Global Networks for linking with Customers & Suppliers.

For presentation at the 6th IMP Conference, Milan,Sept. 1990.

Multinational corporations face an increasingly complex task of communicating and coordinating with their global customers and suppliers. The paper presents a conceptual framework for developing such global networks. The main components of such a network include linkages with customers, with suppliers, with the salesforce and other elements of the marketing system, including distribution, promotion and after-sales service. The characteristics of these linkages are analyzed in detail, with regard to factors such as customer profiles, the complexity of the product and the selling cycle, the strategic nature of the partnership and the level of interdependence.Another set of influences on the network are managerial issues such as efficiency, market research needs, forecasting & analysis and planning, environmental monitoring and competitive assessment, and salesforce and marketing control. Just as important are organizational issues, since creating such a network forces greater openness with customers and with other functional areas within the corporation. Technical issues such as the value of information made available to outsiders, the use of technologies such as Electronic Data Interchange (EDI), and third-party Value-added networks (VANs), data security problems and controlled access, and government regulations limiting freedom of trans-border data flows, are discussed. Throughout the paper, illustrations of the development of global networks in companies are used to provide practical insights.

Ravi Sarathy, Associate Professor, College of Business, Northeastern University, 360 Huntington Av., Boston, MA. 02115 USA. (617)-437-4806. Fax: (6l7)-437-2056.

976

Global Networks for linking with Customers & Suppliers.

International business is a fiercely competitive environment. The constant drive for efficiency by multinational competitors from all over the world places a premium on obtaining timely information and developing strategic partnerships with customers and suppliers. Firms are developing global sources for parts and sub-assemblies, as they seek to cut costs and take advantage of lower-cost labor overseas. As firms establish production facilities in key markets in Europe, Japan and the U.S., global logistics management become a critical corporate function. Firms seek out strategic partners overseas who possess complementary advantages such as an established client base, a proven technology or strong ties with the host government facilitating the obtaining of public procurement contracts. Time itself is becoming the basis of competitive advantage. Firms able to speed up the product development cycle and hasten the introduction of constantly changing product lines to markets seem to be gaining a competitive edge . At the same time, customers themselves are becoming multinational, and exerting pressure on their suppliers to provide worldwide delivery. The growing importance of the need for global networks is due to the international linkages being developed by multinational firms, such as those described above.The presence of global suppliers and customers means that firms must plan not only for global manufacturing and selling, but also for global coordination of product design, distribution and customer service. Thus, monitoring global customers and suppliers is becoming a crucial corporate function. Networks are needed to communicate with such strategic partners in a timely and efficient fashion. Global networks, once developed can also be used to monitor and prepare responses to global competition; similarly, such networks can help communicate the interests of national governments and the national interest to multinational headquarters, where appropriate nationally responsive strategies can be formulated. Thus, global networks are increasingly essential to managing global corporations.

But developing such global networks is complicated by the very nature of the international environment. Difficulties arise from:

- traditional barriers such as tariffs, quotas, non-tariff barriers such as customs formalities and local-content laws;- cultural differences such as those created by language and different business practices;- legal differences which complicate establishing commercial relationships with overseas partners, and require close attention to questions of data security and network access;- geographical distance and differing time zones which make communication difficult;- barriers created by government regulation, such as limits on trans-border data flows (TDFs), and on using value-added networks (VANs), and,- differences in the level of technological sophistication of overseas partners, such as in the use of information systems, computer hardware and software, incompatible standards, and differences in managerial expertise brought to bear on subjects such as quality control, inventory management, customer service and support, and market research; these differences complicate efforts to tie in partners into the global network.

Despite these complications, firms have little choice but to work on developing global networks. Environmental forces such as shorter product life-cycles, multinational competition, government regulation and the importance of developing long-term relationships are impelling firms to put global networks in place, as one more approach to gaining competitive advantage. In the rest of this paper, we outline a conceptual basis for developing such global networks and summarize case studies illustrating various aspects of such global networks.

Linkages with Customers.

977

Customers are one of the major focal points of a global network. In analyzing customer linkages, we can consider two broad categories: customer interaction variables, and customer information variables. These two categories are further described below:

CUSTOMER INTERACTION variables. These interaction variables affect the nature of relationship established with the customer and shape the parameters of the network to be developed.

the customer relationship: is it a one-time transaction or an ongoing relationship;product complexity; is it a "straight" sale, or will it require continuing consumer education,

and support"?length of selling cycle; is repeated interaction with the customer necessary to close the sale?intensity of competition for the customer's business; is it a repeat sale or a first-time sale?pricing: are prices fixed or negotiated?exchange-rate risk; does the buyer or seller bear exchange rate risk?upstream involvement; is the customer involved in product design, product modification or

customization?downstream involvement; does the customer require extensive product support, and high levels

of technologically complex customer service?distribution channel; how has the customer been served - through distributors, personal

selling, direct mail, telemarketing, or in an OEM arrangement?

