How do you know the specifications zipped through a new application to an engineering team in China and a top supplier in Boston have not also wound up in front of a competitor in Baltimore?
So reads the latest item on the “What Keeps Manufacturing Executives Awake at Night” list. As the concept of collaborative manufacturing—the cross-functional and, increasingly, cross-enterprise processes within supply chains, product development lifecycles and even corporate finance— penetrates deeper into high-level strategy, executives must ensure that the drive toward greater visibility includes sufficient controls.
Controls to Keep Competitors in the Dark
Those controls should keep competitors in the dark about sensitive R&D; information, intellectual property and key financial figures without blinding trading partners to crucial engineering information, product specs and pipeline metrics. Effective risk management around collaborative activities requires an understanding of a company’s technical, intellectual property and financial exposures so that those issues can be factored into high-level decisions.
Collaborative technologies, such as the NetLedger’s Web-based sales-order processing, CRM and help-desk offering, enables RLE Technologies, a manufacturer of water-leak detection products in Fort Collins, Colo., to respond immediately to sales opportunities from customers like Dow Chemical, NASA and Westinghouse by locating the raw materials to fulfill the order should it occur. RLE’s primary security concern was using a hosted solution to obtain greater collaborative capabilities. “There is an inherent security risk in all ASP models,” says MIS Director Matt Lane. “We evaluated the security of our data concerning its safety and integrity. In the end, we decided that we could do a decent job of securing and backing up our data, but we’re not the experts.”
Although that type of IT-security concern reflects challenges associated with technology that enables greater internal collaboration, manufacturers testing the waters for external-collaboration capabilities are moving ahead cautiously because of intellectual property (IP) risks. Richard Iler, president, and general manager of Lanpher Wilson Corp., in Reston, Va., says that’s particularly the case among first- and second-tier suppliers in the automotive industry. “There is a huge concern about IP rights and whether or not my customers are going to turn around and shop my new product to a competitor who will then produce it at a lower cost,” Iler notes.
He believes that situation has played out too frequently with suppliers to the Big 3 automotive manufacturers. Although the Ford, Daimler Chrysler, and General Motors executives deny that they operate that way, Iler wonders if the message is permeating down into those corporations’ purchasing departments where the pressure to reduce costs is intense.
Risk Management Approach
IP and IT security concerns should form discomforting question marks for manufacturing executives extending fundamental processes to customers and suppliers. “The downside is that it’s not completely secure today,” says Ulysses Knotts, CEO of CommerceQuest, a Tampa, Fla.-based provider of business process management software and services. Although security and reliability-related technical standards are emerging in the area of electronic business-to-business transactions and communication, Knots says those standards are not quite there yet. “It’s not reliable regarding providing assurances that the transaction was actually completed,” he notes.
Forging an effective risk-management approach to collaborative manufacturing begins with a solid grasp of information systems – and, especially, the processes the technology supports. “Everybody has talked about collaboration with external partners,” Iler says, “but I haven’t seen very many people do it.” Although the technology to collaborate on product development and the quoting process now exists, the process of collaborating in those areas needs improvement. Internally, suppliers and manufacturers must coordinate product-development and quote among many different functions, including engineering, purchasing, manufacturing, and finance, before the organization can effectively and consistently communicate with external partners.
Collaborative security standards also need solidifying, but that’s not a sufficient reason for manufacturers to pass on sharpening their collaborative capabilities. Although the sophistication of IT infrastructure varies significantly among manufacturers—from, say, the rusting mainframes at an automotive manufacturer to the latest compliance and document management applications at a pharmaceuticals maker—IT security risks boil down to a good news/bad news proposition.
Risks vs. Benefits
The good news is that both the risks and benefits of greater collaboration with customers and trading partners come at a much lower cost than they did two to three years ago. “If companies used the old style of application integration [hard coding], they would spend one-third to 50 percent more to do it in two different places,” Knotts reports. The bad news is that the new, more flexible technology that enables collaboration is not airtight. A balance must be struck. Managing IT security risks means weighing the benefits of how much information is available in front of the firewall. Knotts says many manufacturers veer toward a hybrid approach, where they collaborate with trading partners (via supply chain management or PLM processes), but in a limited fashion. They’ll electronically send certain information, procurement needs for example, to external partners while restricting online access to other information, such as new-product design.
The mother of all IP risks, IP experts assert, is not having a comprehensive IP strategy in place. In their book, Edison in the Boardroom: How Leading Companies Realize Value From Their Intellectual Assets, co-authors Julie L. Davis and Suzanne S. Harrison provide a definitive guide to managing corporate intellectual assets. Davis and Harrison group best practices in IP management into five levels of increasing sophistication. The first and most important practice is taking inventory of the organization’s IP assets. If executives don’t know what they have, the assets cannot be protected. Other best practices at the lowest level of IP management that Davis and Harrison define include: obtaining IP while ensuring design freedom, maintaining patents, respecting IP rights of other trading partners and companies, and being willing to enforce IP rules. The second level also contains best practices ideally suited for manufacturers pursuing greater collaboration: relate patent portfolio to business use, establish an IP committee, establish a screening process and criteria, set guidelines for patent filing and renewal, and regularly review the portfolio to prune.
More sophisticated IP management leads to benefits beyond risk management. Pruning unnecessary patents, which cost $20,000 annually to maintain over their 20-year lifetime, can lead to significant cost savings. In a similar way, risk management practices around collaborative manufacturing should never be divorced from the benefits of extending the function or enterprise. Lane says his company’s investment in collaborative technology reduced the processes involved in placing purchase orders, generating work orders and generating invoices by 50 percent. Failing to achieve those types of collaborative benefits can spark more severe insomnia than the restlessness brought on by lax risk management practices.