Auto Visibility
SupplySolution sells supply chain visibility software to Tier 1
and Tier 2 suppliers in the automotive industry. The software's
limited functionality (visibility only and reorder point replenishment)
may eventually provoke customers to seek other solutions, but until
then, its focus on a single application and single industry mean
that it provides a real value that a number of customers are getting
today.
About SupplySolution
SupplySolution is a rarity: a supplier to the automotive industry
spawned in Santa Barbara.
The automatic reaction in Detroit to software that comes from California-actually
anything that comes from California-is suspicion. "They won't
know how we do things in Detroit, and it will be useless."
SupplySolutions has succeeded in overcoming that suspicion, by doing
three things right:
- Having senior executives with fairly good automotive experience.
- Locating a sales office in Southfield, Michigan.
- Having software
that walks the walk.
The company has also gained credibility by being canny about its
sales strategy. It has used the viral marketing strategy pioneered
by WebMethods in a very small, contained niche: the Tier 1 and Tier
2 suppliers. Art is long, but sales cycles to Tier 1 suppliers are
longer. In an economic downturn, this strategy requires patience
and persistence-art may be long, but sales cycles to Tier 1 suppliers
are longer.
SupplySolution has so far demonstrated a real capacity for both
patience and persistence. In at least one case we know of, it has
had to wait months for money, getting it only after months of work
on a "proof of concept" that was really more like a first
stage. This capacity may enable it to prevail over other competitors
who may actually offer more bang for the buck.
Customers
SupplySolution claims to have collected money from 18 of the Top
20 Tier 1 suppliers and to have overall more than 1600 customers.
Some of these are simply Tier 2 users at a Tier 1 site who pay a
$50/month user fee.
Covisint also private labels the solution.
Among the Tier 1 suppliers that they claim to have sold are:
- Delphi - 80 sites, number actual installations unclear
- Tower - 26 sites sold, number of live installs unclear
- Johnson Controls - 86 sites. Nine live now, 8 sites/month planned
- Valleo - Operational
- Dana - Operational
- Eagle Picher - Operational
- Lear - Operational
Customers also include Magna, AutoLeaf, Delco, Remy, Federal Mogul,
Freudenberg, Powers and Sons. For Tier 2 testimonials see www.supplysolution.com.
Industries
SupplySolution is among the most industry-focused software packages
we have ever encountered. Even so, they have plans to move outside
the industry, first to clients who also sell outside of automotive,
then as they develop logistics capability, to other companies in
that area.
They also sell some of the visibility technology to e-marketplace
companies.
We do not expect that SupplySolution will ever have a presence
in any industry comparable to their presence in the automotive industry.
Since SupplySolution has already developed some language capability,
we expect that expansion globally within automotive will be their
next direction.
The Product
The core SupplySolution product exists in a single instance on
a single database.
At the heart, it has four components:
- A user management system,
which allows people to log on, determines which language they see
(8 are supported), determines the time zone of the user, and authorizes
their access. (Access is controlled by company; if a user's company
has a relationship with another company, all data involving the
two companies is shown.)
- A user interface, which displays current
inventory information and highlights areas that need attention.
The interface is secure; the language of the display is determined
by the user; and the display is adjusted for the time zone of the
user.
- A repository where the information is stored.
- Interfaces
into the sources of the information. Usually, these sources are
the ERP system(s) at the Tier 1 supplier.
The users sees the inventory positions of individual products at
the Tier 1 company site(s), the minimum and maximum inventory levels
expected for those products, current orders, and whether the current
inventory position requires adjustment. (Going below the min or
over the max also generates an alert.)
That's it. The idea is that suppliers use this for real-time reorder-point
replenishment. If inventory is below the minimum or close, they
can hurry up an order. If it is high or above the max, they can
wait.
Once the supplier decides to create an order and send product out,
they can enter the order into the system, and the system will modify
the inventory position. There was no time-phasing in the version
we saw, so we assume that the position simply includes future arrivals
of inventory in a single time bucket.
Supply chain gurus may think that web-enabled reorder point replenishment
is more than a little old-fashioned. We do think it's limited, and
we agree that it's not a substitute for long-term planning. But
it does have its uses. (See Value below.)
We saw this product almost a year ago, and we saw much that we'd
like to put in: dynamic calculation of min-max, KanBan alerting,
etc., etc. SupplySolution is aware of this and many other demands
that have been placed on it.
However, in the past year, there has been very little change in
the core functionality.
Change has come instead in the scalability of the core engine.
With 1600 customers and probably more users all on a single instance,
the main concern has been to get a platform that can provide the
right language, the right level of security, and the right information
in something like real time. As noted above, this is a hosted application
that runs on a single instance, so reducing the risk of performance
failure must be a high priority for SupplySolution.
SupplySolution plans to add similar logistics, planning, and quality
modules, though what that means, exactly, is unclear. They are also
planning on adding more replenishment strategies, besides reorder
point, including Kanban.
