One Network s Real Time Value Network White Paper Series: Why SaaS is Nice but a Network is the Future

Transcription

1 One Network s Real Time Value Network White Paper Series: Why SaaS is Nice but a Network is the Future ONE NETWORK ENTERPRISES Page 1

2 The software as a service (SaaS) model has entered the mainstream. A wide variety of businesses are now allowing SaaS vendors to manage an increasing number of functions formerly reserved for locally installed software. But what will be the next big trend after SaaS? The answer is the network. Within the next decade, a seismic leap will occur whereby business-tobusiness networks emerge as the dominant force in business. In this networked world, business processes that were formerly disconnected will become collaborative and much more social. Today s conventional wisdom will be replaced by fundamentally different businesses rules. This white paper is organized as follows: First, we explore the benefits and limitations of the SaaS model, and ask how SaaS will fit into the coming fully networked business environment. Second, we explain how the fully networked business environment will enable a concept that One Network is calling the Real Time Value Network (RTVN). 2011: The Year of SaaS For many observers, 2011 was the year of SaaS. From 2010 revenues of $10 billion, Gartner estimates a 15.8% compound annual growth rate through 2014 for SaaS enterprise application markets versus a total application market growth rate of 5.3% 1. By 2015, worldwide SaaS revenue is forecast to reach $21.3 billion. 2 Today, SaaS vendors are managing critical business functions for companies of all sizes. SaaS is most likely to be found in the areas of content management, customer relationship management, management information systems, enterprise resources planning, and supply chain management. Why so much success? The rise of SaaS can only be understood in the context of the mass migration of our personal and business data into the cloud. The ever-falling cost of data storage, the widespread availability of high speed Internet connections, and the introduction of next-generation web application platforms (i.e. web 2.0 ) have allowed for powerful web based programs that meet or surpass their desktop counterparts. In addition to these trends, cloud-based architecture gives SaaS vendors several other key advantages: Multi-tenant architecture means lower pricing Easier collaboration Global accessibility More configuration and customization for customer Rapid deployment of new features Taken together, these advantages have given SaaS companies tremendous traction in the market. The major acquisitions of SaaS vendors by traditional enterprise software heavyweights SAP and Oracle in 2011 is a sign that traditional vendors are scrambling to catch up. 1 Gartner, Published 11 November Gartner Says Worldwide Software as a Service Revenue Is Forecast to Grow 21 Percent in 2011 ONE NETWORK ENTERPRISES Page 2

3 Yet while most informed observers agree that the cloud-based SaaS model will inevitably replace the multiple instances, locally installed systems of yesterday, few can agree as to what comes after. Enter the network. In the same way that SaaS has arrived as a surprise, so too will the sudden emergence of the RTVN leave established vendors scrambling. The remainder of this paper is devoted to explaining what the RTVN is, as well as mapping out the most likely scenarios for the RTVN revolution. The Great Demand Driven Myth Do a Google search for demand driven today and you will find well over a 120 million results. 3 This term may be relatively new but it is already being overused. Today it seems that every SCM vendor labels itself as demand driven. But what does that really mean? Simply put, in a demand driven environment, suppliers and retailers let customers drive their actions. Doing so allows them to make, sell, and deliver the right product at the right time. Safety stock, inventory, and stock-outs decline. Sales and customer satisfaction increase. Supply matches demand. Everyone wins. This brings us to the main downside with most of today s SaaS vendors; current vendors are only taking advantage of a fraction of the benefits offered by the cloud, and their results are demand driven in name only. SaaS may be able to deliver disparate systems more flexibly and cheaply than under the traditional model, but they are still disparate systems. Despite all the hype, there are inherent limitations to how demand driven a supply chain can be when multiple standalone systems are expected to collaborate. Consider for example the recent efforts of Proctor & Gamble to digitize all areas of its $85 billion company, from molecule-creation to the store shelf as detailed in a recent McKinsey Quarterly profile 4. In a massive effort to become as demand driven as possible, P&G has instituted new systems in manufacturing, accounting, transportation and logistics, retailer collaboration, and warehouse management. Yet while such reforms are no doubt needed and P&G is certainly more forward-looking in this regard than many of its competitors, there are inherent limitations to the approach of stacking large numbers of one-off solutions that aren t designed from the ground-up to collaborate with one another. While P&G will most likely experience some gains and improvements, there will always be information lag, coordination issues, and miscommunication among systems. For companies that choose the P&G route, a demand driven value network will be tantalizingly close, but forever out of reach. 3 Google Search, demand driven, February 25, McKinsey Quarterly, Inside P&G s Digital Revolution, Nov ONE NETWORK ENTERPRISES Page 3

