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).
Success in Action: A Real World Case Study
A recent partnership between World Wide Technology (WWT) and ClearOrbit demonstrates these principles in action. This successful collaboration implementation delivered tangible, substantial results to a major automotive manufacturer in the form of significant cost savings and increased profitability.
World Wide Technologies, a systems integrator and provider of outsourced supply chain solutions, was hired by a large automotive original equipment manufacturer (OEM) to automate vendor relationships and reduce the automaker's spending on maintenance, repair and operations (MRO) material across all U.S. and Canadian assembly plants.
Historically, the OEM conducted the entire purchasing process, which included more than 1,800 vendors, using a range of mostly manual processes. These vendors conducted business with the automaker via a variety of formats, from suppliers' own electronic data interchange (EDI) signals to the exchange of hard-copy documents. Twenty full-time employees at the OEM's centralized purchasing group managed the MRO vendor relationships and were responsible for setting up blanket purchase orders with vendors, introducing new items on new blanket orders, receiving invoices and conducting payments. In addition, close to 50 tool store managers across all 26 assembly plants spent a significant amount of time every day on the phone getting information from suppliers about whether they had received orders, whether they were going to ship them and when exactly they were going to ship them.
It turned out to be a paper nightmare. Moreover, vendor representatives were assigned to each plant exclusively to ease the flow of information back and forth between the OEM and the supply base. Vendors saw the need to provide human resources at plants simply as a necessary cost of doing business with the OEM. Lastly, OEM employees other than tool store managers usually performed follow-up work with vendors unofficially at their respective plants, so as to build yet another layer of security into the system when materials were critical to their operations. With so many people involved, controlling the MRO purchasing effort had become difficult and costly for the OEM; and limiting the number of suppliers was not feasible due to the company's need for spot-buy transactions.
WWT was charged with developing and implementing an electronic transaction hub, handling the exchange of data between suppliers and the OEM. This technology-intense purchasing process was aimed at increasing control, enabling automation and reducing human intervention. Specifically, WWT's tasks were defined around the cost-effective management of purchase orders and invoices in a real-time, collaborative fashion. In this case, collaboration referred to the near-instant (within minutes) exchange of documents back and forth with suppliers in such a way that accuracy of key business process parameters, such as prices and line items, was maximized and sustained.
To provide the technology infrastructure required for such a system, WWT partnered with ClearOrbit to deploy ClearOrbit's Purchase Order Collaborator (POC). POC is an Internet-based, scalable, real-time collaborative solution for companies to manage POs, deliveries and invoices with suppliers, regardless of size and technology resources available at each supplier.
With the control POC added, WWT could ensure that orders matched shipments before physical product started moving and additional costs were incurred. These controls enabled a streamlined accounts payable and PO settlement process for the OEM. POC also integrated directly to the OEM's ERP system without the need for additional layers of data; therefore, no duplication was necessary. Additionally, POC's customizable platform has a rules engine that allows controlled flow of information, so the tool could be tailored to the OEM's specific business process needs.
Project results included:
- Install to go-live in 30 days;
- Vendor self-sign-up through supplier administrator feature;
- Built-in training material streamlined application adoption;
- Vendors came onboard at a rate of 50 to 100 per week; and,
- In less than 6 months, approximately 1,200 vendors connected to WWT.
- Reduced supply base by 33 percent;
- Placed order with a single company, WWT, as opposed to thousands of vendors;
- Reduced resources managing the purchasing operation; and,
- Ensured that end-users at plants perceived higher service.
WorldWide Technologies realized:
- 50-60 percent reduction/cost avoidance in accounts payable (A/P) personnel;
- 20-30 percent reduction/cost avoidance in order processing personnel;
- 30-40 percent reduction in personnel tasks; and,
- 10-20 percent reduction in non-conformances at the receiving dock.
Finally, the control the system provided gave suppliers immediate access to information they never had before in real time via the Internet. Suppliers were given visibility over the accounts payable process, ensuring faster cash transfers with fewer time-consuming reconciliation transactions. Moreover, larger suppliers no longer needed representatives at assembly plants to ease information flow.
Learning from Success
As demonstrated by this case study, enabling supplier collaboration requires a structured approach that includes supplier involvement in crafting the solution, shared incentives, addressing technology and security issues, focus on visibility, control and commitment, creating rollout momentum, ongoing communications, established key performance indicators (KPI) and, finally, ongoing training and support.
To meet the increasing demands of today's global markets, manufacturers must implement collaborative supply chain solutions that streamline business processes with their increasing global supply base. With real-time visibility and control of supply chain execution to all parties, while addressing supplier issues head on, collaboration can succeed. Manufacturers can implement effective supplier collaboration processes that orchestrate "win/win" outcomes with suppliers, enabling breakthrough advances in reducing costs, enhancing quality and accelerating operations that help ensure they win today's productivity battles.
About the Author: Warren Sumner is vice president of marketing and products for ClearOrbit (www.clearorbit.com), a provider of real-time supply chain execution and reverse logistics software solutions.