For Jack Ma, executive chairman of Alibaba Group Holdings, today is an extremely busy and lucrative day because the company he founded 15 years ...
(Page 3 of 4)
Bastock says manufacturers get a similar benefit. Manco will be able to grow without adding staff, he says. “Under the old vendor-managed inventory system, we had one analyst full time dealing with each customer we were selling product to,” Bastock says. “Today, each analyst has two accounts. Soon it will be three and it still won’t be a full-time job.” And the same is true at Ace, where Smith expects each inventory analyst will be able to deal with more suppliers.
Another benefit to retailers is that with automated systems, invoices can be matched against purchase orders and all documents pertaining to a transaction, ensuring the retailer has received everything properly and was billed properly. “You can do literally 100% automated invoice matching in accounts payable and that relieves a lot of resolving of problems that you have to with manual invoicing,” Ehlers says.
Despite the benefits, not all retailer-manufacturer relationships are as friendly or as easy to implement as Ace and Manco experienced. Many manufacturers are small companies and don’t want to invest in making changes, especially if they sell to a lot of retailers. There is undeniable resistance by suppliers as the process starts, says Jim Frome, executive vice president of SPS Commerce. “Most suppliers see us as ‘You’re the thing Target made me do,’” Frome says.
To mitigate the costs to small companies, SPS Commerce offers an ASP model so small manufacturers don’t have to make changes to their systems at all. The retailer identifies which suppliers are the most technologically sophisticated, and SPS approaches them first. Then it works its way down the list until the final suppliers may simply be submitting paperwork via fax to SPS, which automates the information. “Eventually they get connected electronically,” Frome says.
Using the SPS Commerce system, a retailer will pay anywhere from $25,000 to $200,000 to web-enable the supply chain, although the average is $50,000, Frome says. That price covers integration of the system to an existing system and drawing up of a standard set of documents. Once SPS has finished the retailer portion of the work, SPS contacts the retailer’s suppliers. Suppliers who contract to use SPS’s ASP model typically pay $50 a month.
Retailers using the E3 system pay $10,000 to $100,000 for a license for the software then a monthly fee based on usage. Suleski says retailers will typically pay $50,000 for the technology for a CPFR system. That does not include costs of scrubbing the retailer’s data or consulting fees.
With simpler goals than a full CPFR system, retailers and suppliers can implement a web-based supply chain system quickly. Ehlers says Pacific Sunwear expected to bring up 100 vendors a week, with a goal of having all 400 vendors online by the end of August. Most retailers that SPS does business with are ready to roll the system out to suppliers within six months, Frome says. The full-blown CPFR systems, of course, take longer, as evidenced by Ace’s having brought in nine vendors in two years.
One issue that suppliers need to deal with is how they connect to other retailers, once they’ve made the investment to connect to one through a particular vendor’s system. They address that issue in a number of ways. For one thing, it’s relatively easy to connect to other retailers via the web, once a supplier has learned how to do it with one, Frome says. For another, SPS has found that once a retailer in a certain segment goes with the SPS system, others are eager to follow. Since manufacturers supply more than one retailer, the suppliers end up in a good position to link to other retailers. And finally, Frome says, suppliers suggest retailers that SPS might contact so the suppliers can leverage their new-found web expertise with retailers who are not SPS customers already.
The downside to web-based supply systems is that many organizations don’t have data in good enough shape to make such systems work. And the cost of getting the data cleaned could be significant. Furthermore, organizations all handle data differently. “It’s a very complex process that requires extensive data integration,” says David Taylor, research fellow with New York-based Jupiter Media Metrix. “And data that comes in from other companies isn’t necessarily something you can do anything with.”
Such challenges notwithstanding, vendors of web-based supply chain systems are already looking down the road to the next big development. Many see wireless, envisioning warehouse workers armed with web-based wireless devices that will allow instant updating of inventory status as they pull items to ship to stores. “Visibility like that will continue to gain in this market,” says Heim of HighJump. “Amazon raised expectations of customers to know the status of their order-they get messages all the time about their order. That will extend from b2c to b2b. Many retailers will start wondering, If I can get that from Amazon, why can’t I get that from my suppliers?” l
The coming boom in CPFR systems
If retailers are starting toward the Emerald City that CPFR-Collaborative Planning, Forecasting and Replenishment-represents, they are only at the start of the yellow brick road. Spending on CPFR and other systems that permit supply chain collaboration between retailers and manufacturers this year will total only $63 million, says Janet Suleski, senior analyst, retail applications for Boston-based AMR Research Inc. But such spending will ramp up quickly: It will more than double to $152 million next year and will reach $540 million in 2004, she projects.