How to Win Friends and Influence Supply Chain Partners
Copyright 2004 Gale Group, Inc.
Copyright 2004 Penton Media, Inc.
December 1, 2004
No. 12, Vol. 45; Pg. 40; ISSN: 1547-1438
Matchette, John; Seikel, Andy
"Collaboration" (the term, not the activity) is often overused, which has the potential to make collaboration seem less potent than it really is. The reality, however, is that collaboration is at cornerstone of high-performance business. Executives consistently cite collaboration as one of their key strategic priorities.
One problem is that collaboration is exceptionally general: it has copious connotations, forms and potential categorizations, it also means different things in different contexts, say between organizations and departments within organizations, or among varying functions. For example, collaborative relationships in supply chain management may correctly be delineated as "transactional," "tactical information sharing," or "strategic" (Table 1).
Collaboration is not a clear-cut process supported by a specific set of tools and behaviors. Describing collaborative planning and replenishment (CPFR), for example, John Fontanella, an analyst with AMR Research Inc., notes that it is not a rigid methodology meant to standardize planning and replenishment processes across an entire industry. Instead, he explains, such collaborations are mutually accepted sets of processes that companies use to strengthen strategic ties with suppliers and customers. The bottom line is that collaboration is concurrently vague and essential.
To better understand the importance of collaboration to logistics professionals, Accenture partnered with Logistics Today on a collaboration-focused survey of executives in supply chain decision-making positions (see "methodology" sidebar for survey specifics). Among the survey-based conclusions and related insights are the following:
* Collaboration levels have increased dramatically in the past three years. Very few companies have seen a decrease in collaborative activity, or even remained constant.
* Cost reduction is still the primary driver of collaborative undertakings. However, strategic and revenue-focused missions are becoming more important. For example, when asked, "What is the largest benefit your company achieves or expects to achieve by collaborating with your trading partners?" nearly one quarter of respondents replied "increased sales and top-line growth."
* Strategic forms of collaboration are increasingly seen as differentiating sources of future value. For example, information about strategic plans, product development, pricing and promotion/marketing effectiveness currently are being shared by more than 30% of this survey's respondents.
* Tactical forms of collaboration, e.g., sharing production planning, inventory and demand information, have been a significant focus in the past, and will continue to be a driver of value. These were the most commonly cited "current collaboration" areas, as well as the activities for which survey respondents expect to see the greatest increase over the next three years.
* Supplier collaboration has gained momentum as an achievable business capability. * On a regular basis, collaboration improvements are now included in holistic supply chain transformation programs.
Nearly 70% of survey respondents perceive collaborative relationships as "very important." Even more salient, however, is that companies are "walking the walk"--consistent with their stated priorities, respondents' collaboration levels have increased dramatically in the past three years. Very few companies have seen a decrease in collaborative activity, or even remained constant (see Figure 1).
The changing face of collaboration
As noted earlier, there are any number of fronts upon which companies can instigate collaborative relationships: product design & development; demand forecasting; promotion, sell-through and point-of-sale (POS) information sharing; vendor inventory management and replenishment; just-in-time manufacturing replenishment; product end-of-life timing; profit optimization analysis; and numerous others. Table 2 depicts the lifecycle stages and activities that are increasingly affected by collaboration.
Given this proliferation, it should not be surprising that a wide variety of information is being shared among trading partners. As shown in Figure 2, production plans, inventories and shipping information are being shared with trading partners at more than 70% of responding companies.
[FIGURE 2 OMITTED]
The top two categories--"planning, inventory and shipping information" and "true demand data"--tell us that most collaborative activity continues to focus on transactional information, likely through the use of vendor-managed inventory (VMI) and electronic data interchange (EDI). However, a strong showing in the remaining three categories (30% to 40% of respondents) points to stronger strategic collaboration with multiple trading partners in the near future.
This prediction is reinforced by the survey results, which note that roughly one out of six respondents expect "strategic plans about products and pricing" to represent the greatest increase in collaboration over the next three years.
Collaboration's benefits and barriers
Cost reduction and operational effectiveness continue to be the primary drivers of collaborative undertakings in supply chain management. This doesn't mean that respondents are unaware of the strategic and revenue-enhancing benefits that collaboration offers. A better interpretation is that the efficiency and cost-reduction opportunities stemming from collaboration are often so strong that they cannot help but be the preeminent drivers.
According to independent research conducted by AMR, Accenture and the Voluntary Inter-industry Commerce Standards Association (VICS), superior collaborations can help manufacturers:
* Reduce inventory levels by an average of 30%
* Cut transportation costs by an average of 10%
* Lower warehousing costs by an average of 13%
* Shorten lead times by an average of 50%
* Improve customer service by an average of 10%.
