It made economic sense when, back in the 1990s, some of the biggest high-tech companies decided to outsource component manufacturing. Global contract manufacturers could often do it cheaper and faster. But the lack of control and uncertainty about inventories and schedules within the resulting multi-tier supply chains also fostered unease.
The big OEMs couldn't see supply or production problems percolating in the extended chain, so glitches often resulted in unexpected delays.
In 2000, a high-tech Who's Who -- including Acer, Hitachi, Panasonic and IBM -- formed E2open Inc. (Redwood City, CA), which created a technology platform for analyzing and managing multi-level supply chains.
"If you can't see what's going on ... you lose supply assurance," says CEO Greg Clark. "You're affected by any exceptions that occur when you outsource manufacturing unless you get information from those companies about what's going on in their multi-tier supply chains."
Traditionally, high-tech manufacturers tried to get around the multi-tier visibility problem by building proprietary systems that pulled data from each supplier. But integrating those systems is expensive, Clark says. E2open provides a multi-company ERP platform with common metadata and security models to smooth collaboration among OEMs, contract manufacturers, distributors and suppliers.
The company's special relationship with its founders, who have become some of its biggest customers, helped it survive the dot-com shakeout that derailed other providers of hosted supply chain collaboration services. "Our strong contact with our customers helped us really think through architectural elements like service level agreements and security," says Lorenzo Martinelli, E2open's executive vice president. In addition, E2open's large capitalization helped big, multi-national manufacturers feel safe entrusting their supply chains to the new company.
E2open says more than 6,000 companies worldwide now use its technology, but it declines to release data about revenues or the value of its goods. The cost of the product depends on the number of suppliers or trading partners that exist within an OEM's orbit. Small OEMs with 16 suppliers would pay "tens or hundreds of thousands of dollars" a year in annual service charges, while large OEMs might pay "a few million dollars," Clark says.
Comprehensiveness is E2open's competitive niche against commercial supply chain software, such as applications from i2 or Manugistics. Those packages might offer similar capabilities, such as VMI (vendor managed inventory) modules, "but they're not within an integrated solution that's going to get a VMI program running with 250 suppliers across Japan, Thailand, Malaysia and China," Clark says.
In 2003, when Hitachi created its Global Storage Technologies unit by merging its existing data storage operations with the recently acquired storage unit from IBM, it chose E2open as its collaborative platform. "We're now using the same infrastructure that we use to communicate with direct suppliers to communicate with our indirect suppliers," says Dr. Ranga Jayaraman, CIO at the San Jose, CA, storage unit. "We're also extending the infrastructure to interact with our customers." For example, E2open recently replaced Hitachi's EDI network. The move eliminated service fees and the need for a mainframe computer, which saved "a good fraction of a million dollars" in associated expenses, Jayaraman says.
Hitachi may now build an early warning system into the E2open platform to sound an alarm when an indirect supplier's service level starts dropping so the company can investigate the cause before it becomes a significant supply problem.
Clark believes that extending E2open in this way is the key to its growth. "If a company is running one of our forecast or order management modules, it's easy to sell them a VMI module or something that can help with settlement," he says.