Four Strategies for a Web-Based Supply Chain

More than one strategy is needed to create and manage your online supply chain.

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Despite having created a website that did $10 million in business in its first three months, Don Louis isn't all that popular at Rockwell Automation, a Greenville, S.C.-based maker of industrial transmissions and a division of Milwaukee-based Rockwell International Corp. Louis, who is Rockwell Automation's director of e-commerce, says his lack of popularity stems from the very essence of e-commerce—customer control. "With more information becoming available to customers in the marketplace," says Louis, "it's giving managers an uneasy feeling that they're losing control. But what's really happening is companies are beginning to be customer led rather than management led. The fact is, customers want some role in managing the information and products that you provide for their use."

Specifically, Rockwell Automation's managers are burning up over Louis's decision to give customers their own private websites on the company's portal site, PTplace.com. "Our people are going nuts because they want access to what the customer sees on the site," he says. "We have to explain that that's not our site, it's the customer's site." Rockwell Automation's managers can still access customer information through the company's decision support systems, but the customers' websites—where they can view their past purchases and track their orders in real-time—are sacred. Total privacy is what customers have come to expect in a secure, password-protected environment like PTplace.com, and if they felt the site wasn't completely secure, they'd bolt.

You've heard of the "me decade?" Welcome to the customer decade. The private portal is its strongest expression yet. Formerly known as extranets, these websites have grown in complexity and functionality. Extranets used to be yet another way for companies to push information at customers. Now private portals are personalized windows through which customers can reach into the depths of a company's supply chain. It's where companies and their customers build new levels of intimacy into their relationship. The private portal will become a necessary component of the Internet supply chain for any company that wants to build customer loyalty and learn more about their needs and wants.

PTplace.com hooks directly into Rockwell Automation's order management and warehouse management systems. That means the elapsed time between a customer placing an order on the site and a picker's light going on in Rockwell's national distribution center in Rockwell, Tenn., is only six minutes.

Ironically, some of Rockwell Automation's largest distributors aren't much happier than Louis's colleagues. Most have invested in internal systems to handle ordering from manufacturers like Rockwell. For them, the website just means entering their orders twice—once for their own system and again for Rockwell Automation's.

The real winners are the smaller distributors that previously could not afford direct connections with Rockwell. "The small guys are thrilled. They can now play on the same field as the larger distributors," says Darcy Mauro, sales and marketing manager for e-commerce at Rockwell. Of course, most of them find that they need to trade up to a DSL line once they try downloading their custom catalog from the Web, considering that Rockwell has 85,000 parts—with pictures—online now.

Though that may seem like a major roadblock, customers can surprise you. At least that's what Barbara Moss discovered. Moss, who is senior vice president and chief operating officer of AlliantLink.com, a division of food supplier Alliant Food Service in Deerfield, Ill., put up her customer portal in February. She expected that her smaller customers, restaurateurs, would be loath to make the switch to the Web, given that many had invested in Alliant's old PC-based dial-up program for ordering. But the restaurants went nuts for it. They liked ordering tomorrow's salad and main course fixings from home over the Web; the old client/server program kept them chained to their offices late at night after the restaurant closed. Indeed, they like the new model so much that they order 25 percent more food products each time they get online. That's because the site keeps them there. Customers use the site to keep records of their transactions and get reports about their invoice histories, product usage trends (salads sell better in summer) and their purchase histories with specific food manufacturers. To keep them ordering, Moss builds loyalty by putting up daily recipes from the Culinary Institute of America on the site.

This kind of customer-centric attention exerts a pull throughout the supply chain. With Rockwell Automation picking orders in six minutes, the subtle sucking sound you will hear will be the pressure on its suppliers to move their products more quickly.

After all, Rockwell Automation is somebody's customer, too.

4. The exchanges—price crunch

Panasonic USA CIO Bob Schwartz is living the e-commerce nightmare. He's in an industry—consumer electronics—where competition is fierce, margins are measured in microns and products become commodities overnight. The Web will not be particularly kind to his company, he says, unless he tries to steer its online fate. Without a strategy, Panasonic USA's VCRs, TVs, laptops and other products will be reduced to cheesy thumbnail images bunched together with all their direct competitors on boring shopping sites. Want to guess the sole differentiating factor for consumers (or worse, their shopping bots) cruising those sites?

Price, of course.

Price seems to be the driver behind most exchanges these days, whether they be dotcom startups like Chemdex or industry gorilla consortia like the Big Three's auto site, Covisint. Exchanges throw buyer and seller together in a brightly lit fishbowl where they can get a better look at each other's supply chains (and costs). At its most basic level, the exchange is an online mechanism for creating efficient markets where products are commodities and the lowest price always wins. The airline industry's move to an online reservation system in the 1970s led to years of pain and low prices until the companies began differentiating themselves on services like frequent flyer programs and special seating plans. Even with these marketing plans, however, airlines still struggle to make a buck. If online exchanges are to avoid creating the same fate for their participants, they will need to offer other ways for buyers and sellers to engage each other besides price.

No one's looking forward to that more than Schwartz, but he can't afford to wait to enter the exchange game. Panasonic faces the same sort of price pressure in its electronic components business—batteries, transistors and semiconductors—as it does in the consumer products arena. Already a commodity business, electronic components will only grow more so online. Unless Schwartz does something. Having recently consolidated Panasonic USA's Web efforts, Schwartz is readying the Panasonic infrastructure for the coming online exchange battles.

The first will be E2open.com, a supply chain exchange for the technology industry formed last June. Panasonic is a founding member, along with competitors like Hitachi and Toshiba, and software vendors Ariba, IBM and Dallas-based i2 Technologies. "We're worried about commoditization [on E2open.com]," says Schwartz. "But we think there's value to getting in there and leading rather than waiting to see what happens."

Schwartz is looking for an edge and thinks he's found one. "Service," he says. By shoring up Panasonic's ability to deliver products more quickly and reliably, Schwartz believes he can pull customers away from a relentless focus on price. "You have to be ready to transact in the marketplace. But it's not just a matter of being able to do transactions, it's whether your supply chain can respond quickly. Availability to promise and decreased lead times are the competitive weapons you need when trying to market yourself in these virtual stores."

That translates into collaborative planning over the Web. Schwartz has piloted a website with one of Panasonic's customers that allows the customer to enter sales forecasts and requirements for specific products into supply chain planning software from i2. The software delivers the information to Panasonic's Japanese factories. Demand is predicted on a global basis, and the factory production schedules are adapted accordingly. This eliminates the need to convene committees to develop forecasts and hold meetings to sign on to plans. Quick turnover in planning should help Panasonic cut its typical lead time from 90 days to 45 and increase factory delivery frequency from monthly to weekly.

Having a fast, responsive supply chain behind those cheesy images on exchange websites is Schwartz's best hope for standing apart from the crowd. "If you lead, it presents an opportunity to help define the digital market. But you have to have the capability to support the transactions. That's a massive effort. But if you don't do it, you may wind up playing by the rules that are being defined by everyone else," he says.

The answer, as it is in almost all cases, is supply chain efficiency.

Are you ready to start?

Copyright © 2000 IDG Communications, Inc.

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