The heart of Wiltshire is home to one of the UKs most impressive supply-chain success stories. The Consortium for Purchasing and Distribution, with 12 years experience of e-commerce behind it, was the first major national supplies organisation to offer local authorities and major corporates the benefits of true end-to-end e-procurement entirely free of charge. It is now pioneering in its use of a Supplier Relationship Management strategy supported by internet technology to dramatically improve its order fulfilment operations.
The Consortium started life in 1971 as the buying department of a local authority in Wiltshire. Within a short time it had expanded to become the supplies organisation for a large group of local authorities across South West England and Wales.
Following a management buy out the company is now a 41m organisation, budgeting for a 1million profit in 2004 and employs 200 people. Its customers encompass 26,000 establishments, including schools, colleges, local authorities, care homes, nurseries and private companies.
It provides 30,000 products via a 1,000 page catalogue (which is also now available on the web), from stationery and office equipment through to vehicles and food. It supplies goods right across the UK and to customers as far away as Indonesia and South Africa.
Since undergoing the management buy out in 1995 The Consortium has had to stand on its own feet as it no longer operates with a local authority mandate demanding customers buy from it. Hence it constantly needs to operate efficiently and drive out any waste whilst maintaining a high level of responsiveness in its supply chain operations. Therefore The Consortium has undergone significant customer focused improvements over recent years.
The Consortium has undertaken a fundamental re-engineering programme, realigning its supply chain to ensure best possible service at the lowest cost. As a result it now operates with three different supply chain models to provide the best price/service combination for every product.
Category 1 products are off-the-shelf items and frequently ordered by customers. These are supplied by up to 200 suppliers and stocked in the companys 96,000 sq. ft. warehouse at its Trowbridge warehouse. Category 2 products are higher-value products which need more customisation and after-sales service support, such as furniture and white goods. Orders are taken by The Consortium and sent by email, phone, post and fax directly to suppliers to carry out fulfilment. Suppliers are then expected to keep The Consortium up-to-date on delivery times and then despatch goods direct to customers. Very low margin products, like PCs and fuel, are handled within the Category 3 supply chain, for which The Consortium earns a commission. The supply of these products is completely outsourced to specialist suppliers who can add the most value by handling all contact with the customer.
To streamline its three supply chains, The Consortium has increasingly become an advanced user of technology. It has deployed high levels of automation and computer control in its warehouse (for category 1 products) whilst running its core financial and distribution operations using System21 enterprise resource planning (ERP) software from Geac, a global enterprise software company for Business Performance Management.
Since the reorganisation of its supply chain in the late 1990s, and the introduction of new technology, there have been some significant benefits for The Consortium. Overall inventory levels have reduced by 1 million, with stock turns increasing from eight to 15 per year. On-time in-full deliveries of category one products have also improved form 32% in 2001 to 91% in 2004.
Although a great success, The Consortium has a culture of continuous improvement and so it is always looking to drive greater levels of performance right throughout its supply chain operations by deploying new practices and supporting technology.
Over the last 12 years, the company has worked in very close partnership with Geac in order to provide an electronic supply chain with The Consortiums customers and suppliers.
During this time, The Consortium has been through three major phases of the electronic commerce evolution. In the 1990s it wholeheartedly embraced electronic data interchange (EDI) with individual schools placing orders direct with The Consortium. However, this approach was not practical for the many thousands of daily communications within its supply chain as each attracted a transmission charge. E-mail orders were not the answer either as they would have been unstructured and required re-keying on receipt.
Phase two embraced internet technology. One of the drivers for this was the burden of the annual production of its 1000 page paper catalogue. Customers placed catalogue orders by phone, fax or post. but the catalogue itself was deemed inflexible and too restrictive. So The Consortium deployed a catalogue management system to replicate this catalogue on the web - displaying images and text via a browser. It is linked directly to finance and inventory information held in System21 to provide a complete browse, buy and enquiry solution for customers in real time. This ensures that product availability and order status information is always up-to-date. Already 10-12% of orders are being placed through the site and this is steadily growing.
Having established a true electronic commerce window for its customers The Consortium then turned its attention, in 2003, to its third phase - providing excellent customer service by securing the best possible relations with its supplier base supported by internet technology.
Mark Barnett, supply chain director for The Consortium, comments:
Initially we considered a lean strategy for our supply chain. Undoubtedly, this would drive down stock and eliminate non-value-add processes, making things even more cost effective. However with 26,000 customers with significantly different requirements, we must be more agile and responsive to their needs. A pure focus on lean stocks would not be right for us so we turned to Geac to help look at information flows and visibility right up and down our supply chain, to help make us more flexible and responsive.
