TECHNOLOGY & SERVICES

Market-enabled Supply Chains The Next Source of Supply Chain Value

a report by

David Smith
Vice President, Enterprise Solutions, VerticalNet Solutions

Most European organisations are realising that neither enterprise resource planning (ERP) nor traditional supply-chain solutions can meet the increasingly dynamic demands placed on the supply chain caused by shorter product life-cycles and increased customer definition and expectation of delivery channels. Enterprises need high demand visibility and simple, homogeneous end-to-end systems. Internet Protocol (IP) is the ideal protocol common to all. Sitting above all existing and proprietary systems, it can create a virtual marketplace where information can be shared, transactions can be undertaken and complex relationships inherent in todays supply chains can be accurately modelled and delivered. The key to leveraging the Internet to unify supply chains for the virtual marketplace will be the rise of a new breed of collaborative tools known as marketenabled supply chains (MESChs). The proven benefits and innovative solutions inherent in the MESCh business model are particularly significant for the electronics industry. Supply chain interactions in the electronics industry have come a long way from the days of catalogue representatives selling door-to-door and taking orders for current and anticipated production needs. Through the improvement of enterprise-wide planning and forecasting tools and the increasing use of electronic data interchange (EDI) and Internet messaging, the industry has made great strides in reducing both the operating costs of purchasing transactions and the working capital costs of carrying large safety stocks in inventory.
Using the Power of the Internet

manufacturers (OEMs), contract equipment manufacturers, component suppliers and others, an entirely new set of interactions will be required to sustain and accelerate the creation of new value. The industry is looking increasingly to the Internet as the source of these new models of interaction. Over the past 18 to 24 months, the emergence of the business-to-business (B2B) space has introduced a number of new business models that use the Internet and powerful collaboration technologies to provide new ways for supply chain partners to interact. These new models provide the innovative enterprise with an opportunity to leverage the power of market-based transactions, such as requests for quotes, auctions and structured negotiations, across homogeneous end-to-end systems. This ensures the efficient management of direct procurement functions, including the strategic sourcing of the goods and services that are most critical to business operations. The new MESChs consist of business models that address critical issues of transaction effectiveness in direct materials goods. These issues include concerns such as getting the best price, ensuring product availability, providing transparent visibility to inventories, managing component and product quality and making performance/price trade-offs. To do this, MESChs leverage tools in public marketplaces, as well as those focused within the enterprise or its direct value-chain partners. In the electronics industry, public marketplaces mean leveraging the power of industry operating systems. Within the enterprise and value chain, MESCh business models leverage non-public tools for the most strategic functions, such as demand forecasting and strategic sourcing.
MESChs Mean Business

These efforts have been successful in driving substantial costs out of the overall supply chain and have contributed greatly to the growth of the electronics industry. However, improved internal planning and forecasting can only go so far in reducing supply chain costs. As supply chains rapidly become value chains, with increasingly complex relationships between product distribution channels, original equipment

Over the past six to 12 months, a number of MESCh business models have emerged in the electronics industry. According to Bob Lewis, Chief Executive Officer of Converge, Inc., an online marketplace and

TECHNOLOGY & SERVICES

exchange formerly known as eHITEX, these marketplaces are developing in order to provide a platform for the high-technology industry to come together to exchange goods and services in a highliquidity marketplace, and to collaborate with partners to solve long-standing supply-chain problems. MESCh business models are already offering innovative solutions to some of the key problems associated with supply chain collaboration that have plagued the industry for years. These include a lack of visibility to OEMs and other inventories, inefficiencies in the interaction of product design and supply forecasting and a lack of opportunities to improve the efficiency of inbound and outbound logistics. In improving these efficiencies and eliminating many of the traditional bottlenecks in the supply chain, hightech businesses using MESCh solutions can expect to reduce their total direct materials costs by 5% to 10% over the next three years. The central tool for these gains will be a highly liquid marketplace, providing a range of transaction formats for buyers and sellers to come together around the complex transactions that characterise the hightechnology industry. Software providers and marketplace builders must work closely with a broad spectrum of technology partners in order to develop these virtual marketplaces into confidential, trusted environments for direct materials goods transactions. Additionally, marketplaces will need to prove that they can add value by attracting sufficient buyers and sellers to ensure a fully liquid market for both sides. Broad-scale access to multiple parties is mandatory in order to create an environment in which all participants are confident that a buyer or seller for

specific components will be available when required.

B2B Leads the Way

Whilst MESCh business models leverage the Internet for connectivity among supply chain partners, the full realisation of the value inherent in MESCh business models will require substantial interoperability across multiple public marketplaces and internal enterprise solutions. According to Rajiv Gupta, General Manager of Hewlett-Packard Companys e-speak Business Unit, marketplace connectivity is the next step in the evolution of B2B e-commerce. Tools currently being developed will allow users to switch seamlessly between similar services provided by different marketplaces and other providers. For example, a buyer in a high-tech OEM could flag a purchase order to choose from several different auction providers, based on their assessment of the liquidity of those markets for different types of products. As the electronics industry looks beyond proven supply chain tools for the next source of value, business models that leverage the market-based knowledge of the B2B space will increasingly prove their worth. MESCh business models, such as Converge, the strategic sourcing tools contemplated by Sumitomo and Mitsui and the transaction efficiency tools provided by Fujitsus ProcureMART, will increasingly be the drivers of new value creation in the industry. Linking these business models and creating vast commerce Webs will be newly emerging Internet application frameworks. Together, these new business models and tools will provide the engine for continuing the profitable growth of this ever-changing industry. s