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Copyright © 2003 John Zipperer unless indicated otherwise.

From and copyright by Internet World:

Forward Thinking
Short-Sighted Laws Threaten Internet-Enabled Outsourcing

By John Zipperer

(05/01/03) Internet World produces Intelligent Outsourcing Strategies, a newsletter in which we speak to enterprises, vendors, analysts, and others involved in outsourcing products and services. The editors examine a variety of topics, because outsourcing touches so many parts of an organization, including its work processes, technology investments, supply chain relationships, and more. The newsletter is a great resource for people involved in this activity, and that’s everyone today, isn’t it?

The trend to global outsourcing may be unstoppable, but that doesn’t mean that some groups and legislators (and litigators) won’t be able to throw up costly hurdles. We’ve already seen legislative opposition in some state governments to outsourcing to foreign nations, and there will be more such attempts.

The India-based National Association of Software and Service Companies downplays the effect so far on Indian companies of this wave of opposition, suggesting it affects only about 1 percent of India’s software exports. But it will grow, and so will opposition, at least for the foreseeable future.

Speaking at the recent IBM PartnerWorld in New Orleans, economist Stuart Varney listed three economic milestones. First was the Internet (and the related dot-com bubble); second was the ongoing population decline in advanced economies; and third was the rise of China to a position where “it’s the factory that makes everything,” he said. That has huge implications.

Outsourcing of manufacturing has long been an issue, hitting blue-collar workers. Outsourcing business processes and support has more recently caused friction, hitting office workers and even highly paid consultants. Internet technology has fueled both outsourcing trends, tying companies closer together with their Asian manufacturers while making it possible to collaborate with highly skilled software or business process workers on different continents.

In last month’s Managed Supply Chain article, I included details on the effects of globalization on the town of Manitowoc, Wis., because I lived there for six years as a child. I watched as company after company closed or downsized and the town moved from an industrial economy to a lower-paying tourism economy. Those are real people being affected by real losses of income, with all the pressures on marriages, the tax base, and local crime that come with it. Such real pain causes real opposition.

The answer does not lie in legislative blocks to outsourcing. I believe businesses need to do a better job of speaking to people here in the U.S. Part of the ongoing problem is that business has done, frankly, a miserable job of explaining the impact of Internet technologies and globalization. It may be because proponents don’t understand economic theory enough to explain it beyond share-price benefits; if so, that’s a historic shame, because the global spread of market economics and the concomitant spread of wealth is an objective benefit for billions of people. The fact that it is driven by businesses and public organizations is fortuitous, because it is the real and growing ability of Internet technology to allow talent and products to flow around the world that is enabling rapid economic evolution.

News Analysis
Sun Takes on a Double-Edged Blade Market

By John Zipperer

(05/01/03) The rollout of blade servers offers the hope of enterprise systems that are more manageable and cheaper to maintain, provided that the ability to manage the new systems is simple and robust. Technology giants are betting big that blades will continue to grow in popularity.

For Sun Microsystems, blades are a tricky opportunity. They offer the opportunity to change its image from the provider of expensive, end-to-end systems suites to that of a more cost-conscious player in the commodity systems market.

Compared to “the network is the computer” or even “we are the dot in dot-com,” the statement by Sun Microsystems that “every server room is a fingerprint” does not stir the imagination. But it does recognize that enterprises face unique challenges that blade servers can help address.

And the strategy Sun outlines for backing up that last statement stirs thoughts about how the company is meeting the evolving needs of its enterprise customers and how its competitors are countering its moves. One can see a long-running debate between Sun and IBM in this approach.

A Sun advertising campaign two years ago suggested that IBM was an expensive solution for complicated systems, implying that those who want simplicity should steer clear of IBM. Now, Sun seems to recognize that most organizations are complicated and specific in their technology systems and needs (and available resources), and is adjusting its offerings to match that reality.

“I’ve been in a lot of server rooms,” Sun CEO Scott McNealy said at a recent press conference. “And I have yet to see a server room configured like another server room. They’re all different.” Sun’s answer, which it unveiled to the press and analyst communities earlier this year, is its Sun Fire Blade Platform.

The solution is a combination of the company’s hardware and software (including middleware, storage, grid engine, and Sun Open Net Environment), with the ability to deploy different elements such as Linux or Solaris on X86 or SPARC microprocessors.
Blades are small, cigarette-carton sized servers that can easily be packed together to save great amounts of space. Sun’s focus on manageability prompted the company to offer a virtualization solution that lets the user manage, provision, and deploy the collections of individual blades as a group. Yes, it’s complex, and Sun says it will hold the hands of enterprises by configuring and building the system to their specifications, as well as upgrading and maintaining it. Its goal is to take the complexity out of the management.