To meet The Consortiums needs, Geac deployed one of its eCommerce systems called vendor.connect. The system provides suppliers with controlled access to System21, via a browser, to view historic buying patterns and current orders. Suppliers can view a list of daily orders, without the need to receive manual purchase orders, whilst confirming precise delivery dates that they undertake on The Consortium's behalf. Any changes to dates means The Consortium can then notify its customers straight away.
The idea was to deploy vendor.connect to improve the efficiency and customer service levels within The Consortiums 15 million direct delivery (category 2) supply chain. Typically, goods were supplied on longer lead times and on time performance was poor. This was because many of the 2000 daily purchase orders had to be faxed or posted - inevitably, some did not arrive with the supplier. This meant involving the 40 staff in customer services in sending weekly reports to each supplier just to confirm how many orders had been placed (sometimes 5000 orders/supplier). If undelivered, customers would contact The Consortium to chase orders causing customer service staff to contact suppliers in order to expedite late orders. This was a huge administrative burden and meant customer services were not always able to answer incoming calls because of the number of outbound enquiries being made.
Worse still for customer service, The Consortium had no visibility of order fulfilment. It did not know if an order had been despatched until an invoice arrived from the supplier. Furthermore, every time orders were misplaced it impacted its cash flow.
Hence there were significant business drivers to making the vendor.connect project a success. As a result The Consortium took a measured approach to the roll out and provided only six key suppliers with access to System21 at first. Although some of these suppliers offered initial resistance, with appropriate communication, the creation of a well explained brochure and detailed face-to-face training, they soon readily adopted it many have since encouraged other supply chain partners to adopt the same model. The Consortium has since rolled it out to 65 suppliers of its 76 direct suppliers, including companies like Staedtler and Agenta Marketing.
Supplier Relationship Management (SRM) is not just about deploying internet technology. It also requires a new working culture which embraces supplier responsiveness and performance through close collaboration, as Barnett continued: A responsive demand-driven supply chain calls upon participation amongst all supply chain partners - not just from The Consortium as the primary client contact. However, you cannot embrace the necessary levels of supplier participation under traditional business relationships where typically customers constantly review and change their supplier community purely based on price. Instead it takes a whole new and professional long term stance from both sides of the table.
The Consortium has also recruited more purchasing professionals many with qualifications from the Chartered Institute of Purchasing and Supply. It now has a 10 strong team focused on fostering longer-term relationships with a smaller number of trusted suppliers who want to work collaboratively for longer-term gain. These buyers now spend significant amounts of time identifying the best suppliers around the world with whom The Consortium wants to do business. Time is then invested with them to really get to understand their needs and operational constraints. In this way, The Consortium has far greater understanding and empathy with its partners.
As a result, The Consortium has reviewed its entire direct supplier base in order to find companies who are have the right cultural fit and are prepared to invest in a long term partnership. As a result 16 of its top 20 suppliers have since been phased out and replaced.
The new breed of suppliers also want successful long-term relationships with The Consortium and are happy to adopt new working practices. This includes periodically logging onto The Consortiums web site to review orders that they have been sent that day. They then make their own internal inventory enquiries and either confirm the proposed delivery date or offer a new one based on their own supply chain constraints.
In terms of perfomance management, The Consortium can now monitor supplier performance against promised delivery dates that suppliers have agreed to, not potentially inaccurate default dates. It has also started to use this data to score suppliers and even provide a supplier of the year award.
Although the correct culture is important, The Consortium is careful to advise only working with the right size of supplier too, as Barnett continued: Not all of our suppliers would be prepared to work like this. Imagine a large supplier, probably using its own ERP system, receiving a few hundred orders from us every day, and lots of orders from other companies. They are very unlikely to be prepared to log onto our web site and go through each line item to accept or reject each individual delivery date. Considering the volumes they are working with it would be counter productive for them to do this. Likewise, a very small niche product supplier is also unlikely to do this for the small number of orders they might receive. The sweet spot for this internet-based system is a mid-sized supplier that might expect say 30 orders a day.
Already there have been a number of material benefits since adopting the new system in December 2003. The main one has been an increase in the number of on time, in full deliveries. These have increased by 15% (71 to 86%). This is because orders are no longer manually faxed and therefore sometimes lost. Furthermore suppliers are agreeing to delivery dates they know they can fulfil.
The Consortium now no longer needs to spend so much time fire-fighting by having to chase stray orders - which has reduced by the equivalent of six full time people in the customer services department. Staff can now answer customer enquiries much faster (98% of inbound phone calls are now answered within 10 seconds) and they can spend more time addressing customer needs.
Mark Barnett concluded: Weve learnt some valuable lessons along the way. If you plan to embark on this kind of work firstly make sure you scope the capacity of your servers and firewalls properly before you start work - as this held up our project. And do not underestimate the time you must invest in training your key suppliers, without this upfront investment, we would not have been able to gain the momentum which we have harnessed today.
Overall the project has been a great success, and our on time in full delivery performance is clear testament to the great work weve done with Geac.