effectiveness of information systems in supporting the extended supply chain, The

Edwards, Peter

Abrupt changes in the economic environment are forcing businesses to absorb and integrate new ways of delivering value to their customers. The opening of new markets, the increase in globalization, and the growth in cross-border mergers and acquisitions have focused the attention of many companies on how best to deliver their products and services across a complex network of suppliers, manufacturers, and intermediaries. Greater differentiation of products and services through an emphasis on customer service combined with the emergence of new technology has provided an incentive for many companies to rethink their business models.

At the same time, many companies are recognizing that, in order to provide global reach and local responsiveness, the traditional vertically integrated business model requires re-evaluation. To meet these growing challenges, more and more companies are looking to co-operate with their supply chain partners. In order to gain supply chain efficiencies, companies need to exchange large amounts of planning and operational data, ranging from information for annual contracts and periodic progress reporting to real-time delivery and invoicing data. The emergence of the Internet and new software applications has provided an opportunity for some companies to move towards an extended enterprise business model-one that enhances value across traditional corporate boundaries.

To support the transfer of information between supply chain partners there is a requirement to utilize technology in an effective way. But in the last decade, business information systems development has focused on internal process integration of traditional functions, such as sales, production, and materials management. The prime driver of this trend has been the implementation of Enterprise Resource Planning (ERP) systems, such as SAP R/3, Baan, and Oracle.

RESEARCH OBJECTIVES

Through a series of interviews with senior management within leading European companies, the research sought to understand the extent to which information systems have supported the way that the companies are meeting the challenges of the changing global market. In particular, the project aimed to understand whether the technology adopted by leading companies, in particular ERP applications, acted as a barrier in moving towards greater supply chain integration across the extended enterprise.

In order to test this hypothesis, the research sought to:

* identify and understand the structure and dynamics of the participants' supply chains;

* understand the way that each company co-operates with both upstream and downstream trading partners;

* identify the areas where companies are using information systems to support the extended supply chain.

Finally, the research looks ahead to the major challenges of the next decade in Supply Chain Integration, and possible solution paths for leaders in the change process, with particular attention to the management of information systems.

BACKGROUND TO THE RESEARCH

During the 1990s a growing number of companies have moved away from the traditional vertically integrated business model and have entered into a variety of alliances with different trading partners.' Many of these companies have also sought to outsource activities that do not form part of their core expertise or competency.

In an effort to improve their competitive positioning through lower costs, improved working capital management, and accelerated time-to-market, many companies are re-examining and re-structuring the way in which products are designed, manufactured, warehoused, transported, and sold. Importantly, as these changes occur, the old paradigm of arms-length competition is becoming less relevant. As highlighted by such companies as Cisco and Dell, success is now often measured in terms of the effectiveness of the supply chain as a whole and is dependent on how well companies:

* coordinate all activities across the "extended enterprise;"

* compress the time from product development to market introduction;

* reduce order delivery times;

* improve working capital management.'

A major element in supporting this new business model is the timely availability of relevant information made available through the exploitation of information systems (IS). The growing strategic importance of systems and of the underlying technology infrastructure to support the way that companies respond to major economic changes has, therefore, never been greater.

Companies are responding to the challenges, in particular through a focus on:

* building greater value for their customers and shareholders;

* integrating traditionally distinct business functions across the entire business network;

* developing distinctive capabilities around their relationships with their trading partners, the design of information systems, and the re-structuring of their business models.

The same companies have also started to work more collaboratively with their suppliers and logistics partners in order to provide a seamless service to their customers. This trend has brought about the adoption of a new and more complex business model, one that most closely resembles a network or extended enterprise. However, as Greis and Kasarda identify,' the emergence of the extended enterprise model presents many logistical challenges. In particular, they note that information needs to cross organizational boundaries in order to support management decision-making. Enabling technologies, including the Internet, offer the potential for businesses to exchange and share such information in real-time.

The Role of Technology in Synchronizing the Supply Chain

To meet these challenges leading companies are looking closely at how they can use technology to help redesign their supply chain business models in order to increase value to the customer.

