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1 May 2002

Collaborative commerce to virtual manufacturing

By Michael Saucier

The financial reality of plant ownership tempers bold moves.

The emergence of e-commerce and the Internet has put process manufacturing companies in a quandary.

They carry the weight of significant physical assets, lengthy development cycles, long technology transfer times, and decreasing product life cycles.

Wall Street challenges them to make bold and decisive increases in economic value add while simultaneously protecting their margins from erosion due to price transparency in e-marketplaces.

This challenge is difficult for process manufacturers because they are by nature risk averse. They deal with dangerous processes, hazardous materials, governmental regulations, and swarms of lawyers.

The demand to make bold moves is tempered by the financial reality of the expense of plant ownership, research and development, and marketing.

Collaborative commerce (c-commerce) enables companies to make audacious moves and at the same time allows them to take advantage of the new Internet environment in their day-to-day operations.

PROCESS INDUSTRIES NEGOTIATE

Technology leaders are moving from e-commerce to c-commerce. C-commerce involves collaboration in reaching trading agreements. This collaboration moves well beyond the simple one-dimensional price transparency model that exemplifies most buy-side or sell-side electronic marketplaces.

The ability to collaborate as early as product inception and continue throughout scale-up to commercialization allows unprecedented time to market compression, product risk reduction, and asset utilization increases.

The Internet’s first business-to-business wave was in the commodity markets. E-commerce replaced paper catalogs, phone sales, and faxes but still dealt with off-the-shelf or made-to-stock items.

E-commerce’s benefit was a reduction in the cost of obtaining commodity products and the ability to sometimes get better prices for the products.

While much of the world’s trade is in commodity products, these represent only about 15% of purchases in the process industry, which relies heavily on negotiated contract buying of custom-synthesized materials.

These products manufacture per specific customer requirements and generally design for single customers. There is usually significant collaboration between the sellers and buyers of special products—hence, c-commerce is the natural trading model for much of the process industries.

Internet technologies enable better and faster collaboration between buyers and sellers. Fortunately, these same technologies can apply in an evolutionary manner to allow companies to move to c-commerce at their own pace.

The c-commerce model allows the evolution from an integrated internal supply chain to an integrated external supply chain, which we call virtual manufacturing. It also allows companies to evolve from internal collaboration to external customer collaboration.

FLEX VIRTUAL MANUFACTURING

The technologies used in c-commerce applications can be applied to help organizations address the following areas:

• Standards of product communication: How do I make the product?
• Capability visibility: Where do I have the capability to make it?
• Capacity visibility: What capacity do I have to make it?
• Costing visibility: What will it cost to make it?
• Scheduling visibility: When can I make it?
• Rapid and automatic technology transfer: The ability to translate a general product definition into a set of manufacturing instructions anywhere in the world, regardless of the level of that plant’s automation.
• Order management and execution connectivity: The ability to transmit a new or changed product definition into existing order management, enterprise resource planning (ERP), and supply chain systems.

By addressing these areas, a virtual manufacturing environment can evolve from traditionally organized companies. Virtual manufacturing is defined as the flexible and efficient organization of manufacturing resources through transparent insourcing and off-balance sheet manufacturing, including outsourcing, co-packing, and strategic alignment with suppliers and business partners.

ISA-S88.01, General Recipe Models, answers the question “How do I make the product?” in the process and batch manufacturing industries. General recipes are documents describing how to make a product without specifying the equipment used to make the product.

The second question—“Where do I have the capability to make it?”—can also be answered using general recipes and well-defined rules for conversion to master recipes. Internet-enabled tools can be used to manage capability definitions and develop general recipes as a collaborative effort.

Information exchange between ERP and scheduling systems can answer the next three questions. Many e-business systems dealing with logistics and distribution focus on answering these questions.

However, answering these three questions assume that the first two have already been answered. When considering only the third, fourth, and fifth questions, the solution is e-commerce. When also addressing the first two questions, it becomes c-commerce.

Technology transfer must enable a rapid conversion of product intelligence from the development side of an organization to specific sets of manufacturing instructions delivered to the manufacturing side of the organization.

Finally, the last area of virtual manufacturing consists of translating new and changed product definitions to existing systems. This is the handshake between c-commerce and e-commerce applications. IT

Behind the byline

Michael Saucier is founder and chief technology officer of Sequencia. This article is part of his paper presented at the World Batch Forum North American Conference in Orlando, Fla. Contact the forum at kathy@wbf.org.

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