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The Discrete Approach to e-Business Large manufacturers are foraying into e-business-but in a start-slow approach. At least for the time being. By Lauren Gibbons Paul Hyundai Motor America (HMA), the $7.4 billion U.S. division of Hyundai Motor Co. Ltd., has moved slowly into the new world of electronic commerce. In early 1999, the Hyundai Parts Technical Department created an extranet that independent auto repair shops could use to purchase parts online. George Kurth, national parts supply manager for Hyundai, figured offering these garage owners the ability to order genuine Hyundai parts quickly and easily via a Web browser would stop them from going to their local auto parts store for knockoffs. Click to hear George Kurth,
Hyundai's national parts supply manager, describe how the company boosted
its dealers' productivity. From these humble beginnings, HMA's first foray into e-commerce/e-business has taken wing. HMA has extended its extranet to all its customers including dealers, distributors, and consumers, as well as the independent garage owners. Based on Click Commerce software from Click Interactive Inc., the Hyundai Enterprise Internet Commerce System's capabilities and content are customized to the type of user. For example, HMA's 470 dealers can view customized pricing, catalogs, order information, inventory, and special promotions aimed only at dealers. After entering their zip code, independent garage owners and do-it-yourselfers can create an account with their local dealer and use the electronic catalog to order genuine factory parts. Click to hear George Kurth,
national parts supply manager, disclose how Hyundai made its extranet
more efficient. Thanks to the extranet, HMA now markets its parts to 1,000 independent dealers it never did business with before. And HMA expects to reduce the cost of dealer calls to its call centers by 25% when all of its dealers are on the system. Bernie Reyes, chief Web developer, says the parts-supply extranet whetted HMA's appetite for e-business. "The extranet encouraged our company to develop an overall Internet strategy," says Reyes from HMA headquarters in Fountain Valley, CA. "It was the catalyst that got a lot of other initiatives going. E-business will be vital to us in the future." It may seem simple, but HMA's start-slow approach is typical of many large manufacturers' early e-business efforts. Weary from costly and time-consuming Enterprise Resource Planning (ERP) implementations, companies are narrowly focusing their e-business efforts--at least at first. "[Manufacturers] are finding it impossible to re-do all their processes [for e-commerce], the way they did with ERP," says Bill Swanton, vice president of manufacturing strategies, for AMR Research Inc., a Boston-based consulting firm. "Instead, they're taking a discrete approach, implementing one well-defined e-business process at a time, then expanding out to the rest of the enterprise later." Click to hear George Kurth,
national parts supply manager, reveal Hyundai's customization tricks.
Manufacturers looking to test the e-business waters have their pick of starting places. E-business applications cover a broad range of outward-facing processes including: electronic procurement of MRO (maintenance, repair and operational); production materials (via a product like Ariba Inc.'s ORMS or an electronic marketplace); collaboration with suppliers; and customer relationship management (CRM). Many manufacturing companies have not begun CRM projects because they sell through a channel and do not yet have direct contact with their end customer. All e-business initiatives aim to increase speed through shorter product design cycles, more efficient supplier interaction, quicker time to market, and faster response to customers. The good news is that e-business initiatives generally do not require the same level of investment that ERP systems did. But e-business projects are still risky. Market researcher GartnerGroup Inc. of Stamford, CT, recently predicted 75% of companies' e-business projects would fail by 2001 due to immature technology, poor planning, an unready market, and faulty strategies. And where there's risk, there's uncertainty. Middle managers, in particular, are unsure about what e-business is and how it will affect their lives. "There's a high degree of nervousness with second-tier management people because they're charged with implementing e-business and they can't yet see beyond the hype," AMR's Swanton says. This uncertainty can translate into skepticism, especially when it comes to funding e-business initiatives. But to do nothing about e-business is to risk everything, according to the GartnerGroup analysts, who concluded that companies that attempt to abstain from e-business face extinction-sooner rather than later. Cherries, Anyone?