The Internet, in particular, is providing an opportunity for companies to lower costs dramatically across the extended enterprise. The Internet, however, needs to be seen as part of the infrastructure supporting the integration of the extended enterprise. The flexibility of a company's transaction processing system, the capability to transfer and gain access to information, and the real-time visibility of operational data are also essential elements in building the extended enterprise business model. Yet, for the majority, true electronic collaboration remains elusive:

...when one looks at how [companies] share information, one is reminded of what Dr. Samuel Johnson said: "it is not done well; but you are surprised to find it done at all" (p. 123)

Prahalad and Krishnan6 argue that software applications are rapidly emerging as the company's "digital nervous system" and that software is increasingly determining the nature of the experience customers, employees, trading partners and investors have with the company. However, they also identify the potential problems that can occur when systems are incompatible:

When systems aren't compatible, transferring and sharing data, let alone trading knowledge, becomes almost impossible. (pp. 109-118)

The Limitations of Current Technology

In assessing the effectiveness of technology to support the extended enterprise, it is necessary to look more closely at the way that Enterprise Resource Planning (ERP) systems, in particular, function to link all parts of the business together. ERP applications allow for the integration of disparate functions of the firm and provide an infrastructure which synchronizes the transactions of the whole business. A number of writers, most notably Davenport,' have questioned the effectiveness of such systems to support the flow of information between companies. Given the importance of inter-firm information sharing in building supply chain effectiveness have these applications supported the firm's capability to deliver customer value? The limitations of ERP systems are reviewed in respect of their design, their implementation, their architecture, and their accessibility.

(a) Design issues

Cordon and Vollman' highlight a number of the weaknesses of present system architectures. They argue that most ERP systems are focused not on integration between trading partners but on integration within a company. They see using such systems to support linkages between trading partners as "archaic." Instead they point to the way that some leading companies are collaborating to share knowledge about demand that enables elimination of the formal ordering process.

(b) Implementation issues

Bowersox, Closs, and Stank' also identify the possible negative effects of ERP systems:

The rapid adoption of ERP software raises challenging issues for supply chain integration. Over the long-term, ERP is expected to deliver important integration advantages. But in the short-term, it may hinder logistical operations in firms that are already highly integrated and upset information connectivity already in place. (p. 9)

Davenport" also stresses the importance of the implementation process. He advises that companies need to carefully weigh the investment made to implement such systems against the eventual savings that can result. He concludes that the biggest problems relate to the business, not the technology since "Companies fail to reconcile the technological imperatives of the [ERP] system with the business needs of the enterprise itself." (pp. 121-131)

(c) Architecture

Traditional ERP and SCM vendors are constrained by an architecture that utilizes data taken from within the enterprise." As a result, such systems find it difficult to handle the linkages between trading partners on a real-time basis. However, new types of application interfaces are being developed both by the major ERP vendors (for example SAP's Business Application Interface (BAPI) model) and by third parties.

(d) Access and availability

As The Economist" identifies, the underlying business model supported by ERP software is being challenged by alternatives offered by the Internet. ERP software works on the assumption that a relatively small proportion of the workforce needs to access the information. As a result the license fees for each user are set at a high level. The Internet, however, makes it possible to host the application on an Internet server and to give access to anyone with an Internet browser and appropriate security. Once the information is available centrally, suppliers and customers within the same supply chain can reach it-making the information much more valuable.

Although companies have looked to their ERP vendors to provide this new level of functionality they have often been slow to respond. Instead, a new group of software vendors has emerged providing Internet-enabled solutions to support different parts of the supply chain. The projected growth in the market for Enterprise Application Integration (EAI) products is in part a response to this."

APPROACH AND METHODOLOGY

A number of alternative approaches were reviewed at the start of the research project."Although an in-depth single company approach was considered, it was rejected as being too narrow and potentially unrepresentative. A purely questionnaire-based approach, involving a larger group of companies, was also rejected because it lacked sufficient depth, particularly in such a new area of study. After due consideration, a combination of face-to-face interviews supported by a detailed questionnaire was adopted.

The respondents were all decision-makers in influential operational, management information and supply chain management positions within leading European companies. The managers were all seeking to introduce, or had introduced, supply chain improvements across enterprise boundaries, particularly downstream of production.

All of the companies operated across country boundaries and all operated in other countries outside the Europe Union. The European focus, which was part of the original study design, also meant that there was a degree of differentiation between this study and other studies (for example Speckman et al.11) with a US-bias.

Of the eleven companies all provided a questionnaire response, seven were interviewed at their offices and two were interviewed by telephone. Because a number of interviewees asked that the information they provided be kept confidential the names of all the companies have been disguised.

The project also looked ahead to a number of the major challenges of the next decade in the field of supply chain integration, and possible solution paths for leaders in the change process. This task was achieved by meeting with:

(a) emerging business consortia and standard bodies who are working to address the frameworks requiring aligning processes and technology in the supply chain.

