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Intelligent Supply Chain Strategies
QAD's Pam Lopker on Finding the Right Focus for Innovation
By John Zipperer

(03/19/03) It's sometimes good to think about supply chains, technology, and business strategy in terms of hamburgers and automobiles. It's a very American approach, and it uses two consumer products with which everyone is well acquainted. For Pam Lopker, founder and president of collaboration technology company QAD, those two iconic American products offer a golden opportunity to talk about what she thinks is wrong with supply chain operation today, and what can be done better.

In short, she gives the supply chain technology equivalent of a Reaganite anti-bureaucracy speech, saying that supply chains are too slow to adequately meet customers' needs and to allow manufacturers the ability to innovate in their business processes. Manufacturing processes have been designed to make lots of products in a methodical manner. Which brings us to hamburgers and autos, naturally.

"If you look at manufacturing supply chains, there are typically five to six levels from finished goods down to the raw materials that are either grown or mined out of the ground," says Lopker. She wants to reduce the time needed for information to flow through those levels from six weeks to six hours. "That shouldn't be a rush order," she cautions, and compares Wendy's and McDonalds. "McDonalds has done well at execution and getting those burgers out fast, but they haven't done very well at made-to-order — 'I want five tomatoes and I want white cheese instead of yellow cheese.' Yet Wendy's has done a pretty good job at that because they don't do the final assembly of the item until you actually order it. That becomes much more complex when they're saying, 'I don't want a hamburger, I want an ostrich burger,' and these things have to be ordered down the supply chain."

Similarly, she suggests that if you are ordering a computer and you want a purple keyboard, with various keys rearranged so that you can avoid your typical typing mistakes, "the computer manufacturer should be able to make that for you in about the same time it takes to make a standard one today. That's going to happen through this information flow," she says, "and it's not just the information flow, it's the processes you employ within your organization to make things happen."

To have such a flexible and fast supply chain requires a lot of thought to go along with the technology. "All the information flow from orders to purchase orders has to be electronic," Lopker continues. "That's why the technology has to have standards-based messaging that has policies that trigger, for example, on a pink keyboard I never stock it, but on blue keyboards I always keep a buffer stock of 15, and when I get down to 14 I order more. Those policies have to be configured in the system and be able to change continuously, but they can't be where a human has to look at it. Otherwise you've lost the game."

When you purchase a car today, you likely are going to buy what's on the dealer's lot. "If you don't, it'll take you greater than six weeks to have something shipped to you because that's how long it takes to get through the supply chain," she says.

The systems between dealers and car OEMs today are manual, involving faxes, and orders entered in batch format. If that could happen much more quickly, and you could configure your car with the salesperson, and have all the parameters immediately passed down the supply chain, things could be much different and could benefit both sides. Lopker says what you should be able to do is go in and choose the car you want in the right colors and other options, and have it delivered within a week, giving you a custom car instead of an off-the-floor car. And that's where the investment in time, thought, and technology needed to make that happen on the manufacturer's side pays off because she sees people paying a premium for custom products, just as you pay more for a custom suit than for an off-the-rack suit.

Lopker believes this requires more of a lightweight connectivity between and within distributed enterprises and their value chains than heavy-duty EDI systems are able to deliver. And the software products used in the system need to be lean and fast. "Today, if you look at the old supply chain products, they typically wait until you get a whole bunch of orders in, a day or a week's worth," Lopker says. "Then, given that I have all these orders, where and how should I make them? It does this kind of optimization so you maximize the output of a machine. Our way of thinking is that that's wrong. You should be optimizing the flow through your factories, not the output of one particular machine or factory."

Driving Performance: Managed Supply Chain
The Small World of Real-Time Sourcing

By John Zipperer

(04/01/03) The fears expressed by anti-globalization activists often focus on the disruptions in local life that occur when companies shift their operations and jobs to faraway locations. But when a company’s supply chain stretches between continents, it changes the structures of a lot of players, and that can help organizations compete from many different locations. Complexity and speed become important as companies look for ways to manage their very distributed and often fluid supply chains, hoping to gain advantages that automation can bring. But companies say speed is not the most important aspect; planning is.

