Supply chain collaboration is the key to evolve our current state supply chains into dynamic, customer-centric and profitable value networks, and yet the concept is not fully understood:
- Why, how and when did supply chain collaboration start? And where?
- Which critical success factors helped supply chain collaboration gain momentum?
- Where is supply chain collaboration heading?
- What are the constraints and roadblocks for supply chain collaboration?
- How can we move to the next level of supply chain collaboration?
In this five-part blog series we will share the journey of supply chain collaboration from the early days, when companies experimented with vendor-managed inventory (VMI) into the future, where companies will develop their supply chain into collaborative value networks, and finally put the end consumer, patient or industrial customer at the heart of their business.
Part 1 will help us trace back how supply chain collaboration gained popularity and where it is heading. Part 2 will offer you a collaboration process roadmap you can use to assess your company’s maturity in this area, whilst part 3 will explore technological options that are available to the industry. Parts 4 and 5 will help the supply chain executive assess how to get started and how to benefit from external help to accelerate the journey.
Inventing New Business Models
“The Supply Chain lies no longer with an individual company, we have global networks cutting across countries and organizations. The only way forward is to get players working to a common agenda – the collaboration agenda. We have been taught to compete: nobody has taught us to work together. The need and awareness is there but still nobody has taught us how to do it.” — Prof. Alan Waller, Cranfield University
In the new consumer-driven economy, retailers and manufacturers must learn to collaborate. The old paradigm of adversarial relationships between retailers and their suppliers must give way to focus on the consumer. Customer-centricity is about developing new business models and defining new collaborative processes. And whether your end-consumer is a shopper in a store, a patient or another business makes no difference. The customer will opt for the best-performing value chain, delivering the most value for his or her money. And collaboration can be a way towards competitive advantage.
When retailers first started sharing data with their suppliers in the late eighties, and started to offer data freely, this was mainly done via internally developed technology platforms which provided sales data—by item, store and day—to all of its suppliers.
Sharing this information translated to lower merchandising cost for retailers and also saved suppliers time and expense in planning their production and distribution. The surprising side benefit to the retailers and their customers was that each of its suppliers also competed with each other to make the retailer smarter, allowing them to pass on the savings to the consumer. Promotions, product launches and sales curves were now monitored by multiple participants.
Significantly, while retailers had to examine a sea of data, each supplier could provide their own intelligence, expertise about their products and market, and a laser focus on their portion of the retailer’s shelf. Retail customers benefited from the best expertise available to supply excellent service at the lowest cost.
Today, we all know success stories where major retailers have allowed suppliers to manage their inventory through vendor-managed inventory (VMI). Taking a closer look, we can discover many other insights that are relevant to supply chain professionals interested in supply chain collaboration.
New Technology Adoption
“Communicate everything you possibly can to your partners. The more they know, the more they understand. The more they understand, the more they will care. Once they care there is no stopping them.” – Sam Walton
The story of collaboration starts with establishing quality relationships at the right executive level with the other companies, but then rapidly evolves towards the definition of new processes, supported by new technologies, and sharing of additional data to create value for consumers. In the process, supply chains are evolving into collaborative value networks.
In the late 1980s, data sharing and collaboration between suppliers and retailers was in its infancy. Pioneering retailers and suppliers learned they could profit from data sharing process innovation. Face-to-face meetings were a turning point for the relationship between suppliers and retailers, and for the entire retail industry. Working together to build a profit chain and figure out how to break barriers between a retailer and its suppliers benefited all participants.
By leveraging vendor-managed inventory (VMI) and EDI technology, they precipitated a radical change similar to the Just-in-Time (JIT) revolution that happened in the automotive industry around the same time with the Toyota Production System, later called LEAN.
Collaboration between suppliers and retailing pioneers yielded significant results. One insider to an early collaboration project claimed that, “Within the first eight months, the retailer made a $50 million swing in profitability [in terms profitably selling a major supplier’s products].”
In my next post in this series, we will explore how to set up a supply chain collaboration roadmap, before looking at the process frameworks and technologies that can support you, and how you can accelerate the journey.