Enterprise Integration Act of 2002 and SCM

Enterprise Integration Act of 2002 and SCM

How will setting supply chain standards improve supply chain management?

The Enterprise Integration Act of 2002 was initiated by the National Institute of Standards and Technology (NIST) with the goal of helping companies coordinate supply chain information exchange and improve efficiencies (Thibodeau, 2002). The need for standardization stemmed from soaring costs and lengthy design and transaction timelines -- just a few of several challenges revealed in a1999 study conducted by the NIST. The study estimated that the auto industry alone would see $1 billion in annual supply chain savings with improved enterprise integration (Yimin et al., 2011). Enterprise integration refers to seamless electronic integration along a vertical supply chain (Thibodeau, 2002).

Manufacturers in today's marketplace require flexibility, adequate time to respond to shifts in customer preference, and efficiency (Jett, 2008). Today, more customized and specialized products are necessary to meet fluctuating consumer demands. Streamlining information exchanges -- without data loss or corruption -- gives manufactures the ability to meet such demands (Yimin et al., 2011). At the time the Act was passed, most software and information technology systems lacked interoperability (Jett, 2008). Incompatible applications prevented manufacturers and suppliers from easily sharing data or collaborating on design specifications, modifications and other pertinent elements of the manufacturing process.

In addition, dispersed supply chains and operating environments are sometimes characterized by multiple IT platforms and outsourcing strategies that vary in scope. Standardization helps suppliers coordinate information exchange throughout the supply chain more efficiently, so that information can flow to all participants (Thibodeau, 2002). This enables everyone involved in the manufacturing process to react to changes, stay informed, exchange ideas, and respond appropriately to changing project goals, needs or new regulations (Yimin et al., 2011). This kind of integration assists businesses, large and small, in reducing costs and design cycle times and increasing efficiency when changing a product. Under the Act, NIST has worked with industries to develop road maps that outline the steps necessary to become more electronically integrated. Industry participants then develop a voluntary agreement for standards and practices for information exchange. Such measures help to trim costs from the supply chain.

The economic downturn and increased competition placed immense pressure on the bottom lines of many manufacturers (Jett, 2008). Standardization helped leverage scale, increase the visibility of inventory to more optimally align product supply with customer demand, and increase end-to-end transparency (Yimin et al., 2011). Information technology and web capabilities have allowed the manufacturing industry in particular to fully integrate its supply chain so that information flows freely (Thibodeau, 2002). However, without standards that all supply chain participants adhere to integration does not bear fruit.

The NIST works with organizations and industries to identify what research, testing, and development needs to be undertaken to develop information exchange standards (Yimin et al., 2011). They are experts at bringing together different parties and establishing standards. Businesses using standardization minimize operating issues and improve service level performance by focusing on simplicity and reliability. A hiccup at any point in the supply chain can result in the deterioration of shareholder value and damage to a company's overall brand. Without the standardization of roles, processes and controls, the likelihood of a major mishap increases substantially. When too many people have the authority to change an order at any point in the supply chain fulfillment cycle -- from the time an order is received by manufacturing through to logistics and delivery -- higher costs, lower productivity, delayed delivery to the customer and lower profits can result (Thibodeau, 2002).

Standardization offers value by helping companies deliver efficiencies that support financial and growth objectives. Changes in product, marketing or customer demand can throw supply chains out of sync and hinder responses and response times. In addition, companies expanding into more global markets face greater operational complexity and geographically dispersed suppliers that can result in increased risk and sensitivity to supply chain interruption (Yimin et al., 2011). External forces can continually introduce new operating restrictions, requirements and costs into an existing supply chain. By standardizing end-to-end supply chain processes, companies can improve efficiencies and performance reliability (Jett, 2008). This reduces the likelihood of problems.

All companies can develop plans for improving supply chain performance and standardization (Yimin et al., 2011). One of the first steps is to evaluate the maturity of the existing supply chain. By determining the current degree of process maturity and standardization, companies can gain valuable insight into process effectiveness, process governance, and data management issues. This analysis makes it easier to then begin formulating key hypotheses regarding how and where to make improvements. Organizations must also evaluate financial, operational and organizational policies and procedures and conduct select site visits across operational supply chain units to understand how work gets done (Jett, 2008). By understanding the base level of performance and translating business strategies into an operating strategy, companies can develop a "standardized" plan for non-technology and technology-enabled improvement initiatives.

Cost savings is just one of many benefits that manufacturers and suppliers can achieve by redesigning standardizing end-to-end supply chain roles, processes and controls. Other benefits include the alignment of operational strategies with corporate sales and/or marketing goals for market share growth and better competitive positioning. Standardization also makes identification of better network design strategies possible, impacting manufacturing, distribution, production and assembly. Less noted, but equally important, manufacturers are able to develop performance metrics to determine assets and operations that can be consolidated or outsourced (Yimin et al., 2011). Through standardization, operations can achieve the efficiencies the business seeks.