By Warren Sumner
"Streamlining cross-company processes is the next great frontier for reducing costs, enhancing quality, and speeding operations. It's where this decade's productivity wars will be fought." Michael Hammer, Author of "Reengineering the Corporation," Harvard Business Review, September 2001
The explosion of outsourcing, co-packing, off shoring and contract manufacturing, along with the rush to expand practices in low-cost countries, is straining brand owners' ability to manage their supply networks. And the trends continue at rapid pace:
- 89 percent of brand owners outsource manufacturing of some finished good items;
- 44 percent drop ship finished good items directly from contract manufacturer to end customer; and,
- 70 percent manage critical components either fully or jointly with contract manufacturers.
Despite the availability of Web-based tools, few companies have successfully automated communications with suppliers, contract manufacturers and third-party logistics providers (3PLs). Instead, they continue to rely on phone, fax and e-mail, leading to delays, errors and excessive inventory. Collaboration isn't a new idea; manufacturers know they must collaborate with outsourcing partners in order to compete in today's global business climate. The problem is that partner collaboration has — to date — failed to take hold, primarily due to lack of trading partner adoption.
Critical Component: Supplier Buy-in
Until recently suppliers have resisted making the necessary technology investments and changes within their organizations to facilitate collaboration because the technologies tend to focus on benefiting manufacturers, not them. Suppliers believe there is an unequal distribution of benefits, offering them a limited value proposition. In addition, resistance to change within the supplier and manufacturer organizations has limited adoption, as have perceived security risks due to suppliers' and manufacturers' concerns about sharing enterprise resource planning (ERP) data. As a result, the potential technology and cultural problems related to collaboration are so significant that few companies have truly achieved B2B supply chain collaboration on a meaningful level.
Collaboration can take many forms. Some of the more commonly sought-after collaboration processes include document and specification sharing, sourcing (reverse auctions), forecasting, demand planning, schedule sharing, procurement and replenishment, vendor-managed inventory and returns management. In order to streamline cross-company processes such as these, manufacturers need a collaboration solution that will fulfill their organizational requirements while also providing value to suppliers. Facilitating price discovery or reducing their own costs of acquisition isn't enough. Dramatic cost reductions will only occur when inefficiencies are removed from the total system, with benefits accruing to all parties. This "win/win" scenario provides the incentive for suppliers to make the process and technology changes that will ensure success for all parties.
Once supplier buy-in is secured, manufacturers must incorporate business and technology components that enable control and visibility across the collaborative supplier network.
Control & Visibility: Ensuring Successful Collaboration
In order to achieve collaboration, not only must manufacturers provide value to suppliers, but collaboration must include two key elements: visibility and control, both of which are achieved by business and technology processes that focus on:
- Enforcing process discipline between buyers and suppliers;
- Establishing real-time connectivity to the OEM/brand owner's ERP system to ensure that revenue, shipping and inventory information is instantly reflected;
- Validation and prevention controls at supplier shipping dock;
- Built-in compliance labeling;
- Built-in shipping documentation from the system of record; and,
- Use of native ERP functionality (e.g., Oracle Grouping Rules).