Making sense of the e-supply chain

Oct. 5, 2000
Software pioneered for e-retailers now hold the promise of streamlining the supply chain and the design process.

By John Briant,
Corporate Vice President
Materials & Logistics
Denver, Colo.


Today, when someone tells you to "work faster," they probably aren't referring to the time spent lingering at the coffee machine. In the electronics manufacturing services (EMS) industry, faster means satisfying customer demands as soon as orders arrive — or even sooner. This "instant gratification" is what's behind the push to integrate Web-based processes into the supply chains. When an end user wants a product, competitive issues force the entire chain to react with lightning speed.

In the digital information age, the key component of a streamlined supply chain is accurate information. Unfortunately, when humans are involved, the risk of inaccuracies increases. This is especially true in services supporting design and manufacturing, where one error can compound itself many times over as it moves down the supply chain.

Readers are probably familiar with the traditional paper-based procurement process,. Company A's material requirements planning (MRP) software indicates the company must order 15 widgets to be delivered in four weeks. The buyer prints out the purchase order (PO) for 15 widgets, seals it in an envelope addressed to Company B, and puts it in the outgoing mail bin. At the end of the day, or maybe the next day if the buyer missed the last mail call, the envelope arrives at the post office. For the cost of a 33-cent stamp, not to mention all the labor and materials costs incurred processing and printing, the PO gets to Company B some time in the (hopefully near) future.

Company B's mailroom forwards the PO to the appropriate customer-service representative who manually enters the order information into an MRP database. To complete this transaction successfully, information on the PO must say precisely what Company A needs and when it must be delivered. The entire process depends on the accuracy of human personnel, plus a little luck with the mail.

Compare this to the potential efficiency introduced by e-business. Purchase orders are automatically sent with little chance of losing data and in an agreed-upon format that lets supplier fill the order minutes after the buyer originates it. Done properly, material and overhead costs plummet.

For example, EFTC, an EMS provider, buys in excess of 100,000 different component line items. Although managing this wide array of components is a monumental task, tools such as EDI and a Web site dedicated to purchasing significantly reduced the number of resources required for day-to-day operation.

Electronic communication with the supply base also makes it easier and less costly to manage suppliers. By restructuring the purchasing department to exploit e-business, procurement teams can focus on individual commodities supplied by the distribution chain instead of on the distribution chain itself. Procurement teams get more time to handle exceptions on allocated devices that need special attention.

Many EMS providers have found the Web useful in streamlining the often-cumbersome quotation process. Traditionally, EMS providers have had to manually consolidate paper bills of materials (BOMs) and approved vendor lists (AVLs) into a single file. This file was faxed or mailed to the supply base as a source for generated quotes. This process can be accelerated and errors decreased when BOMs and AVLs go in electronic format. In addition, the supply base can then use the same form of electronic data transmission to provide component costing at a BOM or product level.

Companies such as Supply-Stream, Polydyne, and Digital Market all offer Web-based software that simplifies the entire quoting process. EMS providers can load the BOMs and AVLs directly into these programs and the information is automatically consolidated and transmitted to the supply base. Suppliers can then upload quotes information directly back to the EMS company via the Internet. Some of these tools also let EMS firms automatically estimate the overhead needed to support a project and provide accurate cost estimates for customer projects.

Some companies, rushing to implement "e-solutions," lose sight of the ultimate goal: customer satisfaction. Although the method of transmitting purchasing information is important, it remains one small part of the e-business revolution. After all, customers need much more than just the fulfillment of an order to be satisfied. OEM customers in particular want the flexibility to change their orders whenever necessary.

To do this, they need access to the EMS firm's infrastructure. An entire industry of business-to-business software providers are trying to make this possible.

Almost two dozen companies now offer products that connect supply-chain partners to each other over the Internet. There are even more vendors purporting to be "supply chain consultants." Products vary from complex collaborative planning, quoting and ordering systems to simple component sourcing and spot-buying services. Consequently, this proliferation of options makes choosing the right supply-chain management software a complex decision.

One widely used approach is called Advanced Planning Systems (APS). Basically, it lets EMS firms and their OEM customers collaboratively plan and optimize the supply chain to satisfy end users. They are popular because they let supply-chain managers run "What if?" scenarios.

For example, an EMS company's supply-chain manager might want to know what to expect if an OEM asks for 300 widgets in 15 days instead of the normal 150 widgets in 30 days. The traditional way of finding out is to call several suppliers, then see how many hoops manufacturing is willing to jump through. It could take hours, days, or even weeks to find out if the EMS can handle the new order, especially if the firm is buried under other deadlines.

With APS, an operator queries the software to find out whether the request for 300 widgets in 15 days is feasible. If so, it also indicates what subassemblies, components, parts, and human resources would be required, by when, and how this schedule change will affect the final cost to the customer (i.e., premium charges for rush subassemblies, expedited shipping costs, and so on).

Companies such as i2 Technologies, Manugistics, WebPlan, and others currently offer APS systems. In addition, major vendors such as Oracle are also adding APS programs to their existing ERP infrastructures. While it does take some work to implement APS, the investment can boost customer satisfaction and make the supply chain faster and more efficient.

Advanced software that simplifies the exchange of design and engineering information about the product have also been introduced recently. For example, a program from Agile Software lets customers send engineering change orders (ECOs) and other product data directly to EMS companies to compress the design cycle.

The Internet has become the medium of choice for e-tailing (direct selling) computer-related equipment and software. One of the first companies to report sales in the millions of dollars directly from the Web was Dell Computer.

Today, supply-chain management is what lets consumers order custom-built PCs from Dell and have them delivered overnight. That same PC can also be repaired and returned to the customer in less than 24 hr.

The infrastructure that made this once "remarkable possibility" into a commonplace reality is driven by information technology and logistics. This infrastructure and its associated services and savings is now headed for other manufacturing industries such as avionics, industrial controls, and instrumentation.

E-business is also playing a vital role for distributors such as Avnet and Arrow. For example, Arrow recently beefed up its external Internet services by investing in ChipCenter, an information-and purchasing-based Web site, QuestLink Technology Inc., a Web site offering technical information, and Virtual Chip Exchanges, an online component broker.

While e-business solutions that focus on high-value components can have a considerable effect on the overall cost of managing the supply chain, other areas such as MRO procurement can use e-commerce to direct orders to preferred suppliers.

Consolidations in the business-to-business electronics services are already underway. Two of the more visible examples are Agile Software's acquisition of Digital Market and i2 Technologies joining with Aspect Development. As e-business matures, more business-to-business providers use acquisitions and alliances so that they can offer one-stop shopping for these services.

Electronically based supply-chain management gives EMS companies a competitive advantage. It creates efficiency and drives out non-value-added costs. It also lets EMS companies give customers the flexibility to handle changing needs. To maximize the advantage, e-business solutions must match the EMS provider's unique market niche.

There's no doubt the e-business revolution is here to stay. Companies that adopt its tools will continue to move forward while firms afraid to change will not be standing still, but flying backwards.

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