CUSTOMER INFORMATION variables. The second major issue concerns the information content of the network; that is, what kinds of information will flow from the firm to the customer and vice- versa? The information content aspect is mainly concerned with understanding the buyer, what role the firm's product plays in helping the buyer improve his business performance . Some of the principal components would include:

customer profile analysis: financial background, buying history, frequency of purchase, buyer preferences (with respect to product attributes), buyer sophistication; such analyses are useful to the salesforce in enhancing the quality of their interaction with customers; such databases help salesmen be more attentive to customer needs and helps them forecast what product features or services will most appeal to a specific customer. The same information is also useful in deciding what directions new product development should take; it is particularly in highlighting the incremental product improvements that would most appeal to customers.

client importance, size of individual purchases, whether standing orders are used, pricing practices and standard negotiated discounts offered for each specific client; such data can help in prioritizing customers and tailoring the sales package to each customer, including aspects such as discounts, parts support, free upgrades, warranty terms, in-house service and so forth, in accordance with the present and future profit potential of various clients.

purchase decision-makers and gatekeepers at individual customer sites; teams are particularly important in industrial buying, and detailed information on key buyer personnel at multiple locations across countries can be critical in preparing and executing sales plans.

strategic relationship between client and the seller, such as customer input and feedback during product design, role in prototype (beta-site) testing, and as a source of feedback on product performance. High-priced industrial equipment, particularly capital goods, are often developed in response to the needs of key clients, and systematic data on the evolution of such relationships are the key to long-term customers.

segment category: classifying customers into vertical industry markets and niche segment; for example, in software, customers can be categorized by industry, such as insurance companies, construction firms, advertising agencies, with software adapted to the specific needs of such groups. Here, statistical programs are used to analyze sales history and buying trends to quickly suggest emerging new market clusters and segments which can be profitably addressed, often by changed product positioning or by new product-service offerings.

978

differences among customer segments by country and regional market groupings; for example, a study of cellular phone users showed that British buyers were more concerned with size and price, whereas Scandinavian users paid greater attention to brand image, service and reception . As cellular phone firms expand into France, Italy and Germany, such information provides a basis for test marketing by experimenting with different approaches.

penetration by competitors of existing customer base as well as prospects & leads; when combined with information on competitor product positioning, this allows salesforce and marketing management to prepare reactive and counter-attack strategies in a timely fashion, often before the sale is lost.

We now briefly consider some examples of how firms have used networks to link themselves with their customers.

K Line: Shipping freight for customers

Customers of freight shipping firms want constantly updated information on the status of their shipments. In response, K Line, a Japanese shipping firm, developed a global network integrating voice, data, telex and fax traffic. The network connects N. America on to Tokyo via trans-Pacific fiber cable, and then on to Hong Kong, Taiwan, Singapore, Korea and Thailand. The network will soon expand to Europe, and users can query the system for updated shipping information , with user- friendly features such as color graphic maps facilitating communication.A central problem in such a system is identifying the exact location of a container, one out of hundreds of same-sized red or yellow or green rectangles. The solution is to use remote radio tagging, similar to the technique used to track animal movements in the wild. Electronic tags are attached to each container containing specific information on that container. A receiver at the shipyard or on board can read the tags and feed the information to a computer at the terminal and from there to a central computer which updates container information and location throughout the company. The information is collected almost instantaneously and continuously updated. Such a system is in pilot use at American President Companies in their Seattle shipyard .

Transco: transporting gas on behalf of customers.

Transco, a U.S. company, owns pipelines for distributing gas. Before deregulation in the U.S., Transco bought gas and distributed it. After deregulation, it had to distribute gas for third parties such as gas producers, other distributors and users. Its rates were based on the volume of gas and the distribution routes chosen, and it had to supply information on pricing and pipeline operations to the government for compliance purposes. It took Transco six weeks to develop a contract for a customer that specified where gas would be put into the pipeline and where it would be delivered, and at what rates. Customers wanted the least expensive routes for their shipments, since a few cents per cubic foot of gas could dramatically increase margins. Time was also a factor in that customers would choose the pipeline through which they could get gas transported the fastest. There were also many pipelines operated by competitors that could deliver gas from the Gulf Coast to the East. Hence, Transco developed a system that users could use for free and which could prepare contracts in five days while also free up company personnel. Customers can use a Transco developed system, Transit, by calling in to Trnnsco's computer system, and then compare rates, play around with alternate routes and then set up a contract, as well as send and receive messages. Transco's dial-in system displays to customers a graphic map of Transco routes. Customers can zoom in on an area to get greater detail, and by typing m the entry and exit points, receive a summary of mileage and pricing. Customers can then examine "what-if" scenarios by varying the routes and locations. Further steps help the customer prepare a contract and submit it to Transco electronically. Though the system is easy to use, customer training is provided, and many attendees at training sessions become subsequent Transco customers. Their satisfaction with the service leads to repeat business and growing market share .

979

Could Pumps.

Could Pumps manufactures many varieties of industrial pumps, and because pumps wear out, replacement demand is a major component of sales. Gould had five geographically separated product divisions which meant that salesmen might have to place five separate orders (with each manufacturing division) for one customer order. Dispersed sales offices, 34 in all including 7 international offices further delayed order processing and sometimes resulted in non-standardized price quotes. Gould wanted to create a system to retain customers, increase sales and speed up shipping and delivery. They wanted to provide customers immediate information on pricing, order status, inventory availability, and shipping schedules, and allow customers to dial into Gould's computers and look up the information themselves. Their goal was a centralized system that would bypass and reduce the load on local sales offices, agents & distributors.