Take, for example, Manitowoc, Wis., a small city on the shore of Lake Michigan, where about 35,000 people live and work. It was historically a ship-building town—the local high school’s football team is known statewide as the Lincoln High Ships. If this were a travel article we would give you directions to the downtown location of the World War II submarine at the Maritime Museum. But we’re concerned with real-time events today in Manitowoc, and for that it helps to look at the aptly named Manitowoc Cranes, a part of The Manitowoc Co., which makes everything from cranes to food service products to ships.

The crane division has direct material and indirect buys worth about $500 million annually via about 2,000 suppliers, according to Mike Upton, vice president for worldwide sourcing for the Manitowoc Crane Group.

But even with the changes in the local economy from blue-collar powerhouse to an economy based on a combination of tourism, industry, and agriculture, Upton says the biggest changes he’s seen in the sourcing world over time have been the development of the global supply base and the need for technological competence. “I do not think that the balance of power [between buyers and suppliers] has changed much,” he says. “On a commodity-by-commodity basis, it is always moving around. The trick is to know when the shift is going to occur.” To get the technology side of the equation right, he says the key is getting senior management buy-in.

When Local Is Global
Mahipal Lunia, senior product marketing manager for global trade-automation company Open Harbor, notes that there’s little distinction anymore between “global” supply chains and “local” supply chains.

“As we move toward a real-time economy and the world is contracting, it’s becoming a single problem,” he says. The locality of a company is not a very important factor, and its sourcing is likely to be global regardless of its size. “The low-cost manufacturer of goods is moving overseas. Raw materials, textiles—all of this has moved to Latin America or Asia.”

“I think the pressure is on everywhere to save significant costs,” says Stephen Sharp, president and CEO of Frictionless Commerce, which makes sourcing-automation software. “This is one area where there are potentially very large savings, through better processes and process reorganization, enabled by software like ours.” He says large enterprises are now in a phase of the evolution of their sourcing organizations where they have built up their own purchasing organizations, they have several years experience with auctions, and the benefits from those auctions have begun to diminish, so they are looking to bring more solutions in-house.

Achieving real-time sourcing can take many different routes, and companies approach it from different angles—either as buyers or sellers. Open Harbor, OSIsoft, Emptoris, and Frictionless Commerce are just a few of the vendors offering solutions.
What Manitowoc Cranes used was FreeMarkets’ FullSource product. “Speed is not the most important element—at least, for me,” says Upton. “You need a sufficient amount of buy, a good market, and then you need to stay focused on implementation.”

He says FreeMarkets’ global reach and its ability to bring global suppliers to events were different from similar auction suppliers. The solution “helps change the savings expectation for the sourcing function from 2 or 3 percent to double or more,” says Upton.

Manitowoc used models from Harvard Business School professor Michael Porter to help define the impact on it of commodities; that information then helped prioritize the sourcing events in FullSource. Upton says Manitowoc would have liked to do more sourcing events, but it was not always easy to obtain data (thanks in part to its merger of three companies from around the world). “The major challenge was finishing the process—implementing the savings,” he says of the 75-day project.

See-Through Global Sourcing
To Open Harbor’s Lunia, the hurdle for global real-time sourcing is not the technology—“the technology has existed in the market for a while to make this possible”—but the mindset of the enterprise organization. That means realizing that your playing field is not just North America but the entire planet.

Companies have done sourcing in multiple countries for a long time, albeit probably less so than recently. But adding the need for speed into the mix requires automation of some complicated matters, such as how a material’s country of origin can affect taxes and duties. That knowledge in automated form is just the expertise Open Harbor’s solution offers. In addition, it keeps users up-to-date with the many different homeland security rules that various countries have initiated since the terrorist attacks in the U.S. For example, it feeds users updated blacklists of companies that aren’t meeting security standards or have otherwise fallen afoul of the rules.

To get the benefits of automation of a global supply chain, Lunia says a company needs three things. First, it has to tie together its back-end ERP systems with its supply chain systems. Second, it has to automate systems within the company—including getting employees involved in the process. Third, it must set comfort levels for the automation; in other words, it sets up the exceptions in the transactions that will trigger human intervention. “You are creating a coherence between the systems of the company and the people,” Lunia says.

