Case Study: RosettaNet - ' Net Gains '

Net Gains

So why keep pushing RosettaNet at all? The biggest reason, say industry experts, is the tremendous cost savings to be gained from harnessing systems to the Web. RosettaNet CEO Jennifer Hamilton estimates those savings could add up to between 2 percent and 10 percent of a company's revenue—big numbers considering that the more than 400 members of RosettaNet have a combined revenue of more than $1 trillion.

Take, for example, Milpitas, Calif.-based Solectron, a contract manufacturer of electronic goods. Solectron buys components from more than 7,000 suppliers to feed more than 60 manufacturing facilities where it makes personal computers, laptops, servers, cell phones, communications switches and other electronics gear for 300 leading computer makers, including IBM, Compaq, Cisco Systems Inc. and Hewlett-Packard Co. The company owes most of its 45 percent annual revenue growth over the past few years to its clients' penchant for outsourcing. It buys factories from clients in return for long-term contracts to provide those clients the same finished goods they once made themselves. One problem: Whenever Solectron acquires a customer's manufacturing operations, it also inherits existing relationships with its entire supply base, often made up of scores of companies, each with its own set of business processes and IT systems. A failure of RosettaNet to expand and take hold would slow down efforts by Solectron and other companies to get these systems to talk to each other—and deal a critical blow to future efforts by Solectron and, indeed, other industries, to standardize their systems around the Net and XML in the race for future market share.

How inefficient is today's supply chain? Every extra day of inventory in the channel costs the $136 billion contract manufacturing industry up to $175 million, says J. Keith Dunne, senior analyst at Robertson Stephens Inc. "If you could cut 20 days, that's $3.5 billion in annual savings you could use to reduce debt or expand investment," he says. For Solectron alone, the cost of holding inventory is about $50 million a day, Dunne says. Solectron has some 100 days of sales in inventory—roughly twice what is considered cost-efficient for the industry—at a cost of some $2 billion in excess inventory, Dunne says. "RosettaNet could help Solectron to cut that significantly."

Another incentive: If RosettaNet can be made to work, it might also lower IT and process development costs. "You can implement RosettaNet once and extend it across all of your business partners," says Mark Jenkins, director of e-business systems and services at Solectron. "In today's environment, speed wins out over customization both inside the corporation and across the supply chain."

Yet thanks to RN's delays in getting off the ground, Solectron and other companies have had to develop alternative Web systems to handle everyday activities, such as buying materials and quoting prices, to compensate for what RosettaNet has not yet been able to deliver: easy-to-use standards for streamlining the way electronics parts are bought and sold.

The parts supply chain is also outdated. Ironically, except for expensive, decades-old electronic data interchange systems (EDI)—by which company A blasts company B an order for 5,000 capacitors, and company B blasts in reply that they're coming in three weeks and for how much—most of the world's electronic components are still bought and sold the old-fashioned way: by hordes of clerks using telephones and faxes, jotting records on post-it notes and desk calendars.