IT Opens Door to Collaboration Era

With economic uncertainty weighing on countries around the world, I find myself reflecting on a prediction that I made ten years ago—that global supply chains would experience three phases of change as information technology found its way into each and every crevice of business processes.

The first phase, which was underway at the time I wrote the original article, involved improving productivity across business-to-business flows through the use of IT (and especially the Internet) to streamline transactions. The second phase, which seems duly to have been realized, was a flattening of these productivity gains as businesses tapped out the obvious benefits of things like online auctions and automated ordering. Only then, in the third phases, would businesses discover that the big advances available depended more on a collaborative approach to business than on technology deployments alone.

Today, a mere 60 days into 2010, I look at the original conceptual graphic portraying this prediction and hope that my estimated dates were right. (See (Exhibit 1.)

2010 was supposed to be the turning point where, in phase three, the flat part of our productivity curve would bend sharply upward. This promised to be a time of accelerated growth based on wider adoption of truly collaborative practices between trading partners tapping deeply into the efficiency gains wrought with IT in the global supply chain. Are we there yet?

The answer at the moment may unfortunately be no. Let's start with the bigger picture: Politics. At the moment we have a crisis in the European Union as the sensible, solvent big economies, especially Germany and France, sweat the continued financial weakness of the little guys, especially Greece, whose participation in the EU's single currency limits their ability to inflate their way out of trouble. Debt markets shudder.

Meanwhile, China's economic miracle faces strains itself as inefficient state enterprises drain resources while falling exports limit what's left for the working masses who are suddenly seeing some cracks in their economic prospects. Debt markets shudder.

And of course, in the United States, government-funded bailouts and expansionary spending, while staving off near-term disaster promise to deeply undercut the value of the dollar in the long run. Again, debt markets shudder.

Sadly, the lesson at this higher level is that collaboration is not working. No one seems willing to share the burden or the benefit associated with overhauling our world economic system.

IT as Supply Chain Accelerant

è's Enterprise Resource Planning (ERP) software, Colgate has established principles for logically breaking down the physical supply chain that allow it to add margin every single year for the last two decades. By mastering (collaboratively with SAP, I might add) such esoteric but vital technical foundations as Master Data Management (MDM), Colgate has put itself in position to do exactly what I predicted ten years ago—systematically building joint value with grocery customers downstream in a way that makes more money for everyone. This example shows not only that it can be done, but that IT, in fact, is the essential ingredient needed to lock good intentions down with repeatable and scalable efficiency gains. This is no mere pilot but the first steps up the steep part of the curve.

Colgate-Palmolive is by no means the only example. Harris accomplishes similar efficiency gains with its component suppliers using Oracle's PLM software (formerly Agile) to accelerate joint problem solving around highly engineered systems that control satellites. Del Monte uses a combination of Oracle for front office reporting, i2 Technologies (now JDA) for demand planning, Vision Chain for downstream data harmonization and One Network for demand sensing to streamline inventories while improving fill rates. Mercedes-Benz used DELMIA from Dassault Systèmes to reduce the number of welding tools in its plants from 350 to 10. Asian Paints uses Infor's Optiva application to streamline the transfer of chemical formulae for paints from 14 different development labs to an optimized balance across 29 global manufacturing sites.

The common thread among these examples is that IT, when deployed against the efficiency imperative constantly driving global supply chains to improve, delivers big results.

For a sense of perspective on how important these advances are, consider the recent book by economics professor Gregory Clark, called

This book's main message is that productive cultural characteristics, when manifested deeply enough, eventually persuade people to leave behind their hunter-gatherer instincts to compete violently in favor of patient, rational work for long-term gain. He calls the role of technology “crucial,” stating: “The rate of technological advance in Malthusian economies can be inferred from population growth. The typical rate of technological advance before 1800 was well below 0.05 percent per year, about a thirtieth of the modern rate.” The modern rate—about 1.5 percent per year—aligns well with historical data for productivity growth rates seen throughout the industrial age.

What I wonder, noting that most of Clark's data runs through 2000 at best, is whether the IT in global supply chain is ready to act as an accelerant to what he notes is a technologically-driven leap in living standards for certain parts of the developed world. Is the role of IT in supply chain to vault us not only forward, but also exponentially so with productivity growth rates two or three times as fast as we have seen since 1800?

This brings us back to the core cultural challenge of the age, which is to embrace collaboration and eschew competition. The biggest weakness of Internet-enabled purchasing, for instance, was that suppliers felt that their value was reduced to a price-only bid for the business. Buyers were beating up suppliers with online auctions and ignoring their engineering or service value-add. The relationship was, as we note in Exhibit 1, adversarial.

Businesses Ready to Make the Move

Looking more recently at the wave of supplier scorecarding that has taken advantage of IT to broadcast ever more detailed information about buyers' needs back to suppliers, we see a flattening of value created, mostly because buyers still ignore their responsibility to adjust processes to add efficiency for all. Conceptually, it's not hard to imagine how supply-demand balancing could be radically improved if both suppliers and buyers worked together. This is what we mean by collaboration: it is a two-way street.

Our political leaders may be unable to get this collaboration groove going, but businesses are just about ready. One indicator is, of course, the steady drumbeat of real world examples like those described above. Another is signified by the very fact that AMR Research was acquired by Gartner just two months ago. AMR (Advanced Manufacturing Research) was built around the idea that physical production and distribution could be improved with IT. Gartner was founded to research the fast-changing world of IT itself, from microelectronics to business applications.

SC
MR