‘Vertically integrated companies will be at a distinct disadvantage’

CRM and supply chain management (SCM) are the hot enterprise apps around the
globe. Companies with ERP deployment are increasingly looking at integrating it
with CRM and SCM. Neil McMurchy, director, research, Gartner Group, advises
clients throughout Asia-Pacific on ERP and CRM strategies and directions. An IT
industry veteran of 20 years, McMurchy has held senior sales and general
management positions with enterprise application vendors such as Dunn &
Bradstreet, SSA, Walker and most recently with QAD, prior to joining Gartner.
McMurchy spoke to DATAQUEST about ERP and SCM implementation strategies in the
Internet economy. Excerpts:

On how ERP and SCM have evolved in the past few years:
The focus of enterprises in the past few years has been on internal
efficiency, which was mostly on how to manufacture efficiently and reduce costs
using ERP. ERP, a term coined by Gartner, was derived from material resource
planning (MRP) in the sixties. MRP was designed to tackle constraints in the
manufacturing environment. Then, in the nineties, it grew to ERP, which looked
at all the aspects of planning within an enterprise. Since then a lot has
changed within the enterprise.

Apart from an increased focus on internal efficiencies,
external competition too has increased with the breakdown of barriers to trade.
So, the challenge is at both ends. To tackle it, organizations are giving more
attention to every aspect of their functioning. They are trying to answer the
key question of how to manage the supply chain.

On the challenges of an effective SCM strategy:
For the integration of supply chain, many of the back-end aspects of the
business need to be managed. Making the technology changes will not be easy,
getting suppliers and manufacturers to trust each other and share the sensitive
SCM information would be the biggest obstacle. Inventory pile-ups and an
effective delivery mechanism becomes high priority. This makes the whole
manufacturing process and supply chain very complex. If this process is not in
proper place, the whole process gets affected and there could be goof-ups
resulting in the loss of business as well as reputation. So, this requires
inventory management to be integrated with the supply chain, else there could be
a rise in the inventory costs; not a comfortable thought for any organization.

These potential savings are almost completely dependent on
developing technology links with customers and suppliers through the Internet so
that manually controlled supply chains are automated. The savings also depend on
suppliers, distributors, customers and manufacturers giving direct access to the
entire process.

On the role of the Web in SCM:
The Internet is changing the methodology of selling. With it I think the era
of making things yourself is coming to an end. Earlier, companies used to build
a product, create a need and then market it. Nowadays it’s the other way. Take
the example of Dell: it takes its orders pre-manufacturing and designs the
computer on the users’ specifications. It is the new model of customized
services that has allowed it to grab such a huge market share. The old-fashioned
supply chain is quickly disintegrating in the Internet economy.

The Web is accelerating the disintegration in every industry
by eliminating the cost advantages that used to come with keeping everything
together under one roof. Indeed, we are rapidly getting to the point where
vertically integrated companies will be at a distinct disadvantage when trying
to compete with companies that use virtual supply chains. Companies held hostage
by in-house suppliers would be slower and less able to respond to changing
products and markets. Digital exchanges are also speeding the disintegration of
supply chains by making transaction costs insignificant. They do so by gathering
far-flung information together and wrapping that information in adding value to
services. This is where we see the potential of B2B, since it is nothing more
than supply chain management as presented by the marketplaces.

What is the potential of SCM in India?
SCM is all about collaborating between enterprises. However, in India, there
still seems to be uncertainty between suppliers, customers, distributors and
manufacturers, specially when a majority of the partners are in the SME segment.
The other inhibitor is that of cost, since products are still not feasible
enough for the SMEs. But we definitely can see the trends moving in a positive
direction, once all these minor anomalies are overcome.

VENKATESH GANESH
in Mumbai

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