One addition that seems to be out of the planning stage is the
ability to use SupplySolution as a kind of VAN. The order goes from
the ERP system to SupplySolution, then via Harbinger (now Peregrine)
to the supplier. They can use the Internet, ANX, or traditional
EDI.
Value
What is the value of a tool that does nothing more than provide
visibility?
At the core, the value is what we call "this-week cost reduction."
All the costs involved in making sure that the needed inventory
really does arrive in time and just in time are reduced when both
sides can see what is needed. In particular:
- Premium freight costs,
overtime, and time lost doing expediting are reduced, because both
sides get an accurate picture right now of what needs to be done.
- Suppliers can schedule production runs more accurately and reduce
setup times because they can determine more accurately when a run
needs to be made.
- Overall inventory should be reduced if companies
aggressively manage min-max levels.
According to SupplyWorks, the relatively small number of sites
implemented so far have experienced 20% reductions in inventory,
30% reductions in premium freight costs, and 20% reduction in administrative
costs. We believe these numbers as much as we believe any numbers
from software companies: nevertheless, they're indicative. We do
agree that particularly in automotive, this-week costs are quite
high, and real-time visibility should reduce them.
We should add that the overall value of any such tool depends heavily
on the quality of the information. One side effect of implementing
SupplySolution should be an overall improvement of inventory availability
information and, in many cases for the first time, min-max levels
for the inventory. This in itself is a value.
SupplySolution charges a per-user fee to Tier 2 suppliers (sometimes
as low as $50/month) and negotiates with Tier 1 suppliers a yearly
subscription fee using 4% of the value of the inventory that they
manage as a starting point. The fee includes the cost of implementation.
Assessment
POSITIVE: We believe that simple visibility tools can provide value,
especially in the automotive industry, where this week's orders
always vary considerably from what was planned. The cost of installation
for the Tier 1 suppliers is high, but not unreasonable, given what
is required to provide connections to the ERP systems and massage
the data. Reorder point replenishment is arguably not the best replenishment
strategy, but it has the merit of being simple. Supply chain theorists
may scoff, but they should also recognize that reorder point gets
better as a strategy they closer one gets to the time when the product
is needed.
NEGATIVE: At the heart, the replenishment strategy supported by
SupplySolution is similar to VMI (vendor managed inventory). In
the consumer packaged goods industry, which has the most experience
with this approach, it has proven to be somewhat unsatisfactory
There are situations and products where VMI is clearly best. But
by itself, just letting the suppliers replenish has proven to be
a cost-shifting measure as much as it has been a cost-saving measure.
Obviously, all such visibility strategies or rip-and-read strategies
have one clear problem: they impose a burden on the supplier. The
person managing orders at the supplier has to go to the site, figure
out what needs to be done, enter it into his or her own system,
then enter it again into the customer's system. This costs them
money which usually shows up in higher prices, eventually.
It might seem, also, that suppliers might be more reliable (even
eager) about creating and filling orders than buyers are, but experience
has shown that supplier unreliability is a real issue.
In any case, simple visibility doesn't do anything about longer-term
supply chain variability, which is also important. Systems that
communicate and manage long-term demand are natural concomitants
to visibility systems, but SupplySolution does not provide this.
We also think the system would be much, much more valuable if it
provided more tools for setting the "right" or dynamically
setting the min-max levels. Right now, work is done in this area
during implementation, but real inventory savings are only achieved
when the proper level of inventory is constantly reviewed.
Other systems (see below) try to do more. They try to manage the
process of changing orders or creating orders that reduce work for
both sides and/or produce stability in the same.
BOTTOM LINE: SupplySolution is probably best seen as a way station
on the road to better communication with suppliers. Eventually,
as all companies learn to expect real-time connectivity and visibility
as a standard, systems that provide only that and provide only reorder
point replenishment will be considered inadequate. If SupplySolution
becomes an industry standard, as it hopes to be, it may eventually
retard progress into more advanced supply chain optimization, but
in the meantime, having it as an industry standard would certainly
produce savings for both Tier 1 buyers and Tier 2 sellers.
The Competitive Space
Many software companies claim that their software provides business
partners with visibility into inventory levels and orders. Within
the automotive space, the clear differentiators for SupplySolution
are:
- A product that looks and acts like an automotive industry
product
- A clean user interface that shows real-time inventory and
order positions
- Status as an industry standard due to adoption
by Covisint
- Support for 8 languages and time-zone support.
- Implementation
strategy that focuses on connecting ERP back-ends to a hosted solution
The
ERP companies active in the automotive space, such as SAP, Oracle,
and QAD have all demo'ed products with visibility. QAD has built
a quite similar product.
Companies like SeeCommerce provide simple visibility, but are not
focused on automotive. Companies like Ariba, CommerceOne, Atlas
Commerce, and many others communicate orders (and possibly inventory
levels) to the supplier, but since most suppliers aren't enabled,
this simpy amounts to rip and read without any replenishment info
(min-max).
Companies like SupplyWorks or i2 do actual communication of orders
and changes in orders (that is, full process management or collaboration),
but do not necessarily have an automotive supplier orientation.
For other SRM company assessments, see our archive.
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