DAVINCI: Harnessing the Power of Technology to Tighten the Supply Chain
Richard M. Vanatsky, C.P.M.
Richard M. Vanatsky, C.P.M., Andersen Consulting, Shelley Lin, Andersen Consulting, 200 Public Square Suite 200, Cleveland, OH 44114.
Terry A. Austin
Terry A. Austin, Andersen Consulting Andersen Consulting, 200 Public Square Suite 200, Cleveland, OH 44114
82nd Annual International Conference Proceedings - 1997
In the past, the relationship between information technology and business strategy has been a one-way street: business strategy drove the use of technology. Executive teams determined business strategies, and information technology (IT) managers implemented the supporting technology. Today technology is a key enabler of innovative business strategies. From supply chain integration that extends clear to the end user, to virtualized market channels that provide a new basis for global commerce, IT opens the door to new ways of doing business. These new, IT-enabled capabilities must be considered as strategies; otherwise, their full value may go untapped.
Why now? This new relationship between IT and business strategy is driven by three market forces: IT price/performance improvements, the digital convergence of computing, content and communications, and the horizontal integration of the New Computer Industry.
The engine of IT price/performance improvements is microprocessor technology. It has been doubling in performance every 18 months for more than a decade and shows no sign of slackening its rate of advance. Communications bandwidth has also increased, with the appearance of faster, wider communication pipes appearing to carry the increasingly rich information content that is created and manipulated by powerful microprocessor-based systems.
These increases in performance and bandwidth have enabled an ongoing convergence of computing, content and communications technologies. Individually, each of the technologies can provide incremental improvements in business performance, usually in the form of cost reductions. When combine into integrated business solutions, they revise the rules governing spate, time, and form, and enable dramatic changes in how businesses operate. This convergence enables electronic storefronts that eliminate the old constraints of form by integrating text, audio, video and human expertise into electronic media and applications.
IT price/performance improvements one digital convergence are made possible by the "New Computer Industry." This term is used in this document to refer to the thousands of IT hardware, software, and service providers who support market-driven standards in order to add value through innovation in their areas of core competency.
In the past, vendors within the IT industry operated as relatively independent, vertically integrated silos. A few vendors controlled proprietary technologies, top to bottom. Within each silo, customers were forced to make long-term allegiances to a single company. While this situation may have been safe and secure, it didn't ensure that information technology would keep pace with customers' rapidly changing business environments.
Today's New Computer Industry emphasizes an open marketplace and market-driven standards. Industry-standard platforms are the focus of thousands of competing vendors investing billions of dollars each year to develop innovations in hardware, software, and services. The competition and choice at every level of the industry creates high volume demand that in turn attracts more hardware, software, and service providers to build upon the market driven standards. And the cycle continues, spawning innovative and affordable solutions that enable businesses to improve productivity, develop higher-quality products faster, and offer customers more choices and better service. This trend is impacting every industry worldwide.
As a result of this cycle, the New Computer Industry offers businesses a two-fold competitive edge: the ability to create flexible and innovative IT infrastructures that support and enable new business strategies, and the ability to choose from a broad range of innovative, low-cost solutions, based on market driven standards that extend the life of their IT investments.
The DAVINCI program exemplifies the New Computer Industry in operation. Industry-standard Intel architecture-based platforms from AT&T GIS, Compaq, Hewlitt Packard, Intergraph, and Sequent have been integrated with innovative products and services from Andersen Consulting, Bay Networks, MCI, and SAP, resulting in solutions that provide new capabilities and better value than the proprietary silos of the past.
The DAVINCI Virtual Corporation What will business processes look like a year or two in the future if they (1)fully exploit the continuing improvements in IT price/performance, (2)use digital convergence to eliminate space, time, and form constraints between businesses, customers, and partners, and (3)incorporate a full range of interoperating IT products that are available today?
The DAVINCI Virtual Corporation was created to answer that question. Based on an actual business venture, the DAVINCI Virtual Corp. serves as a proving ground for technology-enabled business strategies. It demonstrates how multiple companies situated around the globe can operate virtually as one entity in pursuit of a common goal. Specifically, the DAVINCI Virtual Corp. is based on group of companies partnering to develop the infrastructure and resources of a remote Asian island. The companies involved range from architecture and construction to financial services, transportation and travel, and their challenges include building a city from the ground up, developing some of the world's richest gold and copper deposits, and supplying the consumer needs of 50,000 residents.