Further, they wanted an international order-entry system that would eventually be integrated with inventory, plant scheduling and shipping systems. The global network will link markets in the U.S., Canada, Italy, W. Germany and Hong Kong. A planned next stage will link the customer order to Bill of Materials for the factories producing the pumps, specially as a pump's features and options vary, thus automating purchasing and providing links with preferred suppliers for components and sub- assemblies. In turn, this could lead to integrating all the manufacturing plants to provide just-in-time deliveries to customers. In short, an attempt to provide better customer service could lead to integration of several parts of the company, including purchasing, material requirements planning, outside sourcing, production control and costing.

Liz Claiborne has been developing links with retailers that allow the retail store buyer to view new fashion lines and specific styles on a high-resolution graphics computer. Here, the high-definition image is digitized and transmitted to the retailer, saving time and allowing for feedback as the design process is occurring. The idea here is that the retailer does not have to wait for occasional visits from a factory representative but can view the line as often as desired. Such a system would also allow the retailer to zoom in on details of a product, such as detailing over pockets or the weave of the fabric, and then, transmit an order if they so desire. Such capabilities are being offered by third party Electronic Data Interchange (EDI) network vendors such as GE Information Services through their Design Express service, which facilitates transmission of design patterns and other information to manufacturers worldwide. EDI is an integral technological component of any attempt to form global networks, and we discuss it in detail in a subsequent section.

In summary, combining an understanding of the buyer together with interaction variables (described above) helps shape a global network that can aid a firm in improving the quality of its relationship marketing to industrial customers worldwide. A supplementary benefit is that aggregating information gathered from customers scattered around the world will result in developing data about individual country markets, as well as about individual products in a product line.

Linking with Suppliers.

The second major focus of global networks is linkages with suppliers. Several factors mediate this relationship. Foremost is the intent behind the business purchase transaction. Is the relationship intended to be a long-term one, a strategic partnership? Why does the client firm seek a supplier? A strategic orientation arises out of a clear client firm mandate to reduce fixed costs and investments, while seeking quality and lowered outsourcing costs; in turn, this may often lead to favoring one or a few suppliers, in an effort to gain improved quality, and closer coordination in design and manufacturing, as well as the traditional economies of scale.

Arising out of such a strategic orientation in seeking suppliers, the next question is, when does the supplier become involved? A critical concern is whether the supplier becomes involved at the design

980

stage of a product's development, thereby affecting its integration into the buyer's final product, its manufacturing cost, manufacturable quality, ease of service and so forth. Other kinds of involvement could include supplying on a long-term open order, guaranteeing incremental product performance improvements over the life of the order, providing customer support and warranty services and engaging in joint promotion.

Often, supplier relationships become partnerships, with interdependence rather than hierarchical relationships predominating. An example comes from the EDA (Electronic Design Automation) software industry, whose products are design software packages used by customers to design and build complex semiconductors such as Application-specific integrated circuits (ASICs). In such an application, a customer needs an integrated set of tools which can be used to design, simulate, and test his ASIC before actually manufacturing a prototype. For this to happen, the individual design, test and simulation packages must share a common framework and data bases. However, few software companies offer the full range of software tools needed to carry out the task. If the customer then buys individual packages from separate vendors, he often faces the daunting and sometimes impossible task of integrating the various software packages. Instead, if he is a sufficiently large customer, he can demand that the suppliers work with one another to take care of the problem. In such instances, collaboration with suppliers becomes a customer-driven partnership, with two independent suppliers of software jointly marketing their separate packages as one integrated solution set .

.QBlenkhorn and Noorr break out the stages of involvement by Japanese suppliers with their OEM clients as follows: Market needs assessment, R&D, Design, Test, (Product) Specification, the Make or Buy decision, Final Assembly and Shipment. They found that Japanese OEMs typically concentrate on market needs assessment and final assembly and shipment, leaving all other stages to the supplier, with the make-or-buy decision going in favor of outsourcing. They contrast this with a typical N. American pattern, where suppliers mainly perform as subcontracting manufacturers, with all product design and test phases carried out by the client (OEM) firm itself. While this dichotomy represents two extremes, the point is that outsourcing as a strategic decision requires greater supplier involvement, and is the first and key question to be asked. Several other consequences follow from this first strategic decision.

Once the nature of supplier relationship has been established, other parameters of the client-supplier can be established. This would cover issues such as:

- Competitive pricing; with strategic choice of suppliers and single source or limited source suppliers, the tendency is to limit profit margins, trading off lower returns for a lesser degree of risk; a complicating factor is exchange rate volatility, which can significantly reduce returns for wither the supplier or the client. If the relationship is indeed a long-term strategic partnership, sharing of such exchange rate costs is warranted.- Design for manufacturability, which simply means jointly designing parts and subassemblies with a view to reducing manufacturing costs and raising quality yield levels, by concentrating on design improvements such as realistic manufacturing tolerances, fewer moving parts and greater use of modular subassemblies. Note that this is an ongoing process and continued dialog as befits a strategic partnership would be necessary to achieve incremental improvements. This concept is discussed in greater detail below.

