In the Press

"Chain Reaction - Wither goeth the collaborative supply chain?" "
CIO, August 2006 - By Sue Bushell

What were we thinking?
What were you thinking?
What was I thinking?

Back in May, I celebrated CIO's 100th issue by introducing a continuing series - CIO Retrospectives: Seminal Issues & Technologies - where CIO writers revisit seminal events, issues and technologies we've covered over the years.

If you're a new reader, or need a bit of a reminder regarding the "how's" and "why's" of this particular exercise, here's our premise. The writers are to kick off with "What were we thinking" - that is, why we all believed the selected story was important and the pervasive mind-set at the time among users, observers and (occasionally) vendors. Then, in some instances at least, the writer looks back and casts a jaded eye - that is, "What were we thinking?" - over the topic. Thus far, we've covered a number of issues, including the likes of Y2K, "IT Doesn't Matter", the skills crisis (or lack thereof), and security and privacy. This month CIO revisits one of the IT industry's greatest cause celebres: David Murray's notorious speech at the 2002 IT World Congress in Adelaide. In Part II, Sue Bushell examines the impact that re-engineered global supply chains have had in Australia. As always, I'm happy to entertain your suggestions for other "seminal" technologies or issues we should cover.

They were not factoring in RFID, and the security nightmares conjured up by 19 fanatics on September 11, 2001 were at least 21 months in the future, but even before the start of this century canny companies were committing to a fundamental re-engineering of their supply chains.

They did not have a lot of choice, really - the evolution and massive uptake of Internet technologies was forcing their hand. By the time I wrote "The Power of Positive Linking" (published in CIO in April 2000) it was clear organizations would not just be competing with other organizations in the new competitive landscape. "Rather than competing business versus business, there's a growing trend towards supply chains competing against other supply chains," BHP IT product manager supply chain solutions Steve Maxwell told me then.

Maxwell and others like him were focused on imposing order on a plenitude of de facto enterprise Internet programs that had sprung up in departments and business units, in the hope of delivering new, low-cost, integrated business solutions to the company and external markets. The vision was impressive, although the outcome was far from certain: the hope was that the trading portal design would maximize reuse and prove to be in harmony with the speedy and less costly introduction of new Internet trading applications.

The name of the game was exploiting the potential of e-commerce and IT&T systems to help players throughout the supply chain continuum increase their competitive advantage, and it was already clear it was an imperative more and more organizations were realizing they could no longer afford to ignore.

Improved supply chain management had already proved a boon to individual enterprises seeking to extend their competitive advantage, but as I said then, "in the words of the song: 'You ain't seen nothin' yet'."

Many companies at the time were labouring to build "supply chain communities" to leverage and build on the core competencies of each member partner. But it was already clear things would get tricky as organizations sought to consolidate competitive advantage in a supply chain versus supply chain world, where they would not only have to compete with each other but also against extensive webs of suppliers. The risks involved in falling behind were clearly real, and the need for Australian companies to move on supply chain management was great. The elephant in the living room, of course, was all those small businesses, with no IT competencies of their own, hanging off the end of the line and threatening to drag the whole system down. Elephants in rooms often get ignored, but this one was starting to trumpet its calls for attention most deafeningly.

And I could see a few other threats to the smooth running of such efforts: like vested interests, empire building, interoperability problems, vendor intransigence and bucket loads of player scepticism.

By 2001 it was clear far-reaching connectivity was a long way off. Instead, what was emerging were "islands of connectivity" brought into being as the result of pressure from a major buyer or supplier, or through the efforts of new intermediaries like "portal/exchanges". Business processes were becoming linked within and between organizations, but levels of interaction were being driven by considerations of security and value. "The concept of linking supply chains is simple," Tradehub manager of business development and infrastructure Dr Robert Starling told an IES conference that year. "However, the simple model is being complicated by the move from orderly - or at least perceived as orderly - supply chains to dynamic supply webs, which are changing as buyers 'flit' between suppliers offering the best terms.

"Patterns in use of the Internet for trading are evolving. Organizations are like the pieces of a jigsaw puzzle - some are coalescing to form trading groups or islands [with] others remaining on the side and watching as parts of the 'connected world' are linking and merging. These early alignments are forming, breaking apart and reforming as the benefits of connectivity are being tried and tested," Starling said at the time.

Lost in Translation?

