Applying Flow Principles to Collaboration

In the era of the virtual enterprise, collaboration is supply chain management


The following is a brief summary of one company's experience in improving the flow of material, information and money in a distributed virtual enterprise.

Performance: The mutually-agreed business goals to quantify success were:

  • Reduce inventory-driven cost (Improve material flow): The primary goal was to dramatically reduce inventory levels.
  • Improve procurement cycle time (Improve information flow): Reduce the time required to approve and issue purchase orders.
  • Ensure reliability of supply (Improve money flow): Increase revenue by minimizing shortages and delays.

Process: The scope of activities shared between trading partners

  • Continuous update of and visibility to projected inventory levels as supply and demand components change.
  • Demand and supply matching through automated generation of net requirements (demand) and replenishment plans (supply).
  • Web-based real-time negotiation of business objects impacting flow (e.g. Purchase Orders, Replenishment Plans, Forecasts).
  • Event-triggered exception management and problem escalation.

Policies: The agreed-upon business rules

  • Escalation policies: Management of alerts and exceptions in terms of when, who, how, etc.
  • Collaboration cycle: Sequence and frequency of supply and demand planning activities between partners
  • Inventory targets: Amount of minimum and maximum inventory to be stored at each location.
  • Network management: Sourcing, replenishment, and allocation rules to govern flow of inventory.

Enablers: Capabilities (both technology and non-technology-based) to complete the task

  • Private marketplace: Supporting multiple supply chains by enabling process and policy across multiple partners/products/components.
  • Single current version of the plan: Access to shared data and plans via a portal for the whole ecosystem.
  • Automation: Routine decisions automated through the use of software agents.
  • Simulation: Ability to perform what-if analysis and decision support prior to execution.

Results and Closing Thoughts

The key takeaways from the success of the implementation at this client are the following:

    1. Commitment to the spirit and culture of collaboration: This particular company is a leader in supply chain management. Having implemented flow principles in the 1990s and reaped the benefits, it understood that although the supply chain structure had changed, a truly collaborative philosophy was central to achieving the same level of synchronization that existed in a vertically integrated structure.

    2. Commitment to supply chain leadership: The results tell the story — over a billion dollars in inventory reductions, 500 million transactions through the collaboration hub in 2005 and over 200 trading partners using operational collaboration workflows. Such results would not have been possible if the company had not fully embraced its role in the new supply chain structure and continued to be the leader in supply chain vision.

    3. Solution maturity: More than five years into its collaborative journey, the company has gained a significant amount of domain expertise in an area of collaborative supply chain management while most companies are still experimenting with pilots. From a technology perspective, the need for a network-oriented hub architecture that existed in parallel with the enterprise-centric enterprise resource planning (ERP) architecture was quickly evident, and the decision to go down this path was validated.

The basic principles that have successfully guided supply chain practitioners in the past are still valid. The basic problem hasn't changed, however the scope of the “system” and the problem domain has been extended to include global partners. Breaking down traditional business models and enabling change in a virtual enterprise is tremendous challenge, but the potential gains make it an inevitable task for those that wish to remain competitive in their chosen markets.

About the Authors:

Brian Nickerson, CEO and President Sockeye Solutions

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