Delivery terms, such as JIT, and in variable quantity at multiple locations.- Targeted quality standards and improvements, and the sharing of cost savings realized by experience curve economies and incremental improvements in design.- Compatibility of equipment, networks, and standards, to facilitate computer-based communication; this critical issue is taken up in depth in a subsequent section.

Design for Manufacturabilitv. About 75 to 80% of total manufacturing costs are determined by the product's design. Hence, manufacturing and subcontracting suppliers participation is needed to cut off faulty designs, unrealistic tolerances, poor processing methodologies and uneconomic assembly specifications. The involvement is necessary to avoid subsequent rework and engineering changes. Manufacturing can tell designers what the factory is capable of producing. Similarly, the purchasing

981

department can expedite materials procurement with advance notice of planned new products. Innovations such as the use of CAD files, simulation to examine tolerance and fit, solid modeling and group technology lead to time and cost savings; for example, they reduce the need to build multipleprototypes.An example is Navistar's Nov. 1986 talks with U-Haul to build a truck with a lower entry height, so that furniture could be loaded more easily. Design files for this new truck were shared between Navistar departments including engineering, marketing, supplier companies and U-Haul itself. Lowering the chassis height was not an insignificant change as it affected other parts of the truck such as the air suspension system, the wheel ends, axle and tires, all of which together affect load carrying capacity and hence safety. Hence, every change had to be tested for its effects on the truck; every Navistar change was sent on computer tapes to suppliers, saving time and leading to a safer truck. Navistar had a prototype by spring 1987 and full production by Sept. 1987 .

While links between design, manufacturing and subcontractors help cut total manufacturing costs, continual monitoring of customer response is necessary to keep improving the product. Such customer reactions must be fed back to the product designers. One approach might be to use serial numbers on every part manufactured or assembled, and when customer problems develop, trace the serial number back to the batch and factory at which production took place. Statistical quality control techniques can help determine if the problem occurs systematically, in which case other units from the batch can be traced and preventive or repair measures taken as necessary.

The Costs & Benefits of Supplier Linkages. Another essential step in developing supplier linkages is evaluating the costs and benefits of such linkages . Main benefits to the buyer might include lower product costs, improved quality and higher levels of embedded technology, and a more focused operation, since both the buyer and his supplier have decided to specialize within the value-added chain. Buyer costs may include enhanced dependence on the supplier for critical components, (specially if the buyer deliberately seeks to use a limited number of suppliers) and the time and cost of greater coordination with the supplier. Granting long-term open orders can both be a benefit and a cost: a benefit in that the buyer need not constantly search for suppliers; and a cost in that buyer must monitor supplier performance to guard against slippage in quality, delivery, product improvement and so forth.From the supplier perspective, a guaranteed long-term contract provides certainty on which to base large specialized investments in product development and equipment, a favored insider position at times of contract renewal, stability of workforce and ensuing cost and quality gains, and enhanced growth resulting from a long-term perspective. The major disadvantage may be the forced necessity of working as a team with the buyer and the constant pressure to enhance product quality, reduce costs and trade­ off product margins for larger volumes. The supplier too becomes dependent on a few large Luyers, and such dependence can be fatally risky for a small company with only a few large (buyer) clients.

We now briefly review case studies of recent corporate attempts to develop global networks with overseas suppliers.

Mast Industries.

Mast is the manufacturing and sourcing arm of The Limited, responsible for supplying Limited subsidiaries such as Limited, Lerner, Abercrombie & Fitch, Victoria's Secret and various catalog businesses. Mast does not generate clothing ideas itself. Instead, buyers for the various Limited retail subsidiaries come to Mast with garment ideas for their stores. Mast's job is to get the clothing produced and make it available on time for the various Limited subsidiaries. Mast works with independent factories in Hong Kong, Taiwan, Singapore, Korea, and in Europe. One of its objectives is to reduce the turnaround time it takes to get the items into the stores, i.e. reduce the off-shore production and sourcing time. Mast has gradually evolved a system which allows requests to be filled within 30 to 60 days compared to 3 to 10 months taken by competing specialty and department stores 12 This allows buying decisions to be delayed until consumer needs can be more clearly assessed. The short production

982

time also means that smaller repeat order can be placed, instead of one large order early in the buying season. In turn, this reduces the risk of having excess unsold inventory at the retail stores, which consequently obviates the need for end of season sales at discount prices. Thus, initial prices need not be as high, as they would have to be to absorb the losses on unsold end of season merchandise. These lower initial prices can translate into increased market share.Mast's system uses videoconferencing and high-definition TV (HDTV) to facilitate global discussion on fabric colors and textures. The 35 mm. photograph quality of HDTV allows fabric comparisons between the Far East and the U.S., allowing buyers and suppliers to zoom in on a complex print with enough detail to count the stitches in the cloth. This cuts down on travel time and more important, allows for quick decisions: instead of five days, the fabric decision can be made in a few hours, through such global teleconferencing. Similar results come from an electronic mail system linking Mast to its suppliers; it can request a quote from its overseas production network and receive a cost sheet overnight through the E-mail system, which increases the overall system responsiveness while also dealing with the major time difference between Mast's E. coast U.S. offices and the Far East suppliers. Developing such global networks means overcoming several problems: such as building or leasing high­ speed communication facilities, which are not universally available worldwide. There are also regulatory problems, ranging from government controls over the kind and type of equipment to be used on a network, to controls over the transmission of data across borders (trans-border data flows). Customs clearances can hold up shipments, in response to which Mast has developed artificial intelligence systems to automatically determine the tariff classification of a garment and its duty rate, so as to expedite import and export of garments between Hong Kong and the U.S. (since quotas and tariffs are important in garment exports to the U.S. and Europe).

