No company is an island, to paraphrase the poet John Donne. To the contrary, the modern business today is widely connected in a complex tapestry of relationships, associations, alliances, and collaborations. These connections span dozens if not hundreds or even thousands of other companies, representing subcontractors and their subcontractors, and multiple suppliers and their networks of suppliers. In addition, similar connections dot the path all the way to the customer, through OEMs, distributors, VARs, and more. In supply chain parlance, you are connected, for better or worse, to everyone from your suppliers' suppliers to your customers' customers. Managing and optimizing these relationships for maximum value is a difficult challenge. Given the amount of time and cost tied up in a company's supply chain, it became a prime target for integrated, information-based management. Early adopters of integrated supply chain management report significant savings in time and cost. And, industry experts suggest those savings represent only the beginning. For example, a study by Computer Sciences Corp., El Segundo, Calif., earlier this year, suggested that the healthcare industry could knock $11 billion (48%) out of its supply chain costs through supply chain management. Planning Is Key Beyond tracking the availability, delivery, and pricing of materials, supply chain management attempts to forecast and control the supply chain. It enables managers to determine how quickly they can get the necessary supplies and at what cost. To do that, supply chain management must look at orders and inventories, production capacity, transportation availability, and the host of factors that affect the availability and price of materials.

Supply chain maagement has emerged as a natural extension of ERP systems, as companies try to squeeze costs and time out of the purchase and delivery of materials

While supply chain management has emerged as a natural extension of ERP systems, there are some significant differences. ERP systems handle planning, production scheduling, and execution, and the full range of operations and logistics functions for a single enterprise. Supply chain management "deals with facilities all over the world," Robson notes; facilities the organization probably doesn't control.

Companies have long tried to squeeze costs and time out of the purchase and delivery of materials all along the supply chain through management. Managers, however, were stymied by the difficulty of capturing and rapidly communicating the vast amount of information required for effective supply chain management. The information tools to do it were rudimentary: fax, Electronic Data Interchange (EDI), and paper. Where information was available electronically, integration was lacking. Cumbersome conversions, manual hand-offs, and re-inputting information were common.

- Computer Sciences Corp.

Although the supply chain management field is populated by a host of specialized companies, the ERP players make no secret of their plans to encompass supply chain management within the ERP solution.

"Supply chain management represents a chance for the established ERP vendors to extend their product offerings to their existing customer base. If we didn't provide this service to our customers, someone else would," says Dave O'Hara, general manager, Great Plains Software, Fargo, N.D. Great Plains is committed to providing supply chain capabilities through its existing integrated software as well as through alliances, internal development, acquisitions, and OEM agreements, O'Hara reports.

The Baan Co., Menlo Park, Calif., is another ERP vendor making a big splash in the supply chain area. "This is not new for Baan. We have been doing it for two years," explains Jeffrey Koser, COO, Baan Supply Chain Solutions, Milwaukee, Wis.

More than a natural extension of the ERP solution, Koser contends that customer demands for simplified, seamless integration require ERP vendors to incorporate supply chain functionality. If an organization tries to combine different ERP and supply chain solutions, it opens itself up to a number of vexing problems, he suggests.

For example, "Where do you enter the order, in the ERP system or in the supply chain system?" Koser asks. When an order is opened in the ERP system, it ripples through the entire integrated solution, triggering a variety of functions, from financial recording to production scheduling. If it is opened in the supply chain system, how will the organization be sure the appropriate information is passed to every place it is needed? Not very easily, if at all, Koser suggests.

Best of Both Worlds

GEAR imports apparel as blank stock and then customizes it in its own factories by imprinting or embroidering to suit the needs of its college bookstore customers. The result: sweatshirts and T-shirts and such with the name or logo of the college.

The company opted for the best-of-breed solution because a single, fully functional system simply wasn't available. "You start with ERP but then you discover what functionality is lacking," says Terry Glenn, vice president, merchandising. Much of it is timing, he concedes. With all the new functionality being built into the various systems, a company starting down the same road today might do things differently.

The ERP players make no secret of their plans to
encompass supply chain management within the ERP solution.

Ideally, organizations will want to have a single, seamless solution combining ERP and supply chain management and everything else, but that may not be realistic. Companies seem inherently incapable of standardizing on any single product worldwide, whether it be e-mail or ERP.

Faced with mergers and acquisitions, business units that insist their needs are different, and the infinite variety in the way people do things, companies will be juggling and integrating ERP, supply chain management, and a range of other specialized systems for a long time to come.

Integration Rules Jim Shepherd is vice president of research at AMR Research Inc., Boston, formerly Advanced Manufacturing Research, a leading authority on MRP, ERP, supply chain management, and related systems. The company, founded in 1986, tracks 400 leading software and service providers. IW: Do ERP and supply chain management really mesh? JS: The message from big ERP players is that integration between ERP and supply chain management is very important. Supply chain planning, warehousing, transportation -- these can all be seen as part of ERP. IW: Why would somebody today not want a single ERP-supply chain solution? JS: The key issues for everybody are functionality, integration, and cost. Supply chain vendors have always been strong on integration. Companies with more than one ERP vendor will have to go to a third party for supply chain management to get the integration. IW: Are there many companies with multiple ERP systems? Doesn't that defeat the purpose? JS: The reality is that the majority of companies have multiple systems. It takes years to get all sites or all divisions onto a single ERP system. With mergers and acquisitions, companies may never get completely standardized on one system. So, if they want global supply chain planning, they will need something that can easily handle a heterogeneous environment. IW: With the big ERP vendors targeting supply chain management, what will happen to the existing supply chain vendors? JS: You won't see the major independent supply chain companies disappear. There is a large part of the market that the ERP players don't touch. ERP vendors, however, also will buy some supply chain companies. IW: How do you see the market shaking out? JS: The companies at the high end of the ERP market, with $1 billion or so in revenue, even $500 million, will go with a big ERP vendor for supply chain. They see supply chain management as part of ERP. And organizations coming into the market for the first time will want to get everything in a tightly integrated package. But those with existing supply chain solutions from viable vendors are unlikely to throw them out.

Supplement Sponsors

The Baan Co. (www.baan.com)

Best Software Inc. (www.bestsoftware.com)

Great Plains Software Inc. (www.gps.com)

Oracle Corp. (www.oracle.com)

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