4 From a Chain to a Network We need to move beyond the concept of a supply chain. Consider Figure 1 below of how a typical product today makes its way from supplier to shelf: Figure 1: Information/Product Flow End Customer DC or Distributor MFG DC MFG Plants Co-Mfr or Co-Packer Suppliers The product, and more importantly, the accompanying information, is not moving in a way that is very chain-like. Instead, we are viewing a complex web of cross-connections that either directly or indirectly link every participant. While the concept of a chain may have worked in a paper-driven, more vertically integrated business environment, in the 21 st century it makes more sense to use a network model. Supply networks today are dysfunctional. Each member uses discrete enterprise systems with little or no ability to communicate with any other systems (even those within the same company). This lack of upstream and downstream visibility typically means that retailers have little idea what conditions the manufacturing plants are facing at a particular time and vise versa. Given this state of affairs, is it any wonder that 70 percent of global executives surveyed by McKinsey see increased supply chain risk over the next five years? 5 Instead of the confusion and chaos, imagine a network-based environment that provides instantaneous and seamless communication among members, and even provides execution orders that will allow the most far-flung or tangential nodes of the value network to align operational objectives with minimal human interaction. Put more simply, imagine a community. A community of companies oriented toward the end consumer; in other words, a RTVN. What Technology does a RTVN require? When one considers the thousands of products on shelves, the millions of daily transactions, the constantly changing make-up of a value network s members (e.g. new carriers, suppliers, etc), as well as ever-varying levels of supply and demand, it is easy to conclude that there is simply too much information, that there are too many moving parts for a single system to capture. In other words, you may agree that a RTVN is desirable, but is it feasible? Skepticism here is certainly warranted. Today s decision support tools and processes cannot scale to allow users to be involved in planning millions of daily events that occur in typical value chain. There is far too much information and the decisions required are far too granular for human planners to be effective. We have identified five technical features that the RTVN platform would need to fully function: the RTVN 5 McKinsey, Building the Supply Chain of the Future ONE NETWORK ENTERPRISES Page 4

5 must underlay existing networks and react in real time, it must easily connect and coordinate to all members of the value chain, it must optimize existing processes, it must be scalable, and it must strike the right balance between being open and secure. RTVN Requirement One: Coordination and Connectivity Stacking large numbers of one-off solutions that rely on stale and inaccurate data will never solve the problem. The RTVN will have to be designed from the ground up to enable every member of the value chain to become demand driven. This means every company is viewing a single version of the value chain s data, but securely packaged and filtered in a way that makes it relevant to their individual role. A single information pipe into the network would provide integration across multiple companies ERP systems. The RTVN would take this multi-enterprise data and continuously sync and re-sync demand, supply, and capacities in near real time across all trading partners. RTVN Requirement Two: Real Network in Real Time The RTVN should be a cloud-based technology that precisely models existing value networks whether in part, for example logistics and transportation or in whole, for example every node from retailers to raw material suppliers. The result would be an extremely responsive supply network where informational lead times are virtually eliminated and physical lead times are minimized. No matter which ERPs are being used or what the existing business processes are, the RTVN data would be highly accurate and available in near real time. RTVN Requirement Three: Network Optimization Easily creating and connecting a company to the RTVN is one thing, but what would happen after? The RTVN must add value beyond visibility it would need to optimize the existing value network. This means instantaneous and seamless communication, and even automatic execution orders that would allow the most far-flung or tangential members of the value chain to align operational objectives with minimal human interaction. Thus, in the RTVN, supply, demand, and capacities are all planned concurrently within the same system based on the most recent available demand data, as well as highly accurate forecasts. Giving the value network a single version of the truth in real time would be a powerful tool that any company, regardless of the nature of their value chain, could benefit from. But what about variability? Variability whether of demand or supply represents the greatest source of risk for supply networks today. The key to managing variability is not creating the perfect forecast; it is creating a leaner, more responsive value network. In the RTVN, variability and disruptive events would actually become competitive weapons as automatic execution orders in real time would enable companies to respond more quickly than their competitors. Given the unstable nature of supply and demand, the RTVN would ideally learn and adjust its policies automatically as variability changes. By doing so, significant inventory reductions could take place by eliminating unneeded safety stocks. RTVN Requirement Four: Network Scalability Today s decision support tools and processes cannot scale to allow users to be involved in planning millions of buffer sites every day. There is far too much information and the decisions required are far too granular for human planners to be effective. Thus, the RTVN would have to be fully scalable across technology and business processes. ONE NETWORK ENTERPRISES Page 5

