What Can Go Wrong?

What can go wrong in a real-time enterprise?

Let's assume your company is well-connected through the distribution channel out to your customers, and you're connected to two suppliers but not a third. For whatever reason, the third doesn't want to connect to your system. And now you get an increase in demand from a customer, and it works its way through the company, but you don't have the inventory. You automatically go out to suppliers one and two to find out if they have any inventory.

Let's assume suppliers one and two don't have the inventory. The first supplier could get it in a couple of weeks, so you tell your customer, "Yes, we'll be delighted to ship the product, but it is going to take about two weeks." All along, your third supplier, to whom you're not connected, has the inventory in stock. In fact, they can deliver it tomorrow morning. So the real-time enterprise is opt-in. And if I haven't opted in the appropriate individuals, I don't really have a real-time enterprise.

Now the question is, why should I be part of your real-time enterprise, and that becomes an issue I call the 3X factor—nobody will opt in unless for every one piece of information you ask from them, you deliver back three valuable pieces of information to them. So if you say to the supplier, "Give me daily updates on what you have in stock," you have to give them back something of value, and that might be demand in the marketplace or competitive situation updates. To seduce them to be a part of your real-time enterprise, you have to give them something. And what happens is very often companies don't put the right 3X factor into place, so they demand information from potential members, and they don't give anything back. With the Web, it's easier to realize the 3X factor, but this is a process issue or a people issue. It's not automatic that others will join your real-time enterprise.

What happened to Cisco when they were caught off-guard with a huge inventory?

Well, they didn't believe their demand forecast. They bucked the trend. They actually bought more supply when demand was dropping. You have to know what's in the inventory pipeline.

Cisco's understanding of its inventory was not as clean as it should have been. But they also made some business decisions along the way.

Remember, the real-time enterprise is not an automatic pilot system. Business judgments have to be made. For example, if there's a shortage of supply, you have to limit supply to your customers. Which customers do you limit supply to? The system can look at the database and say who our most profitable customers are, who's given us the most loyal business. That might be a business rule.

But you might also say that a new customer, which happens to be IBM, is really important long-term, and even though they're not very profitable now, you want supply to go to them. Well, that's a business decision, and those are human judgments, and that's what Cisco did—it made some human judgments, and they paid a dear price, although they're not doing too badly. It was a hiccup. Look at Siebel. They're pretty much on route to becoming a real-time enterprise, and they saw in March 2001 that demand was dropping, and they laid off a large portion of people.