(b) software vendors who are developing supply chain software;

(c) software vendors who are developing Enterprise Application Integration (EAI) software to enable companies from different computer systems and software to link their systems together.

Interview and Questionaire Design

The nine interview companies were asked a set of structured questions that fell into the following categories:

* the business context within which the company was operating;

* the structure of the company's end-to-end supply chain;

* the degree to which the company was moving towards a more collaborative business model;

* the functional areas where technology was proving more or less effective;

* the issues faced by the company in utilizing the business applications and related technology;

* the factors that influenced the way that the systems were implemented.

The interviews were based on the questions set out in an in-depth questionnaire sent to, and completed by all eleven respondents. Each interview lasted between one and two hours and, where possible, the discussion was taped and the case studies documented on completion of the meeting.

Research Methods

In order to meet the research objectives, it was first necessary to identify a set of characteristics that could be used to categorize and group the different companies. The main study concentrated on the degree to which companies were operating as an extended enterprise based on a set of five attributes. A model was developed to group the companies into three categories and to look closely at the attributes which the groups of companies share.

Having assessed the way that the companies were operating, the study then looked at how they were using technology and whether this technology acted as a barrier towards greater integration. The companies were asked to explain the effectiveness of their technology in supporting their relationships with their trading partners and to explain the factors that influenced their responses. Finally, a number of factors were identified as being influential supporting a move towards a more extended supply chain.

A questionnaire schema was prepared in advance to support the analysis of the responses. Each question was given a scoring range of between one and four and the scores were then collected using a statistical software package (SPSSTM).

Model Development

In order to understand the degree to which the companies were moving towards a more extended enterprise, a model was developed comprising five attributes as represented in Figure 1:

The model is based on three sources. The first, developed by Bowersox and Daugherty,"6 focuses on the structural attributes of three categories of companies:

* the extended enterprise;

* the co-ordinated enterprise;

* the traditional enterprise.

Chaudhry and Schnieper" developed a similar model based on a three-phase progression that serves to further describe the steps that companies take in the transition towards the extended enterprise. Finally, the research integrates a related method of analysis based on the model developed as part of the Michigan State University's World-Class Logistics study that was developed further by Bowersox, Closs, and Stank."

Using the models identified above, an analytical framework was developed and used to categorize the companies who participated in the research study. This framework is outlined in the next section.

Enterprise Categorization Framework

At the highest level, the Extended Enterprise, companies are highly collaborative, have global reach and operate seamlessly across traditional corporate boundaries. Such companies also make extensive use of technology to link the organizations that form their supply chain. The best example of such an organization is Cisco, which has grown dramatically over the last five years without expanding its internal staffing levels proportionately. For such companies, information passes between trading partners in real time and project benefits are shared amongst the parties.

At the next level, the Co-ordinated Enterprise, companies are operating co-operatively with customers and suppliers and are selectively collaborating with certain trading partners for certain ranges of products. They are, however, focused on improving their internal operation to maximize the value within their organization. Typically, this involves a move from a national to a Pan-European business model with shared service centers managing specific functional or process areas. EDI is used extensively between trading partners but the information flows make the traditional paper-based flows more effective rather than replacing them altogether.

At the third level, the Co-operative Enterprise, companies employ traditional arms-length relationships with the majority of their trading partners but co-operate with a smaller group. Typically the company is structured nationally and still works within the traditional functional constructs. These companies, with one or two exceptions, continue to operate as vertically integrated businesses with relatively low levels of strategic outsourcing. The focus on divisional profitability and cost minimization means that there is limited sharing of information between trading partners and planning remains based on a push orientation. Although there is limited use of EDI much of the information sharing is carried out by e-mail or over the telephone. The companies in this group have legacy systems in place that support their existing business models quite well. However, such systems are not sufficiently flexible to provide a supply chain-wide perspective. The three groups are represented in Table 2.

The Analytical Process

Data were collected from the interviews and questionnaire responses. The structure-related results were then matched against the five and categorized into one of three groups. The responses to the technology-related questions were also analyzed. An assessment was then made about the way that the companies were using technology to support supply chain integration and the issues that they were facing in moving towards a more extended business model. Finally, an assessment was made about whether the technology used by the respondents was seen to be effective. The research also investigated the factors that influenced the way the companies met the challenge of the extended enterprise (see Figure 2).

