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After eight years at sprinter speed, the country's economic machinery is finally grinding to a slower pace, and U.S. manufacturers are watching in horror as inventories rise around them. But without a change in mindset, all the business intelligence technology and business process alignment in the world won't be much help.
The Dec. 4, 2000 issue of The Wall Street Journal reported that symptoms of over-capacity became obvious over the course of last year; in November, the pace of U.S. manufacturing slowed for the fourth straight month. The best anecdotal evidence comes from the auto industry, where the Big Three are bracing themselves for rising inventories and shrinking profit margins by idling production, and the high-tech component manufacturing sector, which has been rocked by aftershocks from the collapse of consumer demand for PCs.
According to The Journal, the problem is exacerbated not only by breakneck capital spending during the 1990s, but also by the fact that manufacturers in new markets have little historical context upon which to build accurate forecasts.
These points tell only a portion of the story. Perhaps a bigger underlying problem is that the contemporary practice of supply chain management (SCM), while doing a good job of extolling Internet-based business process integration, emphasizes such integration at the expense of "true" collaboration. In other words, companies are so busy automating the exchange of purchase orders over the Internet - many over new online trading exchanges - that they have failed to realize that the buyer-seller-supplier relationship remains essentially unchanged. And the very nature of that relationship, which traditionally discourages information sharing and excludes the customer from the value chain, has contributed to the poor inventory management practices that typify manufacturing companies today.
Blind Lead the Blind
Regardless of the marketing hype fostered by ERP, SCM, and application integration solution providers, sharing information - with other internal departments, to say nothing of external suppliers - remains counterintuitive for most businesses. Regardless of the sophisticated decision-support platforms involved, most companies make supply chain decisions among different business groups, using different numbers, and in different meetings. Similarly, despite the longtime availability of EDI for bigger companies and the emergence of cheaper, more flexible means of business process alignment for smaller ones, the "extended enterprise" is still an early-adopter concept. (See Ram Reddy's "Herding Cats Across the Supply Chain," Sept. 8, 2000, at www.intelligententerprise.com/000908/feat3.jhtml for an excellent case study about the challenges involved.) And even in integrated supply chains, procurement is still often a blood sport in which suppliers are hammered mercilessly at the expense of cooperation.
The ultimate goal, as IT archetype Wal-Mart teaches us, is collaborative planning, forecasting, and replenishment processes that extend all the way to the customer, which go far beyond simply moving supply chains to an Internet platform. In the former approach, manufacturers, wholesalers, and retailers make collaborative decisions using models that account for sales forecasts, not just purchase orders. (For example, Wal-Mart is famous for making suppliers manage their own inventory on store shelves based on daily updated sales information.) In the latter approach, which is just an extension of traditional SCM, inventories swell up at various links in the chain because decisions are made in isolation with little knowledge about true customer demand or their impact upstream and downs tream - they just happen to be communicated more quickly and efficiently.
Culture Matters
This observation is another example of the axiom that technology alone is rarely the solution for a complex business problem; rather, attitudes, mores, and mindsets are far more influential factors. In this case, the biggest barrier to supply chain transformation may be contemporary supply chain "culture" itself.
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