Building a Collaborative Value Chain: Five Stages to Success

Despite the fact that "collaboration" has achieved buzzword status within the supply chain industry, it still remains an effective way to rein in the parts of a heavily outsourced or decentralized supply chain. Yet, for most manufacturers, true collaboration with external partners and the various internal business units will take several years, and this perceived long-term return on investment (ROI) has prevented many businesses from committing to the collaboration process.

Instead, companies must learn to measure ROI incrementally throughout the path to collaboration. Measurable ROI can be derived from various stages in the collaborative evolution, beginning with simple inventory management and ending with an Internet-based link to all partners (internal and external), demand forecasting and so on. To ensure that decision-makers within the organization realize the incremental ROI and stay on-board for the long haul, a master plan must be developed that identifies each specific stage and includes metrics that guide the move to the next stage.

Stage 1: Operational Excellence "The foundation for Supply Chain Excellence"

Organizations focused on Operational Excellence are at the beginning stages of automation. They have many manual or semi-manual processes and are at the trailing edge with the systems and technology they do utilize. Their efforts are focused on meeting daily production requirements within individual manufacturing facilities or divisions.

In Operational Excellence organizations, production schedulers focus primarily on adjusting the daily build plan based on available materials. Procurement personnel focus on executing lengthy P.O. processes and contacting suppliers to expedite material shipments. Supplier relationships are frequently antagonistic and depend heavily on contractual arrangements. Materials management personnel focus on receiving, shipping, expediting and locating inventory, as inventory systems are manual or spreadsheet-based.

Organizations pursuing Operational Excellence keep raw materials inventories high to buffer uncertain sources of supply. Finished goods inventories are kept high to expedite customer orders. Material costs and labor costs are high, as each division or business unit functions independently. The Operational Excellence organization concentrates on avoiding production line downtime and meeting daily production requirements in an environment lacking supplier trust and the systems required to provide visibility for effective process execution.

Operational Excellence organizations focus on controlling processes within the facilities of individual manufacturing sites or divisions. Improvement efforts are directed at implementing formal forecasting and scheduling processes and systems, and implementing materials resource planning (MRP) or enterprise resource planning (ERP) systems to provide functional support to planners, buyers and materials managers. These organizations must look to establish accurate baseline data from which further improvements can be built. This fundamental infrastructure must be in place in order to move toward collaborative network leadership.

Stage 2: Internal Collaboration "Getting the internal house in order"

Organizations in the Internal Collaboration stage are driving toward internal efficiency across the enterprise. They have improved operations at the plant or business-unit level and are now focused on adopting advanced processes, as well as enabling technologies across business units and geographies to make sure the internal divisions, processes, organizations, performance measures and technologies that are necessary to fulfill customer requirements work together. These companies are trying to improve their overall cost structure and profitability within the enterprise. They may be playing "catch up" to competitors who took earlier risks to improve their operations.