The latest developments in supply chain management, revealed at the SAP user conference underscore how the technology is evolving into a network.
As the largest enterprise resource planning software company with 15,000 customers, SAP pushed its philosophy of operating an open platform that would work with all kinds of applications.
"We have to face a heterogeneous world," said Hasso Plattner, SAP's co-chairman. "We can't supply all applications."
Supply chain management remains one of the applications that SAP is pursuing, and its open platform philosophy applies here as well.
One of the ways SAP was reinforcing the network nature of supply chain management was through a project announced yesterday to incorporate intelligent agents in supply chains.
Working with Bios Group, a company that has been harnessing developments in complexity science for use in business software, SAP plans to create software agents that will interact with supply networks. The agents - installed at manufacturers, suppliers, distributors and retailers - will not only report on demand and available inventory, but reflect the probability that a given supplier or manufacturer will be able to meet expected demand. When one supply chain member or set of members cannot fulfill expected demand, the agents can search for alternatives, calling upon alternative networks to meet demand.
SAP is also beefing up its technology to address new trends in supply chain management, said Michael Lipton, the company's director of supply chain consulting. One such trend is "postponement," in which companies hold finished goods as undifferentiated stock for as long as possible, then customise it for customers. For example, canned food makers delay labeling their cans or "bright stock," until orders arrive, telling them how many to label as generic and how many to label under what brand names. This twist on inventory planning depends on obtaining clear information from distributors and retailers about what demand lies ahead.
Projects like these, analysts and industry officials said, are aimed at one of the most valuable commodities in a supply chain - visibility.
"Total visibility - that's the dream," Lipton said.
Companies want to see ahead into demand, or future sales, of their products. They also want to see back into their suppliers' inventory and make sure they can cover expected sales.
Not only that, but they want their suppliers to have access to the same information. This helps avoid the "bullwhip effect." This problem occurs when inventory piles up in the distant reaches of a supply chain because companies only see the order immediately in front of them, not the demand that generated it.
In supply chains several tiers deep, each supplier in succession pads production with a cushion for unexpectedly large demand, until the most remote suppliers order quantities far out of line with the original demand forecast. This can cause spikes in prices or disruptions as suppliers try to recover costs or work off stale inventory, and these effects rebound against the manufacturer that organised the supply chain.
So it's natural that supply chain technology comes down to networks, said Harry Tse, an analyst at The Yankee Group. This can be traced in how e-commerce started with public marketplaces but has refocused on the private supply chain.
Most companies do not dominate their markets so completely that they can control them. And there aren't that many companies that operate large distribution networks - the kind of companies most likely to benefit from public e-marketplaces.
Public marketplaces attracted a wave of investment as businesses flocked to exploit the new Internet channel even before understanding it, but attention eventually refocused on where businesses found predictable value - in supply chains, usually in the form of private trading exchanges.
Now collaboration between trading partners is gaining importance, which brings networks back into the spotlight.
"We've come full-circle," Tse said. "Companies live in ecosystems."