"Companies love [electronic MRO procurement] because they reap an immediate financial reward. And you don't have to make a huge infrastructure investment," says AMR's Swanton. Senior procurement executives generally find it very easy to cost-justify an electronic MRO package. For large companies, the ability to save even 5% off total MRO purchases is enough to justify the investment. The largest companies even find they can reduce headcount in the procurement department, leaving the remaining people to focus on negotiating better deals with suppliers. Smaller companies are bypassing the need to buy a software product for MRO procurement, opting to use an electronic marketplace such as MRO.com and OfficeDepot.com. This option is attractive because it avoids the need to invest in an expensive tool like ORMS. But the payoffs will be smaller, because fewer processes are being automated. In the past six to 12 months, companies have begun to turn their attention to the electronic procurement of the raw materials needed for production. Companies like Agile Software Corp of San Jose, CA. offer products in this area. Electronic procurement of direct goods is much riskier than Web MRO procurement, acknowledges Bryan Stolle, CEO of Agile Software. Agile sells Agile Anywhere, an electronic product collaboration suite, and Agile Buyer, a solution for procurement of direct materials. "[E-]MRO is low risk. It's a good place to go experiment," says Stolle. "But if you look at the economic impact of MRO, it's purely operational. On the direct side, you can impact time to market and cost of goods sold. The risk is higher because it's more important." Like many vendors, Agile offers users the option of "renting" Agile Buyer on a monthly basis rather than purchasing the software outright. This is attractive to companies where the IT department is stretched so thin it couldn't possibly implement a procurement solution on its own. "We'll run [Agile Buyer] in our data center, no new infrastructure required," Stolle says. The power of a product like Agile Buyer is in its e ability to get real-time information regarding material locations and prices. User companies can connect all of their suppliers (who need only a Web browser to participate), forming private trading communities for maximum synergy. Indeed, electronic marketplaces are a hot topic in e-procurement of direct materials. Companies such as SAP AG are rushing to establish electronic trading communities. The promise here, again, is the ability to automate the process of purchasing direct materials while avoiding a large investment. A product like Agile Buyer, for example, begins at around $250,000 per installation. 'Sense of Urgency'
A short meeting with Michael Dell, Dell Computer Corp. founder and CEO, was all it took to make Bossidy an e-evangelist at his own company. "[Bossidy] gave us a list of short-term objectives," says Jeff Small, manager of supply chain infrastructure for avionics and lighting at AlliedSignal Aerospace, Olathe, KS. "He made each division come up with a top-10 list of where the [e-business] opportunities lay. He said, 'Don't think about this, just do it.' That sense of urgency filtered throughout the organization and accelerated the efforts that were already under way," says Small. Fortunately for Small, his group had already implemented webPLAN Inc.'s webPLAN APS advanced scheduling and planning package on the shop floor. The software focuses on inventory and demand management within the plant. But webPLAN had just built a Web-based application called eSupplyChain on top of its core engine that would allow Small to extend the functionality out to the greater supply chain. Although the eSupplyChain suite would touch many departments and require a great deal of customization, Small jumped at the chance to implement it. After all, webPLAN was already running in the plant, so the necessary infrastructure was in place. With eSupplyChain, the manufacturer gives its suppliers access at no charge to real-time information on orders up and down the pipeline via a Web browser. The power of the system is its interactivity. If, for example, an executive at the manufacturer suddenly experiences a demand surge and needs to double its standing order of widgets with the supplier, he can contact the supplier immediately via a number of instant interfaces including e-mail, Web page, fax, voice mail, Palm Pilot, and cell phone. If the supplier can't meet the increased demand, the manufacturer can use the tool to instantly poll other members of the supply chain to see if anyone can meet the need. At companies that already have webPLAN APS installed, the eSupplyChain system will also automatically push data to an installed MRP system. "This allows your complete supply chain to participate in finding real-time answers to real-time changes in supply and demand," says Daryl Prail, vice president of marketing for webPLAN, in Ottawa, Canada.. When the implementation is complete sometime this year, eSupplyChain will allow AlliedSignal Aerospace to recognize and communicate demand signals from its customers out to its supply chain partners. Small's group can craft several levels of access for the different types of suppliers. For example, suppliers the company uses only occasionally will be able to access basic information such as date, part number, and quantity in XML format. This information would allow low-level suppliers to keep abreast of AlliedSignal schedules and act accordingly. On the other end of the spectrum are supplier-partners, with whom the company has long-term agreements. In these cases, Small says, they'll get virtually unlimited access to AlliedSignal Aerospace's systems. Because eSupplyChain is based on XML, Small predicts it will be easy to implement changes rapidly. And speed is, of course, paramount. Having the ability to transmit demand information to the supply base instantly using the Internet will reduce AlliedSignal's response time and prevent the need to carry inventory to buffer uncertainty. "We don't compete company-to-company anymore," Small says. "Competition now is supply chain to supply chain." Make that e-supply
chain to e-supply chain. Lauren Gibbons Paul is a contributing editor to Managing Automation. She is based in Waban, MA.. Her e-mail address is laurenpaul@mediaone.net.
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