RESULTS AND INITIAL INTERPRETATION OF FINDINGS

The Extent of Supply Chain Collaboration

Using the extended enterprise model as the basis for analysis, a series of questions were asked to determine the extent to which the sample companies were operating as part of an extended enterprise. Appendix A provides a summary of the questions.

(a) Structural flexibility

Although the majority of the companies adopted a policy of strategic outsourcing (i.e., where certain business functions were not directly operated by the company), the level in practice was low. Most of the companies were seeking to move towards a higher level of flexibility across a variety of functional areas, including information technology management. Overall, the level of structural flexibility was relatively low.

(b) Collaborative relationships

Only a few companies stated that they worked in partnership with their suppliers; the majority operated either at traditional arms length or restricted their relationship to specific products. Indeed only one company adopted a "close partnership relationship." The level of collaboration was reflected in the relationships with downstream trading partners. There was a general lack of immediate demand visibility across the total supply chain. Over half of the companies had limited visibility and four of the companies said that they had very limited visibility. Overall, the level of collaboration was lower than anticipated. However, in a few cases the companies were very active in building such relationships although this was largely driven by immediate customer requirements.

(c) Co-ordinated planning

Cost savings were rarely shared between trading partners and over three-quarters of the companies did not share benefits from supply chain initiatives. There were, of course, exceptions to this and a leading group of companies were actively pursuing a more collaborative approach with key customers and suppliers. Overall, however, there were few examples of collaborative planning between supply chain partners.

(d) Operational alignment

With one or two exceptions, the level of information sharing between trading partners was restricted to the transfer of transactional data with very limited collaborative sharing of information. Access to end-user demand information was also limited and four of the companies were only able to use such information on a monthly basis. Overall, the majority of the companies were slow in moving to exploit the potential benefits of operational alignment.

(e) Technology integration

The level of system integration was also relatively low with only nine of the companies having low or very low levels of functional coverage across their business. Indeed, even those companies that had implemented an ERP system had not integrated their entire process using the applications. There was no evidence that EAI software was being used to support linkages with trading partners with most of the companies relying on EDI to transfer transactional information.

Comparative Company Responses

After the questions were analyzed, the data were then aggregated to provide a total percentage score for each company. This provides an indication of the relative level of supply chain integration. The results are summarized in the following graph (Figure 3).

The scores for individual companies were mapped using a "radar" graph to facilitate the comparison of the relative positions (see Figure 4). The graph shows a sample of four companies representing extreme responses within the sample. The percentage score for each attribute was mapped for each company. The relative size of the area within the pentangle is an indication of the degree to which the companies are operating as an extended enterprise.

Effectiveness of Information Systems

The companies were also asked about the information systems they were using and the degree to which the systems supported the attributes of the extended enterprise model. Appendix B identifies the questions that were asked in this area. Additional questions were asked to provide background information on the type of system used and the respondent's role within the organization.

(a) Systems in use

Although the companies represented different sectors there was a strong degree of similarity regarding their adoption, or intended adoption, of ERP solutions. Most of the companies had either implemented or were actively implementing SAP R/3 to support transaction processing and were planning the use of i2 Technologies Rhythm suite of products, or an equivalent demand planning tool, to support supply chain management.

(b) Support for operations

Overall satisfaction with the information systems deployed to support internal integration within the business was favorable. However, satisfaction with the systems used to support external integration with trading partners was more mixed. Six out of the eleven companies felt that their transaction processing systems hindered or strongly hindered the building of linkages with their trading partners. Nevertheless, four of the companies that operated most collaboratively believed that their transaction processing systems enabled integration. Indeed, the more collaborative the companies were, the more they appeared to view their technology as being effective.

(c) Infrastructural and strategic support

In general, satisfaction with the company's technology infrastructure was higher than anticipated. Limitations were apparent, in particular where attempts were made to support Vendor Managed Inventory (VMI). Only one company, FmcgCo, appeared to be active in this area and they used a thirdparty product rather than the functionality of their ERP applications. Overall, the systems provided a low level of support for more collaborative activities such as VMI and "merge-in-transit."

(d) Support for decision making

The capability of the systems to provide management information was mixed with the respondents divided as to whether their systems did or did not support internal decision-making. The companies, however, felt that their systems were less capable of supporting externally focused management decision-making.