Liz Claiborne, like Mast, makes heavy use of overseas contractors. Its goal is to exchange CAD/CAM based design information with textile manufacturers and with the overseas manufacturing subcontractors. At present, the firm sends pattern via satellite to its overseas offices from which they are delivered to factories. The goal is to create a direct transmission link with the supplier, to allow interactive design with the subcontractor. This is seen as a key to reducing turnaround time in overseas production. A related point is the use of bar code scanners to accurately count and transmit inventory and work-in-process information between buyer and supplier.

Texas Instruments has one of the most developed global networks, connecting 20 centers around the world with customers and suppliers. The system has been under development and evolution for over 20 years. The main goals are to maximize cost savings from manufacturing in the Asia/Pacific region, and create a design, manufacturing and marketing presence close to customers throughout the world. Each business group, such as the semiconductor group, carries out marketing, production scheduling and control on a worldwide basis. Orders from all over the world are aggregated each night and then assembles materials, packing lists and shipping orders, which are sent to the appropriate factory or warehouse. A product designer in Tokyo could transmit his specs to a fabrication facility in Texas, from which slices of silicon can be shipped to Malaysia for assembly and test, and then shipped directly to customers. Future goals include creating a single European customer database instead of separate ones for each business group; this would eventually become a global data base .

In sum, industrial buyers throughput the world are seeking to reduce the number of suppliers they buy from, while negotiating longer-term agreements. They seek to link manufacturing with product design, inventory and shipping, and customer information. This represents an enormous task requiring marketing to collaborate with manufacturing, at a minimum. Such networks are complex and costly, and quite necessary to doing business as a multinational.

Subsidiary linkages: Salesforce, Distribution, Service.

While buyers and suppliers represent two principal nodes of the global network, there are other interests that must also be integrated. These include salesforce interests, distribution and other aspects of the marketing system ( promotion, for example), and service.

983

Salesforce interests tend to concentrate on generating sales leads, obtaining up-to-date customer profiles and sales histories, a sales call scheduling and monitoring system, inventory availability and shipping dates, prices and discounts or deals allowable, and competitive pressures pertinent to each sales lead. In global industrial markets, a special issue is the use of multinational and multi-functional leads, with n drawn-out selling cycle. A progress reporting subsystem to monitor and summarize progress made at each visit with a sales lead, as well as communication capabilities between members of the sales team are necessary elements of the network.

Service tends to be a major element of successful industrial selling, hence, global networks must include service sub-systems. Pertinent issues include maintaining failure and service records, forecasting future failures from the service history of a product or parts family, keeping track of the cost of service, facilitating feedback to product design so as to facilitate incremental product improvements, and similar feedback to parts and subsystem suppliers for similar corrective action. Also important is record keeping on the cost of providing service, customer satisfaction with service, field parts inventory adequacy for service calls, and comparative competitor performance in the service area, including comparative warranty information and comparative mean-time between failure statistics. Providing service in the international arena is complicated by distance, the number of locations from which service is provided, location and availability of warehouses and parts, training and dispatch of technical personnel, and providing technical information in enhancing the quality of service performed. Basically, there are two central service issues: providing field service to enhance customer satisfaction at reasonable cost; and, using service feedback to enhance product design and quality of next-generation products, particularly through incremental improvements. Rather than providing some absolute level of service, the cost of down time to the customer can be used to tailor the quality and intensity of service provided .

An example of using networks to gain an edge by offering superior service is a Service Expert System used by Service SA in France to provide technical assistance to dealers responsible for the maintenance of compact disc players sold to customers throughout France under terms of a customer warranty . Service staff at the dealers needed help in repairing the CD players, and the interactive computer network could only handle data. A videotape would have to be shipped to handle visual images. Such a system made monitoring change and handling of improved procedures difficult. Hence, Service developed a system taking advantage of the newly introduced ISDN network through which pictures are stored with reference numbers as part of the text maintenance manual* Then, as the mechanics need help, they can access the central maintenance database maintained by Service SA and look up both the relevant portions of the manual and the pictures on a computer terminal. This allows Service SA to update both the manual and the pictures at will, while ensuring that maintenance technicians are using up-to-date information in carrying out their task.The major saving is the reduction in the direct labor cost of the average repair, since the repair diagnostic time is cut in half. The latest information is sent more quickly to dealers; but an even more important benefit is that statistical information on product defects and repairs performed is fed back to quality control at the factory producing the units. Immediate ongoing feedback of problems encountered and repairs necessitated enhance the firm's ability to redesign the product to prevent such flaws from recurring.

Global Networks and Management Control Issues.

