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K. Srinivasan

THE dotcom and telecom busts have left one wondering whether there is any substance to the claim that Internet technologies can provide unprecedented productivity and profitability boosts to businesses or if it is just some more hype.

In fact, the meltdowns in those sectors and the disastrous 9/11 have highlighted the imperative to automate and integrate supply chains.

For example, Intel Corporation has come out of the "worst downturn the semiconductor industry has ever seen" with significantly lower write-downs than the rest of the industry.

Knowing customer demand and inventory in real time was key to Intel's avoiding $500-million to $1-billion writedown.

In the PC industry, Dell was the only company to actually increase its profit in the third quarter of 2001 while the other companies were reeling under the logistics disruptions in the US after September 11.

Dell, once again, attributes its success in good measure to its supply chain systems that allow it to respond to changes much <170>faster than anyone else in the industry.

Danger of digital divide in global supply chains

The adoption of fully automated and integrated supply chains is still not widespread. Even some of the companies mentioned above achieved integration only with a small number of trading partners.

For example, while Intel says 1,000 suppliers and customers could benefit from automated information exchange, only 20 have implemented it so far! Forrester reports that Bristol-Myers Squibb has taken more than two years to automate, with only 10 suppliers!

This situation is because of the very high cost of implementing supply-chain integration. Also, since automation of the interactions with each trading partner requires customised implementation, the cost with additional trading partners is not significantly lower than that for the first partner. Hence, businesses are able to automate their information exchanges only with a handful of large business partners, thus denying its benefits to the smaller partners. This poses a serious threat to the small and medium enterprises and to enterprises in developing nations.

Technical and business standards

The situation with supply chain integration thus far could be compared with the early days of the telephone — the Bell, Western Union and Western Electric systems were imcompatible and not connected. There are two significant changes in this situation that will lead to the commoditisation of supply chain integration solutions:

This technical standards (you can generally include the XML-based Web service standards) are emerging to ensure infrastructure compatibility across businesses — you can talk to another business using the Net without worrying whether the other company is on the Bell system or not.

Business standards — standards for the vocabularies and business processes in a particular industry as well as across industries — are being developed industry consortia.

There are three key areas where we need to proactively shape these standards for them to be useful to us:

Many of these standards do not take into consideration the less-than-perfect infrastructure in the developing nations;

Some of these standards ignore the rest of the world except the US! For example, one of them requires a Dun & Bradstreet or Thomas identifier to identify a business — even many European businesses have neither of these; and

The business vocabulary and process standards need to comprehend the idiosyncrasies of Indian business practices.

What are other countries doing?

The Chinese realised the importance of the XML-based standards but initially made the wrong move to develop their own standards. However, they realised that the approach was unproductive. Currently, the industry, academia (mainly, the Chinese Academy of Science) and the government (Ministry of Science and Technology and others) have started multiple programmes to influence key global standards.

The Korean Institute of Electronics has established a registry for the electronics businesses to publicise their standards-compliant business services to potential business partners anywhere in the world.

Macro-level initiatives are needed

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