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Extended supply chain brings risks, rewards

Despite a dearth of budget resources, companies are focusing IT dollars on improving their supply chain networks, and large ERP vendors like SAP are responding to the trend, according to Michael Dominy, a senior analyst on business applications and commerce with Boston-based Yankee Group.

"In the past, you could get information out of your ERP products, but the problem was that there was no way to share that information easily back and forth with your suppliers," Dominy said. "Now, companies are beginning to share their information with their suppliers and have a better idea of what's happening upstream and downstream in their supply line."

Companies are increasingly using applications from small niche vendors and some large ERP vendors to improve supply chain management (SCM). Despite the risks involved, companies have been able to leverage their information to reduce costs, Dominy said.

Dominy is scheduled to speak at the upcoming conference, which runs from Sept. 24 to 26 in Chicago. He'll be releasing the results of a new study showing SAP strengths and weaknesses in the SCM arena. In this interview, Dominy spoke with about how he sees supply chain management evolving.

What are the benefits to improving a company's supply chain management?
There are a whole host of benefits. The first thing companies tend to attack is reducing inventories and cycle times. If a retailer, for example, provides a supplier with more information on actual sales and what they're planning on shipping, then the retailer can hold less inventory and allow the supplier to ship on an as-needed basis. There is definitely a cost savings, a reduction on inventory costs, a reduction on inventory carry costs and transportation costs, because companies are shipping just the right product in the right place with better synchronization. What specific SCM project trends do you see?
Companies tend to be 'customer phasing' at this point. More companies are putting in applications such as a portal or Web browser that give customers easier access to supply and purchasing information. The companies doing this say it is improving the order fulfillment processes and improving customer retention. How are companies shifting their IT focus to connect with the extended supply chain?
Today, people are using the Internet to provide both structured and unstructured information to have a better idea of what is happening both up and down the supply chain. Some companies are putting it in a portal for the supplier to see or are putting the information in an XML message. Is there widespread adoption of improved supply chain management technologies?
There is not broad adoption yet of this type of capability. Companies have increased their core ERP technology, and now they're finding the best way to reduce costs is to drive down the overall network costs and also the costs to their extended network of partners. Once this happens, companies see the costs go down, theoretically, for everybody. It's not surprising that it's taking a number of years especially for the household-name companies to figure this out. They have fairly complex business processes and established ways of operating.


Check out the conference, scheduled for Sept. 24-26 in Chicago.

Check out how SAP is strengthening SCM analytics.

To provide your feedback on this article, contact Robert Westervelt.

Are there any risks involved?
Depending on the type and degree of information that you're sharing with your suppliers, there is always a concern if a business partner is going to use this information in some way that is not ethical. For example, if a supplier has a deeper understanding of my business, will they use that information as an advantage in price negotiations? Are companies turning toward niche, best-of-breed application providers or sticking to the larger ERP vendors to improve SCM?
We're seeing small niche vendors like Manugistics do very well in this area, and we're also seeing SAP and other ERP vendors gaining momentum. We're definitely seeing more companies buying technology from SAP and other ERP vendors because the ERP vendors of the world are making strides in improving their functionality. Companies have been asking SAP and other ERP vendors to make it easier for data and information to be pulled out and entered into other applications.

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