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SCM Automation: Opportunities and Challenges K. Srinivasan Distributed Systems Laboratory (DSL) Intel Corporation January SCM Automation: Opportunities and Challenges K. Srinivasan Distributed Systems Laboratory (DSL) Intel Corporation January 24, 2002 Copyright © 2002 Intel Corporation Page 1

Agenda l Opportunities & challenges l Why web service standards? l The new IT Agenda l Opportunities & challenges l Why web service standards? l The new IT l Role of academic institutions Copyright © 2002 Intel Corporation Page 2

Primary SCM Curriculum Objective “…relatively easy to find technical professionals eager to ‘come to Primary SCM Curriculum Objective “…relatively easy to find technical professionals eager to ‘come to Intel and build the biggest e-Business engine in the world’. . . Difficult to find employees. . . with deep knowledge of what e-Business technology can and cannot … do. ” Source: Graduate School of Business, Stanford University Intel and e-Markets Case Study 10/00 Vision + Pragmatism Copyright © 2002 Intel Corporation Page 3

How important is SCM? The company with the most efficient supply chain was able How important is SCM? The company with the most efficient supply chain was able to weather this (September 11 th) the best - Michael S. Dell Every business will be an e-Business - Andrew S. Grove Copyright © 2002 Intel Corporation Page 4

Some SCM Successes Raw materials inventory as a percent of cost of sales is Some SCM Successes Raw materials inventory as a percent of cost of sales is down 67 percent from two years ago. Without the E-business systems … to track demand cost of inventory, Intel would have had to take write-downs of anywhere from $500 million to $1 billion. “During the worst downturn the semiconductor industry has ever seen, you haven't seen a lot of write-downs coming from Intel … in stark contrast to substantial write-downs taken by almost 80 percent of the companies. . . ” …knowing customer-demand inventories on a real-time basis is really critical. If we decided the economy was going soft, we needed 35 days to replan our factories. Today, Intel can replan a factory in 5 days… eliminated a month of building the wrong stuff. Andy Bryant, CFO, Intel CFO, December 9, 2001 Copyright © 2002 Intel Corporation Page 5

Some More SCM Successes Du. Pont* expects to save $400 million a year buying Some More SCM Successes Du. Pont* expects to save $400 million a year buying supplies online. The initiative's total cost: just $15 million over three years. The British arm of Fisher Scientific* is investing less than $50, 000 in online invoice processing. The project should pay for itself in six months, and within two years should cut 80% of the $370, 000 Fisher spends annually to process bills from suppliers. For Otis, * elevators with remote monitoring require only one-third the number of visits as those without the system Business Week, * October 29, 2001 Copyright © 2002 Intel Corporation Page 6

A B 2 B Challenge: Adoption Rate GE's* B 2 B Retreat GE* has A B 2 B Challenge: Adoption Rate GE's* B 2 B Retreat GE* has realized only 5% of its revenue through the Internet, far short of its goal of 30%. Its suppliers wouldn't readily convert their formats and methods to fit GE's* systems. Computer. World, * July 2, 2001 So far, Intel has a Rosetta. Net* Connection with about 20 customers and suppliers. … there are 1, 000 customers and suppliers that might benefit from doing business with Intel through Rosetta. Net, * though many customers will still be working with Intel through existing EDI systems or browser-based interfaces in three to five years. Computer. World, * July 2, 2001 Using SAP, * it took Bristol-Myers Squibb* two years to connect with only 10 suppliers. Forrester, * December 2001 Copyright © 2002 Intel Corporation Page 7

The B 2 B Logjam Significant benefits from custom implementations l High-volume adoption Gulf The B 2 B Logjam Significant benefits from custom implementations l High-volume adoption Gulf between the haves and the have-nots could increase significantly – Concern for SMEs, developing nations and LEs Copyright © 2002 Intel Corporation Page 8

Cost is the key barrier Current Cost Curve Cost of forming Partnership (per partner) Cost is the key barrier Current Cost Curve Cost of forming Partnership (per partner) Desired Cost Cu rve # of Business Partners B 2 B is not riding the Metcalf’s law Copyright © 2002 Intel Corporation Page 9

SCM Automation and Standards l Currently, B 2 B automation over the Internet requires SCM Automation and Standards l Currently, B 2 B automation over the Internet requires custom implementations l Standards can reduce TTM significantly l We need technical as well as business standards Copyright © 2002 Intel Corporation Page 10

A danger we must guard against in creating a free and fair global economy: A danger we must guard against in creating a free and fair global economy: The inability of agriculture and the old economy sectors to keep pace with technology and innovation. Hon. S. M. Krishna, Chief Minister, Karnataka, India 8 th CII Partnership Summit, January 5 th 2002 Source: The Hindu, January 6 th 2002 Copyright © 2002 Intel Corporation Page 11

China’s Proactive Stance l l l We recognize the PC, XML and open standards China’s Proactive Stance l l l We recognize the PC, XML and open standards are extremely important for China to enter into the international supply chain. The international standards sometime assume the perfect environment of enterprises in the developed countries. But China still is a developing country and our companies are mostly small with a limited infrastructure and with a limited need for the informatization. Such China's characteristics need to be understood. At MOST (Ministry of Science and Technology), XML is already a program and will receive a significant attention, resource and funding. Dr. Wu of MOST Copyright © 2002 Intel Corporation Page 12