Overall, satisfaction with the information systems used by the companies was higher than anticipated but was lower when supporting externally focused activities. Only a few of the companies were acting in a highly collaborative manner. There was an initial concern that the potential deficiencies in the design of the applications were not being experienced, in part, because the companies were not using their applications in these areas. However, the results from TechCo, FmcgCo and WebCo, the most collaborative of the companies, indicate that where companies were working more closely with their trading partners, they were still generally satisfied with their software. The data are represented below in Figure 5:

Influencing Factors

The respondents concluded that the impact of their information systems was broadly neutral and that their information systems were not a major barrier to building links with their trading partners. However, when the company's responses regarding their satisfaction with information systems supporting external relationships is compared with their company's adoption of a more integrated supply chain model (see Figure 6 below) additional observations can be made:

(a) the three companies who were the most collaborative were also the ones believing that their technology best supported their links with their trading partners;

(b) no companies were highly collaborative and strongly dissatisfied with the effectiveness of their systems;

(c) a large group of companies did not provide a close fit to the extended enterprise model. The responses indicated that the management of the information systems and the way that they were implemented had greater significance than the systems themselves.

The companies were also asked about other factors that might have an influence on their response. Table 3 summarizes the primary factors that were reviewed.

Overall, those companies facing pressure to deliver at high velocity but had simplified their sales channel process, either through strong segmentation or by selling to a narrow band of customers, appeared better positioned to operate more collaboratively. Conversely, the companies that operated in a highly complex environment but did not have a high level of strategic alignment were poorly placed to exploit the benefits of the extended enterprise model.

DISCUSSION OF RESULTS

Level of Supply Chain Integration

The findings indicate that the pace at which European companies are moving towards a more integrated supply chain model is slower than suggested by many leading writers. With a few exceptions, the development of strong collaborative relationships, co-ordinated planning mechanisms, and process alignment across corporate boundaries was not seen as the primary strategic objective. However, a small group of leading companies is emerging better able to exploit the benefits of the integrated supply chain model.

European Focus

The majority of the companies were concentrating on building a strong regional infrastructure within Europe. Internal resistance and the unforeseen complexity of this change has meant that much of their management's attention is focused on building and sustaining internal efficiencies rather than on building external linkages. Nevertheless, the leading companies in the sample were moving more successfully than others towards a Pan-European model and are now looking to build collaborative linkages with customers and suppliers.

Impact of the Internet

One of the most surprising findings was the limited impact that the Internet had on the way that most of the companies were operating. Despite widespread publicity regarding the adoption of the Internet for business-to-consumer selling and recent announcements by Ford and General Motors about their planned e-procurement initiatives, evidence of the impact of the Internet was limited in the present study. In particular, there was little evidence that the companies were pro-actively considering the implementation of applications that use the Internet to transfer messages between companies within the same supply chain.

All the companies interviewed saw the Internet as having a likely influence on the way that they will manage their supply chains in the future. However, the companies were not looking to substantially change the way that they sell and distribute their products over the Internet within the immediate timescale. Instead the companies saw the Internet as one of a number of methods to take and place orders in the future.

The Effectiveness of Information Systems Design

The respondents appeared broadly satisfied with the design and functionality of their information systems to support their internal operations. Although there was a lower level of satisfaction with the support for external integration, this was not seen as a major limiting factor given the current strategic direction of the majority of the companies surveyed.

Despite the inherent limitations of the design of many of the systems, some companies, in particular WebCo, TechCo and FmcgCo, appeared more effective than others in building closer, and more collaborative supply chain relationships with their trading partners. Given that the majority of the companies had implemented similar information systems, it was concluded that these design limitations were not the primary determining factor in the move towards greater collaboration. Although the design and functionality of the information systems influenced the degree of collaboration, other factors were seen as more important.

Information System Implementation

Although most of the companies in the survey were not experiencing the inherent design limitations of their business applications, they were experiencing difficulties in implementing these products at a European level. Some companies explicitly stated that it was not the systems which caused management challenges but the organization's difficulty in managing the implementation process.

However, the leading companies were better able to manage and deliver information systems that were more closely aligned to their changing business requirements. Common factors that contributed to more effective implementations of ERP systems included:

* a clear and well communicated business vision;

* close involvement of senior European operations management to define requirements, during the selection and parameterization of the application;

* a strong process-orientated organizational structure;

* active senior level sponsorship;

* clearly articulated benefits.

Adoption of Tools to Support Integration

The development, in particular, of EAI technology promises to enable companies to transfer information in real-time between business applications across national and corporate boundaries. The response by the leading ERP vendors to move their products onto web-based servers and to build Internet connectivity, although still immature in Europe, is also seen as a positive step towards building greater collaboration. Although these systems are new, the products that are available appear to precede, in many cases, the progress of the companies in this area.

