In part 1 of this blog series, we shared how supply chain collaboration yielded significant business benefits and we pointed to spectacular success stories from two household names in retail and manufacturing . A leading retailer and a leading CPG company popularized supply chain collaboration back in the 80s, and laid out the path for all retailers and their suppliers to adopt or even improve their recipe.
In part 2 of this series, we will explore how companies can adopt well-documented collaboration practices, pilot them via a solid roadmap, and accelerate deployment of collaborative best practices on a wider scale.
So, where should we start?
Understanding the Journey
Collaboration efforts take both trust and time to yield results. The starting point is a partnership, fueled by long-term and mutually shared objectives and a collaboration agenda, sustained via periods of personal and mutual growth.
The end result of a supply chain collaboration journey is always a new business model, difficult to replicate by the competition, and supported by process innovation and new technologies. It takes a long time to find an equilibrium, but once the roots are strong and the system is in place, it produces a large number of mutually re-enforcing benefits for all involved.
Three steps help us define the journey ahead of you:
- Map the relationships with your various suppliers. Is the relationship strong, average or weak? And should the relationship be supported by a new or improved supply chain collaboration model?
- Define collaboration templates you can deploy on a large scale. Normally the process mapping effort yields a supplier classification that can be used to define specific collaboration models for certain classes of suppliers or customers.
- Establish the gap of current capabilities for each supplier versus a defined collaboration template. Supply chain collaboration models depend on more than your aspirations. Each collaborative relationship must be assessed in terms of process, data, and systems versus the ideal state and must be underpinned by the right technology to support each category of suppliers.
Adopting the Right Process Framework
The roadmap in the graphic gives retailers and manufacturers a better understanding about the starting point and anticipated future state of supply chain collaboration.
Level 1 in the maturity model – the most basic types of supply chain collaboration, focuses on sharing retail data. In this scenario retailers share point-of-sales data (POS) with their manufacturing partners and provide real-time visibility to the actual demand.
Retailers share their information with the expectation that improved fill rates will result. The cost of accessing the data and processing this additional information is often a hurdle to successful transactional collaboration. The connection to multiple ERP systems this often entails can be a costly exercise.
Level 2 – Vendor Managed Inventory (VMI) or Customer Managed Inventory (CMI) is a very familiar practice in the industry. In this supplier collaboration model, the customer turns over replenishment of its inventory to the supplier. Full visibility of inventory on hand is the key enabler for the process. Agreed replenishment rules and financial agreements about the payment of each transaction must be established up front by both engaged parties.
Level 3 – is a more advanced type of supply chain collaboration model. It takes advantage of a framework such as Collaborative Replenishment and Forecasting (CPFR) which we will cover more in detail in Part 3 of this blog series. In this case, the two parties follow a predefined protocol to share forecasts and replenishment information. The collaboration now involves both planning and execution.
This level of maturity has been reached by the most advanced companies today, who adopt supply chain collaboration as a way of life. What sets these companies apart is the deployment of common solutions and the sharing of shelf-driven order plans with many partners. Whereas in Level 1 and 2, companies tested and piloted new collaboration models with individual partners, in level 3 collaboration solutions are packaged and templatized to leverage the benefits of collaboration on a larger scale. Typically, the advanced planning solution needs to be configured differently to address the many situations, systems and process landscapes of the supplier base. And the shared objective becomes On-Shelf Availability (OSA).
Level 4 is the nirvana of supply chain collaboration. This orchestration requires all parties in the value chain to have access to POS information at the item within store level and to share common planning and execution processes. A great example is Apple. Its suppliers share forecasts and POS data from Apple stores. In its most advanced format, the value chain orchestration for demand and supply planning and execution is extended to assortment planning and product launch planning, supported by financial scenario planning.
Eating the Elephant in Small Bites
A stepwise approach is advisable for retailers and their suppliers engaging in supply chain collaboration, as new processes are being invented, tested, and continuously improved. Not all your suppliers or retailers want to take the entire journey with you. Some do not even have the required capabilities. For a supplier to be included in your value network, however, a minimum level of collaboration is required.
The journey must therefore be supported by supply chain collaboration templates – suitable for more or less advanced partners—and must be deployed across your supplier base. This requires a clear plan of action supported by a well thought out roadmap, because a value network is only as strong as its weakest link.
Welcome to this new world!
In my next post in this series, we will look more in-depth at the process frameworks and technologies that can support your collaboration efforts, before covering how you can accelerate the journey in the latter blog posts.