Too many companies are missing out on the savings offered by supply chain collaboration. Organisations have overcomplicated what should be a simple interaction and an obvious solution, says Don Brenchley, JDA Software.
The theory goes that if everyone can see each other's trading data (sales, production, etc.), there is more chance of getting forecasts right for just in time production and matching supply with demand. However, there's growing cynicism about the concept of supply chain collaboration, along with the vast number of technology solutions, interpretations and jargon that goes with it. Many organisations are getting overly embroiled in the technical process of CPFR (collaborative planning forecasting and replenishment), rather than focusing on its objectives of how to cut costs, improve service and value.
Collaboration-more than a process
An industry standards body, set up to alleviate this conundrum, has itself tried to lay down the foundations for effective collaboration. VICS (Voluntary Industry Committee on Standards) has paved the way for a defined CPFR process, focusing more on a set of principles, rather than profit. However, the current absence of easily identifiable financial benefits means that many would-be takers have generally shied away from collaborative best practice. And while everyone is always looking for a financial return, the heart of the problem is that collaboration cannot be reduced to a process. It is about relationships; and relationships are more important than adherence to a process.
Overcomplicating a simple interaction
Major retailers and some major suppliers have individually put the spotlight on collaboration and partnership, with some positive achievements, including reductions in delivery times as a direct result of comparing independently determined forecasts. Although it is easy to have better one-on-one relationships, the trick is to replicate this collaborative aspect to all suppliers, big and small-something very few have actually achieved.
Unfortunately, every organisation has a different definition of collaboration, so not everyone's necessarily doing the same thing. To a large extent, most have overcomplicated what should be a simple interaction. Often collaboration has not worked, simply because there has been too much attention paid to data and process, and not enough to the end customer. Another hindrance to collaboration has been the failure to recognise mutual interest. This has caused some companies to make unreasonable demands of their suppliers, and vice-versa. There is also a tendency to negotiate the benefits of collaboration before the war is actually won.
Sharing ownership of the consumer
While some large retailers and manufacturers have spent years analysing each other's forecasts in a bid to try and guess at production and demand, a few are now starting to focus more on building open relationships and sharing the benefits of each others inputright from the end of the production line through to the point of purchase. The key to success lies with everyone being given the opportunity to understand and influence the factors that drive supply chain activity. In the popular retail example, this essentially means empowering manufacturers to do everything a retailer does, representing a shared ownership of the consumer. In other words, total visibility of each other's business, open and trusting relationships, and sharing everything from planning production to the technology for planning promotions in stores.
Relationships deliver success
Key retail players in the convenience sector have already had tremendous success from building these types of relationships with numerous suppliers across major brands and own-label manufacturers. Benefits include vastly reduced supply chain costs, more efficient purchasing of raw materials, improved manufacture planning, as well as increased sales through raised on-shelf availability-not to mention better working relationships.
With the supply chain still being the biggest source of profit for most organisations, it's well worth concentrating on the relationship to make it work.
Don Brenchley is Director of Collaborative Planning Forecasting and Replenishment at JDA Software, a global leader in delivering integrated software and professional services for the retail demand chain.