Introduction

By Patrick Porter  |  Posted 07-01-2001 Print Email

Four years ago, leading electronics parts contract manufacturer Ingram Micro Inc. and a handful of other big companies in the $136 billion contract manufacturing industry saw the writing on the wall: Get leaner and more cost-competitive, or lose business from big customers like Compaq Computer Corp. and IBM Corp. But with razor-thin profit margins—typically around 1 percent or 2 percent—and with Dell Computer Corp. turning over inventories at nearly six times the speed of the rest of the industry, everyone in the electronics supply chain had to get smarter and faster, or lose millions.

So an elite group of IT executives, including Andrew Grove of Intel Corp., put their heads together and, in an unusual, global experiment in collaboration, embarked on a grand gamble called RosettaNet. Named for the Rosetta Stone, which cracked the code of hieroglyphics in 1799, the goal of RosettaNet is to crack the computer language barriers of the Information Age, and make it easier for companies and their parts suppliers to communicate with one another electronically. The hoped-for payoff of the effort: cost-cutting and reduced parts inventories, from a bloated industry average of 65 days' worth of parts on hand down to a more cost-efficient 10-day supply, such as that held by Dell Computer, the most wired company in the chain. But the reality of RosettaNet so far? It's off the mark. Stymied by cultural and technical problems, RosettaNet is still struggling to get off the ground.

It all began ambitiously enough. When RosettaNet first launched in May 1998 as a consortium of some 40 companies, its backers predicted confidently that its virtual supply-chain technology would slash waste, speed product to market and reduce costly inventories that Stanford University supply-chain expert Haim Mendelson estimates have been, in effect, giving Dell a cost advantage of $300 million a year over the rest of the industry. Down the road, backers said, RosettaNet would also allow companies to design products collaboratively and work together using the Web to share demand forecasts with suppliers and adjust production schedules on the fly. RosettaNet co-founder Fadi Chehadé boasted in his April 1999 announcement of the project that "the IT supply chain stands to reap significant savings…possibly as high as $25 billion annually" by using RosettaNet and its cross-platform XML standard to "translate" electronic communications among thousands of companies in the chain. "RosettaNet will be revolutionary," Chehadé maintained.

While some companies have benefited so far—Avnet, Inc., for example, expects to save $2 million over the next five years by implementing some RosettaNet business process standards—few companies have followed suit. Today, only a handful of companies have begun to convert even a part of their systems to this virtual supply chain, much less reap any payoffs. Bottom line: Not all companies are ready, culture-wise, to accept the changes. And the sheer cost and complexity of getting a $1 trillion industry group to agree on a vast array of common business and IT standards are keeping RosettaNet from becoming the lingua franca of the industry's supply-chain network. While 57 business processes have been standardized so far under RN, for example, another 50 to 80 such processes still need to be agreed upon before they can be translated into a digital language that everyone in the supply chain can understand. "To ask multiple players in an industry that's facing hard times to join RosettaNet is exceedingly worthwhile but exceedingly difficult for some companies," says Mendelson. "It's asking companies to do something that benefits the industry, and not just themselves. That's a new concept for a lot of people."



 

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