The shape of global networks is also affected by the decision-making needs of management 16 . Critical points include:

-enhancing management efficiency through applications in areas such as order entry, sales calls and expense reporting, product profitability analysis by region and customer, databases of technical product specifications, etc..-managing the selling process, through information that permits client and product profitability analysis, comparing actual sales with targets or quotas, and sales trend forecasting.-managing the manufacturing sub-contracting process, with data on costs, quality and delivery performance, spending on joint design & research, and comparative information on product and process improvement.

-managing the customer relationship, through databases of customer purchases, customer complaints and other feedback, and direct links with customers using approaches such as EDI (covered in detail in a subsequent section).-facilitating management control, with immediately accessible up-to-date information allowing managers to perform the computer equivalent of management by walking around; strolling through successive levels and finer decompositions of a customer database can help trace causes of sales declines; for example, a shortfall in a regional quota can be traced to a particular customer, and to a division at a customer, where a change in the manufacturing process has led to a switch in the raw material specifications resulting in a competitor's product being preferred. While the salesman might know this information, having such information reside in a central database might permit faster reaction and more appropriate response at a higher level of the organization.-environmental monitoring, particularly important with diverse country markets and national differences in regulations and standards;-statistical analysis capabilities, in areas such as market share shifts, the isolation of market segments across countries, and customer reaction to management actions such promotions, new product improvements, changes in service levels, enhanced delivery and the like. For example, Frito-Lay, the snack foods company, used such capabilities to trace reduced market share in a region to the introduction of a generic store brand; having such data allowed a quick counter- response and elimination of the problem.

It should be apparent that management control draws on a set of a databases and statistics that is also relevant to linkages with customers and with suppliers. The difference is in the level of aggregation and analysis to which such data are subject; timeliness and speed of response are what interests management. Hence, from the management control perspective, greater emphasis will be placed on the communication network itself, and on cost/benefit tradeoffs in articulating the database and communications network configuration. Implementation is always a management preoccupation, and it is clear that a full-blown global network is a major corporate undertaking, requiring considerable analysis, and commitments of time and money. Hence, management is more likely to opt for a phased implementation approach, in the sense of building a full-scale global network for one product line; then, using the learning from this effort to extend the concept to other product lines at the firm. Such an approach will more clearly identify the difficulties involved in extending global networks to various countries, as also the coordination required to tie in suppliers and customers into such a network.

Organizational Aspects of building global networks

Global networks are not just about building communication links, designing databases, and developing specific applications. They represent a fundamental change in the way a firm carries out its business, in the way that it shapes its relationship with clients and with suppliers. Global networks lead to shared data, shared managerial actions in areas such as product development, and hence, greater interdependence. An important question is the value of information, and firms must decide how much information is available to outside partners such as customers or suppliers. Often, a hierarchical system of differential levels of access is set up, with a larger quantity and more sensitive information being provided to partners and clients where the strategic relationship is stronger and of greater duration. The firm must also be concerned about the cost and time required to implement such networks, including finding or designing appropriate software, and getting partner collaboration in implementing such efforts; the technologies and management styles inherent in using a global network are being adopted at different rates in various overseas markets; as a consequence, overseas suppliers may be unable to successfully their end of a network. Their relative ignorance may also lead them to oppose such networking attempts. Such reluctance slows down the pace of implementing a global network, and the firm must then be willing to spend time and effort on training their partners to make full and effecti\e use of global networks.

985

Not onlv does the firm have to communicate with outsiders, but it must also break down functional barriers" within the organization. At a minimum, marketing and manufacturing will have to work together to design products that can be manufactured at low cost (the design for manufacturability environment) and together choose and coordinate working relationships with outside suppliers. For example when Johnson Wax decided to develop a Computer Integrated Customer Service System (CICSS) they formed a team of high-level managers from Manufacturing, Sales, Finance, Distribution, and Customer Service, in addition to a technical Director of Information Services, who together decided on the configuration and links of their CICSS .In a similar fashion, salesforce suspicion that global networks are intended to allow closer supervision by management must be overcome if the network is to be used effectively by them. At the same time, the wealth and accessibility of data allows greater decentralization, with regional autonomy increasing, while headquarters can monitor and intervene in regional decision-making only as required. Such systems make it easier for country managers to see the "big picture".

Technical Issues in developing Global Networks.

Developing global networks is partly an exercise in developing a global information and communications network. Several computer-related technical issues affect such network development. Foremost is the growing global use of Electronic Data Interchange (EDI). Other critical considerations include

- the compatibility of equipment used in various countries in the global network; incompatibility is the norm, and firms must then negotiate standards and protocols to facilitate "handshakes", that allow data transfer and communication;- the use of satellites and third-party value-added networks (VANs), to physically link firms with their customers and suppliers; in many countries, such VANs are heavily regulated by Government, raising cost and impeding smooth development of the network. Local content regulations may require use of high-cost and less efficient local data networks; at the same time, the global reach of internationals VANs such as GE, Computer Sciences and IBM is increasing, permitting greater efficiency across such networks.- the need to combine voice, data and video information in such transmissions, and the growing use of techniques such as voice mail, computer- and video-conferencing, all of which increase the versatility and value of creating such networks. This is not to underestimate the difficulty and cost of using such technological innovations. But the point is that the scope of global networks has increased immensely and firms are likely to reap much larger benefits from mastering the complex technology of these "frontier" applications.- data transfer problems, including differences in the rate of data transmission in different parts of a global network, and differences in standards and protocols in different countries and among different users, all of which slow down the rate of data flow and increase the cost of using such networks. Firms may take comfort in the knowledge that such problems will disappear in time and are merely the growing pains of the developing global economy.- security and legal issues, including legal responsibility for errors, controlling access to the networks, and providing audit trails, all of which require considerable staff training and the use of company-wide teams to address the issues and come up with company policy on these subjects. In fact, legal and security issues are more likely to stop and delay implementation of the global network than purely computer-related technical issues. It is a far more serious matter for the firm to ensure that orders and payments are being correctly transmitted and unauthorized users are prevented from tampering with the system and defrauding the company, and its clients and suppliers.

