"Vertically integrated companies will be at a distinct disadvantage"

CRM and supply chain management (SCM) are the hot enterprise apps around the globe. The key here is how to integrate ERP into Web enabled apps. 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. During the recently held Gartner summit in Mumbai, McMurchy spoke to DATAQUEST about ERP and SCM implementation strategies in the Internet economy. Excerpts: 

On how have ERP and SCM 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. 

What are 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 moving it in a swift manner with an effective delivery mechanism becomes high priority. A good example could be a PC manufacture: the motherboard may come from Korea, the CD player from Mexico, and yet another component from Taiwan. 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. 

How does the Web influence the paradigm shift 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. 

Traditionally, ERP vendors have been slow in taking their software to the Web...

Yes, I agree. Inventing, perfecting and selling ERP to the world, the major ERP vendors initially had a tough time. They had to shift gears from making the applications that streamline business practices inside a company to those that face outward to the rest of the world. These days, the hottest areas for outward-looking (Internet), post-ERP work are e-commerce, planning and managing your supply chain, and tracking and serving customers. Most ERP vendors have been slow to develop offerings for these areas, and they face stiff competition from niche vendors. 

ERP vendors have the advantage of a huge installed base of customers and a virtual stranglehold on "back office" functions such as order fulfillment. ERP vendors have begun to shrink their ambitions. They now focus on being the back-office engine that powers e-commerce rather than trying to own all the software niches that are necessary for a good e-commerce Web site. Indeed, the niche vendors are making their software easier to hook into e-commerce sites and middleware vendors are making it easier for IS departments to hook together applications from different vendors. Many people wonder how much longer ERP vendors can claim to be the primary software platform for the Fortune 500 companies. But good ERP vendors were reinventing themselves as e-business vendors. 

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