December 2003 | Commentary | Supply Chain Technology

Collaborating for Optimum Supply Chain Management

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At the core of the supply chain there has to be mutual trust among parties. This trust must be based on agreed-upon methods and technology to assure maximum cost savings and increased profits for all parties. Normally this trust starts with supply chain management planning and collaboration.

Planning constitutes the strategic aspect of the supply chain. It centers on a strategy for managing all the resources that go into meeting customer demand for a particular product or service. In fact, the emphasis on planning continues to grow. The supply chain planning market exceeded $1,903 million in 2003 despite a weak macroeconomic environment over the last two years, according to a recent survey by ARC Advisory Group, Needham, Mass.

However, one difficult challenge of planning is developing a set of metrics that helps a company monitor its supply chain activity (most of us are familiar with the Supply-Chain Council's SCOR model). A good set of metrics keeps the system focused on efficiency and cost savings, as well as sustainable value and high quality for the customer.

In the broad expanse of supply chain management's plan, source, make, deliver and return process, is it a secure plan that should be a company's first order of business? Or is it something else?

To answer that question, we turn to Andy Chatha, ARC's CEO, and Sid Snitkin, ARC's supply chain management analyst.

"The ultimate goal of supply chain management is to develop a supply chain that efficiently achieves the "Perfect Order" – the right goods, at the right time, to the right place, with proper invoicing," says Chatha. "But achieving these goals is a challenge that continues to grow as the number of partners increases, products proliferate, and logistics becomes more complex."

"Like football players, supply chain partners must work as a team," says Snitkin. "All partners need a clear set of objectives that they can focus on, but their actions have to be coordinated toward the overall supply chain goal. It's great to have a 'superstar' on your team, but a stellar individual performance loses value when the ball is dropped on handoff or when the next player doesn't know what to do with the ball when they receive it.

"Winning the game requires an overall plan that clearly identifies who will do what and when they will get it done," he says.

"For such a plan to succeed, individual commitments must also be based upon careful consideration of how each person will execute their respective tasks," notes Chatha. "Planning is clearly job number-one for every supply chain partner."

It is interesting, but not surprising, that both Chatha and Snitkin stress the human equation as paramount.

"We would have to be Rip Van Winkle to not be aware of Wal-Mart and Procter & Gamble's example of successful collaboration," says Snitkin. "These two large organizations created a software system that correlates Wal-Mart's distribution centers with P&G. This means that on a very large scale P&G can track its products on Wal-Mart's shelves through information provided by satellite links to scanners at the registers. This offers P&G real-time information that it can use to manufacture more efficiently, and provide the right logistics."

This kind of collaboration is based on mutual trust between retailer and manufacturer and is an essential ingredient to any successful SCM system.

"Planning may be the bedrock for reliable supply chain performance, but that is not enough today," notes Chatha. "Supply chain operational excellence has to be the real goal. Operational excellence means consistently doing the right things exceptionally well. And the 'right things' have to be those that best benefit the entire supply chain."

"Recognizing which methods and practices will best streamline the supply chain requires close collaboration among all partners," he adds. "They have to share current and future plans as well as their performance against those plans. With such information they can better negotiate their joint goals and rapidly mitigate problems before they become disasters. Trust is essential for collaborative relationships and remains the chief obstacle to better performance in a lot of industries."

Many companies are struggling to improve supply chain efficiency through collaborative efforts. Some have returned to very basic approaches, such as a reliable Vendor Managed Inventory (VMI) system. Some view VMI as the bedrock of both a good plan and a useful collaboration.

"When done right, Vendor Managed Inventory is an excellent example of what can be accomplished by partners who plan well and collaborate closely," says Chatha. "VMI can reduce costs of both parties while increasing sales and service levels."

"Inventory directly reflects how well partner operations are synchronized. Successful VMI programs recognize this fact and acknowledge that inventory management is a shared responsibility," says Snitkin. "Reaching the level of trust required for a successful VMI program demands a confidence that can only be developed through prior experience that demonstrates reliable performance."

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