OR/MS Today - October 2000

October 2000

Cyberspace

Supply Chain Planners are on Mars,
B2B Marketplaces are on Venus

By ManMohan S. Sodhi

As B2B e-commerce evolves from "exchanges" for commodities to full-fledged marketplaces for products and services, there needs to be a corresponding increase in the supply chain functionality. My previous column [August 2000] discussed technologies to extend the supply chain to "sense and respond" with design, one-on-one marketing and customer service. These technologies will expand the functionality of B2B marketplaces, but the biggest gap is supply chain planning. Advanced planning and scheduling (APS) vendors including Aspen Technologies, i2 and Manugistics, as well as enterprise resource planning (ERP) vendors including SAP and Oracle, have stepped forward to close that gap.

It is not very clear right now what these vendors actually provide or will provide in the near future, although SAP has posted detailed use scenarios on its marketplace site, mySAP.com. i2, Manugistics and SAP will use their software — Rhythm, NetWORKS and APO, respectively — for planning capability for their marketplace platforms — tradeMatrix, bStreamz and mySAP, respectively. I haven't heard anything from Oracle regarding its marketplace, OracleExchange, but the company once signed an agreement with ILOG to develop a suite of hosted planning applications that could be the basis of offering planning with OracleExchange. Aspen Technologies, which offers the supply chain modeling toolkit, MIMI, is a partner to the marketplace, e-chemicals, possibly to provide some planning capability in the future.

Difficulties in Offering Supply Chain Planning in B2B Marketplaces

There are at least three difficulties in supply chain planning for B2B marketplaces. First, most B2B marketplaces focus on transactions, with revenues based mostly on a percentage cut of the transaction size. But planning does not involve a transaction between two parties, which means pricing is not straightforward. Second, an architecture that is appropriate for planning — local, hosted or marketplace-provided — while interacting with transactions in the ERP system or marketplace, is neither obvious nor easily standardized for all marketplace participants. Third, and this is the biggest challenge, people on either side of the planning-operations execution fence do not understand or appreciate each other's domains. This has implications for marketplaces that want to add planning and for marketplace technology providers given that they are either rooted in ERP (execution) or APS (planning). And, it has implications for OR professionals.

Difference Between Planning and Execution

Execution involves getting things done and being exact in tracking transactions that involve materials, orders and possibly cash. Conversely, planning is conceptual and requires a focus on key materials or processes to handle uncertainties of future demand and supply. Some of the resulting differences:

Time frame. Planners look to the medium- and long-term; execution people focus on the immediate future.

Bill-of-Materials. A Bill-of-Materials explosion for a finished product in a planning system may only have a few "important" raw materials while that in the execution system may have (almost) all materials that may number into the thousands for the same product.

Models and scenarios. Planners use multiple models, possibly with differently configured supply chains and numerous demand and production scenarios. Execution, in attempting to capture reality, requires a single model of the supply chain and a single scenario of demand and production capacity.

User education. Planners deal with planning concepts; the software is less important. Execution people focus on the intricacies of the execution system to ensure that transactions are properly captured.

These are the reasons why execution and planning people are fundamentally different. Execution people view planning simply as execution with a long horizon and planners view execution as myopic planning. As a result, firms, in concert with their vendors, tack on complicated customized solutions to execution systems to provide inadequate planning or use planning systems as low-grade execution-systems. Expect the same from many B2B marketplaces in the future.

What this Means for OR Professionals

OR professionals, with their modeling backgrounds, make good planners or creators of planning software. At least part of i2's success may be attributed to OR programmers who designed and implemented hard-core optimization systems at Sabre before moving to i2. But, like planners, OR professionals lack deep knowledge or even an appreciation of operation specifics. "Demand" for an OR professional (or planner) could be a planned order, sales order, forecast or maybe something else for an execution person. This means OR professionals will have to learn more about business process specifics to make a difference in B2B e-commerce. They have plenty to offer to the universe, but they must start learning the languages of other planets.

Dr. ManMohan S. Sodhi is director of enterprise e-business strategy with Scient in Chicago. He is president of the Logistics Section of INFORMS, the founder of the OR news group, sci.op-research, and helped design and create INFORMS Online. He welcomes your comments at MohanSodhi@AOL.com.

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