6 For example, the RTVN would need to calculate the item/location (buffer) level for time horizons from a day out to long lead times as long as 90 days or more. The policies for orders, buffers, and safety stocks would be set at a SKU location basis and because the vast amounts of information that this approach generates would overwhelm any conventional system, the RTVN would have to rely on horizontal grid processing, giving it the ability to manage the millions of daily transactions and data points that large value networks generate. Given that the majority of these transactions are routine and don t require human intervention, the RTVN would allow people to devote their resources to the complicated one-off problems that only humans can solve. The RTVN must also scale across business processes. Value networks today are made up of companies that differ greatly by size, approach, and purpose. For the RTVN to be truly successful, every member of a value network must find value in connecting to the RTVN, regardless of ERP, business rules, or company function and role. RTVN Requirement Five: Open yet Secure Only a platform-enabled RTVN will be able to model the complex web of real-world relationships found in today s value chains. For example, consider the unprecedented success of Facebook. With a user base of nearly 1 billion and growing, Facebook is easily the most successful social network. But why did it succeed where MySpace and Friendster failed? One thing that Facebook got right and other competing social networks (e.g. Myspace, Friendster) did not, is that a Facebook user s social network better reflects reallife interactions. In almost every case you become Facebook friends only after you have met them in real life. Facebook is successful because it wipes away information barriers among people who have already demonstrated the desire to communicate with each other in the real world. On the other hand, Facebook s missteps have come when it has tended to be a too open with how and with whom its members information is shared. How often are you in the same room with your boss, college friends, co-workers, parents, and next-door neighbor? In the real world, we allow these groups to access different kinds of information about ourselves and each other, and periodically Facebook has come under intense criticism because these groups are suddenly able to interact with each other in a way that seems unnatural. Thus, the eventual emergence of the RTVN will take place after the right balance is found between capturing the complexity of real-world relationships found in today s value networks without being too open. A networked-based platform is needed that will allow each member of the network to easily connect and share the right kind of information. What are we waiting for? Although we are still operating in a business environment where SaaS is the relative newcomer, the RTNV will arrive sooner than you think, primarily because of network effects, a concept derived from economics. Simply put, it refers to a characteristic of some networks where each additional user of the network increases the value of a network connection to all other customers. For example, consider the Internet. Each additional user of the Internet: adds to the total amount of content that all others may access adds to the amount of goods that others may buy is a potential customer for e-commerce sellers ONE NETWORK ENTERPRISES Page 6

7 increases the amount of people who may interact on the internet. 6 Thus, after a certain point when a critical mass is reached, the value of the network becomes so compelling that more users join to take advantage of this value, which further increases the value of the network itself, thus creating a positive feedback loop. Consider Figure 2 below which shows the growth of Facebook users. We clearly see how network effects can lead to exponential growth: Figure 2 The RTVN s rapid growth will similarly be fueled by network effects. Yet a network will only experience large-scale network effects if it is attractive to a large amount of users, and a network will not be able to support a wide variety of users unless it adopts common standards. Every node of the Internet uses the same underlying network standards regardless of its end behavior. So too can one use Facebook for a variety of different ends (connecting with friends, employers, businesses, games, etc) but each user must enter by means of building a standardized profile page. Our RTNV will only take off once standards are adopted among the various companies that make up a value chain, such as manufacturers, co-manufacturers, retailers, raw material suppliers, carriers, 3PLs, 4PLs, and customers. Once a stable platform of common standards has emerged that will support the RTVN capabilities discussed above, the network effect will begin to take over as the cost of not adopting the common standards and connecting with the network becomes greater as each additional company joins. This is already happening... There are signs that the RTVN revolution is already occurring. In February of 2012, Gartner reported that companies that implemented demand driven value networks grew revenue faster, achieved 6 Nicholas Economides. From The New Palgrave Dictionary of Economics, Second Edition, 2008 ONE NETWORK ENTERPRISES Page 7