As leading writers such as Christopher" have identified, the extended enterprise model is likely to rely heavily on technology to provide real-time access to information across traditional corporate boundaries. Yet, despite interest in the emerging EAI sector, which relies on the Internet to pass messages between supply chain partners, there was a marked lack of use or internal review of such products. The implication from the research is that many companies will try to incorporate the Internet as a means to purchase and sell standardized products without substantially changing their supply chain business model. It is suggested that, in the short to medium term, the Internet will be used to replace or streamline existing procurement and ordering functions rather than to revolutionize the trading relationships across the total supply chain.

Standards and Infrastructure

Underlining the writings of Child and Faulkener, writers such as Evans and Wurster" see information as the "glue" that holds together the business structures that are formed to meet the challenges of the global economy. Central to the provision of such information is the establishment of an underlying technology infrastructure that is both aligned to the strategic goals of the organization and to the standards adopted by supply chain partners.22 As Greis and Kasarda23 have identified, the extended enterprise model requires a technical infrastructure that can provide immediate access to shared information in order to facilitate effective management decision-making. However, as the emergence of vertical sector standards bodies such as RosettaNet have shown, there is also a need to ensure that a company's technical infrastructure is sufficiently "open" to accommodate changing structural requirements and the transfer of information between trading partners.

Although there was general satisfaction with the companies' technology infrastructure, little consideration appeared to be given, by many of the companies, to the strategic importance of such infrastructures to supply chain integration.

Success Factors-the New Distinctive Capabilities

The success factors displayed by the leading companies in the study are highly relevant to other companies seeking to move towards a more collaborative business model.

The factors that were seen as being the most influential in supporting a move towards a more extended enterprise business model include:

(a) Management of technology to deliver strategic change

The leading companies in the survey appeared better able to implement operational information systems that met the strategic needs and timescales of the business. The lagging companies were generally slower in adopting such technology or had implemented their applications with less regard to the changing needs of the business.

The capability to manage the operational implementation of strategically aligned technology is viewed as critical as companies move towards a more extended supply chain model. As time-scales decrease and the complexity of the technology increases, those companies that build and maintain such management knowledge in this area are likely to do better than companies that do not and they are more likely to be able to reap the benefits of the extended enterprise model.

(b) Simplicity of the sales channel design and execution

As Curry and Kenney' have identified, the leaders in the move towards an extended enterprise have simplified the ordering and logistical links with their customers. The adoption of the Internet by companies such as Cisco and Dell to interact directly with the end customer is an example of this. Within the study, the leading companies had either adopted the Internet model (WebCo) or had aligned their business processes with those of their key customers. In the case of TechCo and FmcgCo, for example, they had built direct information system links to their customers' systems.

(c) The level of product segmentation

The leading companies have gained a clearer understanding of the specific needs of their customers and designed segmented supply chains for specific product groups. In particular, the leading companies:

(a) served a relatively narrow band of dominant customers (TechCo and FmcgCo) or sold a specific range of similar products (WebCo) to a relatively well defined customer group;

(b) operated collaboratively with a relatively narrow band of suppliers or indeed undertook manufacturing themselves;

(c) distinguished the way that commodity products and specialist products were delivered to the customer.

The findings suggest that the leading companies in the study had designed their supply chains to meet the different demands placed by their customers on their different products. Having adopted this approach, the leading companies had then concentrated on aligning their organizational structure, their business processes and their information systems around the segmented supply chains.

(d) Management of velocity

The leading companies saw the management of time, both through new product development and the order fulfillment cycle, as being of critical importance in determining future success. While it is acknowledged that different industrial sectors have different dynamics,2' I26 the leading companies were all building a strong capability to measure and manage time-based product and service delivery across the total supply chain.

(e) A pervasive culture of collaboration

The capability to manage collaboratively across company boundaries, particularly where there is a high level of outsourcing is also likely to be a determinant of future success. The leading companies were better able to build and manage collaborative relationships across functional and corporate boundaries.

The companies interviewed appeared to take one of two routes: the adoption of traditional, costbased, relationships with their trading partners or the adoption of more collaborative approaches. The first approach, which was taken by many of the companies within the sample, is typified by limited information sharing and restricted access to information. As a result, knowledge transfer and the capability to react flexibly to changes in the economic environment are limited. The leading companies within the study took the second, more collaborative approach. For these companies, information sharing is standard practice and the joint development of technical solutions is the basis of a strong ongoing commercial relationship. In such relationships, real-time, information-rich data is available to both parties and serves as a basis for the development of joint learning. The capability to build and manage this more collaborative approach is a critical competence for companies seeking to manage the evolution towards the extended enterprise.

