TECHNOLOGY SURVEY PART 2: Manufacturers
The results of this survey confirmed what many in the industry have known for years: the manufacturers use advanced technology to a greater extent than their wholesalers - but not as much as some might assume. Three technologies are used by at least 50% of responding manufacturers, compared to only one technology used by more than 50% of responding wholesalers. And, manufacturers use nine of the 15 technologies to a greater extent than wholesalers. However, five of those nine technologies can be considered leading (or is it “bleeding”?) edge, so manufacturers are again leading the way.
When it comes to the benefits from technology, with one exception, the greater the number of manufacturers using a technology, the more beneficial that technology is to wholesalers. (I address that exception later.) The same degree-of-use vs. benefits-to-wholesalers relationship exists for wholesalers' use of technology, with an interesting twist - for six technologies, wholesalers reported obtaining larger benefits than manufacturers believed that wholesalers obtained. Manufacturers perceived larger benefits to wholesalers for five technologies.
THE SURVEYWith the help of the BNP Media Research Department's Michelle Maki, a short questionnaire was created and mailed to 750 readers classified in a database as “manufacturing.” Exhibit 1 defines each technology, using the same descriptions used in the questionnaire. (These descriptions are a little different from those used in the survey of wholesalers, to avoid some of the confusion that those descriptions might have caused). Unlike the survey of wholesalers, this questionnaire did not include a question about type of manufacturer (e.g., plumbing, air-conditioning, etc.) because even the maximum number of responses in each such category would have been too small to draw statistically significant conclusions. The recipient was instructed to indicate if each technology was used, and if so, record the level of benefit that he/she believed was obtained by the manufacturer's wholesaler/distributor customers. A total of 252 recipients responded, but due to missing or conflicting answers, only 153 responses could be considered; and each question was not answered by a few of the 153, so conclusions were based on 146 to 148 responses.
Table 1 shows responding manufacturers' answers in percentage form, and also shows data from the survey of wholesalers'/distributors' use of high tech - which has resulted in some very interesting comparisons. While reading the Table, be aware that companies extensively involved with using high tech tend to respond in greater proportion than those not using high tech. This tendency means that the reported level of use for all technologies may be higher than the actual level of use - for both manufacturers and wholesalers/distributors. Furthermore, in reviewing the raw data, I suspected that some recipients misinterpreted the definition of some technologies. Nonetheless, responses were analyzed as reported - sometimes resulting in odd results.
BENEFITS ARE IN THE EYE OF THE BEHOLDERApplication Service Provider (ASP). Not only are slightly more manufacturers than wholesalers using this form of outsourcing, but manufacturers believe that their wholesalers are obtaining less benefit than wholesalers believe. The use of ASP can indirectly benefit wholesalers and their customers - it can result in less “downtime” than the use of an in-house system, so a manufacturer's system is “always” available for wholesaler inquiries and order entry, generating documents needed for production and shipping, etc. Perhaps manufacturers don't understand that an ASP can provide an indirect benefit for their wholesalers and wholesalers' customers.
Behind the numbers, the percentage of respondents (both surveys) using this technology is surprisingly high to me - the arrangement is fairly new and many companies don't want to be dependent on an outside party for this critical aspect of the business. ASP may have been confused with hardware outsourcing, which involves a company running its own software on a third-party outside computer. If the 20% and 23% levels of use are higher than the actual levels today, it won't be long before usage of this pay-as-you-use method of processing will exceed them.
Automatic, Electronic Procurement. That manufacturers are using this technology to a lesser extent than wholesalers is surprising for three reasons. First, the technology was pioneered and evolved by manufacturers to reduce the lead times and costs of their purchases of raw materials, components, etc. Second, wholesalers using this technology probably need to use the standardized data of the ASA Industry Data Base (IDB), so the level of use by wholesalers can't exceed the level of participation in IDB (see Industry Data Base data in Table 1); but it can be less. Third, very sophisticated software is required for this technology, and few wholesalers (and manufacturers) have yet to install the needed software. It's likely that respondents confused this technology with EDI (even though EDI was made a separate question in this survey). I suspect that the true level of use by both kinds of companies is closer to 20%. Regardless of levels of use, both kinds of businesses believe that wholesalers derive extensive benefits from it. In fact, this is the only technology in both surveys to be rated zero for “None” benefits. In the future, as software gets more sophisticated, and more trading partners participate in the ASA IDB, the use of this people-less purchasing method will grow significantly (with most transactions taking place via the Internet, the universal method of communicating).
Bar Coding Without A Warehouse Management System (WMS). No surprise comparison here. Manufacturers began using bar codes long before most wholesalers did, although the extent of use among manufacturers and wholesalers should be higher today. Both types of companies believe that bar codes have been beneficial to wholesalers (I've been telling you that for years, Mr. Manufacturer), yet manufacturers believe that the level of “high” benefits is higher than wholesalers believe. Notice in Table 1 that the level of use of bar codes is 50% greater than participation in the IDB - which means that many bar codes printed by manufacturers are not “standard” and can't be read by wholesalers, which may be one reason why the 32% level for wholesalers is so low. (Cost and sometimes questionable benefits are two other reasons holding back wholesalers.)
