Collaborative Programs: Not a Chore But an Opportunity
Many corporate executives view the supply chain and logistics function as a source of savings through cost reduction. Their position is understandable, as supply chain and logistics costs can represent 50 to 70 percent of a company's sales dollars. Making these operations more efficient and effective can have a great impact on the bottom line.
The supply chain can also drive significant growth. One strategy that can contribute to increasing revenues and reducing costs is collaborating with customers, partners, and suppliers.
Many manufacturers and wholesalers may look at collaborative programs such as vendor managed inventory (VMI); efficient consumer response (ECR); and collaborative forecasting, planning, and replenishment (CFPR) as a chore, rather than an opportunity.
Best-in-class companies use these types of tools to not only reduce waste and costs—a cornerstone of Lean methodology—but also to integrate their key supply chain capabilities with core business competencies. This integration helps them create customer value, and promote both growth and profit. Maintaining collaborative cross-functional teams, internally and externally, is one key to supply chain success.
From a cost and efficiency perspective, the information provided in these collaborative processes can improve forecasting accuracy, which drives an entire organization's operations and supports Lean initiatives.
Get With the Programs
If you think in terms of the Pareto Principle, or the 80/20 rule, and initiate VMI, ECR, or CFPR programs with your top 20 customers, you will be able to improve forecast accuracy on a large percentage of sales. The enhanced downstream demand and inventory information these efforts generate will positively impact production and inventory planning, as well.
In terms of growth, what better way to get—and stay—on your clients' good side than by off-loading some of their inventory planning and ordering chores? Collaborative programs such as VMI, ECR, and CPFR can not only help avoid stockouts and improve products' shelf presence, but an integrated supply chain team that includes sales and marketing personnel can facilitate managing new product introductions, and exploring new sales and business development opportunities.
This type of coordinated effort can enable a flexible and adaptive supply chain aligned with the organization's growth strategy, providing a competitive advantage, and eventually leading to sales growth, as well as internal efficiencies that support Lean efforts.
Corporate executives must realize the supply chain's potential as a competitive tool, rather than just an area where they can cut costs. Supply chain managers can help change this focus by improving collaboration up and down the supply chain, looking beyond cost to enhance growth by treating their organization as one part of the integrated supply chain, and taking a more visible and active role in executive leadership within their organizations.
Transparency and collaboration with customers, suppliers, and partners doesn't always come easily, but the potential reductions in risk and cost, and growth in revenue through innovation, are well worth the effort.
Parts of this column are adapted from Lean Supply Chain & Logistics Management (McGraw- Hill; 2012) by Paul A. Myerson with permission from McGraw-Hill.