Challenges for the Future

Writers such as Tapscott27 and Hagel and Armstrong' have documented the technology-led growth in the US economy and argue that companies are rethinking the way that wealth is created across the entire supply chain. Tapscott, in particular, suggests that there is evidence that new business models are emerging-all based on the Internet.

... as the Internet grows in ubiquity, bandwidth, function and robustness, a deep, rich information infrastructure is growing in the global economy that makes such negotiations, knowledge sharing and transactions infinitely easier and faster. As a result, in many industries the traditional firm is being pushed aside by more effective and competitive Internet-based models of value creation. (pp. vii-xxvi)

The wider adoption of the Internet, the emergence of integration software such as EAI and new web-enabled business offer the promise of technology enabled supply chains transferring transactional, operational and strategic information between trading partners in real-time. Although many of these applications remain relatively new, their availability appears to precede the capability of many companies to take advantage of them. The challenge for most companies remains how best to use such systems rather than the inherent limitations of the systems themselves. Those companies that can build a strong capability in delivering information technology to meet the strategic needs of the business have already gained a lead on those that have not. The challenge for many companies in the future will be to build upon these capabilities and extend them across traditional corporate boundaries.

In order to move towards the extended enterprise model companies need to be capable of (a) sharing a rich set of information with their trading partners and (b) doing so at a pace appropriate to the needs of the supply chain. This requirement to develop systems, processes and practices that support real-time sharing of information between trading partners is likely to be one of the most challenging areas in the next decade.

The availability of new and evolving business applications, combined with the explosive growth of the Internet is likely to have a dramatic impact on the way that companies operate and interact. As this study has indicated, the exploitation of the benefits derived through this higher level of collaboration requires the development of a new set of skills and capabilities.

CONCLUSIONS

In summary, the research draws the following conclusions:

* there is little evidence that the primary focus of most of the companies is on building collaborative links with trading partners across their supply chain;

* despite the findings of a recent study that more than 60% of the variable costs of an organization are driven by decisions that are external to that organization,29 the majority of companies are focused on building internal operational efficiency across Europe;

* where the companies are building such links, the design of their information systems is not viewed as a major barrier;

* few companies, however, are proving more successful than others in developing collaborative inter-company structures;

* analysis of these companies' responses suggests that they are building new and distinctive capabilities that will enable them to take advantage of the benefits derived from greater collaboration, in particular they are better able to:

-manage the implementation of information systems to meet their strategic goals;

-simplify their logistical processes;

-appreciate, and react to, the importance of velocity and speed as a major driver;

-segment their products and services to meet the needs of specific groups of customers.

As witnessed by the current study, the leading companies are exploiting technology to forge links with their trading partners and are redesigning their business models around the needs of their customers. Other companies, however, appear ill equipped to benefit and are likely, as the pace of change accelerates, to fall further behind unless they adapt and change.

For those that can adapt, the prospects of reaping the rewards of greater collaboration are significant. The potential to operate at high velocity across the globe opens up new and exciting markets that can sustain dramatic long-term growth. The paradox of this new technology-enabled business model is that its success relies, more than ever, on people's ability to build relationships based on mutual trust. In a world of pervasive technological change, perhaps what endures more than anything else is the capability of people to collaborate with one another.

ACKNOWLEDGEMENT

The authors would like to express their gratitude to those business managers who took part in the survey and especially to the members of the European Supply Chain Forum for their overall support for the research.

NOTES

I Alan McKinnon, (1999) The Outsourcing of Logistical Activities in Global logistics and distribution planning, Kogan Page, London.

2 Donald J. Bowersox and the logistics research team at Michigan State University, (1995) World class logistics: the challenge of managing continuous change, US Council of Logistics Management.

3 Noel P. Greis and John D. Kasarda, (1997), Enterprise logistics in the information era, California Management Review vol. 39 no. 4.

I David Simchi-Levi, Philip Kaminsky, and Edith Simchi-Levi, (1999) Designing and Managing the Supply Chain, Irwin McGraw-Hill, USA.

I David Upton and Andrew Mcafee, (1996) The real virtual factory, Harvard Business Review July-August vol. 5 p.79.

6 C.K. Prahalad and M. Krishnan, (1999) The meaning of quality in the information age, Harvard Business Review vol. 77 no. 5.