Computer Backup Arrangement. Nice to see that both kinds of companies have arranged this form of insurance, and that both believe it benefits wholesalers (with manufacturers believing it to be more beneficial to wholesalers than wholesalers do). Increasingly reliable and redundant computers and data communications equipment/circuits may explain why the extent of use is not higher, and not likely to increase much.
Direct Electronic Procurement. The interesting and expected result here is that both kinds of companies use “Direct” more than “Automatic” Procurement. All it takes is a Web site that allows authorized visitors to do stock status inquiries, place orders, check on order status, etc. If anything, the levels of use should be much higher than 41% and 49%. It's also interesting to note that manufacturers reported that their wholesalers are using the technology to a lesser extent than the wholesalers reported - an obvious conflict of beliefs or observations. The definition of “Direct” is quite specific, so it's unlikely that anyone confused it with some other technology. Turning to benefits, this is another technology where manufacturers believe it is more beneficial to their wholesalers than wholesalers do - which may explain why more wholesalers don't use it. Direct Procurement will grow, but eventually will be swept aside by Automatic Procurement and/or Supply Chain Management.
E-Commerce. This is the most widely used of the technologies surveyed, for both types of companies. But, the level of use is not even two-thirds for manufacturers and barely 50% for wholesalers - less if the data is “normalized” to reflect the overly-proportional response level from “users” of technology. Both types of companies believe that benefits to wholesalers are substantial, but manufacturers believe it is more beneficial (than wholesalers do). If the growth of retail e-commerce is any predictor, expect its use by this industry to grow substantially.
E-Commerce Exchange Procurement. It's no surprise that wholesalers use this technology more than manufacturers - manufacturers compete with themselves, which tends to lower the prices that they get. No wonder that wholesalers also see it as benefiting them more than manufacturers do; wholesalers pay less for items. This technology was one of those that was supposed to fundamentally alter the manufacturer-wholesaler relationship; so far, it hasn't, but its use is growing and will continue to grow.
E-Commerce Reverse Auctions. Remember the old saying: What if they gave a party and nobody came? Try: What if they held an auction and nobody bid? Apparently not too many wholesalers have been willing to bid for items, and/or manufacturers have not been able to get prices high enough to justify the costs of auctions. Someone once described this technology as a good way for wholesalers to lose money, so their low rate of participation is not a surprise. The combined level of use of this technology is the second lowest, if results for RFID are ignored (as explained later).
When it comes to benefits, this technology is the exception to the general finding that the greater the number of manufacturers using a technology, the more beneficial that technology is to wholesalers. It's an exception because the benefits are so low that a graph of extent of use vs. level of benefits would show this data point to be “out of the ballpark.” Because this technology results in higher prices to wholesalers, manufacturers are right when reporting that it hardly benefits their wholesalers. The 57% for “None” benefits is the highest “None” by far in both surveys, and the 22% “None” reported by wholesalers is the highest in that survey (if the results for RFID are ignored). Don't look for more people to show up at this party.
EDI. This technology was not in the survey of wholesalers' use of technology, so no comparisons can be drawn. Yet, it's nice to know (after years of advocating for paperless purchasing) that so many manufacturers use EDI, and that most believe that EDI provides their wholesalers with significant benefits. Although 54% is somewhat high, don't look for the use of traditional EDI to grow, because forms of automatic electronic procurement will gradually replace EDI.
Industry Data Base (IDB from ASA). As information about IDB subscribers already shows, a much larger percentage of manufacturers than wholesalers participate in this service (in part because there are much fewer manufacturers). Yet both groups believe it provides significant benefits to wholesalers. However, neither level of use is anywhere near as high as it should be - “should be” because it's the foundation for technologies and methods that can save every partner money and avoid aggravation. At the risk of being called a shill for ASA, I want to repeat a prediction from the first article: “As the use of technologies like electronic procurement and supply chain management grows, more and more manufacturers and wholesalers will be forced to subscribe.”
RFID. Data from manufacturers reinforces the results from the first survey, results that I questioned - 14% of wholesalers reported that they have been notified to expect chips on pallets. Apparently, manufacturers have sent out notices about the upcoming use of chips, but have not gotten any press releases on RFID published. Or, the “notices” are really statements of intent, not timetables. Logically, since chips are attached to items at factories, it makes sense that more manufacturers would be involved with RFID than wholesalers. But I am skeptical that 20% of manufacturers will soon put chips on cartons/items. Manufacturers see more benefit of RFID to their wholesalers than do the wholesalers; right now, I agree with the manufacturers. But, bar codes are going to remain in use for a long time, so wholesalers considering the use of bar code readers should not hesitate to move ahead.
