For the last couple of years now, a concept called on-demand supply chain management has been rattling around the business. But what does it mean? Is it about physical supply chain management? Is it about information systems? Or is on-demand an invented term to superficially differentiate service offerings in the marketplace?
Two principal schools claim the on-demand domain, and they are radically different. One, led by IBM, stakes out its territory in the realm of supply chain operations and the development of ondemand businesses. The other promotes "on-demand" supply chain management software, with GSX, Mitrix, and Kinaxis among the leading early providers. More new entrants in the on-demand derby pop up every day, it seems. The software is typically accessed through the Internet, with costs based on usage, rather than on the traditional license-and-maintain model.
Aberdeen Group, the respected research organization, has chosen the software path and has reported positive developments in the use of what it calls software-as-a-service (SaaS). Its position is that early adopters of on-demand supply chain software are also early beneficiaries of lower costs, faster implementations, and quicker returns on investment (ROI).
In fact, Aberdeen reports that over half of its survey population is considering on-demand applications for at least a part of their total supply chain management suite. It also says that companies can be up and running with on-demand software in as little as three months and realize an ROI in less than a year—all at a significantly lower total cost when compared to the traditional model.
Current on-demand solutions are not expected to replace traditional applications, but they may be finding favor with small and mid-sized businesses by bringing them into a milieu in which only larger companies could previously afford to play. According to Aberdeen, functions currently available include forecasting, customer inventory management, supply chain visibility, and transportation management in customer- and supplier-facing applications.
But what does it do?
The software developers appear to have a somewhat grander view of their landscape than the consulting community does. Each seems to define on-demand supply chain management to fit the limitations of its particular product sets. And it takes a close reading of the developers' materials to work through the extravagant language and ferret out what the software really does.
One firm promotes its product as "revolutionary" and a "first-ever," with "critical functionality." The core premise is the creation of trading communities and the provision of information about inventory availability, inbound shipments and open purchase orders, outbound sales orders, forecasts, and target inventory quantities.
Another software and services provider focuses its on-demand supply chain management solutions on business-to-business cross-enterprise process coordination and simplification. Apparently aimed at somewhat larger companies, its products typically support demand planning, product development, and marketing and sales.
A third provider takes another tack, concentrating on support for supply chain agility, with a manufacturing focus. The high spots include real-time visibility into systems throughout the supply chain, alert and event management capability, change-impact analysis, what-if analysis, and collaborative scorecarding. The vendor is clearly positioning this product for decision support in a rapid-response world.
The point is that even when dealing solely with software, we do not have uniform definitions of ondemand supply chain management. Then, there's the operational perspective.
Big Blue speaks
If IBM were just another small consultancy, it would be easy to dismiss its position and concentrate on the software aspects of on-demand supply chain management. But it's not. With an army of thousands of consultants and an enormous marketing budget, IBM cannot be ignored.
IBM has been promoting the concept and language of ondemand business for some time now. Even if it is merely marketing hyperbole, it is powerful: IBM contends that the process of energizing the supply chain is the key to enabling the on-demand business—transforming the base model for sustained, and sustainable, competitive advantage.
Its 2006 CEO survey showed responsiveness to be the number two issue, after growth. Eighty percent of the respondents rated their companies as "less than capable" in responding to changing conditions and supply chain events. That assessment is interesting in light of the attention given to the subject of agility in recent years (to say nothing of Yossi Sheffi's wake-up call of a book, The Resilient Enterprise.)
IBM has focused on responsiveness and the on-demand concept after recognizing the impacts of major business trends, including increasingly demanding customers; shrinking product life cycles, with innovation and speed to market as make-or-break factors; supply chain complexity, including globalization; physically extended supply chains involving more players; prevalence of e-business techniques and transactions; and unrelenting pressure for cost cutting.
Its vision for on-demand supply chains embraces four key capabilities:
- Dynamic—and fast—response to events and changing conditions
- Open architecture systems infrastructure, with realtime visibility throughout the supply chain
- Adaptability to seize market opportunities quickly
- Variable cost sensitivity, moving up or down, based on revenue.
A fifth element may be the development of sense-andrespond capability to monitor and manage exceptions as well as to respond to—or even influence—demand shifts.
Other features of the on-demand supply chain from this operational perspective include online and real-time order configuration, updates, and status; scalable infrastructure; dynamic product/service bundling; and tight integration with supply chain partners in the areas of technology, communications, information, and planning.
Of course, IBM's process for determining where a company is, relative to on-demand status, and what it has to do to move up the scale is designed to generate any number of consulting projects. That is to be expected.
In IBM's view, the on-demand supply chain and the ondemand business are the next steps in the evolution of enterprises, taking the flexible and collaborative business to another level of technology-enabled integration. It argues—emphatically—that, ultimately, on-demand is not an option, but a necessity.
How we see it
On-demand supply chain management is here to stay, no matter how it is defined or what it is called. On the software side, we appreciate the continuing development of better and better tools made available to broader markets.
On the physical side, the concepts IBM espouses are both solid and indicative of the direction that our supply chain world needs to travel. No matter that the concepts are being used to provide gainful occupation for all those consultants; that doesn't mean that they're wrong.
Whether all of us will include on-demand supply chain management in our professional vocabularies remains to be seen. We're reasonably sure that we'll be using the concepts and the tools in some form or another.
Wreaths Across America