Posts Tagged ‘supplier collaboration’

I’m one of those people that has a stack of opened and unopened mail sitting on a desk near the front door. I hate paper-based mail because it takes so much work to open and read and then I have to do something with it which usually means it ends up in an ever-growing pile. Maybe once every couple of months the stack gets sorted and filed away. In the meantime, usually I or my wife are the only ones to have read it.  When the real sorting and filing gets done, we sometimes discover that we’re going to take a hit of some type because we didn’t act on information in the mail in time. A simple case is that a bill didn’t get paid on time and now there are interest charges. Or perhaps we missed the deadline to respond to an invitation for an event and so we won’t be able to participate. So, this email stack represents a ‘dead zone’ where information is allowed to languish, and, like a delicious pastry left out in the open, go stale and lose its value.

I got to thinking about this as an analogy for traditional supplier collaboration. Many manufacturing companies have implemented supplier collaboration solutions to pull in data in a more real-time fashion with suppliers. Traditionally, supplier collaboration involves the sharing of information between an OEM and a supplier related to component forecasts, purchase orders, Kanban signals and inventory positions. It’s important to share the information because of its direct impact on the ability to build product. And it’s important to share the information often because events in the supply chain can impact delivery schedules on a day-by-day and hour-by-hour basis. Many companies have implemented EDI (Electronic Data Interchange) and supplier portals to facilitate the systematic, high-frequency sharing of data. The unfortunate reality of traditional approaches to supplier collaboration is that the information that is collected goes into an information ‘dead-zone’ (i.e. ERP system) just like the mail stack. Sure, a buyer knows that a purchase order is going to be late but what is the impact of that? Buyers, on their own, typically don’t have the background nor the tools to understand the relative impact of exceptions (i.e. uncommitted forecast, purchase order receipt variance) on operations. How is a buyer supposed to know that an inability for a supplier to make a full commitment to a forecast could result in significant performance penalties on a large project, or that a partial delivery will mean a high-value order for a key customer will slip beyond a promise date?

What’s needed is the ability to collect the information and provide real-time impact determination and alerting to all roles in the organization including planners, customer service representatives, sales, project teams and executives so they can collaborate to solve problems while there is the opportunity to make a real difference to the business. This is the hallmark of the RapidResponse Control Tower and how using RapidResponse to support supplier collaboration initiatives can help you to achieve superior corporate and operations performance.

I recently read an article titled, Eight best practices for supply chain outsourcing. It explained how some companies have adopted these best practices while others have struggled. It boils down to outsourcing the right process to the right partner and establishing clear lines of communication.

The difficulty often lies in minimizing the risk of the outsourcing decision. One sure fire way to reduce the risk is by treating your partner as an extension of your business,, whereby, information is shared freely without latency. A company cannot make good decisions based on data that is a week old. Supply chain executives will often challenge receiving data related to the outsourcing process since managing that part of the business is what they are paying their partner for. That is true, but if you are accountable to your customer, you need to have some level of understanding of your business including (and especially) the outsourced pieces. Be selective on what you need to see, but see it often! Let your systems monitor the business and alert you when you need to take action.

The article refers to the due diligence that must be performed when selecting the right partner, aligning strategies, and considering more than cost when making your selection. This is very true – you can pull the trigger on an outsourcing partner relatively quickly, but pulling out work and moving to another partner can have serious consequences, affecting fulfillment and cost.

Service level agreements (SLA’s) are critical along with creating the appropriate key performance indicators (KPI’s) to track performance and project future performance. For example, if your partner is manufacturing for you, and you provide them with a new forecast, you need to understand the implications of that forecast before execution commences. You may have just created an obsolescence issue worth millions of dollars that could have been mitigated if you knew sooner. This is why visibility into your partner’s operations is so important in this example. Often when things go wrong in an outsourcing model, there is considerable finger pointing, and resources are wasted tracing back to root cause. The end result is non-value added activity. Understanding how your actions today will impact all of your KPI’s now and in the future eliminates this waste. Look forward rather than backward.

An important aspect of any outsourcing relationship is trust. Progress is being made. However, this will continue to be a challenge as both parties are so focused on their own profit and loss. My colleague, Trevor Miles, has made some excellent points on this topic in his post: Do you trust yourself to collaborate? The real barrier to collaboration is not technology, but trust.

Companies that have struggled with outsourcing or are considering it as a new strategy will benefit from the referenced article.

What are your thoughts on outsourcing?