Supply Chain Management (SCM). As with RFID, data from manufacturers (39% level of usage) apparently confirms the results from the first survey, other results that I questioned - that 23% of wholesalers reported some form of involvement with SCM. And, as with RFID, manufacturers see more benefit to their wholesalers than do the wholesalers; in this case, I agree with the wholesalers. Based on experience with this industry and other hard goods industries (e.g., electrical and building materials), I am still skeptical of 39% and 23%. It's much more likely that only a few of the elements of SCM are being used by the partners, not full-blown SCM - it's too complex and expensive right now for such a high level of use, and for the level to grow with any speed.
Vendor-Managed Inventory (VMI). It's interesting that more manufacturers than wholesalers report that they are involved with VMI; as trading partners, the percent using VMI should be about the same for both parties. Did some people misunderstand the definition of VMI? Furthermore, the somewhat low level of the manufacturers' perceived benefit to wholesalers raises a question about all the marketing efforts that manufacturers make to sell wholesalers on VMI. And wholesalers don't see a lot more benefit than their manufacturers do. In the article about the first survey, I predicted that VMI would continue growing, via SCM or some other automatic electronic mechanism; in light of this data, I am no longer so sure.
Warehouse Management System (WMS). This is another technology that indirectly benefits wholesalers and distributors - it tends to reduce the frequency of “can't finds” when manufacturers are picking items to fill wholesalers' orders. It's also an expensive technology, so manufacturers started using it well before all but the largest wholesalers - so the higher level of use by manufacturers is no surprise. Because a manufacturer's WMS would not interact with those of its wholesalers, and vice versa, no comparison between reported levels of benefits to wholesalers can be made. Yet it is interesting to note that wholesalers believe they are getting a high level of benefit from wholesaler's WMSs; manufacturers believe that their wholesalers are benefiting substantially from the manufacturers' WMSs. Expect the use of WMS to continue growing, for both types of trading partners.
Wireless Technology In The Field. This technology was defined differently in the survey of wholesalers, so comparisons about benefits to wholesalers can't be made. But it is interesting to note that manufacturers are using the technology to a much greater extent than wholesalers, and that manufacturers reported that their wholesalers obtain substantial benefits from versions of WiFi . That's good, because the use of wireless portable devices will continue growing at a fast pace, which implies that wholesalers will benefit from this technology for years to come.
Exhibit 1: THE TECHNOLOGIES SURVEYEDApplication Service Provider (ASP)
The manufacturer's data processing is done off-site, using the hardware and software of a company that's in the business of providing data processing to others.
Automatic Electronic Procurement
Wholesalers' computers automatically access the manufacturer's computer, and transmit purchase orders - without any human involvement. EDI is not involved.
Bar Coding Without A Warehouse Management System (WMS)
Bar code scanners capture item location and quantity data during receiving (of materials/ components), putting away, pulling, production, picking orders/stock, shipping and physical counting; no WMS software is involved.
Computer Backup Arrangement
Manufacturer has arranged with an outside service to process its data if its system is down.
Direct Electronic Procurement
Distributor's personnel purchase by accessing the manufacturer's Web site, then manually keying-in all purchase order data. EDI is not involved.
E-Commerce involves one or more of the following for registered wholesalers:
E-Commerce Exchange Procurement
Manufacturer offers items for sale on a Web exchange, along with other sellers (and wholesalers purchase by entering purchase orders).
E-Commerce Reverse Auctions
Manufacturer has participated in online “auction” in which wholesalers bid for items.
Manufacturer receives electronic purchase orders (PO) from wholesalers, via a third party forwarder, and the PO data is in the format(s) defined for Electronic Data Interchange.
Industry Data Base (IDB from ASA)
Manufacturer has submitted data (product specs and pricing, catalogs and images) to IDB to be distributed in standard format.
RFID (Radio Frequency Identification)
Manufacturer has notified distributor customers that as of a certain date, pallets will contain tiny computer chips that store item data. (Don't confuse this with the use of RF technology to scan bar codes).
Supply Chain Management
Manufacturer's system and those of wholesaler trading partners are connected full time, constantly exchanging information used for planning (e.g. production) and for execution (e.g., manufacturer's system uses a customer's inventory data as the trigger for shipping).
Vendor Managed Inventory (VMI)
Based on inventory data and sales data that wholesalers send to the manufacturer, that manufacturer's system automatically determines what to ship the wholesaler and the quantity.
Special software and bar code scanners “recommend” where to put away (materials/components) receipts, when to move items from storage to production, how to rearrange the raw materials and finished goods warehouse layouts; and track warehouse productivity.
Wireless Technology In The Field
Manufacturer's laptops and/or PDAs that are taken on visits to wholesalers, and then used to access the Internet (and the company's system) via a wireless arrangement.