We now discuss the global implementation of EDI, which represents the cutting edge of developing global networks.

Global Electronic Data Interchange (EDI).

986

"70% of one business computer's input is actually the output of another business computer" (Jerry Hershney, systems analyst at Sears Chicago). If the data could be directly transferred, time, errors and expense are all saved. EDI has grown from this premise.

EDI can be described as computers doing business with one another, or more accurately, the transfer of business transactions directly between computers. EDI is a process used to automate standardized data exchange between business partners. Thus, a buyer could set up EDI with his vendors to buy on a just-in-time basis, with all orders being electronically transmitted directly to the vendor's computer systems; in turn, he could directly query the vendors' manufacturing database to ascertain the status of his order, how far along it is and when delivery is likely to be scheduled. Then, upon shipment, the buyer uses EDI to instruct his bank to electronically transfer funds in payment. EDI is about companies exchanging business information electronically. Similarly, two government departments, such as the tax bureau and the treasury could use EDI to exchange information about tax returns, collections, etc. The potential advantages from EDI are immense, as it can save on duplication of data entry, decrease errors and raise productivity. EDI can reduce pipeline inventory, and the time goods wait at loading docks and in warehouses. A 1989 survey of EDI users in the U.S. found that about half of the users stated that speed and reduction in lead time was the reason that they used EDI. In the U.S., EDI's biggest users are manufacturing, distribution and transportation industries, with common applications being shipment status request, customer order placement, bank cash reporting and electronic mail. Fig. 1 summarizes the major managerial and technical issues in implementing EDI.The problem in implementing EDI is globally is that foreign suppliers, who may be small in relation to the client firm, do not have EDI capability and have to make an effort to learn how to do business using EDI. EDI of course cannot happen without a telecommunications network which can hook up users on disparate computer systems. Such networks have developed to a far greater extent in the U.S. than in Japan or Europe, with the smaller Far Eastern countries lagging. Access to a network through which to send and receive data, compatibility with the existing order entry and inventory systems, data security (outsider access to a host computer via a network) and the cost of computing equipment and associated software are all factors impeding use of EDI by users around the world. But the biggest factor hindering widespread adoption is a lack of confidence in a system that does away with paper forms in triplicate and with tried and trusted accounting systems. "Conducting business electronically is not an idea that rests easily on executives' minds' . Common standards would help, but antitrust fears keep U.S. vendors of EDI systems from collaborating with retailers and manufacturers in developing such standardized systems. About 85% of all new EDI users in the U.S. use third-party networks, and GE is the leader with a 40% market share. Overseas, major U.S. EDI network suppliers such as Infonet are forming a joint venture with the national PTTs (Post, Telephone & Telegraph) agencies in other countries (the Global Trading Partner Management program); the PTTs are to own 70% of Infonet, and thus might be motivated to form a strong global EDI network 19 .

Chrysler is a leader in using EDI in the U.S. auto industry. It is part of AIAG, the Automotive Industry Action Group, establishing ANSI X.I2 standards for EDI. By 1990, 1700 Chrysler suppliers were using EDI and by year-end, another 1800 will have done so, nearly all of Chrysler's suppliers. Chrysler strongly urges assembly plant suppliers to use EDI. The goal is to eliminate paper transfer between suppliers and Chrysler, and also achieve speedy, accurate and timely communication, leading to efficient order-processing and inventory control, as well as savings in time and long-distance calls. Standardized transaction sets are being developed which would be common to all three U.S. automotive companies; for example, they are working on developing a common format for advance ship notices, that, for example, could notify a Chrysler assembly plant that parts are on their way. Chrysler immediately confirms whether the information is correct or incorrect (by comparing with its initial order), thus stopping and modifying the shipment if necessary. By developing a common format for all three auto companies, the supplier could work with a standardized format regardless of which company and plant he was dealing with.

In conducting such data interchanges, a common data format is essential. When Greenwood Mills, a fabric producer, used EDI to link up with customers, an impediment was fabric bolt sizes. Greenwood

987

used standard measurements such as 36" and 48" fabric sizes, these being minimum measurements. But customers who used numerical control machines needed to communicate exact sizes to their fabric- cutting machines, whether the bolt was actually 37 or 37.5 inches wide. Hence, they had to remeasure the shipments. Fabric color needed similar standardization as Greenwood used names for different colors, xvhile customers measured fabric color by its variance from a standard color such as red. In order to use EDI with customers, Greenwood had to reconfigure the product database for exact bolt si/es and color variances. A Textile Apparel Linkage Council (TALC) has been formed to standardize terminology among the various companies, suppliers and customers, in the U.S. textile industry .