The joint AMR/Accenture/VICS study also notes that collaborative relationships help retailers:
* Raise store-shelf stock rates by 5% to 8%.
* Reduce inventories by an average of 10%.
* Cut logistics costs by 3% to 4%.
At the same time, however, survey respondents do recognize a wide variety of collaborative benefits and opportunities that are not specifically cost-related. For example, one quarter of respondents cite "increased sales and top-line growth" as the largest benefit gleaned from collaboration. In addition, the sum of the benefits that were cited actually speak more frequently to strategic and revenue enhancing capabilities than they do to cost reduction.
Closer relationships with suppliers (e.g., in production planning) are perceived as having the most value. However, both imply that upstream and downstream--as well as tactical and strategic--relationships are on respondents' radar screens.
Not surprisingly, technology and data hurdles are cited overwhelmingly as the most formidable barrier to enhanced collaboration between companies and their suppliers and retailers. This is to be expected, given that machine-to-machine execution increasingly is the foundation of inter-enterprise collaboration.
Consider the top three information types that survey respondents say they are sharing with trading partners: "production plans, inventories and shipping information," "demand data" (including POS and forecast information) and "product design information" they are all predicated on digitally-transferable data (refer again to Figure 2).
Survey results and their interpretations by Accenture and Logistics Today all point to a similar conclusion: Now and in the future, inter-enterprise collaboration may be the single best way to increase business performance. Although every partnership, collaboration or alliance will be different--with unique goals, components and metrics--here are a few general guidelines for making collaboration work:
Fit the relationships to your strategy. Define the link between overall strategy and collaboration opportunities, identify the purpose of each collaboration and be prepared to react quickly to changes in strategy or environment.
Identify the best partners. Use a range of competitive and market sources to develop the intelligence to spot and evaluate potential partners.
Optimize your relationship portfolio. Develop systems for timely reporting to enable faster, better-informed decision-making about the collaboration. Know how to identify new opportunities based on activity in your Current portfolio. Make sensible trade-offs between internal efforts and alliances.
Maximize day-to-day performance. Use performance measures that reflect the organization's overall business objectives so that the people involved in the collaboration will be able to communicate the "why" and "what" of every alliance they form and to share experiences across alliances.
Manage the relationship. Plan to communicate and maintain continuous personal contact with key people at partner organization(s). Success on this front makes it possible to develop new opportunities from existing relationships.
Capitalize on your collaboration's assets. Capture and adopt best practices. Build on the knowledge gained in alliances by sharing information and leveraging collaboration-created assets across the parent company.
Figure 1. Has the level of collaboration conducted with your
trading partners increased, decreased, or remained the same
compared to three years ago?
Remained the same 22%
Note: Table made from pie chart.
Table 1. Different levels of supply chain collaboration
Relationship Example of
type Definition data exchanged
Transactional Integrate and * Purchase orders
automate the flow * Invoices
of information to * Transfer of funds
Tactical Share information * Order status
information before or after * Product prices/
sharing a purchase description
is made * Quantities available/
Strategic Joint buyer/ * Product designs
seller processes, * Future product plans
decision-making * Forecasts
and measurement- * Fulfillment processes
Table 2. Collaboration among enterprises is increasingly common
across the product lifecycle
Product Design and New Co-Mfg.
Product Introduction Management
* Innovation * New product * BOM (bill of
management introduction material)
* Portfolio * Product maintenance
planning & launch * ECO
* Product change order)
* Product * Approved
technology supplier list
Plan & Execute
Planning Planning Fulfillment
* Forecasting * Materials * Order entry
* Promotion planning & management
planning * Inventory * Available to
* Demand planning promise/capable
management/ * Procurement to promise
shaping * Replenishment * Vendor-managed
* DC inventory-level
* End-of-life * Revenue/
planning margin optimization
at a glance
This articles examines how supply chain collaboration can be leveraged to increase profitability and competitive advantage.
The survey conducted by Accenture and Logistics Today was cross-industry, emphasizing manufacturing, high-tech and transportation. Nearly 70% of the survey's respondents come from companies with $ 1 billion or more in revenue. And approximately 32% of respondents come from organizations with revenue exceeding $ 10 billion per year. An equally broad array of job titles and logistics functions was covered.
For the purposes of the survey, collaboration can be taken to mean "cooperative, supply chain relationships--formal or informal--between manufacturing companies and their suppliers, business partners or customers, developed to enhance the overall business performance of both sides." Because they typically are contract- and service-based, alliances with third party logistics providers (3PLs) are outside of the survey's scope and definition.
AMR Research Inc.
John Matchette and Andy Seikel are Chicago-based partners in the Accenture Supply Chain Management practice. Matchette can be reached at firstname.lastname@example.org, and Andy can be reached at email@example.com.
December 29, 2004
December 30, 2004
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