From the supplier’s angle, sourcing is defined as allowing customers to access its inventory and make orders. Howco Group, a processor and distributor of specialty steels for large customers in the petroleum and aerospace industries, had an e-commerce site custom-designed for it by ComCity.

“Most of our large customers can see what materials we have, the status of their orders, what materials we have by spec and location, and start the order process from there,” says Howco’s Malcolm Howat. Before it went with an online solution, sourcing was more akin to pulling teeth than pulling and ordering materials. Customers would call Howco to find what pieces of material the company had in stock, as well as its sizes and dimensions, and determine whether or not it met their specifications.

Howco’s customer service representatives would field the calls, check the inventory, and then get back in touch with the customer. All of this took place, naturally, during regular business hours.

“Malcolm’s application is complicated in that he sells large, expensive orders of steel,” says ComCity president and CEO Michael Barber. “Those orders cost so much to produce, and there’s such a time line before it gets into production, [that] his customers place advance orders on materials and those materials are brought into stock, and they order from their [personalized] stock. So the materials available are dependent on what they put into their own stock.” Here, the speed is important, because it lets Howco’s customers know exactly what is in stock now. And, of course, orders can be made at any time of the day or in the evening. Having that information shared more easily and in a timely manner can have a positive impact throughout the supply chain. It helps buyers know what materials are available at the moment, and it lets sellers know what their buyers are seeking and helps them plan shipping, production, and other matters.

As Ron Kolz, OSIsoft’s product manager in supply chain and business intelligence fields, points out, it even helps in the product-development-to-manufacturing relationship, because any production changes made in the product could affect the materials needed to manufacture it.

The more information shared, and the more involved the parties are with the actionable information that’s made available to them, the more efficient the entire supply chain becomes for everyone involved. Wherever they are.

UpFront: News Analysis
When Spam Slams Your E-mail System

By John Zipperer

(04/01/03) At long last it looks like the authorities are finally taking a serious look at stopping spam and related problems for e-mail users. CNN reports that a group of Italians are actively searching for a patron saint of the Internet, which would give abused Net users someone to aid their requests for assistance.

But for enterprises seeking more earthly help, a wide range of offerings exist that target both traditional text spam, as well as newer and more difficult to stop variations. Companies such as Vircom with its Modus messaging and gateway products, Tumbleweed Communications Corp., and Sprint offer ways to deal with annoyances such as HTML spam or “image spam.” “We’re estimating spam is about a $4- billion productivity loss each year,” says Stacy Meadows, group manager at Sprint’s managed IP security services team. “We think it’s only going to get worse.”

“Before, if you saw one or two pieces of spam in your mailbox, it took just a moment to delete them. Now, we’re seeing 40 percent of all e-mail is spam,” says Enrique Salem, president and CEO of anti-spam software and services company Brightmail. He says that figure is up from 8 percent in September 2001.

And the type of spam that enterprise employees receive and read is becoming more troublesome. Almost one-fifth of all spam in January was adult-oriented, according to research by Brightmail. It reports that 18 percent of the spam it tracked was adult-oriented, up from 5 percent in January 2002. Another maker of anti-spam software, Vancouver, British Columbia-based ActiveState Corp., estimates that image spam—unsolicited e-mail that uses images to get its message across—represents as much as one-quarter of all the spam e-mails entering enterprises.

Meadows and others in the anti-spam industry say that the problem simply has grown so fast for enterprises that organizations are buried under a mountain of e-mail offering money-making scams, bizarre sexually related products, and other solicitations.

The negative effects of spam range from harried network administrators to productivity loss, and from nuisance to workers to potentially serious legal liability for some of the material that is sent. “The biggest complaint is typically that people in the organization snicker at messages until a given explicit message reaches someone higher in the organization and a mandate comes down that this has to stop,” says Chris Kraft, director of product management for ActiveState. Though some states have taken steps to try to regulate unsolicited commercial e-mail, federal anti-spam legislation continues to crawl slowly through the U.S. Congress (in separate Senate and House bills). Enterprises have to look out for themselves.

And though spam hits everyone, from grandmothers using America Online to enterprises fielding millions of e-mails, bigger companies will probably be more tempting targets than smaller ones. “If you can figure out how to send mail to those [large] companies, you’ll probably have more people open your mail,” says Salem.

