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Although cash-strapped companies may not be spending millions on supply chain projects, private trading exchanges are still generating lots of interest. But there is little practical experience for a company to draw from in planning such exchanges.
With this experience issue in mind, Hewlett-Packard Co. and PricewaterhouseCoopers have developed the Rapid Supply Chain Collaboration Hub, which is an architecture for building private trading exchanges.
Developed for use internally at HP and for external marketing to manufacturers, the C-Hub, as it is known, connects 120 of HPs trading partners to four of its manufacturing divisions.
The service, which was called KeyChain in its HP internal implementation, links 27 ERP (enterprise resource planning) systems, as well as a host of legacy systems, according to officials at the Palo Alto, Calif., company.
The C-Hub architecture has four levels. The top is a companys supply chain strategy. The next is the process level—in other words, who does what and the processes involved.
Next is the application layer, where a company chooses software to enable its hub. At this level, PwC and HP work with four application providers: Oracle Corp., i2 Technologies Inc., Manugistics Group Inc. and SAP AG.
Connectivity, the final layer, deals with internal and external integration. It includes technology from Viacore Inc. and from most of the major enterprise application integration software vendors, as well as adapters for various systems.
Boston-based AMR Research Inc. reports a pent-up demand for private exchange technologies and expertise.
“Judging by the queries we receive, there is a need for scalable and proven PTX [private trading exchange] systems that include supplier enablement. The trick now is to build a track record of viable, cost-effective PTXes,” said a recent report from the IT research company. That might prove more difficult than originally planned.
PwC and HP have presented the C-Hub to more than 100 clients and have had in-depth, on-site visits with 25 potential customers. While both companies have generated revenues from portions of the overall solution, according to PwC officials, they have yet to book a full-scale C-Hub implementation.
“A lot of companies are not investing significant dollars in supply chains right now, simply because of economics,” said Matt Porta, partner and global head of strategy for collaborative value chain solutions at PwC, in San Francisco.
Porta said he isnt hopeful of major implementations until the economy picks up. In the meantime, HP does have significant numbers to share with potential customers.
After one year in operation at HP, the C-Hub has achieved 17 percent savings in procurement costs, a 50 percent reduction in the purchase order life cycle and a 300 percent improvement in inventory recovery.
“This was starting from nothing,” said Paul Logue, solution business manager for C-Hub solutions at HP. “The first year, we spent $30 million ramping up, and we saved $33 million. And because we stopped a bunch of point programs, we stopped about $15 million in spending.”
The savings came about primarily because HP did not carry as much inventory, and it was able to auction excess inventories and make spot purchases on commodity pieces when necessary, according to Logue.
However, the savings did not come without challenges. “Building a private exchange is not an easy task,” said Logue. “Inside the four walls, there is change management or governance—how … you get one vision for the company. There are technology challenges because every company is bound to have multiple ERP software packages. Outside the four walls, there is the supplier buy-in—whats in it for them. And theres also time. You need to show return in six months to a year.”
To settle internal governance, HP appointed a dozen CIOs representing HPs largest divisions to its Supply Chain Council. They put the kibosh on other procurement projects and encouraged direct spending through the C-Hub.
Tackling internal and external integration, HP developed two paths, one for application-to-application integration and one for B2B integration. For the latter, HP chose two standards to integrate to back-end systems: RosettaNet and XML.
While HP has about 120 suppliers and 10 percent of its direct spending working through the C-Hub now, its recent merger with Compaq Computer Corp. opens up the possibility for even bigger plans.
“Our pre-merger plans were about 40 sites that we were targeting for deployment. By the end of the first year, we tackled four,” said Jeff McKibben, director of worldwide e-procurement at HP. “Were looking to move from 10 to 80 percent of transactions.”
McKibben said the C-Hub capability has been recognized as an asset to the new company.