Summary.

Global networks can focus primarily on linkages with customers and suppliers. But linkages will also be necessary with the salesforce, with distributors, with the service function and with national governments (when regulation and compliance issues are involved). Management control needs will also shape the implementation of the global network. These different constituencies all have to be satisfied, and have different data needs, some shared, some unique. But a common goal is to keep the network simple ("user-friendly"), timely, with up-to-date information, and ensure that there are clear benefits to the users (whether customers or suppliers or others). Inevitably, using such networks imply organizational changes since data will be shared, decisions will be jointly made and dependence is deliberately created. Finally, global networks are technologically complex and require use of advanced technologies such as satellite communication networks, video-conferencing and high-definition television, radiotagging and so forth. Technical expertise will be necessary but should be used as a means to an end: that is, use the latest technology because it leads to better linkages with customers and suppliers, not because it is the latest technology and therefore attractive to information systems personnel. If carefully thought out and implemented, global networks can provide a competitive advantage to multinational firms in the global marketplace.

988

Fig. 1. EDI: A Checklist.

Managerial Issues.- Gel orders right: timely receipt of and acknowledgement of orders.- Accurate remittance notices, advising that a payment has been made.- Payments made with EDI to suppliers must be 100% accurate. The correct amount must be credited to the correct account on time.

Separation of payment details from remittance data (information on what is being paid for, which account should be credited etc.) Separation creates a reconciliation problem: payments to client accounts.- Ample time for implementation, permitting a careful evaluation before move from pilot use to full- scale volume, and time for installation, training.- Expandability, to be able to add new trading partners.- Confidentiality and data ownership issues. Sensitive firm and client data are being sent on the network and confidentiality must be preserved.- Security, preventing unauthorized access, error correction and providing audit trails.- Legal responsibility: when errors are made, who is responsible for consequences? The firm, the client, the provider of the physical VAN?

Technical network issues:- Build your own, or use a third party network (VAN)?- Volume of data transmitted: network must be able to handle peak data traffic.- 24 hour access to the network, 24 hour uptime( i.e., using alternate routes to avoid parts of the network that are defective, guarding against disasters such as power outages, electrical storms, hurricanes etc.)- Store & forward capability, so that users can access data and documents at their convenience.- Ability to handle different physical data characteristics, such as SNA, asynchronous, and so forth.- Ability to handle different rates of data transmission speeds.

Data standards for payment: in the U.S., there is CCD (cash Concentration & Disbursement - limits data up to 94 characters), Corporate Trade Exchange (CTX, variable length records) and CCD+ (94 character records).- Cost: generally, a fixed fee plus charges based on volume of data traffic. Plus, software to handle EDI, covering the technical issues outlined above.- Inter-networking capability (when a trading partner works through a different third-party EDI network). This is crucial for global EDI, since local VANs will often provide EDI services in their countries.

Source: Derived from "Product Spotlight: Electronic Data Interchange". Computerworld, March 26, 1990.

989

References.

. George "Time - The Next Source of Competitive Advantage", Harvard Business Review, July-

1988.

: J. Feireira & M. E. Treacy, "It's More Than Just Laptops", Datamation, Nov. I, 1988

V M Hruby, "Business-to-Business", Sales & Marketing Management, May 1990.

4 Ilkka and John A. Quelch, "Nokia-Mobira Oy", in The Marketing Challenge of 1992, by John A. Quelch and Robert Buzzell. Reading, MA.: Addison-Wesley 1990.

^"Tracking freight ship-to-shore", Computerworld, June 11, 1990.

""Freighter plays electronic tag", Computer^orld", May 7, 1990.

7 "Transco's information pipeline helps customers go with the flow", Computerworld, April 2, 1990.

8 "Jeft Dorsch, "Users, Frameworks, Standards Foster Collaboration", Electronic News, June 25, 1990.

vid L. Blenkhorn and A. Hamid Noori, "What it takes to supply Japanese OEM's", Industrial Marketing Management, Vol. 19(1), 1990, p. 21-30.

0"Eliminating the fudge factor", Computerworld, April 2, 1990.

T. F. Lyons, A.R. Krachenberg and J. W. henke, Jr., "Mixed Motive Marriages: What's Next for Buyer- Supplier Relations?", Sloan Management Review, Spring 1990, pp. 29-36.

12 "A classic IS approach to fashion", Computerworld, April 2, 1990, p. 50.

13A. Pantages, "TI's Global Window", Datamation, Sept. 1, 1989.

M. Cohen and Hau Lee, "Out of touch with Customer Needs? Spare Parts and after-sales service", Sloan Management Review, Winter 1990, pp. 55-66.

15 Computerworld, Dec. 12, 1988. "ISDN Executive Report: Snapshot of the French Scene", p. 80.

16J. Ferreira & M. E. Treacy, op. cit. p. 131.

17 A. Pantages, "The New Order at Johnson Wax", Datamation, Mar. 15, 1990.

18 "Electronic Data Interchange", Computerworld, March 26, 1990, p. 81.

I9"C.D. Snapp, "EDI Aims High for Global Growth", Datamation, March 1, 1990.

Adding newplayers can change rules of the game", Computerworld, April 30, 1990.

990