Not long ago, it was easier to define and restrict spam, because text-based e-mail messages could be searched for offending keywords and blocked at the e-mail gateway of an enterprise. But the popularity of image spam, which embeds code in the message that calls out to the Internet for an image to display when it is read, makes it more-complicated. Image spam can also include unique identifiers to track when a recipient opens the message (which lets the sender know it’s a valid e-mail address, ripe for future mailings).

Nevertheless, anti-spam software and service providers say they are able to cut down image spam, as well as HTML-based and text spam. They use combinations of techniques, including keywords, blacklists (of offending spam mailers), and something called “honey pots,” in which they have traps set up on the Internet to collect spam messages. They can then analyze and create rules in their software to block it. When combined with anti-virus checking in enterprise e-mail systems, such anti-spam efforts—offered either as a behind-the-firewall solution or as an outsourced service such as Sprint’s offerings—build up the e-mail structure that e-mail runs through before it gets into employee mailboxes. That software infrastructure is also where companies can enforce policy on outgoing e-mail, preventing employees from sending proprietary or offensive information.

But though the solutions may be connected, viruses and spam come from different worlds. Salem, who worked in the anti-virus field before moving into fighting spam, says spammers are trickier than virus writers, who were typically 14-to-21-year olds. “The people who do spam have an economic incentive, so they keep trying and keep trying to get their e-mail out,” he says.

With the determination of the spammers unabated, and the likelihood of effective federal regulation in the distant future at best, enterprises will continue to invest in solutions to handle this problem. With or without help from above, they need to protect themselves.

Editor's Note: Forward Thinking
Is It a Good Time to Fiddle with Taxes Once Again?

By John Zipperer

(04/01/03) Everyone knows the saying that laws are like sausages; you don’t want to see either being made. Seeing the special interests, ideologies, and targeted punishments stuffed into legislation is enough to put anyone off their dinner. But in the end it does pay to know. In particular, tax policy is a stomach-churner. But as federal legislators look for ways to give the economy a kick, this boring subject has become central once again. The best argument for tax cuts at this time would be for those that are focused laser-like on business investment and research. There’s sound reason to go into debt when your spending is based on the serious expectation of future productivity and profit growth from new plants, technology, equipment, research, etc.

That may not be what we get, however.

The 1980s were arguably the best times to be a tax-policy wonk. That decade began with the supply side movement leading a full-scale debate over the desirable levels of taxation; by mid-decade, policy had come to focus on a broader-based movement for fairness and simplification, which resulted in the 1986 tax changes.

Though tax nerds have lost their vanguard position in public policy debates, the issue of tax policy itself has lately stirred up a lot of passions. The biggest claim is that some radical tax changes can reboot the economy. That’s misleading; that argument is being used to bring forward some large tax reductions at a time when all of us—consumers, businesses, state governments—are watching our wallets carefully, either recovering from past spending, worrying about an uncertain future, or both.

But the populist tax cutting that is popular now in Washington promises to deliver to us another bill to pay in the future. And as a Financial Times editorial noted about the budget submitted to Congress early this year, “The most fictional aspect of this year’s budget is that it ignores the 800-pound gorilla in the room of a looming war with Iraq. Expenditures in the Gulf will certainly increase the deficit in the absence of offsetting cuts elsewhere or a sudden jump in revenues.”

I’m not interested in left-wing desires to use taxes to punish people or companies that make lots of money. Nor am I interested in right-wing desires to defund social programs or agencies. We need sufficient taxes to fund our needs as a nation, no more, no less. Right now, our needs include fighting one broad-based war against terrorism, as well as various localized wars or battles (in Iraq or wherever else they flare up). Let’s not make the same mistake we made in the 1960s, when we fought a war in Vietnam, but we refused to pay for it and thereby caused many of the economic problems of the 1970s.

There is a better way. The Information Technology Association of America (ITAA) has supported Congress making a permanent R&D tax credit. ITAA president Harris Miller correctly notes that an aggressive research program “yields more bountiful returns to company investors, customers, employees, and the U.S. economy as a whole.”

