Companies eschew supply chain automation

Still on the phone and email

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Analysis When we think of supply chains, we also tend to think of companies running highly automated systems with information running smoothly up and down the chain using technologies such as Electronic Data Interchange (EDI) standards.

Even for those who saw EDI as too expensive in the 1990s, due to the need for managed leased lines and specific software solutions, the advent of cheap, relatively secure public internet access and the move to eXtensible Markup Language (XML) based standards such as electronic business using XML (ebXML) and the XML Common Business Library (xCBL) should have heralded a new dawn of easy business-to-business (B2B) information interchange.

Quocirca has just completed research into this space, and has found that whereas 80 per cent of companies have the capability to carry out automated B2B information exchange, only 35 per cent do so commonly. The majority are falling back on the safety nets of good old telephony or straight forward email systems.

Why is this? When we dig into the data, we find that the basic reason is complexity – yes, EDI has been around for years, and in itself is stable, if a little clunky. However, we have different dialects of EDI – UN/EDIFACT, ASC X12, HEDNA, MISMO, IFX – and within these, different versions. We found that large companies are likely to have over 1 000 active business suppliers, and several thousand business customers – each of which might have its own approach to information interchange. Trying to keep up with the changes in the standards that are taking place in the complex value chains involved just doesn’t work: there is a lack of flexibility and of responsiveness. Therefore, even those who do use automated means tend to back this up with a telephone call – just to check that the transaction has taken place.

For those who have given up with the idea of integrated automation, we then have the old problems of information fidelity – transcription errors creep in from computer to computer, a telephone call for “6 T-bones” gets heard as an order for “sixty bones”, and so on. A bounce on the keyboard means that an email orders 1,000 high-cost items, instead of 100 – and, as there is no integration between the two systems, there’s no sanity check taking place between the inventory system and the email. The capability to audit the trails behind an order gets lost, and compliance becomes a nightmare.

Many of the companies we spoke to were looking at non-technological means of minimizing the problem – lowering the number of suppliers was fairly high up the list – yet were also at the same time looking at ways to grow their business through cross-border expansion, identifying more prospects and being more responsive to customer needs.

Obviously, there’s a bit of a disconnect here. As frequently happens, the companies that we were talking to were falling in to the trap of treating technology as if it was a core competency. Only certain large companies can get away with this – for example, Tesco’s success is due to its understanding of technology and its correct use for driving its business. Wal-Mart is similar – but its recent decision to force all its suppliers to go down a specific transactional route with it has left a bad taste in many mouths. For the majority of the rest, it’s being a retailer, or a manufacturer, or a distributor which is core – and getting bogged down by technical complexity is not where they should be.

Is there an answer? We believe so – hosted solutions are increasingly providing a means of divorcing the business from specific technologies in many cases. In the case of B2B information interchanges, an “anything in, anything out” approach makes sense to suppliers and customers alike – the capability for a company to decide on a few highly functional standards that they will support via their own core systems, while utilizing a hosted supplier to translate incoming and outgoing interactions as required. These providers can react far more rapidly to changes in the standards arena – after all, this is their core competency. Application vendors are generally too busy concentrating on the core functionality of the base product to bother much about keeping up with the latest additions, tweaks and patches to standards – and you need to concentrate on your business.

The capability to exchange information along the value chain is more important than it has ever been – audit requirements are more stringent, and ever increasing competitive pressures means that problems caused by human error should be minimized. Looking to external solutions can relieve the pressure and give you a degree of market differentiation through increased flexibility. And finally – if you really believe that you can run a business today with important transactions taking place via the phone, or even worse, via fax, I have a bridge in Brooklyn I can sell you...

The complete report on the research can be obtained free of charge from Quocirca.

Copyright © 2005,

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