The four business process scenarios modeled in the DAVINCI Virtual Corporation are typical of those any organization might face. What's unique is that the organizations take full advantage of technology to enable innovative business capabilities. This white paper examines the four process models, showing what new technologies are employed and how specific hardware, software, and services combine to deliver new business solutions:
- The Demand Chain Management model shows how the DAVINCI partner companies extend supply chain integration concepts all the way to the end user. Linking their operations electronically, they form a market-driven demand chain that senses customer needs and responds in real time.
- Relationship Management demonstrates techniques for global commerce that overcome barriers of time, space and form and via "virtualized channels." Mass marketing gives way to a market of one, which in turn gives way to an ongoing dialogue between providers and customers.
- Venture Management depicts ways executives from different companies can collapse the time required to jointly pursue business opportunities by sharing and re-using knowledge, by applying real-time analysis and visualization, and by quickly bringing businesses together for joint decision making and rapid action.
- Strategic Information Management demonstrates how an IT organization can make it easier for all users to find and use information. It also illustrates ways to ensure the manageability and flexibility of the distributed system infrastructure.
Demand Chain Management Model Creating a great product doesn't guarantee success if the product isn't available, is too costly to deliver, or doesn't reach the customer on time. Building and managing an integrated demand chain has emerged as the critical infrastructure that can help corporations realize lower inventories and transportation costs, higher customer service, and greater product utility.
The DAVINCI Demand Chain Management model illustrates an "extended demand chain," where an integrated technological structure enables organizations to anticipate and respond to the customer at every step, from customer order to post-sale product management. The key enabler is information connectivity, using the Internet to promote a high level of communication and visibility among suppliers, carriers, and customers.
Business Process Technological innovation and redefined processes virtualize the relationship between supplier and customers by integrating and automating previously discrete, manual processes throughout the supply chain. These processes are based on the need to:
- Create and nurture a strategic partnership between providers (e.g., suppliers and a third-party logistics provider) and their customers.
- Manage the "extended" portion of the supply chain, i.e. service contract management.
Strategic benefits - In an integrated demand chain, suppliers, manufacturers, carriers and customers gain real-time, valuable information to drive their planning. They may also gain tangible benefits such as revenue growth, operating efficiencies and reduced capital expenditures.
Customer order - Customers can view orders, order status, inventory levels, etc. and can dictate, or "pull" the exact configuration, quantity, and other specifications they want. As a result, goods are made in the right configurations and delivered to the right locations at the right times, and the supplier's costs for order administration and processing are reduced.
Order fulfillment - Access to distributed operational information enables informed and timely decisions on sourcing, production, and assembly. This helps increase throughput and equipment use, reduce the costs of administering and processing customer orders, reduce working capital requirements and operating costs, increase customer satisfaction, and ultimately increase sales and margins.
Transportation and delivery - Coordinating the physical movement of goods from suppliers to buyers allows consolidated shipments, which leads to more competitive rates from carriers and lower freight costs to shippers. It produces higher service from carriers through core carrier programs and the electronic exchange of load tenders and other information. It also gives customers easy access to information on shipment status and costs.
After-sales service - Sensing technologies can monitor equipment performance and can use predictive maintenance procedures to sense imminent failures or delays before they occur. This enhances customer satisfaction and gives suppliers more information for continuously improving their product, as well as their operation and maintenance processes. Customers benefit through reduced downtime, increased equipment utilization and a lower inventory of spare parts.
Continuous improvement - Collaborative engineering and design make it possible for team members to communicate, troubleshoot, and design in tandem throughout engineering design and product maintenance. This shortens the product development cycle and leads to higher quality products through continuous product improvement.
The Demand Chain Management scenario explores how an industrial slurry pump manufacturer uses new technologies to integrate and extend its demand chain. The scenario involves the manufacturer, its mining company customer and a third-party logistics firm. These enterprises come together to create integrated processes for ordering, manufacturing, delivering and maintaining the products of the pump manufacturer. Specific capabilities include:
- A mining company uses the Internet to access an on-line catalog and order-entry system, explore different pump configurations, and ultimately order the pumps.
- Noting problems with both availability and capacity, the system uses workflow to automatically route the problem order to a production planner. The planner checks availability in the manufacturer's distributed plants to solve the availability in the manufacturing plants to accommodate the new order.
- Order confirmations and shipment requests are sent via electronic data interchange (EDI) to the mining company and the logistics firm , respectively. Optimized shipment plans are created by the logistics firm that consolidate this load with others destined for the same location at the scheduled time.
- Forced to reroute the ship due to a storm, the logistics firm proactively notifies the mining company of the early arrival of the pump.
- A self-monitoring pump installed a the island detects impending failure and notifies a service engineer via an integrated telephony and EDI message system.
- A design engineer accesses CAD drawings of the pump, reviews the pump's maintenance history, and coordinates a collaborative redesign of the pump.