McNealy says, in effect, to forget about the details. Responding to a question about who would be manufacturing one of the chips company executives had mentioned in a press conference, he said, “I don’t know who’s making the chips, and I don’t care. And neither should the customer.”

“I’d be laughed out of my customers’ offices if I said that,” says Jeff Benck, director of IBM’s eServer product offerings. “You can’t do the Intel server space as a hobby.”
Despite those sentiments, the two companies share a conviction on blade servers’ ability to simplify matters for customers, especially with a comprehensive management platform attached.

“A lot of IT customers continue to tell us they need a platform so they can manage their systems,” says Benck.

Benck takes obvious pleasure in noting customers who have switched to IBM from Sun, but Cingular Wireless went with McNealy’s company when it sought a blade solution in early 2002. Again, it was virtualization and management of the data center that was key in its decision-making. “Each vendor has different tactics toward how they approach that,” says Victor Nilson, Cingular’s vice president of enterprise architecture. “But we feel Sun had the better approach to offer.”

He says Cingular recognized that it had configuration and utilization issues with the servers it already had. “We realized that if we added elements like blade servers and grids to the mix, that would just add another level of complexity to the system.” In a system with hundreds of servers and thousands of CPUs, “we saw we had to virtualize that,” he says.

McNealy is typically blunt when discussing Sun’s view of blades. “We don’t think of the blade’s form factor as a market,” he says. “We’re doing network computers. This is a component, like piston rings [in automobiles].

“As network computers grow, you’ll see more of this form factor. If they don’t, you won’t. Looking at blades as a market is like looking at pistons as a market; we look at the auto market.”

Cingular was an early customer for Sun to show off, and Cingular had the advantage of working with Sun during development of its blade platform. But Sun’s hand-holding approach may appeal to others looking to unload some of the headaches that come with planning, configuring, building, running, and upgrading network server centers.

Though it may take a few years for blades to make up a significant portion of the server market, analysts and product vendors agree that their popularity in the enterprise community will continue to grow. Their benefits help with some of the most critical challenges in enterprises today: blade servers save space, they’re becoming easy to manage, and they’re a more flexible platform for future technology deployments.

Managed Supply Chain
Good Execution Requires Timely Data

By John Zipperer

(05/01/03) Moving with the times can be almost as difficult as keeping up with what the times are called. Greg Cudahy, global director of B2B/supply chain at Cap Gemini Ernst & Young, says that if the 1990s were the information age in business, then this first decade of the 21st Century is the execution age.

Focusing on the execution of your supply chain goals usuallyentails talk about gaining visibility throughout your supply chain, but to Cudahy, that’s just the first of three necessary stages. “Just having visibility throughout the system is a big step, but having to have humans deal with every exception that pops up is not truly being very focused on supply chain execution,” he says.

If there are three stages to execution, one could place most enterprises in either the first or second stages; the third is way off, and is perhaps not even desirable for everyone. In Cudahy’s scheme, after visibility comes the automation of exceptions and the routing of noteworthy ones to the appropriate person; stage three would be the automated response to those exceptions. If you don’t yet have enough faith in technology to let it automatically reroute shipments or select alternative suppliers, don’t worry—you’re not alone.

Cudahy knows there won’t be uniform comfort levels with automated decision-making, but his point is that efficiency is highest when the vast majority of exceptions are dealt with automatically. “My view is that there may be some validity to that,” says Jeff Rosen, vice president of operations at AFC (see sidebar). “It’s the 80-20 rule; you want to get 80 percent of the exceptions out of the way. We’ve talked about whether you automate commitments that you get back from suppliers without any human interface. At this stage, it’s not a huge value to us, because exceptions are just that—exceptions. The importance of a manager being on top of these is pretty critical, because changes are all around us. Right now, putting a human interface in there is a good thing.”

So right now, enterprises are looking for solutions that provide visibility and exceptions-delivery, and they’re finding them in a variety of places. Nine West, Oxford Industries, and Dollar Tree Stores tapped LOG-NET for their supply chain execution solution. Flextronics and KLA-Tencor turned to Datasweep for better visibility and issue-tracking; StorageTek and Dell turned to WorldChain’s offerings. BASF, Bayer, and Fruedenberg use Acsis for the integration of their SAP R/3 systems. And still other firms have chosen Adexa, Apexon, QAD, and others.