Let’s start there, and we can revisit broad-based tax giveaways when we get our federal budget back in surplus.

Special Report
Linux Suits Up for the Enterprise
By John Zipperer

(04/01/03) What do companies such as Morgan Stanley, R.J. Reynolds Tobacco Co., Boeing, and BBDO Interactive have in common? Nothing and a lot. They’re in completely different industries, but they all use Linux within their organizations, and that’s startling if one remembers how recently such a development would have seemed crazy. For a long time, Linux was largely ignored outside of hardcore IT circles and small-scale application implementations.

But the open-source Linux operating system has grown from a backroom obsession to a major product offering of Big Blue and others, and the list of organizations adopting Linux continues to grow. It now includes entities in places ranging from the remote Icelandic Energy Authority to the very visible life sciences industry in the U.S. Europe is a vast field of growth for the technology, specifically in Germany, where the government has been behind efforts to find alternatives to proprietary technologies.

It wasn’t that long ago when enterprises weren’t as open to Linux, and there are still those throughout many businesses who are taking a wait- and-see approach toward it. Five years ago, if you headed down to your company’s IT department, you probably wouldn’t have seen Linux anywhere in deployment. But that doesn’t mean it wasn’t there.

In speaking to the 50-year-old network manager, you could have found out that he was running Linux on his personal desktop at home and he would gladly explain the virtues of the system. And, younger technology staffers right out of college had been educated in Linux and were eager to see its promises come to fruition. Both of these generations were planting the seeds for what is now blooming in enterprises around the world.

Listen to the technology providers, and it sounds like the rise of Linux was no surprise. “We’ve been a supporter of Linux for a long time,” says John Kiger, director of product marketing at infrastructure software company BEA Systems. “We introduced Linux as a support platform for [BEA products] Tuxedo and WebLogic many years ago. It’s been a tier-one platform for us for a long time. We’ve invested heavily in making Intel architecture—and as part of that, Linux—an ideal platform for enterprise applications and enterprise software.” Organizations looking either to take their first steps with Linux or expand their current limited engagements can reap benefits if they ask themselves some basic questions and begin the process with a clear mind.

Why Would Linux Interest My Company?
Different business drivers are at work in different companies. There are some very powerful shared drivers, of course: the need to reduce costs and increase efficiency, the need for greater security stability, the pursuit of a commodity-based approach to hardware, the ability to have access to a large and creative development community, the need to implement technology today that will continue to be a good foundation for tomorrow’s technology, and more. Linux delivers all of that, largely thanks to its role as an open-source technology.

But some industries have particular needs that make them ideal fits for the Linux switch.

Take the large life sciences community, for example. This includes everything from hospitals to informatics companies to biotechnology firms to government laboratories. Michael Svinte, vice president for worldwide marketing and business development for IBM Life Sciences, says this industry has a strong need for open standards-based technology, due to its routine integration of data from thousands of sources. For the end-user—the life sciences professional or physician—this means access to a wider variety and depth of information both about an individual patient’s records as well as similar cases that might suggest treatment approaches. It’s a big shift, one Svinte says is taking them from opinion-based treatment to information-based treatment.

And clusters—connecting many smaller computers together to form virtual supercomputers—are ideal for an industry where much high-performance computing is necessary. Two Taiwanese organizations that recently adopted Linux clustering solutions are Chang Chung University and a large microbiology research institute. The institute purchased Linux Networx systems from bioinformatics provider DigiGenomics Co., Ltd., of Taiwan. DigiGenomics says the two organizations will gain both scalability and price-performance benefits.

Is There Enough Available Technology?
That’s an easy question: Yes. In fact, just about every technology provider accommodates Linux in one way or another, whether embracing it wholeheartedly as IBM does, or embracing it partially and arguing about its limitations as Sun Microsystems does, or downplaying its abilities as Microsoft Corp. does. Chipmaker Intel Corp. was one of the bell-weather companies that signaled a change for many technology companies and users when it began supporting Linux in its products. It meant Linux was no longer stuck in the realm of the IT enthusiast; it was getting suited up for the enterprise.

