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Supply chain management long has been a work in progress, with re-tailers, manufacturers and suppliers seeking ways to streamline procedures and cut costs. But what has dramatically changed–and is continuing to change–are the tools now available and the methods in which retailers can enact cost-effective savings throughout the entire supply chain process.

"While many businesses spent a lot of time thinking about e-business in 2000, fear and confusion stymied most large projects," says Kevin O'Marah, research director, Supply Chain Strategies, AMR Research Inc., Boston. "Companies are realizing that e-business is less about a technology shift and more about a business shift, and nowhere is this more evident than in the supply chain."

This readiness promises to generate a lot of innovation and excitement in the supply chain management software market and its various niches, such as Supply Chain Planning (SCP), Supply Chain Execution (SCE), and the latest trend, Supply Chain Event Management (SCEM), which will really take off in the era of e-business, O'Marah says.

Unfortunately, some retailers have been unable to acclimate their business acumen to these innovations. And that has left them on the short side of industrywide competition, and behind the times in an economic battle that, even for local and regional companies, has become global in its scope.

"In war, the weakest points of an army are the lines between divisions," says John Katsaros, vice president and analyst, Jupiter Research, New York. "In supply chains, the weakest points are the lines between companies."

The task to strengthen and upgrade supply chains has led some companies to form new and, in many ways, previously unforeseen alliances and relationships. And it is via technology and Web-enabled operating systems, led by business-to-business exchanges, that many collaborations now are taking place.

"B2B technology will deliver supply chain efficiencies, from purchasing to manufacturing and selling, that will drive new operating margin creation of $215 billion to $465 billion per year," according to "Where is the Supply Chain Value in B2B?," a research report released in late 2000 from AMR Research. "Timelines are long, but potential value creation supports trillions in financial market capitalization across major categories of B2B supply chain technology," the report says.

Business-to-business Internet infrastructure spending will reach $350 billion by 2003. The value of B2B commerce on the Web will balloon from $336 billion in 2000 to $6.3 trillion in 2005, according to Jupiter Research.

"This climb in online B2B commerce also will be paired with cost savings for companies as supply chains are managed over the Web. The savings could be big. Collaboration costs between companies won't be eliminated completely, but at best we'll see them cut in half over the next five years," Katsaros says.

Resolving inadequate and inefficient supply chain techniques and logistics is always essential. But with analysts predicting that global e-commerce could reach $7 trillion by 2004, it has become even more imperative for retailers, manufacturers and distributors to strengthen their supply chain pipeline.

"The high variability in global demand will force both manufacturers and shippers to harness the Internet and create an information channel," says Navi Radjou, marketing analyst, Forrester Research Inc., Cambridge, Mass. "But global manufacturers shouldn't be surprised that their supply chains are inflexible—they're held together with string and bailing wire. They should let specialization and networked assets drive the next round of supply chain upgrades because multinationals will tailor their operations to e-business manufacturing networks by 2005."

As retailers have discovered, rebuilding or redesigning a supply chain network is no overnight task. This is especially true when trying to create an operation that is strong enough to meet current demands and is flexible enough to adapt to and accommodate future programming systems.

"Global supply chains are hampered by today's logistics processes, which barely support the task at hand, preventing shippers from handling many more customers," says Stacie McCullough Kilgore, senior analyst at Forrester. "As international trade ramps up, today's structures will leave shippers with increasing challenges, including more customer returns, increased legal risks, and greater liability," she says.

"The grocery industry supply chain today is very inefficient and involved with an awful lot of problems," says Jonathan Ziegler, investment analyst, Deutsch Bank Alex Brown Inc., Baltimore. "B2B exchanges are going to make the industry more productive," he notes.

Just how productive, how efficient and how economically dynamic supply chain operations can become via B2B alliances is still being determined. However, analysts concur that if B2B exchanges can fulfill their intended goals, the upside of these alliances outweighs initial skepticism and pessimism that may exist among retailers.

"The total adoption of B2B solutions will take a decade, and will require development of new, increasingly collaborative business models and supply chain processes," according to AMR's report. "But B2B technology will improve operating margins throughout the supply chain by allowing companies to develop and exploit collaborative business models. Early leaders are already demonstrating the value of this approach. All companies will need to embrace collaboration or risk being commoditized, marginalized or disintermediated in the future," the report says.



hroughout the 1990s, the world was headed into online hub-and-spoke relationships, with the hubs being large companies and the spokes being suppliers. Now, we're going toward online peer-to-peer relationships, and we're just at the beginning of this shift," says Jupiter's Katsaros. "Also, experiments in Net marketplaces, which appeared at the end of 1998, have been wildly successful. The formation of coalitions by large buyers and large sellers has validated the concept of Net marketplaces."

Indeed, most of the supermarket industry's major retailers have aligned with one of the two supermarket-based business-to-business exchanges: GlobalNetXchange (GNX), San Francisco; and WorldWide Retail Exchange (WWRE), Alexandria, Va. And more than 50 of the world's largest CPG companies have joined Transora, Chicago. Though these B2Bs have stated that supply chain efficiency is an utmost priority, they also admit that the end to this means is very much a work in progress.

"It's important to demonstrate to suppliers and retailers that the exchanges are not going to create more inefficiencies in the process, but rather that we are going to facilitate more efficiency," says Joseph Laughlin, GNX CEO. "That means we need to share common work procedures and help develop standards. We expect the exchange will provide a variety of supply-chain capabilities, such as collaborative demand, automating inventory planning and delivery scheduling."

"The result of improved supply chain efficiency and lower sourcing costs will be lower prices at the consumer level and better product availability in stores," says WWRE CEO Colin Dyer. "Procurement and acquisitions among some of our members have proven very successful, and other services, such as stock management and real-time replenishment, are becoming available.

f course, when it comes to supply chain management and efficiency, the acknowledged leader is Wal-Mart Stores Inc. The company took steps in 1991 to marry state-of-the-art technology with internal managerial expertise. The result was Retail Link, which now supports the supply chain information needs of more than 10,000 companies and enables more than 30,000 individual supplier/users to access on a daily basis procurement and performance data, according to Wal-Mart.

Wal-Mart now claims to have more than 70% of the supply chain functionality that other trading exchanges have yet to enable. And Wal-Mart already is upgrading its system to the next generation.

"Retail Link is the business leader for supplier collaboration via the Internet, and has been a source of competitive advantage for Wal-Mart and Sam's Club since 1991," says Kevin Turner, Wal-Mart senior vice president and CIO. That in itself is strong enough motivation for the competition to explore options toward improving their own supply chain operations. Current and in-development technology, fueled by B2B exchanges, will provide retailers with many of the latest weapons they need to manage supply chain efficiencies in 2001 and beyond.

"What we're seeing now is anything but skepticism about going online. These coalitions show large businesses are enthusiastic about moving supply

chain operations to the Web,"Katsaros says.