Filling the Supply Chain Black Hole

Stephen DeAngelis

February 23, 2010

Lora Cecere, a market analyst with whom Enterra Solutions recently started working, writes a blog under the title Supply Chain Shaman. Since Enterra Solutions is getting ever deeper into the supply chain business, I’ve included a link to Lora’s blog on this blog’s sidebar. Lora’s website site explains the thinking behind the blog’s title:

“A shaman interprets and connects the evolving world to a group of followers. Lora does this for [the] supply chain. As a partner with Altimeter Group and the author of [an] enterprise software blog, Lora travels the world to chart the course of supply chain practices and disruptive technologies. Her blog focuses on the use of enterprise applications to drive supply chain excellence and builds on Lora’s prior popular blog. As an enterprise strategist, Lora focuses on the changing face of enterprise technologies. Her research is designed for the early adopter seeking first mover advantage.”

In a recent post entitled The Supply Chain Black Hole, Lora talks about how important transactional supply chain applications are for success in both the near- and the far-term. She writes:

“We have a black hole in the center of supply chain applications. A black hole you say? Yes, a black hole has developed between transactional systems focused on order-to-cash and procure-to-pay processes and supply chain optimization technologies. It is not there by design. It has evolved because the design of supply chain technologies were insufficient to meet today’s requirements.”

For those of you not familiar with the terms “order-to-cash” and “procure-to-pay,” let me explain. Order-to-cash refers to the Enterprise Resource Planning (ERP) process of taking customer sales orders (which can be done in numerous ways such as: over the Internet, through email, via a sales person, by fax, electronic data interchange (EDI), etc.) and then fulfilling the order, shipping it, generating an invoice, collecting payment for that invoice, and then providing receipt upon receiving payment. Procure-to-pay or purchase-to-pay, often abbreviated to P2P, is another broad term that refers to business processes that involve requesting (requisitioning), purchasing, receiving, paying for and accounting for goods and services. It has also been called “Req to check.” The “black hole,” Lora asserts, lies between the system operated by customer and the system used by the supplier. She continues:

“What is a black hole? In quantum mechanics terms, it is the region of space from which nothing can escape. It is the result of the deformation of space time caused by a very compact mass. Around the black hole, there is an undetectable surface which marks the point of no return, termed the event horizon by scientists. It is called ‘black’ because it absorbs all light that hits it, reflecting nothing, just like a perfect black body in thermodynamics. Despite the invisible interior, a black hole can be observed through its interaction with other matter. Companies may not realize it, but they have a black hole. It is the no-man’s land between ERP and Supply Chain Optimization (APS)/Supply Chain Execution (SCE) systems. We now know that fixed data integration, one-dimensional rules mapping, and traditional master data techniques from ERP to Supply Chain Optimization are insufficient. As a result, plans are created and consumed in isolation, and transactional systems hum along with little – to no — guided intelligence. Available-to-Promise (ATP) was our first foray into the black hole, but we did not go far enough.”

Available-to-promise is a business function that provides a response to customer order inquiries, based on resource availability. ATP processes determine available quantities of a requested product and promises appropriate delivery due dates. In other words, ATP supports order promising and fulfillment by managing demand and matching it to production plans. ATP is a reasonable approach and it begs the question why “didn’t it go far enough”? Lora believes that ATP processes don’t exchange enough information in a timely manner to stop the black hole from developing because they can’t “sense” what’s going on in real time. She continues:

“Technologies are evolving to eliminate the supply chain black hole. In this first generation of supply chain applications, we have built a fixed response with very little sensing. How can we effectively respond when we cannot sense? It is my belief, from seven years studying the market, that the technology applications to fill the black hole will come in many forms and from many different sources. From military technologies, we will see the applications of rules-based ontologies to intelligently sense and connect optimization plans to more intelligently drive transactional systems. Likewise, from the banking and insurance industries, we will see the application of pattern recognition of early market conditions to shape the supply chain response; and from search-engine optimization technologies (SEO), we will see the redefinition of master data management. These technology discontinuities will come from emerging technologies: guys that we don’t even know the names of today.”

Since Enterra Solutions is one of those “guys” that will fill the black hole, you can understand why I became interested in Lora’s work and analysis. The “rules-based ontology” applications to which she refers are being developed by Enterra Solutions’ brilliant technologists. I first touched on this work in a post entitled Profiting From Following the Rules. I’ll be writing a lot more on the subject in the months ahead. Lora concludes her post with some recommendations on where those looking to solve the black hole problem need to focus and how businesses should proceed as they move forward. She writes:

“We will be limited in how fast we move by our own traditional supply chain paradigms. To solve the black hole, we need to shake several paradigms and recognize that:

  • First generation were a start, but were not sufficient. The first generation of supply chain applications got us started down the path, but they must be cast-off to move forward. ERP is not the backbone of supply chain management for the future. The new technologies will not come from the ERP consolidators.
  • Need to Bridge the Discontinuity. We are at a discontinuity between inside-out and outside-in technologies. The new technologies will be outside-in. They will help us sense before responding. They will help drive an intelligent response. They will fill the black hole.
  • Requires a Focus on Innovation. Companies will be challenged to evolve old technology while maximizing the opportunities from evolving technologies at the same time. Early adopters have line-of-business scouts seeking to extract new answers to solve the black hole dilemma.”

Although Lora indicates that those addressing supply chain challenges “have come a long way,” she believes there is still a ways to go before companies solve “the black hole problem.” The search for solutions, she claims, “will be exciting.” I couldn’t agree more.