Oracle Corp.’s software runs on top of Linux. HP, SAP, Computer Associates, and many others are also adopting it, selling it, servicing it, or otherwise making friends with it. Microsoft Corp. and Sun Microsystems are less enamored with it, as one would expect from companies so reliant on their individual platforms.

And while many technology vendors embrace Linux to one degree or another, arguably none embrace it as aggressively as IBM, which really seems to have gotten the Linux religion. “When we got engaged in Linux back in 2000, it really was kind of a lonely place,” says Karen Smith, IBM’s vice president of Linux strategy and market development. Early adopters were using it for some basic, simple applications: “Most customers will start with something that is relatively self-contained, something that has boundaries to it,” she says. But now they have begun using it in important, enterprise applications, such as banks running systems on it or retailers using it for kiosks. Smith says the uptake has been quicker than even IBM expected.

When is Linux Appropriate?
If all company verticals from airplane manufacturers to German police forces use Linux, then the answer is “everyone,” right? Olafur Rognvaldsson, CEO of the Institute for Meteorological Research in Iceland, calls the price-to-performance benefits of Linux clusters unbeatable—his organization is able to carry out research modeling that it could not do before it adopted technology from Linux Networx. Though certain organizations, such as the German government, are animated by a desire to avoid being locked in to a proprietary computer infrastructure, enterprises should keep their eyes on less ideological benefits such as cutting costs and improving security. They will likely find that it’s right for everyone in some but not all uses.

The first step to take may be to look for case studies of enterprises similar to yours that have been successfully implementing Linux solutions. (Read the “Online Linux Resources” sidebar on this page). Then, you should talk to your consultants to see what they offer, where they have implemented it in similar industries or organizations, and what specifically an adoption of Linux would mean to your organization in terms of implementation time and effort, as well as where you should expect to see benefits. Luckily, you shouldn’t have to worry too much about a skills changeover in your IT staff; they’re years ahead on this one.

Linux-Powered Internet World

If you are looking for a visible example of linux in business, look no further than www.internetworld.com, this magazine’s online presence. But though some of the benefits of a Web site run on Linux servers are visible to the end user in the form of fewer glitches, the technology’s benefits are really noticed by the magazine and the staffers who manage the site.

For about two years, Linux has provided the server background for the Web site, and the decrease in problems has been dramatic. “We haven’t rebooted the server since then,” reports Frank Pipolo, director of Internet operations, Internetworld.com. “Part of the reason we changed over to Linux was that we wanted to leverage the large body of useful and free code available in the open-source world.” At a previous company at which he worked, he says the IT staff was forced by events to reboot the server once a week, and just to reduce the likelihood of crashes during peak times, on a daily basis “part of our morning ritual was to reboot the system,” he says.

The Web site plays a mission-critical role in Internet World’s operations as most parts of the company rely on it, including the magazine, the Internet World trade shows, the magazine’s conferences, as well as Web seminars and marketing efforts. The Linux platform is crucial to maintaining stability. “I don’t have time to deal with system crashes and every imaginable obstacle you don’t predict is going to happen,” says Pipolo. “It’s really a comfort that we haven’t had any major system crashes.”

The Web site—which handles anywhere from 500,000 to 1 million page views per month—runs on Apache Web servers, which in turn run on the Linux operating system. (Apache, like Linux, is an open-source technology and runs a majority of Internet Web sites.) Pipolo says that the Web site is particularly suited to Linux because Internetworld.com uses something called PHP (Personal Home Page tools, though now it’s known as PHP: Hypertext Preprocessor), a dynamic script language that is embedded in the HTML code of a Web page. “We use PHP all over the site, and PHP works exceptionally well in a Linux environment with XML,” he says.

Pipolo has worked on Unix, Windows NT, and other server operating systems, but he says his own switch to Linux was simple. It’s easy to use, and it is a much easier environment for setting up databases without a lot of the bulk that comes with other systems. It will also provide a strong base for adding services and features in the future. That all means faster creation of content for the site, as well as fewer headaches from downtime and security flaws. PHP's integration with MySQL on a Linux environment is simply fantastic and lightening fast. As for the question of whether or not Linux is “ready for enterprise use,” Pipolo says he believes it is, but the deciding factor will be whether people are ready to accept it and overcome their attraction to alternatives.