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Global-supply management requires integrated, inclusive, real-time technology.
By Bob Evans

Archimedes, a guy who bought into leverage way before the concept became fashionable, reportedly summed up the power of the idea this way: "Give me a lever long enough and a fulcrum on which to place it, and I shall move the world."

A couple of thousand years later, businesses of all sizes--from global corporations to small specialty manufacturers--are trying to redefine their relationships with their suppliers to lower costs, raise quality, increase speed, and reduce risk. In so doing, they're applying some Archimedean thinking as they attempt to move beyond the tactical realms of purchasing, procurement, and sourcing and into the more strategic area some analysts and observers are referring to as global-supply management.

"In some parts of our company, we've shifted the balance so that 60% or 70% or even 80% of what goes into our products comes from outside suppliers," says Mike Brown, VP of worldwide sourcing for $28 billion-a-year United Technologies Corp. "When you reach those levels, then you better have a real good handle on that supply base: who they are, what they can do, how they interact with not just some but all parts of your company, how good their quality is, how quickly they can adapt and change and customize."

One of the vendors United Technologies is working with to make that happen is FreeMarkets Inc. Known for its E-procurement service and expertise, FreeMarkets moved into global-supply management with the launch last week of a set of software tools that deals with supply issues such as contracts, requirements, collaborative design, spending, and performance measurement, by automating and integrating tasks such as configuration, workflow, project management, data transfer, access and control, and messaging. FreeMarkets ES software has an exchange-rate table that handles international currencies, says Chris Gormley, VP of product management, and later this year will be available in French, German, Italian, and Spanish and will support double-byte character languages Japanese and Chinese.

United Technologies isn't only a customer of FreeMarkets--it's an investor, to the tune of $20 million in 1999. But Brown says the company's global-supply management technology still needs stress testing. "The key [for FreeMarkets] is making the software so that anyone in a company can just drop in the data and have it work," he says. "Everybody wants something like that." The ES 1.0 software is being offered first as a hosted service, then as packaged apps by midyear.

Global-supply management isn't a new concept. Vendors have been offering services and tools for E-procurement, sourcing, spend management, and supplier-relationship management for some time. In the last year or so, supply-chain and ERP vendors such as i2 Technologies, Manugistics, Oracle, PeopleSoft, and SAP have incorporated such modules into their enterprise software.

But the need is increasing for software that integrates and optimizes these capabilities on a global basis, as opportunities for competitive advantage come from an ever greater number of international suppliers and customers. Gene Tyndall, associate director of the University of Miami's Center for Advanced Supply Chain Management and formerly executive VP of global supply-chain solutions at Ryder System Inc., says such software is "the next big frontier in supply-chain cost management."

Companies that have dealt with global suppliers for a long time have developed some of this functionality themselves. Ford Motor Co. has a supplier-management metrics system, based on Java programming and Oracle databases, that tracks delivery performance, quality, and field activity such as defective parts that need to be recalled. Ford uses the data to rate suppliers, and suppliers can see electronically how they're doing, says Brenda Schultz, Ford's manager of purchasing-quality systems. Data comes from Ford's materials planning and logistics systems.

Covisint, the auto industry's growing business-to-business Web site, provides a variety of software tools, both acquired and internally developed, to support the more than 10,000 members that buy and sell on its site. Covisint counted among its accomplishments last quarter an agreement by DaimlerChrysler, Ford, and General Motors to standardize on applications for online auctions, product-quality planning, and indirect material purchases.

PeopleSoft's Supplier Relationship Management suite includes tools to help analyze and manage money spent on supplies, supplier information, contracts, and sourcing projects. Next quarter, PeopleSoft will add features to create tighter links between supply-chain planning and strategic sourcing; that will, for example, let suppliers and employees across business lines participate in the development of a request-for-quote bid.

Commerce One Inc. offers technology for strategic sourcing, buying, and contract management. Its latest product, Conductor, which is due next month, will manage documents across multiple enterprises and processes using XML technology. "We say the sourcing solution needs to interoperate" with other apps, says Narry Singh, senior VP of worldwide marketing. "It must be horizontal process-enabled." Frictionless Commerce Inc. later this quarter will launch a version of its Frictionless Sourcing software that incorporates programming interfaces that allow integration with enterprise apps, such as ERP. The new version also will include globalization functionality that will let a company configure the software's language, date and time, and currency preferences.

Vendors and users have tackled important aspects of sourcing and procurement, but no one has realized or exploited the full potential of global-supply management, says Tim Minahan, VP of supply-chain research at the Aberdeen Group. "The time is right for [companies] to develop or adopt a technology infrastructure that can provide a single command-and-control center for aligning, executing, and monitoring supply-management processes on a global basis," he says.

FreeMarkets' ES technology isn't that comprehensive, but it does offer advantages, Minahan says. First, it's built on a Web-based architecture, .Net, that can better support collaborative and usability requirements across an extended enterprise; and second, FreeMarkets has deep domain expertise in commodity categories and sourcing methodologies. This, Minahan says, "will be very difficult for technology vendors to replicate."

FreeMarkets co-founder and CEO Glen Meakem is confident that FreeMarkets has the vision and resources--400 employees in Europe and Asia and 700 in the United States, plus $97 million in cash, according to the most recent Securities and Exchange Commission report--to be a player in the global-supply management market. Meakem says his company's pairing of software and related services--from training to vertical-market expertise to identifying deep bases of specialty suppliers--is its competitive advantage. Global-supply management "isn't just software," Meakem says. "If it's going to be done right, it has to be a combination of software, information, and services."

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