Collaboration was a fundamental shift in the evolution of supply chain relationships promising to promote profound changes to supply chain models and major benefits, but subject to many barriers. Within a wider strategic context the best opportunities currently available are in addressing fundamental supply chain processes, I wrote then. Perceived difficulties could be overcome if the approach was right.

But what was good for the US goose was proving richer and more indigestible fare for its Australian gander.

"Alliances have been forged between competitors in circumstances once regarded as unthinkable, the formation of the General Motors, Daimler-Chrysler and Ford e-commerce procurement empire being an outstanding and challenging example," Guy Callendar of the University of Technology Sydney's School of Management told the Smart 2001 conference in Sydney. Yet Australia suffered many disadvantages by virtue of being a small international economy: lack of internal market size and large-scale manufacturing and service provision. "Contracting clout has to do with being large enough to make the logistics of doing business worthwhile as well as achieving that elusive goal of value for money," Callendar pointed out.

To Dr John Gattorna, managing partner in Accenture's supply chain practice, that simply showed one of the main differences between the southern and northern hemispheres: Down Under the benefits of huddling together were greater than the disadvantages of huddling together. Gattorna also saw other major distinctions between what he chose to call the rugby-playing countries of the southern hemisphere (South Africa, New Zealand, Australia and Argentina - all with markets of between 20 and 40 million people) and our counterparts in the north. In the US and other countries in the northern hemisphere the issue of "co-opertition" was a thorny one, he told CIO magazine. When organizations start joining together in collaborative marketplaces there, they were potentially tending to share information via skills and knowledge transfer while gaining less out of the deal than the organizations that join them. That is because it is far from unusual for such organizations to partner with suppliers in some areas and compete wth them in others.

That elevated trusting such partners with sensitive corporate information to a perilous act of faith and raised the whole question of how far the organization should go in opening up to suppliers. Gattorna was dismissive of those worries here, saying most Australian companies were too small to make it a real issue.

"I don't think 'coopetition' is as big a problem, funnily enough, in Australia," he said. "I think it's more black and white here because in Australia we've got smaller markets. I'm preaching the gospel: to hell with all this bull about differential advantage through better supply chain practices internally or better logistics practices. What we really need to recognize is Australia, in just about any market we look at, is sub-world-class, sub-critical. Therefore we have no alternative other than to join together, sometimes with vendors, sometimes with suppliers, sometimes with other people in our industry, and share the pickings if you like: any advantages that we might together create."

Yet the relative size of Australia's markets and our distance from the northern hemisphere gave us a legacy of other disadvantages too. Transport economist Dr Narida Smith, leader of CSIRO's Transport Futures Project, had worked with Queensland's University of Technology on a major study on the impacts of e-business on transport, starting with the trends in e-business, for the National Transport Secretariat. Her findings? Australia suffered because of its financial institutions' and lawmakers' lack of technical sophistication. The SME wanting to install new infrastructure or the truck fleet operator wanting to build in m-commerce capability both typically had huge difficulty getting a bank loan because they could not point to a history of success for SCM or c-commerce.

"We've got lack of understanding of technological issues in the financial and regulatory area," Smith said. "In the regulatory area we're very much governed by lawyers and accountants and that sometimes makes for difficulties in choice of new systems. In fact, we've got difficulties right up the chain in both the regulatory authorities and banking. We don't tend to have people from science and engineering in all of these decision-making roles to the same extent as some other countries, such as Germany."

The failings help to explain a Gartner survey of the time that found more than half Australian CEOs saw their Internet strategy as a costly irrelevance, while a Compass and London Business School study found a similar number of European CEOs played a "major" personal role in their company's e-business strategy.

These issues have yet to play out, but now the ever-evolving picture is becoming even more complicated, as our awareness grows of the extreme fragility of the newly engineered global supply chains.

With all the usual verve and vigour in adapting technology to its purposes, corporations have created a global production system so complex, tightly geared and leveraged that a breakdown anywhere can mean a breakdown everywhere, as Barry C Lynn, author of End of the Line, The Rise and Coming Fall of the Global Corporation, warned recently.

A war on the Korean peninsula could slash global production of DRAM chips by 50 percent and NAND flash chips by 65 percent, massively disrupting the electronics and other industries. Widespread adoption of offshoring means an uprising in southern India could cost many global companies, including banks, their ability to process information. An avian flu pandemic in industrial Asia could destroy the system the US relies on for medical respiratory masks, among other calamities...

Hang around. Things are just getting interesting.

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