates across an entire network of suppliers and manufacturers.

The Internet may hold some answers. "The only successful cross-company supply chain solution will have to be browser-based," says Jones. "Someone, probably the manufacturer, will still have to have the product to coordinate it all. But it is the Web-enabled application that will really make this possible."

Jones says that this kind of inter-enterprise supply chain solution is still more a "gleam in the eye" than a reality, but it is precisely here that she thinks consultants can play a major role. "There is a real dichotomy between the manufacturing community and the advocates of advanced software," she says. "Manufacturers tend to be fairly slow to adopt new technology. But if you can explain it to them by saying 'If you can't deliver to your customer, you are hosed,' then they just might see how critical supply chain automation can be."

Jones also says that the consultant can play a critical role in buffering the customer from overzealous software vendors. "The vendors just want to sell software," says Jones. "What the buyer needs is a solution that fits specific needs. This is where a consultant can really shine by developing individual criteria with the customer and finding the software that is the right answer."

In other words, supply chain consultants need to be especially sensitive to a client's needs and avoid overselling supply chain technology solutions. This is especially important because so many customers are still smarting from long and costly ERP consulting engagements.

The Transaction-Based Model

It is, in fact, just this issue that has many consultants eager to adopt a new model for supply chain consulting. For the last year, heavyweights among the Big Five have been talking about scrapping the time and materials billing model that proved so lucrative in ERP engagements and replacing it with a new transaction-based model.

This is virgin territory, so there is little agreement on how such a model would work. One point which is not in dispute, however, is that the Web is what will make it all possible.

"Web-based e-commerce changes a lot of the rules by which business is done," says Christian Munz with IDC in Framingham, MA. "The Internet can be used as a tool for supply chain management, and you can outsource your entire supply chain, even logistics, over it."

Greg Gilbert, partner in charge of strategic services for the supply chain practice at CSC, expects radical changes. "We are moving from the advertising age of the Internet to the transaction age," says Gilbert. "It is really going to change the face of consulting. Clients are already asking us to take a bigger piece of the action. They will say, for example, 'You know the logistics side of the business, so just do it.'"

And even the supply chain software vendors are turning a hungry eye to this transaction-based way of doing business. "When you sell software licenses, you eventually hit a wall," says Jeff Hook, director of strategic alliances at i2 Technologies Inc. of Dallas, TX. "But a subscription or 'by the drink' model ensures a steady revenue stream."

Hook predicts that supply chains will join together to form private exchanges using standard Internet technology. Naturally, he hopes that i2 will provide the critical software for hosting these "extra-nets." "We see ERP opportunities slowing down," says Hook. "We are talking with consultants and systems integrators about being a part of this new exchange-oriented environment. Many of them are extremely interested in getting out of the hourly billing model and adopting a more predictable stream annuity model."

He is right about the interest: It is hard to find a consultant who hasn't considered this new way of doing business. Some are more cautious in their assessments, however. "It [transaction-based business model for consulting] is happening," says Dennis Toohey, senior principal at Technology Solutions Company of Chicago. "But I don't see us as adopting it."

Toohey's caution takes into account a fundamental question: If a service provider begins taking a piece of the action, how do you separate consulting from the core business it is supposed to support? "We don't want to be in the position of competing with our customers," says Toohey.

It is a delicate issue, putting the very nature of the consultant/client relationship into question.

Not everyone, however, is afraid to address it. CSC's Poirier says consultants and their clients need to move aggressively beyond the traditional models and distinctions if they want to survive. "The real challenge for everyone," says Poirier, "is that if you don't get with it [supply chain], some Silicon Valley company is going to move in and take over a piece of your business on the Web."

Power Points:

• At its root, supply chain is heavy-duty mathematical algorithms that optimize the flow of supplies within a single enterprise.

• Supply chain challenges are growing in magnitude as business strategy intersects the emerging electronic economy and opens more doors for e-business-savvy consultants.

• Given customers are still smarting from long and costly ERP consulting engagements, consultants need to be especially sensitive to a client's needs and avoid overselling supply chain technology solutions.

Where Career Opportunities Abound

Steve Keener started his career in supply chain consulting straight out of school when he went to work for Cleveland Consulting Associates in 1980. "It was called logistics back then," says the consultant who's now employed by Computer Sciences Corp. of El Segundo, CA. Today, Keener cannot conceal his enthusiasm when asked about supply chain opportunities.

"I truly believe this is a once-in-a-century-type thing, comparable to the industrial revolution. We are becoming consultants to the new economy. This is truly an exciting time to be alive in supply chain consulting."

Keener is not alone. The supply chain practices of major firms are now enjoying a newfound attractiveness among recruits as consulting opportunities put them at the center of the Internet economy.

"There are terrific opportunities, especially for those just starting out, in this area of demand forecasting and planning," says Bob Lewis, the national supply chain practice leader for KPMG.

Palmer says that KPMG looks for creative thinkers when it comes to hiring new supply chain consultants. "More out-of-the-box thinking is what we are looking for. These are people who could come from graphic design firms or software companies."

Palmer himself found his way to the top of KPMG's supply chain practice partly through a serendipitous assignment in the late '80s. "I've been with KPMG since I got out of college, back in 1981," says Palmer. "I was very fortunate to be involved in an Internet project that predated the Web. Together with Dow Jones, Apple, and Thinking Machines [of Boston], we designed one of the very first search engines. KPMG asked me to start our e-commerce business about seven years ago. Then, as we moved more to end-to-end solutions, the firm asked me to head our supply chain practice."