COLLABORATION: What It Means To Asset-Intensive Industries

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1 Este White Paper demuestra cómo los procesos de negocios pueden ser más eficientes y la información y conocimientos pueden ser compartidos más eficientemente que nunca. What is Collaboration? Collaboration COLLABORATION: What It Means To Asset-Intensive Industries The process by which multiple enterprises within a shared market channel collaboratively plan, implement, and electronically, as well as physically, manage the flow of goods, services and information. - unknown Collaboration - Beyond the Four Walls For many large and medium-size businesses, Enterprise Resource Planning (ERP) software solutions have delivered significant benefits in the last 10 years. Many enterprises struggled internally to link islands of information within their organization as internal departments could not share information easily. With the adoption of integrated, enterprise-wide ERP solutions, common business processes across an organization allow the sharing of information real-time between those who need it. This, in turn, has broken down internal organizational barriers by increasing data visibility and enabling greater knowledge transfers. Increases in productivity occurred as integration significantly reduced inefficiencies, manual intervention, and error, while at the same time improving the quality and speed of decision making. The next step for corporations is to extend these gains in productivity beyond the four walls of a corporation to include its trading partners and link islands of information outside the organization. By connecting with trading partners collaboratively, business processes can be streamlined, and information and knowledge can be shared more effectively than ever before. Manual intervention and direct electronic connections transact seamlessly between business systems. Collaboration joins all participants into an extended business process referred to as a Value Chain. By leveraging and extending the internal business systems already in place, integrated business systems across the Internet offer further opportunity to improve productivity by projecting software applications across the Internet.

2 Example Collaboration Scenarios Outbound Logistics ACME Mining supplies to five major clients. XYZ Steel Company, a steel provider to the auto industry, is one of ACME s contracted customers and receives contracted quantities of coal for a period of three years. To satisfy customer service level agreements ACME Mining must coordinate: Mining and processing activities Rail Transport Port Handling Purchase and blending of additional product if required Export Approvals Shipping Import Approvals Associated quality checks Billing, payments and any associated penalties for missed deadlines/blend qualities Traditionally coordination of these activities is done largely on a reactive basis. A customer calls in panic because demand has suddenly increased. The mine adjusts its plans to meet the new demand. Participants downstream in the Value Chain must respond similarly to the new situation. In a collaborative environment, every player in the Value Chain can adjust and plan better with access to timely and more complete information. With direct access to XYZ Steel s product plans, ACME Mining can foresee demand and prepare appropriately. The Mine Plan can be adjusted to reflect future demand. Other aspects of the mine operation such as maintenance, cash flow projections and the purchase of new machinery can be tuned accordingly. With revised information about the Mine Schedule directly available to Value Chain participants, rail, port and shipping providers can adjust their schedules and resources, such as

3 ensuring enough rail cars are available to carry the larger coal haul to ensure service level delivery while optimizing their resource utilization. Information about actual shipments can be readily exchanged with customs organizations and with other parties involved in international trade (e.g. assayers). The International Trade process and receipt of payment is substantially accelerated. The end result is ACME delivers more coal in a more timely fashion, the transportation providers can optimize their shipping capacity and XYZ Steel delivers more steel on time to its customers. Works Management Big City Energy distributes power to more than a million residential and commercial customers. Since deregulation altered the utilities industry, Big City has increasingly relied on outsourced, third-party maintenance engineers to achieve its service level and profitability objectives. Currently, Big City s Works Coordinators rely heavily on individual knowledge and telephones to coordinate the various service providers used in performance of system maintenance. To coordinate an item of work in this environment involves (among other things) the following actions: Identification of the appropriate contractors based on scope of contract and skills required. (Usually personal knowledge and/or separate contract documentation dictate the dispatching of work.) Availability checks usually require multiple phone calls Communications and work planning is transacted by phone, fax, and personal meeting Information about the work executed (i.e. work done, time taken, outage periods, etc.) is usually handled by re-keying paperwork, such as: Permits in different formats, standards and protocols are issued routinely Receipt, checking and processing of claims are handled in different locations and lack common standards Maintenance work is handled differently by different providers under different timetables

4 With a collaborative solution, maintenance providers see the work orders through information shared collaboratively by Big City. They become part of the process and can readily view and provide input to the Maintenance Plan. The providers can coordinate resources to ensure availability of the right resources at the right place and at the right time. Via a laptop computer or even a handheld Palm Pilot, the maintenance engineer in the field can review open work orders, requisition replacement parts, consult assembly and safety manuals and review the maintenance history of the equipment they have been contracted to repair. Integration of Big City s systems with those of their providers enables job instructions to be communicated accurately and reliably. The maintenance provider utilizes the information without need for re-entry or additional time-consuming phone calls. Any discrepancies with the proposed work can be discussed electronically Permits can be requested and approved online without the potential for life-threatening errors. Job completion data recorded by the provider becomes available instantly to Big City. Asset history, service level performance, billings, etc. can be updated promptly without the need for re-entry. Generating payments directly from collected performance information eliminates claims for payment. Situation Environment Due to increased demand, intense competition, and new and changing marketplaces, the way business is conducted is rapidly shifting. Asset-intensive organizations are seeking avenues for enhanced competitive positions and are therefore focusing on core business activities. One example of such business model changes is that the owners of assets may no longer be the operators or maintainers of assets - freeing the owners of the asset to concentrate on core businesses and customer demand. In the past, businesses, particularly those in asset-intensive industries have been internally focused. Organizations chose to rely on their own ability to: Deploy capital Recruit people Buy materials and replacement parts Manage the business The increasingly high costs, both real and opportunity-based, of this approach have taken their toll on asset-intensive companies. In more recent times many organizations have recognized that many of the functions that they once performed could be outsourced to third-party providers while maintaining an acceptable