8 more than 15% higher perfect-order rates, and reduced levels by as much as a one-third when compared to their peers with traditional, cost-focused value chains. 7 Gartner also recognized that many companies still lack timely, accurate network-based data as well the ability to execute on that data. They predict that by 2016, half of their Top 25 will begin to exploit intraand enterprise network-based data through a combination of predictive analytics auto-generated actionable recommendations. 8 Although framing the issue a bit differently, McKinsey recently confirmed the wisdom of the networkedbased supply chain. In their recent Building the supply chain of the future feature, they recognized that future supply chains will have the same information that they do now, but will simply use it very differently. Their conception of this, a supply chain that can easily splinter into smaller sub networks while still remaining connected to the whole will only be possible if the entire value chain is underlain by a stable platform that allows for flexibility and real-time changes. 9 Another key trend identified by McKinsey that points to the coming network revolution is their recognition of the importance of social technologies. 10 In today s complex global value chain environment, much of an enterprise s value lies beyond its four walls. McKinsey found that the highest socially networked organizations are realizing competitive gains and performance improvements relative to their less networked peers. The more than 4200 global executives surveyed found that boundaries among employees, vendors, and customers are blurring, and that social media is increasingly crucial for forging connections with customers and vendors and successfully navigating the external environment. Social media, supply chain splintering, P&G s digitization efforts, Gartner s demand-driving value networks. These are just the beginning steps towards the RTVN, and industry observers are only beginning to connect the dots. Most thinking is still too siloed, too constrained by the current environment to fathom what will eventually happen. Where does One Network fit in all this? The RTVN is not a mere prediction; every feature of the RTVN discussed above exists today. This is One Network. With over 29,000 member companies on its rapidly growing network, joining One Network has become a key strategic decision being made by Fortune 500 corporations, government agencies, and even small and medium businesses. One Network is scalable, open while still being secure, responds in real time to disruptive events, and concurrently matches supply to demand as often as every fifteen minutes. Retailers, suppliers, transportation companies, 3PLs, 4PLs, and raw material producers all have found value in One Network s RTVN. Find out how diverse institutions such as Lockheed Martin, Del Monte Foods, IMPERIAL Logistics, Safeway, the US Marine Corp, Kroger, and the Department of Defense are using One Network to make their value chains smarter, leaner, and far more demand driven. Call us today or visit our website at 7 Gartner. Driven Value Network Orchestration Key Initiative Overview, 3 Feb Predicts 2012: Supply Chain Predictions, Talent, Risk, and Analytics, Dominate. 18 November, McKinsey. Building the supply chain of the future. 10 McKinsey Quarterly. How social technologies are extending the organization. ONE NETWORK ENTERPRISES Page 8

9 United States Corporate Headquarters 4055 Valley View Ln. Suite 1000 Dallas, TX Tel: Fax: Europe International Headquarters PO Box London NW8 1HH UK Tel: +44 (0) One Network Statistics Companies on the network: 29,000 Carriers on the network: 6,000 Transactions under One Network s Management: 680 Million per year=1.86 Million daily Register for the continuing RTVN One Network White Paper Series The RTVN: Who is One Network? Demand Driven Replenishment, Management in the RTVN RTVN Business Continuity in Managing a Lead Logistics Provider RTVN Inbound Supply and Inventory Supply Why SaaS is Nice but a Network is the Future Predictive Financials in the RTVN RTVN Turnkey Global Distribution A RTVN Global Supply Chain Execution Repository Warehouse RTVN Trade Promotion Management RTVN Technical Concept Manual BIS-Business Internet Services in the RTVN RTVN Risk Management The RTVN and Integration: SAP, Retailers, Intelligent VAN How the RTVN Makes SAP More Productive ONE NETWORK ENTERPRISES Page 9