Waterstone Consulting News & Events

Supply-Side Training

Without the cooperation — and preparedness — of the suppliers, supply chain management can’t achieve its goals. By Emily Kay

In today’s volatile economy, every nook and cranny of a business can make or break the profit margin. One of those crannies is the supply chain. Take, for example, Nike Inc., whose profits dropped 50 percent in 1998 — a decline of nearly $400 million from 1997. One reason for the earnings dip, according to analysts and company executives, was inventory forecasting problems. Change management, Nike learned, reaches beyond company walls. "The cultural challenges are clearly around a new way of doing business, not just for ourselves, but for the entire supply chain as well," says Ken Harris, Nike’s CIO in Beaverton, Ore.

It’s not just Nike feeling that way. The supply chain management (SCM) market is growing, as businesses deploy SCM software from vendors such as i2 Technologies, Manugistics Inc., and Logility Inc. to coordinate the movement of goods from materials suppliers to manufacturers to consumers. Market researcher AMR Research Inc. projects that the SCM market will boom from $2.6 billion in 1998 to $3.9 billion in 1999.

Companies are also expanding their supply chains electronically beyond their borders to link customers and suppliers into their SCM and enterprise resource planning (ERP) operations. By forming data-sharing relationships with customers and business partners, organizations hope to forecast product needs more accurately, reduce product life cycles and inventories, and cut operational costs. Shared supply chain information includes order status, shipment tracking and tracing, sales forecasts, production schedules, inventories, product descriptions and pricing, and promotional calendars, says Larry Lapide, VP and supply chain strategies service director with AMR in Cambridge, Mass.

But it’s not always easy to bring suppliers along with those changes. "There are humongous training issues," says Mohsen Moazami, vice president with Kurt Salmon Associates Inc., a retail SCM consulting firm in Los Angeles. "Enormous change management has to take place for [retailers and manufacturers] to come together and trust each other."

"You can have the most fabulous tools in the world," says Joseph Cahill, partner and head of the supply chain practice for Waterstone Consulting, an SCM/ERP systems integrator in Des Plaines, Ill. "Unless you focus in on the training aspect, give it the appropriate attention and follow-through, and make it a continuous process, you’ll end up wasting your money on technology."

A Matter of Trust

The trust issue is a big one. After all, you’re asking your suppliers to provide traditionally proprietary information — such as promotional plans and store data — to someone who also has relationships with their competitors.

Another potential pitfall is suppliers’ reluctance to share responsibility for processes that, prior to SCM changes, were kept separate. "The reaction has always been, ‘It’s not my problem, it’s not my job,’" says Moazami.

Workers on both the manufacturing and supplier sides must learn each other’s internal business processes and requirements. Cahill is working with a heavy-equipment manufacturing firm to redeploy some 20 customer service workers who received customer calls and processed orders, for a potential savings of $1.5 million per year. Using a Web-enabled browser interface, the company’s distributors can now tap into the manufacturer’s back-end system to check inventory, reserve products, and place orders in real time.

"They brought their dealers on board early and got them to take a level of ownership, from how they relate to each other to how they navigate through the system," says Cahill.

To start, the manufacturer obtained consensus from its largest and most influential distributors. "There was a lot of hand-holding with them first to get the bugs worked out," says Cahill. The manufacturer also set up a dealership council in which each side learned how to interact with the other.

"They started with a conceptual design, and the dealers were there the whole time during the design process," Cahill says. "Then they would meet for design reviews and tests."

Senior managers from both sides had to approve the process, while the workers who use the process helped design the system. "It was a peer-to-peer relationship," Cahill says.

Technology

Pulling suppliers into a company’s ERP operations presents its share of technology training concerns. Organizations deal with diverse groups of suppliers who do their jobs differently from each other, have a wide range of technical know-how, and operate an amalgam of systems. Teaching them to do their jobs differently and navigate corporate extranets using Web-based supply chain software can use up a lot of resources.

"It takes more time than anyone is willing to admit up front," says Cahill. "There are cultural and political issues, boundaries between who’s responsible for what, and agreements on how to measure the success of a relationship."

Cahill short-circuited a certain amount of technology training for the manufacturing client by building a Web-based browser interface from distributors’ desktops to the manufacturer’s back-end legacy enterprise system. When the manufacturer migrates its applications to SAP R/3 sometime next year, the distributors will use the same browser interface.

By designing a browser application that’s independent of SAP or any other system, Cahill ensures that SCM workers need not learn new technology each time the manufacturer changes the back-end operational system or adds enhancements. That makes technical training extremely simple, because most users already know how to use browsers to surf the Web.

Phases, or All at Once?

Distributor training for Cahill’s client, set to begin this summer, should take about three months to roll out in phases to 135 dealers, Cahill estimates. Details are being finalized, but he expects a combination of internal manufacturing people, SAP, and Waterstone consultants will develop training materials and redesign business processes. He also expects that a professional training organization will deliver regional technical training through CBT and case study demonstrations.

Some choose not to phase in training, but rather to do it all at once. Texas Instruments Semiconductor Group (TISG) went that route, training all of its 50 wafer fab and assembly test area suppliers at once. That way, TISG was sure all suppliers would be ready to use the new system when the company flipped the switch on R/3 version 4.0 on Jan. 1, 1999.

Prior to the go-live date, suppliers obtained purchase order information via fax, EDI, and 3270 terminal emulation access to TISG’s legacy systems. The suppliers could previously tap into TISG’s systems, but after SAP deployment, they can use a Web-enabled browser interface to check inventory levels, create purchase orders, process receipts, and input shipment data, says Todd Jochim, TISG’s worldwide procurement and logistics systems manager in Dallas, Texas.

Internal procurement and inventory managers provided the training for TISG’s suppliers. That training consisted of spending a day at each supplier site to set up Web-based browser interfaces to R/3 and to teach workers to use them. SAP and implementation partner Andersen Consulting trained the trainers and helped them design training courses.

In the case of Waterstone’s manufacturing client and its distributors, workers will attend two days of introductory regional training. Support personnel from the manufacturing company will staff a "robust" help desk and will be available immediately to answer dealer questions. In addition, trainers will conduct individual site visits, where needed, to larger dealers that are having problems.

"Manufacturers have to commit to the dealers that they’ll maintain training," says Cahill.

The Bigger Picture

Such "tactical" training takes time, but strategic training tends to be more challenging. For TISG, strategic training entailed "convincing [suppliers] that the approach we were suggesting was better than a traditional purchase order," says Jochim.

Jochim’s trainers ran the new supply-chain system one or two parts at a time to let the supplier see how the process worked, and to modify the processes as warranted. Suppliers eventually became comfortable with the changes, says Jochim.

That’s important, because without supplier acceptance, SCM implemen-ters are unlikely to get the competitive boost they’re looking for. "Training is not the competitive advantage," says Nike’s Harris. "It is the requirement to get a competitive advantage, which is to redesign and electronically automate the supply chain."

Emily Kay writes about technology as a principal with Choice Communications, an editorial consulting firm in Chelmsford, Mass. Email her at mlek@mediaone.net

Steps to Successful Supplier Training:

Obtain internal senior-level executive buy-in at the outset;
Involve external suppliers as soon as possible, preferably at the design phase;
Plan the training program, with suppliers’ input, as early as possible;
Build training systems around who has access to what information;
Choose a few key processes on which to collaborate;
Put together cross-functional teams internally and at supplier sites;
Design a formula for success including bonuses and penalties.

— E.Kay