by: Christian Sarkar
An edited version of this article was originally published in Clip webzine, an e-zine sponsored by Compaq.

Is speed the competitive edge in the New Economy? In this Clip interview, supply-chain management pioneer Sanjiv Sidhu, president of i2 Technologies, explains the new challenges facing the business world and how your company can survive the coming transition.

In the rapidly changing world of e-business, looking ahead isn't just important – it can be a matter of survival. For many companies, that means focusing on what can happen and anticipating changes in the market, streamlining decision-making processes and optimizing the supply chain. How quickly can your company meet customer demand? Is your company using its assets to increase profitability? Is your company wired for intelligent e-business?

Sanjiv Sidhu believes that the key to staying competitive in the fast-paced world of e-business is to be a fast, forward-looking enterprise. As founder and CEO of i2 Technologies, a leading developer of supply-chain management software solutions, he should know.

Christian Sarkar recently spoke with Sidhu about his vision of what he calls "high-velocity eBusiness" and how optimizing the supply chain can give a company the competitive edge.

Is speed the competitive edge in the New Economy?

We live in a time of great variability and complexity. That's a business fact. And that variability and complexity isn't going away. On the contrary, it will increase by a factor of 10 in the next five years. The challenges [to business] today are: globalization, intensified competition, shorter product lifecycles, mass customization and the eBusiness wave.

In the traditional paradigm, business spends too much time looking into the past to predict the future. Most management meetings are spent reviewing what happened, interpreting last month's news. Even ERP [enterprise resource planning] systems, for all their vaunted capabilities, give you snapshots of last week's data. So what is required is nothing short of a revolution in conventional business practice. We must become forward-looking enterprises.

Do you mean forward-looking to anticipate changes?

We call this forward visibility. Look at what the analysts are doing with technology stocks. Are they looking at past performance? They barely look at what happened 12 months ago. All the focus is on what's going to happen.

Imagine you're in a car, driving down a winding road at 500 miles an hour, with rain and fog. That's the business environment. Should you be looking at the rear-view mirror? To stay on course, you need forward visibility and quick reactions. And the right reaction.

What do you mean by "high-velocity eBusiness?"

A high-velocity e-business is characterized by the following:

• It is optimized for rapid and intelligent decision-making
• It has good forward visibility to anticipate market changes
• Its internal and external business processes are integrated across disparate systems
• It maximizes value though speed and intelligence

So how do you go about making this happen? Can you give us some examples?

Through electronic Business Process Optimization (eBPO), an integrated framework for business management. This brings together the three essential functions in your company – the customer management function, the product management function and the supply-chain management function – [as well as] the external linkages that impact your business – your supplier's suppliers, your customer's customers and your design partners – to create a high-velocity business decision-support system.

source: i2 Technologies i2's electronic Business Process Optimization framework.

In the old paradigm, companies would focus on the three internal functions separately. In today's fast-paced world, that's no longer an option. For example, let's say your competitor drops the price of its product by 50 percent in a certain market, say Japan. What should your reaction be? All three functions need to work together to create an appropriate response. What if you weren't able to supply Japan anyway? And let's say you had other markets with strong demand – Germany, for example.

The right decision might then be to divert your existing product from Japan, and send it to Germany, keeping your price high, and reap strong benefits. In this case, you used your eBPO system to get your customer management function and your supply chain function to develop the right tactical response.

The primary concept here is that eBPO optimizes your entire value-chain, allowing you to make rapid, and just as importantly, correct, decisions to create value and wealth for your company.

Is that how companies justify investing in supply-chain optimization systems?

A supply chain is simply the process of creating products for customers. Supply chains span [the range] from raw materials, manufacturing, distribution [and] transportation [to] warehousing and product sales. When the number of resources, operations and functions increase, managing this supply chain can become very complex.

What is supply-chain optimization? Simply stated, it is about managing your supply chain to increase profitability, or "put the least money in to get the most money out."

To increase revenues you can increase customer satisfaction (which creates more demand) and increase the production rate of sellable goods. Companies that can react faster to customer demand tend to produce the goods customers want, when they want them. To decrease expenses, you can identify efficiencies in the supply chain, which allows you to reduce costs like labor, raw materials and marketing. Cost improvements are not just "cutbacks" – improvements are often made through communication.

Finally, let's look at improving asset utilization. The amount of assets the enterprise has captive in the supply chain affects the potential profitability of the company directly. Compare a $1000 investment with a $2500 return to a $2000 investment with the same return, and the meaning of asset utilization is clear. Reducing the amount of inventory and capital in the supply chain means a company becomes profitable faster.

The i2 approach is to use supply-chain planning to anticipate conditions and help your company "act, not react." Herman Miller, a company we've worked with closely, tells us that eBPO has made a bigger positive impact on their bottom line than any other methodology they have used.

What types of metrics should you use to measure your company's progress in supply-chain optimization?

There are numerous conventional metrics for measuring supply-chain performance. To those I would add three new metrics:

Forward visibility metrics – to measure the control your company has – how effectively do you meet your projections?
Velocity metrics – to measure areas, such as turnaround time for a customer order or the time a supplier takes to react to a change, etc.
Opportunity realization metrics – to measure what could have been, i.e. what was the total opportunity and what portion of that did I achieve?

What is the future of supply-chain optimization?

We're working on the convergence of e-commerce and supply-chain management. The first wave of e-commerce was merely a Web-enabling of existing functions. You did EDI before, now you do it through the Web, that kind of thing.

The next wave is going to include real back-office integration – the endgame is not just to support an integrated business process that connects the customer's customer to the supplier's supplier, but to enable this virtual enterprise or value-chain to operate at extreme velocity.

It's almost funny, in some instances, to look at what companies are doing online. There are companies selling on the Web right now that you could put out of business just by flooding them with orders – that's something i2's President [Gregory Brady] said recently. And he's right.

If your company is not wired for intelligent e-business, you can either meet your customer demand with unprofitably high exposure to inventory and production costs or watch your customers shop elsewhere.

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