China XML Players MOST CAS Industry Academics (Chair – Mr. Yang) SCAS AQSIQ (Vice China XML Players MOST CAS Industry Academics (Chair – Mr. Yang) SCAS AQSIQ (Vice Director-Ms. Ning Lin) NISTC MII State Council CESI Proposal Approval DHNTI $ Funding Review Resource China XML Committee (Chair – Mr. Yang) (Director- Dr. Ying Jian Wu) ISCAS (Director-Dr. Yu Lin Feng) Development Resource MII – Ministry of Information Industry AQSIA-State Admin for Quality Supervision, Inspection and Quarantine MOST – Ministry of Science&Technology CAS – Chinese Academy of Science SCAS - State Commission for Administration of Standardization NISTC – China National IT Standardization Technical Committee DHNTI-Dept. of High & New Technology Development & Industrialization ISCAS – Institute of Software Chinese Academy of Science CESI - Chinese Electronics Standardization Institute Copyright © 2002 Intel Corporation Page 13

Role of the Academia l Drive a national SCM technology strategy – All sectors Role of the Academia l Drive a national SCM technology strategy – All sectors of the economy, education, health care, law & order, … must benefit – Continued global IT leadership l Align national strategy with international standards – Local needs must be met – Drive highly-visible pilots, particularly with SMEs – SCM software stack must be better and more cost effective to implement – Automation, simplification, flexibility, reliability, security, … Copyright © 2002 Intel Corporation Page 14

A Broad View of SCM Don’t ignore the B 2 E: Significant savings & A Broad View of SCM Don’t ignore the B 2 E: Significant savings & employee satisfaction Subcons Suppliers Employees Business Benefits, … Copyright © 2002 Intel Corporation Page 15 Customers

The New IT: The Impact of SCM, Standards and Outsourcing Copyright © 2002 Intel The New IT: The Impact of SCM, Standards and Outsourcing Copyright © 2002 Intel Corporation Page 16

Why Outsource? l Responses from CIOs and CEOs as to why they would use Why Outsource? l Responses from CIOs and CEOs as to why they would use an ASP: – Affordable access to technology – Avoid capital investments – Simplify budgeting – Shorter implementation cycle – Lower cost of entry for applications – Improved total cost/performance – One-stop shopping/support – Focus more on our primary business – Scalability to meet business growth – Avoidance of IT staff recruitment/retention IDC* Global 2000 IT Survey: North American Results Copyright © 2002 Intel Corporation Page 17

Outsourcing One opinion: The ASP model makes so much economic sense, it is going Outsourcing One opinion: The ASP model makes so much economic sense, it is going to be the dominant model in the future. Another opinion: The ASPs have failed. Outsourcing simply is not flexible enough. Requirement: Fine-grained, low-cost outsourcing Copyright © 2002 Intel Corporation Page 18

A likely outsourcing scenario S&M SAP* Planning i 2* Business Customer Rating & Discounts A likely outsourcing scenario S&M SAP* Planning i 2* Business Customer Rating & Discounts CRM Siebel* ASP 2 ASP 3 l l Retain functions in-house for confidentiality, competitive-edge, … Integrate services from multiple ASPs Copyright © 2002 Intel Corporation Page 19

Web Service Implications for Outsourcing l Potential for tremendous reductions in effort and cost Web Service Implications for Outsourcing l Potential for tremendous reductions in effort and cost in using services – Run-time discovery & integration – Use for a single transaction l More businesses could be providing web services – Easier to sell your unique competencies (e. g. , design validation) Web Services + Outsourcing -> Cost Reduction + Revenue Opportunities Copyright © 2002 Intel Corporation Page 20

Network/Infrastructure Capabilities l l Reliable messaging Security (authentication, authorization, encryption, access control, audits, …) Network/Infrastructure Capabilities l l Reliable messaging Security (authentication, authorization, encryption, access control, audits, …) Detection of new services and devices and understanding their capabilities Multiple Qo. S levels – Bandwidth allocation and management l l Smart routing Content distribution to the edge of the network – For localization, performance, … l Increased automation through capabilities such as workflow management, multi-resource coordination Copyright © 2002 Intel Corporation Page 21

The New CIO l A strategist and entrepreneur – Distinguish needs for parity from The New CIO l A strategist and entrepreneur – Distinguish needs for parity from needs for competitive advantage – Build new IT-based businesses l A knowledge broker – Pull together diverse expertise from various sources l A relationship manager – Drive inter-enterprise IT integration l An industry leader – Understand “coopetition” – Persuade and influence business communities Adapted from Your Next IT Strategy by John Hagel III and John S. Brown, Harvard Business Review, October 2001 Copyright © 2002 Intel Corporation Page 22

Role of the Academia l Drive a national SCM technology strategy – All sectors Role of the Academia l Drive a national SCM technology strategy – All sectors of the economy, education, health care, law & order, … must benefit – Continued global IT leadership l Align national strategy with international standards – Local needs must be met – Drive highly-visible pilots, particularly with SMEs – SCM software stack must be better and more cost effective to implement – Automation, simplification, flexibility, reliability, security, … l Train leaders with the vision and pragmatism for the new IT Copyright © 2002 Intel Corporation Page 23