New Supply Chain Models Hit the Cloud

True collaboration is the goal of a supply-chain partnership, but that ideal is hindered by a number of factors. One is the set-up of most data management systems, which shield and protect information within individual silos. Within the four walls of a corporation, for example, the status of a financial transaction is not visible to all users.

In a typical supply chain, that problem is exacerbated hundred-fold. Electronic data interchange (EDI) is the most popular system for managing supply and demand transactions. Information is visible only to the principals involved: say, the distributor that is placing an order with a supplier, and vice versa. If for some reason there is a problem with that order, a second-source supplier isn't privy to it, yet, that supplier could intervene and help.

There are good reasons why information is often managed in a silo format: competitors shouldn't be able to see each other's pricing, for example. If certain data was shared -- say, the fact that an order can't be fulfilled -- competing suppliers could collaborate on a solution while price confidentiality is maintained.

This is the concept behind a set of supply-chain solutions being offered by companies such as E2open Inc. and GT Nexus. These platforms, hosted on the cloud, enable partners to establish a set of rules that allow certain constituents to see information relevant to them. Unlike a typical closed system, the universe of collaborators can be opened to include financial institutions, logistics providers, and even governmental and regulatory agencies.

Let's say an event at a shipping port holds up a container in customs. Typically, this information isn't automatically shared with carriers, distributors, or even end customers. Another example: a manufacturer is awaiting a customer's credit approval before starting production. If the OK was communicated directly from the lender, manufacturing could start immediately.

Each system emphasizes certain strengths: GT Nexus focuses on the ease of sharing data. Users can collaborate without downloading or uploading data between systems. Greg Kefer, GT Nexus director of corporate marketing, said in a phone interview earlier this year:

The supply chain is basically comprised of a lot of points of data that have a distinct chain of custody. This data is different for each company, and that information is often stored, or 'locked up' within an ERP system. These systems aren't designed to work across enterprises, so the data isn't flowing.

The only way to do that, GT Nexus believes, is through the cloud. Not only do most ERP systems not talk to one another, they don't even speak the same language. GT Nexus partners provide data from their ERP systems. GT Nexus takes it, translates it, and then makes the data available to select members of the network. Although the information is standardized, linked, and centrally stored in the cloud, it is also partitioned. It is visible only to stakeholders that have been granted permission. "Being part of a group does not necessarily mean every partner sees the data," explains Kefer.

In addition to the partners in a typical supply network -- suppliers, distributors, and customers -- global commerce also depends on air, land, and sea freight handlers, third-party logistics companies, trade and tariff officials, seaports, and trucking and rail companies. Each of these groups manages information that isn't necessarily shared with an end customer that's awaiting a shipment.

Most users already have EDI links and legacy systems on which they have spent millions. The cloud doesn't replace those systems, but it does provide economies of scale. GT Nexus users pay a subscription fee based on their level of engagement. This means small companies that don't have costly ERP platforms can participate.

A similar concept was developed by E2open, which started as a component-sharing Website for OEMs. E2open's cloud-based trading platform, E2open Business Network V 8.0, allows supply-chain partners to view and manage procurement events in real-time. The product, among other things, enables users to "monetize" the various aspects of a buying transaction. It captures and compares component costs; assesses various logistics scenarios, and calculates risks such as manufacturing line downtime.

E2open emphasizes the real-time aspects of its system. "The problem is the electronics industry has the fastest moving supply chain in the world," said Michael Schmitt, E2open senior vice president of marketing and product management, in a phone interview earlier this year. "It's not just providing the data; it's the ability to interpret and react to the data." (See: Have OEMs Relinquished Too Much Control Over Their Supply Chains?)

PC manufacturer Lenovo Group Ltd. (Hong Kong: 992) uses the E2open system. (See: The Cloud & the Supply Chain: A Match Made in Heaven.) Lenovo set out to reduce the cost and time to onboard new trading partners and to build a real-time, consolidated view of processes and operations. Since implementing the platform, Lenovo reports it has reduced onboarding time by 85 percent, lowered IT costs by 53 percent, and reduced IT management costs associated with supplier integration by 70 percent.

Cisco Systems Inc. (Nasdaq: CSCO) has also implemented the E2open platform and estimates it has linked its systems electronically to more than 100 key suppliers and partners. In a report on its results, Cisco notes that tech companies already have the ability to view and exchange data with their suppliers, contract manufacturers, and distributors. The key to success, however, will be how companies use that data to effectively collaborate and take action.

Some analysts believe OEMs have relinquished too much control over their supply chain and open collaboration platforms will reverse the trend. So far, it appears that cloud-based solutions complement, rather than replace, legacy solutions and therefore don't threaten the status quo. Yet, many partners in the electronics supply chain have taken on certain management functions to cement their relationships with customers.

Distributors, for example, coordinate amongst suppliers to make sure orders are fulfilled. Suppliers with proprietary customer relationships don't generally collaborate with second sources. However, if it's the end customer that determines the rule-set for collaboration, supply-chain responsibilities may shift, again, back to the OEM.