Joining Forces

Joining Forces

Copyright 2002, Traffic World, Inc.

The military is looking for collaborators - supply-chain collaborators, that is. Just as strategic supply-chain collaboration has become an important objective in the private sector, so it now is a significant target on war fighters' radar screens. But there are some tough obstacles to overcome before national armed forces can capture the full benefits of collaborative networks.

Cross-national and cross-project information sharing are the main challenges for the future, said Robert Shields, task force leader for the U.K.'s Council for Electronic Business, at SMi Group's Supply-Chain Management in Defence conference in London. The basic enablers and Internet infrastructure are in place, he said, and defense agencies have come a long way in rethinking traditional approaches to commercial relationships with suppliers and other government entities. In the United Kingdom, for example, the Ministry of Defence inaugurated its first one-to-one electronic connection with a contractor two years ago. Since then the contractor network has mushroomed and now has some 187,000 industry addresses and more companies are joining, said Shields. Moreover MOD "front-line commands can access it in minutes," he said.

There is huge potential for such collaborative links, stressed Shields, provided the participants can solve some pressing problems. How to cordon off information that trading partners do not want to share is one issue. As Shields pointed out, when trading electronically "there is a threshold below which you are collaborating and above which you are not." Add the national security dimension and the need to exchange sensitive military information internationally and the integrity of this threshold becomes even more important. "We are doing this transatlantic," he said, with five major companies in the aerospace and defense industry collaborating "and making sure that certain information is segregated." He noted that in many ways the collaborative challenge is greater within Europe.

Fencing off classified information is part of that effort, but this is an area where more work is needed, Shields believes. For example, when low-level bureaucrats are tasked with classifying military information, they may not appreciate the cost implications of their decisions. Missing opportunities to declassify information or downgrading the level of confidentiality required puts unnecessary obstacles in the way of supply-chain collaboration. This is particularly the case when end-to-end collaboration is involved. "How can you go into production when information is classified and you can't put the data into machines?" said Shields. His advice for defense contractors is to challenge security classifications whenever appropriate. Another thorny issue is how to unify product terms in an industry that is infamous for its alphabet soup of acronyms and the use of multiple standards. How to develop unique asset identifiers is a subject that is now under discussion, Shields said.

Solving these problems requires government defense agencies to become more flexible in their dealings with contractors. "The days of the MOD or any other big entity foisting something on the supply chain and expecting it to work are gone," observed another Supply Chain Management in Defence conference speaker, Nigel Rhodes, sales director of Exostar, the online marketplace for the aerospace and defense industry. His organization is currently talking with Britain's MOD with a view to establishing purchase and procurement standards for the industry. That calls for a compromise between government and private-sector representatives, he explained, in order to reach a balance between the needs of security and transactional efficiency.

Exostar already acts as a go-between linking government defense buyers with private-sector suppliers. The marketplace was founded by BAE Systems, Boeing, Lockheed Martin, Raytheon and Rolls-Royce to simplify and standardize the procurement process and streamline the supply chain from end to end. The marketplace currently has a base of about 12,000 suppliers, "mainly U.S. and U.K. companies," giving it a transatlantic profile. The organization recently launched SourcePass 5.0, an online sourcing platform. It is connected to an e-marketplace for the U.S. Navy's Sea System Command, and this summer formed a strategic alliance with Cap Gemini Ernst & Young, part of which involved an online communications and trading link with Britain's MOD electronic procurement system, Defence Electronic Commercial Service. According to Exostar, this latter alliance represents the world's first working model for web-based transacting between governments and the private sector.

As Rhodes pointed out, even relatively mundane achievements such as automating purchase orders and shipping notices can have a dramatic impact on supply-chain efficiency in the military arena. These actions can "increase the speed of delivery to the theater of war" and avoid situations such as complex weapons systems lying idle for the lack of a basic part, he said. A weapon that Exostar users have wielded with some success is online reverse auctions. Acknowledging "e-auction is an emotive term in an industry where people value long-term relationships," Rhodes said, "I prefer to call it pricing negotiations." In effect reverse auctions "just condense the negotiations," he said, and Exostar has executed more than 1,300 of them involving acquisitions worth around $1.5 billion. It has reported average customer savings of 18 percent over traditional sourcing channels.

The online marketplace distinguishes between e-procurement and e-sourcing since "we think the two processes are different," he said. E-sourcing occurs before orders are placed and is concerned with finding suppliers, whereas e-procurement relates to buying transactions. "But we found out early on that all these things are at the far end of a process that begins with product design," said Rhodes. The key, he said, is to collapse the processes that start with product design so that they take place in parallel rather than in series. It is here where substantial supply-chain efficiencies can be achieved, he believes.