For Cudahy’s third stage to come about, it may take the evolution and popularization of technology that learns appropriate and inappropriate behavior, as well as optimal responses. That may one day entail semi-independent agents that electronically check on supply chain status and take action, or it may result from the evolution of more centralized software already in use.

“If a specific individual says that every time a customer asks for 10,000, just send me a message, and the system does that over a six-month period,” says Cyrus Hadavi, CEO and president of Adexa, which makes global planning solutions for manufacturers. “The user says that every time it happens, it’s apparently not a problem, so that exception is no longer an exception and you want to turn it off. The model should have the ability to handle that and turn it off and take exceptions to next level.”

One of the benefits of having that automation is the oldest promise in the book: you need to spend less energy on the white noise of business and focus on improving your product or service. “If you look at companies today, broadly speaking, they compete either by innovation or by execution,” says Pam Lopker, founder and president of collaborative-commerce company QAD. “On the execution side, it’s Dell. On innovation, it’s Hewlett-Packard. You send Dell an order, it explodes that fairly quickly—actually within a day—and it decides when it needs to send it down to its suppliers based on what it has in stock today. In some industries like automotive, the suppliers are very much embracing lean, so they’re changing their factories from optimizing machine output toward optimizing it for flow.”

Which means that to get to a high optimization level, you’ll probably need to go through two or more of Cudahy’s phases. And beyond.

Focusing on the Right Part of the Process
Saying that a company needs visibility throughout its sup- ply chain is easier said than done. More important, the degree of visibility need not necessarily be the same through all parts of the process; therefore enterprises will know where it’s worth the effort.
For sunglasses manufacturer Aai.FosterGrant, the greatest upside from investment would come from focusing on data from the retail point-of-sale—the very end of the chain. With a product line of 6,000 SKUs (including sunglasses and costume-jewelry lines) for its demand planners to handle, the company is very focused on matching retailers’ needs with the right products. “Our focus in our supply chain organization is very demand-driven,” says Don Juliano, Aai.FosterGrant’s director of demand management. “You can have the most sophisticated technology and logistics network and tools for planning and visibility, but if you’re expediting the wrong stuff at the wrong time [there’s still a problem]. The key to this business is having the right amount of the right product at the right place at the right time.”

With some of its factories located in the middle of China without high degrees of technological expertise, FosterGrant relies on its consolidators who receive the goods from the factories to inform it of shipping dates. The company has sped up the information exchange with its factories—such as replacing faxing with e-mails to convey purchase orders—but it does not see enough return on investment on that end to automate it much further at this point. Instead it relies on its consolidators’ complex tracking systems.

Handling exceptions on the supply side comes from updates from the factories that get fed into the company’s ERP system, which then updates records and schedules. But FosterGrant’s focus for controlling inventory is downstream, and for the last 2 1/2 years it has focused there, resulting in a 50-percent inventory reduction. Juliano says his company brought in Prescient Systems in October 2000, and he praises Prescient’s exception-management tool, which points directly to items not in line with forecasts.

The drop in inventory and the ability to forecast demand more accurately have shown the wisdom of FosterGrant focusing on the demand side. But for telecommunications supplier Advanced Fibre Communications (AFC), the focus was in the opposite direction. AFC makes edge access equipment and broadband solutions for firms around the world. With factories ranging from Malaysia to domestic companies, AFC has worked hard over the last year and a half to cut inventory and reduce lead time.

It uses a variety of tools to collaborate with its suppliers and gain visibility into their data. For example, it uses collaboration technology from eRoom (now part of Documentum) to share information from commitments to open purchase orders. It brought in Valdero Corp. to give it visibility into data the suppliers see, such as what stock is on hand and what’s on order.

It came to Valdero after laboring with spreadsheets characterized by “massive data, lousy latency in the data, pain points everywhere—you’re kind of flying blind,” says Jeff Rosen, AFC’s vice president of operations. “You have no visibility whether your contract manufacturer is executing in a timely matter.” So his company found an application that could let it focus on the exceptions, which are now handled by alerts and indicators that users pre-set to view in red-yellow-green stoplight fashion.

Rosen isn’t surprised that companies focus on different ends of the supply chain to increase visibility. “It’s different in different industries,” he says. “I always get queasy when I hear people say there’s one binary answer to this.”.