The Stanford University business process guru says companies confuse data with intelligence.
CIO INSIGHT: When it comes to wiring up supply chains to the Web, most companies still don't have it right. Are executives as Web smart as they need to be?
HAU L. LEE: Sometimes CIOs focus too much on putting information systems in place to capture data and manage information flows, but not enough on extracting intelligence out of the data. Cisco Systems Inc. and its suppliers and customers, for example, have Internet connections without much intelligence. The Internet has only enabled connectivity and faster transfers of information, like purchase orders. Lines of financial accountability have also been poorly drawn. Everyone built up inventory thinking that others would be responsible for the financial burden, for example, but that was not the case. We still lack the right level of visibility and rules to use IT to intelligently synchronize and coordinate the supply chain.
Solectron, for example, has more than 7,000 suppliers, many of whom communicate only by phone and fax because they're small and haven't invested yet in automation.
You have to recognize the different capabilities of supply-chain partners, and use a mixed system that accommodates these sharp differences, or bring them onboard gradually, step-by-step, or phase them out entirely if they can't keep pace. Either way, CIOs need a solid plan on how to deal with these differences.
Companies that want to use RosettaNet, for example, will need to rewire their existing systems to do so. Is it worth the effort?
At Stanford, we have an ongoing study looking at the ROI of RosettaNet, and we see that it's a very worthwhile cost-cutting and time-saving proposition for companies that have not invested much in cross-enterprise integration software. It is definitely worth it. We will watch carefully the development of market exchanges, as they may provide an alternative for such connectivity.
What makes an online exchange valuable?
The power of exchanges will not be transactions or auctions, but ultimately the ability to coordinate the supply chain and collaborate on designsor, to define contract terms such as return policies, delivery schedules, freight and customs clearance matters, price protection and so forth.
Who uses the Web wisely now to manage supply chains?
One company is Seven-Eleven Japan Co., Ltd. It collects data diligently, organizes it with analysis, has people who use the data to create smart work plans, and then has agile logistics to execute those plans.