Case Study: Emerson Transaction Hub: A Bright Idea That's Paying Off
A couple of years ago, some executives at Emerson asked themselves a question:
Why pay to send inventory from one supplier on one ship and goods from a second supplier on another ship, when both deliveries are coming from the same place and could be loaded into a single container?
It was an aha! moment that ended up saving millions for the St. Louis manufacturer that regularly ships supplies from Asia to North America and Europe. In late 2005, the company started a pilot program in which a logistics provider that specializes in transportation management for freight carriers worked with two Emerson divisions to consolidate multiple orders into the same shipping container. Not only did the pilot save money, the business units were able to tighten their global supply chains by better tracking shipments and managing inventory.
Naturally, Emerson wanted to expand the program, but here's where things got complicated: Emerson has 70 separate business units that purchase goods from 35,000 suppliers. Each unit communicates with its own suppliers via a combination of e-mail, spreadsheets, faxes, and phone calls. Asking a logistics provider to step into the middle of this tangled transaction web simply wasn't feasible. "It's a brittle system, "says Steve Hassell, VP and CIO at Emerson. "If a provider or a business unit makes changes, you have to go and touch tens or hundreds of connections."
Instead, Hassell's team envisioned a single hub that everyone would link to using common communications mechanisms and data formats. It would serve as a unified gateway that Emerson's business units, logistics providers, and suppliers could use to exchange information. Of course, for a single communications hub to work, everyone has to speak the same language. Emerson decided to conduct transactions via two data formats: EDI, using the ANSI ASC X12 format, and OAGIS XML.
Here's how the system works: A business unit initiates a transaction, such as a purchase order, through its ERP system. The order is sent to the transaction hub, which translates the message into OAGIS XML. Providers and suppliers then coordinate shipping, and the providers communicate shipment status to the Emerson division through the hub. The hub is processing about 10,000 transactions per day. Once all business units are on board, Emerson expects to see that number jump to 100,000 transactions.
Hassell estimates that Emerson invested about $500,000 in the hub and has recovered those costs more than several times. Putting 10 suppliers in the same shipping container cuts costs by 35 percent. The company has saved millions in transport costs alone by consolidating shipping. Also, with information such as purchase orders and shipping notices in a common format, Emerson has more visibility into its supply chain, increasing inventory control efficiency by ensuring that materials aren't over- or under-stocked.
Finally, whereas Emerson used to look like 70 smaller businesses to its suppliers, it now looks like one big customer. Suppliers can streamline their business processes through the transaction hub while Emerson gains better leverage to negotiate prices and contracts.
Source: Adapted from Andrew Conry-Murray, "InformationWeek 500: Emerson Transaction Hub: A Bright Idea That's Paying Off in Efficiency, Savings," InformationWeek , September 18, 2007.
Your Task
Emerson is a typical example of a global manufacturing company. Manufacturing in China and South East Asian regions and customer markets in America and Europe. In the following questions you may use Emerson or any other global company in your research and examples.
To complete this assignment answer the four questions below after reading the instructions and case study above. Further instructions are after the questions.
Questions
1. Briefly describe the business processes supported by a Supply Chain Management (SCM) information system. In a global business like Emerson what are the advantages and disadvantages of using a SCM information system? With Emerson's many divisions using different suppliers, what would be the benefits of using a single SCM information system for all of its divisions?
2. Global companies like Emerson have suppliers, manufacturing, distribution, and retail operations. List and briefly describe the technologies and devices (used for input, output, and communication) that are used with SCM information systems. Choose two different input devices and discuss the advantages and disadvantages of each. Discuss the benefits that they provide to the business.
3. Consider that you have to implement a new SCM information system for Emerson. Describe each of the different implementation options. Discuss the advantages and disadvantages of the different implementation options. Make a recommendation and justify.
4. Modern SCM information systems and with the use of other technologies have supported businesses in improving environmental sustainability by reducing carbon emissions. Research and find an example. Briefly describe the system and how it works and how carbon emissions where reduced. Discuss what decision making is performed and how does the SCM information system contribute to the decision making. Discuss the advantages and disadvantages to the business.