Supply Chain Collaboration Still Limited

Tools plentiful, but companies must change processes, consultants argue

Alexandria, VA  July 9, 2002  Collaboration use among supply chain partners remains limited for most companies today, but manufacturers have a range of options for deploying technology and process improvement strategies to drive improvements in costs, cycle times and customer satisfaction, according to a new study by Capital Consulting & Management Inc. (CCMI), a supply chain-focused consulting firm.

"To obtain the substantial benefits available from true collaboration, companies need to go far beyond the basic information-sharing activities that typically are being done today," said Scott Elliff, president of CCMI. "In terms of real bottom-line improvement, it's much ado about not much, so far, since most supply chains continue to have substantial inefficiencies, redundant activities and a lack of true collaborative action."

CCMI characterized supply chain collaboration activity in three stages based on observations of its client base of small, midsize and large manufacturers across a wide variety of industries:

·      Stage One: "Information Sharing"  providing access and visibility to short-term information such as order and shipping status;

·      Stage Two: "Coordinated Execution"  working together to react to supply and demand requirements and making changes in day-to-day activities to improve costs and service levels;

·      Stage Three: "Optimized Planning"  making joint decisions to maximize supply chain performance, profitability and customer satisfaction, including substantial changes in business practices.

More than half of companies today are in Stage One: "Information Sharing," CCMI said. While improving communication provides a solid foundation, passive information sharing alone will not yield substantial gains in supply chain performance, the consultants assert. For example, telling a supplier that a large unanticipated order will be placed next week, or advising customers that their prior orders were out of stock and didn't ship still yields parts shortages, production overtime, expediting costs, stock-outs and customer dissatisfaction.

CCMI found that approximately 30 to 40 percent of companies are in Stage Two: "Coordinated Execution" and are beginning to proactively change historical processes to achieve bottom-line value from supply chain collaboration. Examples of beneficial collaboration activities in this stage include instituting vendor-managed inventory and automatic replenishment programs with suppliers and working with customers and logistics providers to implement programs such as shipment consolidation, direct store delivery and merge-in- transit transportation.

Only 1 to 5 percent of companies have reached Stage Three: "Optimized Planning," where the most substantial supply chain benefits exist. At this level companies take a broad view of collaboration and make underlying and sometimes difficult changes in order to achieve improvements, such as:

·      Instituting new programs and shared incentives with customers to avoid traditional end-of-quarter sales and shipping "spikes";

·      Coordinating sales and marketing campaigns across all supply chain participants to reduce the level of markdowns, returns and inventory write-offs;

·      Jointly designing new products with suppliers;

·      Realigning manufacturing and distribution processes to increase flexibility, reduce the level of costly "expediting" and optimize overall product flows;

·      Changing logistics and transportation practices and responsibilities to obtain better routings, equipment utilization, delivery costs and response times; and

·      Coordinating shipment flows with other manufacturers that have compatible needs  both within an industry and across industry lines.

CCMI holds that manufacturers have a wide array of software support tools to help achieve improvements, so it's not an information systems issue anymore. Rather, companies need to be willing to change their historical practices in order to take full advantage of both the coordinated execution and optimized planning stages of collaboration.

"The industry leaders in supply chain collaboration recognize that supply chain inefficiencies have a direct impact on their bottom lines and the competitiveness of the entire supply chain," said Elliff. "Aligning incentives and changing processes, roles and objectives drives success in collaboration-and leads to improvements in costs, cycle times, inventory levels, order fulfillment and customer satisfaction."