5 level of risk. Where such outsourcing arrangements have been executed with appropriate partners and with a proper attention to management and business processes, they have delivered substantial savings. Examples of these changed relationships include: Vendor-held/managed inventories Outsourced warehousing and logistics Third-party services (eg cleaning, gardening, building maintenance) Outsourced repairs and rebuilds Hired equipment Power-by-the-hour Making These New relationships Work To achieve the maximum advantage from these new business methods, organizations must distance themselves from the traditional (and often adversarial) buyer/supplier-type relationships and approach their supply chain participants as strategic partners. Research including efforts directed by Professor John T. Mentzer at the University of Tennessee (and involving organizations such as Arco Aluminum, Daimler-Chrysler Corp, Siemens, Ford Motor Company, Dell and Fisher Scientific), highlights the benefits from these new relationships. Mentzer advises that organizations will achieve significant gains through greater openness, integration of the parties business processes and collaboration. What the Analysts are Saying C-commerce (collaborative-commerce) benefits the enterprise by enabling the much-soughtafter virtual enterprise and extending its visibility and cooperation throughout the Value Chain. - Gartner Analyst, Kristian Steenstrup, The Essence of Collaboration, 31 May 2001 Current approaches fail to address the biggest opportunities hidden in strategic MRO: improving asset performance and reducing its complete lifecycle cost. By enabling real-time collaboration with external business partners, CAM (collaborative asset management) can deliver these elusive benefits. - AMR Research, Leif Erikson, February 2001 Considerations

6 Constraints, Dependencies and Metrics There are any number of constraints and dependencies associated with collaboration that when viewed either individually or grouped, require a major effort (either strategically or tactically; business or technology-related) to resolve. Some of these major constraints and dependencies are discussed below: o Trading Partners: A key constraint to adopting any e-business venture is ensuring that your key trading partners have the willingness and infrastructure to participate in a collaborative environment. Solutions and services need to be neutral to both buyers and sellers, as well as scalable to their level of technology. o Process Compatibility: Processes are unique from organization to organization. This uniqueness can constrain the level of collaboration that can be achieved. A willingness to adapt and optimize the business process of individual participants in the value chain is a critical element in achieving overall efficiency. Issues o Technology Scalability: In association with the TCO impacts above, organizations also need to reduce the risks of technology lock-down and ensure that they have appropriate scalability for future e-business ventures. Compatibility and connectivity within and between various infrastructures is essential. o Timelines & Sustainable Models: The single largest constraint in any collaborative endeavour is timeliness of solution implementation. The technology and subsequent business models/solutions are changing rapidly in the e-business world. To achieve and maintain a competitive advantage, organizations need to be able to concentrate on their business domain processes and be comfortable enough that the technology supporting their core business is flexible and sustainable enough for their purposes. This can only be achieved through total solution providers. There are a number of issues that organizations need to resolve as part of their collaborative business planning. If these issues are not dealt with in the appropriate manner, they will soon form a major risk to the ongoing operation and viability of the collaborative efforts that may be established. Indicative of the issues requiring resolution are:

7 Conclusion M A X I M I Z A N D O S U S o Integration: Integrating business systems to B2B servers, to trading partners, and to trading partner systems for both push and pull transactions. o Costs (skills, platform, availability, etc.): Accounting for the full range of costs associated with varying strategies and subsequent scalability costs can turn into a major issue at the instigation of the next new business requirement. o Skilling: There are few adequate skills readily available across the multitude of requirements to sustain process fulfilment. Those that are available can be expensive to get, maintain and provide adequate coverage. o Cross-industry Collaboration: There a very few organizations that understand and operate in multiple conjoint industry verticals that can build and operate the required industry value chains. o Security: Organizations need to ascertain the level, cost, risk and exposure associated with their mission critical business transactions and documents. As business processes become more and more on a collaborative footing, exposure to security of documents becomes a larger issue. o Complete Economic Activity Model: A key component of collaborative business is the outbound logistics side of the economic activity model. Organizations are also moving their radar to the revenue side of the equation. E- business solutions need to be able to provide end-to-end process fulfilment for an organization s business activity. o Standards: In a perfect world we would enjoy the benefits of a single means of cross boundary communications. Not only do we have many languages across the many continents of the globe and although we have adopted English as the standard language for doing business, there are many derivatives of English. The same can be said about document standards between and amongst trading partners. A means for catering for the varied standards and technologies must be put in place to effectively leverage the e-business opportunities. Asset-intensive businesses are increasingly relying on outsourced providers. This change in business model poses new challenges to managers who now have to work with multiple third parties to achieve a positive business outcome. It is well understood that successful use of external providers is best achieved through a strategic partnering approach and that the relationship can be best leveraged where the parties integrate their processes and systems. Collaborative technologies provide the framework required to facilitate this integration.