Talking About Supply Chain Management
Ed Tenthoff, vice president of publishing Technology for Pearson Education; Fran Toolan, president of Quality Solutions; and David LaFauci, vice president and CIO of Courier Corporation, recently discussed the value of planning, information and time-saving initiatives with the editors of BookTech the Magazine.
BTM: How would you define supply chain management (i.e., from the perspective of publisher, printer or technical services provider)?
Tenthoff: A mutual understanding of requirements versus capabilities that then leads to the ability to maximize efficiencies and minimize conflicting goals.
Toolan: From the perspective of a technical services provider, I would define supply chain management as the ability of customers to work with suppliers in such a way that the customer feels as though the supplier is simply a logical extension of their own company. Communication between customers and suppliers should be as simple as intradepartmental communication. Everyone needs access to the same information at the same time.
LaFauci: Printers stand in the middle of the book publishing supply chain in both the customer and vendor roles. Supply chain management optimizes communication, standardizes events and strengthens relationships by shifting from a paperbound, inflexible process to one that is electronic, real-time and beneficial to participants. As a result, participants can reap improved efficiencies, reduced errors and the ability to re-deploy efforts to value-added activities.
BTM: Over the past few years we've all witnessed some extremely ambitious attempts to jump beyond "supply chains" in an effort to create "supply webs." What important lessons have been learned from these recent endeavors?
Tenthoff: To stick with basics and truly understand the elements within your supply chain and the communication necessary to successfully interact with each.
Toolan: I think that there are many lessons learned here, but the two most important are that no one wants to foot the bill (on an ongoing basis) of paying a for-profit third party to create, maintain and administer the supply web, and that there is not just one supply-web. The only place where the supply-web concept has worked is when a relatively large customer mandates to its suppliers that it must use the supply web if they want to continue to have a business relationship. Without that type of "do it or else" pressure, suppliers are loathe to take the time and spend the money to connect their systems to B2B systems that simply cut into their profitability. And the fact that there are always a few competing B2B sites simply expands the costs for the suppliers further.
LaFauci: I agree with Toolan and Tenthoff. It is apparent that participants in supply chains are very reluctant to embrace solutions that include ongoing fees in the form of "tolls" placed upon transactions. This is contrary to the notion of supply chains as cost-effective and mutually beneficial to participants. It is critical to build trust between participants, establish a clear understanding of program goals and provide benefit to all participants.
BTM: Business trading partners frequently approach negotiations and transactions with an underlying "distrust," or sense of adversarial relations. How can supply chain management improve this situation?
Tenthoff: Establish baseline information used for discussion and define data needed in negotiations. If we can manage our businesses based upon mutually agreed-upon data, we will develop mutual trust.
Toolan: I agree with Tenthoff. If there is common information that both the customer and supplier are looking at, then each can analyze it in ways that help gain a win-win negotiation.The key, however, is understanding how to analyze these transactions and understanding where your demand and profitability are. This kind of activity goes beyond normal business-to-business communication and requires a combination of technology and business acumen.
LaFauci: Trust in business negotiations frequently relates to perceived fairness and equality between participants. Supply chain solutions level the playing field by standardizing the content and timing of business events. When perceptions are changed, based on equity in supply chain management, mutual trust will strengthen.
BTM: Improvements in the supply chain management should lead to a reduction in operating costs. Is it realistic, however, to expect that savings would be equitably shared between buyers and sellers in each transaction? If so, how do you see this happening?
Tenthoff: Yes, savings can and should be mutually shared. This does not however mean that they will be equal. E-commerce can certainly reduce administration costs on both sides, but the actual savings will depend upon many factors.
Toolan: To me, the key word in this question is "equitably." There is no question in my mind that in the short run, in a perfect world with only one supply net, the big winners in this game are the Suppliers. I saw a study a couple of years ago from a large printer that 25-to-40 percent of the cost of producing books was wrapped up in administration, sales and customer support. E-commerce done correctly should significantly drop those costs. The main advantage to the customer is if the supplier is willing to use those savings to negotiate prices that are better than their competitors.
LaFauci: Short-term savings can be achieved by both buyer and seller in the area of administrative expenses. In abandoning the traditional manual, paper-bound process, both sides may enjoy savings commensurate to the level that they embrace change within their organization. Equity in savings is related to opportunity rather than sharing the first dollar saved. Buyers and sellers that leverage supply chain management to change processes, analyze the data gathered and integrate into internal systems will garner the most benefit.
BTM: What other significant gains should publishers and suppliers be seeking in terms of supply chain management initiatives?
Tenthoff: Reduced lead times and better planning. The more information exchanged, the more accurate the information will become and the more value will be realized.
Toolan: I think Tenthoff is right about planning. If publishers keep printers informed of publication schedules and commit work to a specific supplier earlier rather than later, then publishers will have a better chance of getting the books where they want them, when they want them. In addition to this, the other big opportunity I see is to radically streamline the financial aspects of the business. If P.O.'s are correct, then invoices should reflect what's on the P.O. If this comes to pass, printers could submit invoices monthly for a whole group of titles instead of for each P.O. generated. This is where great time and cost savings could be achieved on the customer side.
LaFauci: I agree with Tenthoff. Improved planning based upon longer visibility into the order (publishing) pipeline would reduce lead times. As supply chain management initiatives eliminate more of the routine tasks, employees will be freed to participate in higher value-added activities. Buyers can analyze supplier performance rather than write purchase orders. Customer service reps can service customers rather than enter orders. Sales reps can spend more time selling..
BTM: In an era when many companies are projecting negative growth and flat earnings, what arguments can be made for expending resources on long term projects such as the tightening of supply chain management?
Tenthoff: One thing we have discovered is that the expenditures do not necessarily have to be large to achieve real value. As information flow becomes better and better, companies on both side of the supply chain can move closer to adopting just-in-time inventory management techniques with considerable possible savings.
Toolan: Time is money. Redundancy, whether it [stems from] two departments manually entering the same information into separate systems, or two companies manually entering the same data into separate systems, is a terrible waste of time. Most companies have seen how "enterprise" system models have done much to improve productivity, reduce errors and reduce costs over the long term. B2B and e-commerce are really just an extension of the same concept. These are endeavors that must be viewed with an eye toward long term, because in the short term, they will be costly.
LaFauci: The long-term nature of these initiatives allows a "walk-before-you-run-approach." Companies can start with simple solutions, which effect the data exchanged between business partners, without tackling the onerous issues of back-end systems integration. Our experience is that you can make meaningful progress with modest investments. I agree with Toolan—B2B initiatives are the next logical extension to the enterprise systems we have come to rely upon to execute our businesses.
Toolan, LaFauci and Tenthoff will offer an expanded version of this discussion at BookTech 2002 during the "Publisher-Printer: Supply Chain Management, Transaction Management and CRM" panel on Monday, February 11 from 1:15-2:30 p.m.