I Thomas Davenport, (1998) Putting the enterprise into enterprise system, Harvard Business Review vol. 76 no. 4.

8 Carlos Cordon and Thomas Vollman, (1999) Building a smarter demand chain, Financial Times, London, Feb 22nd.

9 Donald J. Bowersox, David J. Closs, and Theodore P. Stank, (1998) Beyond ERP: The storm before the calm, Supply Chain Management Review vol. 1 no. 4.

0 Same reference as note 7.

11 Same reference as note 3.

12 Economist (25th June 1999) Business and the Internet.

13 Kate Ring and Nigel Ward-Dutton, (1999) EnterpriseApplication Integration, Ovum, London.

"Lisa Ellram, (1996) The use of the case study method in logistics research, Journal of Business Logistics vol. 17 no. 2.

"Robert E. Speckman, John Kamauff, and Niklas Myhr, (1998) An empirical investigation into supply chain management: a perspective on partnerships, Supply Chain Management vol. 3 no. 2. 16 Donald J. Bowersox and Patricia J. Daugherty, (1995) Logistics paradigms: The impact of IT, Journal of Business Logistics, vol. 16 no. 1.

11 Omar B. Chaundhry and Christopher Schnieper, (1999) Towards enterprise supply chain management, Supply Chain Management Review vol. 3 no. 3.

11 Donald J. Bowersox, David J. Closs, and Theodore P Stank, (1999) 21 st century logistics: Making supply chain integration a reality, Supply Chain Management Review vol. 3 no. 3.

11 Martin Christopher, (1998) Logistics and Supply Chain Management, FT Prentice Hall, London 2nd ed.

10 John Child and David Faulkener, (1998) Strategies of co-operation, Oxford University Press, Oxford.

11 Philip B. Evans and Thomas Wurster, (1997) Strategy and the New Economies of Information, Harvard Business Review vol. 75 no. 5.

1 Peter Weill and Marianne Broadbent, (1998) Leveraging the new infrastructure, Harvard Business Press, Boston.

11 Same reference as note 3.

I James Curry and Martin Kenney, (1999), Beating the clock: corporate responses to rapid change in the PC industry, California Management Review vol. 42 no. 1.

11 Same reference as note 22.

1 Charles Fine, (1998) Clockspeed, Little, Brown and Company, London p. 239.

27 Don Tapscott, (1999) Creating Value in the Network Economy, Harvard Business Press, Boston, pp.vii. - xxvi.

John Hagel and Arthur Armstrong, (1997) netgain, Harvard Business Press, Boston.

I Benchmarking Partners (1998), The power of business-to-business integration, Benchmarking Partners.

Peter Edwards, MSc is a senior member of PA Consulting's Enterprise Wide Solutions Group. Peter is an e-business and supply-chain specialist focusing on planning, designing, and implementing end-to-end solutions. He has extensive experience of ERP applications; recent work has concentrated on collaborative information sharing across traditional corporate boundaries. Peter graduated with an MSc in Logistics and Supply Chain Management from the Cranfield School of Management in 2000. Peter can be contacted by telephone at +44(0) 20 7333 5250 and by e-mail at peter.edwards@pa-consulting.com.

Melvyn Peters, MSc is a senior lecturer and Director of the MSc Programme in Logistics, Cranfield School of Management. Having originally qualified as a non-metallic materials technologist, Melvyn moved into the distribution industry for three years before gaining his MSc in Transport Studies at Cranfield in 1984. As a researcher and consultant he has been involved with Exel Logistics, Argos, DHL, and Holset Engineering. He has published widely and is a co-author of European Logistics: Markets, Management, and Strategy. He was also part of the joint Cranfield/Anderson Consulting Team responsible for Reconfiguring European Logistics Systems, sponsored by the Council of Logistics Management. More recently his work has focused on logistics outsourcing, strategic outsourcing, and eProcurement.

Graham Sharman is a professor at the Technical University of Eindhoven, focusing on international value-added logistics and supply chain management. He is also a supervisory board member of Drake NV, an international wire and cable maker, of Essentus, a privately-held provider of packaged software for retailers, and of USBuild.com, an online intermediary. During the majority of his career, he was a Partner of McKinsey & Company. He studied Mechanical Engineering at Oxford University and Chemical Engineering at Imperial College, London University and has a Masters Degree in Business Administration from Harvard University. He has published numerous articles on supply chain management and related topics in such magazines as the Harvard Business Review, Sloan Management Review, McKinsey Quarterly, Wall Street Journal and Herald Tribune.

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