Promoting efficiency through collaboration

Promoting efficiency through collaboration

Christo Sardjono, Contributor, Jakarta

Wall-Mart shared supply chain information with its main
suppliers, such as Procter & Gamble (P&G). It hooked up its
software system to enable P&G to know when, where and exactly how
many Wall-Mart stores needed its products.

This way P&G could save millions of dollars, which enabled it
to provide better prices to Wall-Mart. At the same time Wall-Mart
maintained its slogan, "Low, everyday prices", while maintaining
profitability throughout the supply chain. POSCO, the largest
steel manufacturer in South Korea, cut delivery times from 20 to
30 days, to 7 days. Some of these benefits came from initiating
collaboration between members of the supply chain and utilizing
state-of-the-art technology in the process.

Supply chain collaboration (SCC) is the next big thing in the
attempt to achieve profit optimization of related parties within
the supply chain.

With a currently competitive local business climate and an
ever-present threat from cheaper manufacturers in China, Vietnam,
Myanmar and Cambodia, every business in Indonesia has to
consistently improve its competitiveness. More often than not,
the required initiatives translate into cost reduction,
flexibility and efficiency. In the early 1990's supply chain
management emerged as a wonderful concept, encouraging businesses
to have a lean and agile supply chain. It also taught businesses
to look at the entire chain, ie. suppliers, manufacturers,
distributors, customers and other related business partners, as
one single unit. The fundamental objective is to manage the flow
of information, materials and money between the parties in the
most efficient way. This concept requires collaboration.
It is clear that collaboration, as per its definition, requires
parties to work together. Collaboration in this context means all
parties within a supply chain working together to a common
objective. The common objective in general is to achieve overall
efficiency and flexibility, or, in business terminology, better
profitability for each member of the chain. This way the whole
supply chain become more competitive compared with another
producing the same products or services.

SCC, a prominent component of business strategies among
trading partners pursuing a streamlined and efficient supply
chain, is also known as collaborative commerce (C-Commerce). To
quote Dr. Brian J. Gibson of Auburn University, "C-Commerce is
multiple organizations working together to coordinate processes
and optimize logistics asset utilization."

Collaborative Planning, Forecasting & Replenishment (CPFR)
collaboration can come from all activities in the supply chain.
Collaboration in forecasting activities will drive the supply
chain to work on a consensus forecast. A single consensus
forecast will create a platform for a balanced throughput
capacity from all parties in the supply chain. All members of the
supply chain can plan according to the consensus forecast.

Therefore, the second part of collaboration comes around:
planning collaboration. Sales agents, distributors, manufacturers
and suppliers collaboratively build and share their fulfillment
plan. Any deviation from the "plan" is also collaboratively
shared and resolved by all related parties. When it comes to the
replenishment of products all transactions are done
collaboratively on line.

Everyone understands the stock position of all members in the
supply chain. Therefore, proactively, each member can react to
correct any discrepancies that occur and do its best to serve the
supply chain better.

Sellers may post planning and shipping schedules for viewing
by buyers in addition to replenishment transaction alerts and
releases. Buyers and suppliers may jointly monitor outside
processing by third parties, whose WIP status and delivery-
tracking information can also be monitored. The buying
organization can also search for and audit documentation from
completed and ongoing transactions in order to gauge supplier
performance in specific areas. It is a journey of continuous
improvement processes.

For this CPFR an implementation approach exists, standards
have been established and many test cases have been run.

AMR Research Inc. completed a review of several test cases
showing the following benefits of CPFR as noted in the table
(below).

Trading partners' benefits from CPFR

Retailer Benefits

Better In-Stock, 2 percent to 8 percent;
Lower Inventory, 10 percent to 40 percent;
Higher Sales, 5 percent to 20 percent;
Lower Logistics Costs, 3 percent to 4 percent

Manufacturer Benefits

Lower Inventory Level, 10 percent to 40 percent;
Faster Replenishment, 12 percent to 30 percent;
Higher Sales, 2 percent to 10 percent;
Better Customer Service, 5 percent to 10 percent

Source: AMR Research Inc

Paradigm Shift

There is one big hurdle for implementing this concept,
especially in Indonesia where information is perceived as power.
Whoever possesses information has the edge to react first and
gain an advantage from it. People are reluctant to share
information, believing it will reduce their competitiveness or
influence toward trading partners. People make things difficult
for their trading partners and, more often than not, for
themselves.

Collaboration
On the other hand need people to have confidence in their trading
partners and, most importantly, themselves. Shared information
via collaboration can result in the optimization of supply chain
activity. However, central data sharing between trading partners
will not be an easy cultural change. It is by all means a large
paradigm shift for Indonesian businesses. It might be easier for
large conglomerations that control the whole supply chain from
raw material to point of sale. But not when the supply chain
involves different ownerships. Information should be perceived as
an enabler, for all members to reap the benefit: All for one and
one for all.

The key message here is mutual trust and objectives. Wall-
Mart's collaboration with P&G meant that P&G had a greater
responsibility in managing inventory for Wall-Mart. However it
also gave P&G better information about Wall-Mart's product
demand, which helped P&G plan its production and inventory more
efficiently. It all returned to both as lower total costs, better
turnover and better profits.

The Portal

Over the last decade manufacturing costs have been
significantly reduced via automation, work cells, teams and lean
manufacturing concepts. SCC, on the other hand, was hard to
implement due to lack of supporting infrastructure. Some
companies engaged in limited collaboration through an electronic
data interchange (EDI).

More recently, thanks to the advent of Internet technology and
standards, SCC has become more and more plausible. One of the
factors driving technology-based improvements is the development
of standards from which new technology may be launched.
Certainly, the acceptance and market penetration of the Internet
today would not have occurred without the development of a
worldwide hyper text markup language (HTML) standard. Now
extendible markup language (XML) is positioned to provide
hundreds of vendors the opportunity to develop the B2B (business
to business) applications required to realize the benefits of a
business model with collaborative components. The connection and
relationship between supplier, manufacturer and retailer can now
continue to integrate.

All of these developments enable businesses nowadays to
collaborate through an Internet portal and leave behind their
rigid and cumbersome EDI. The portal capability to support tight
coordination between business partners means that all the
information, transactions and decisions, which are the essence of
synchronized supply chains, will flow through the portal.

The portal can be hosted anywhere. Commonly, the most
influential or technology-savvy party will host the portal. The
other way is to have a third party host the portal as if it were
an exchange. Therefore all the members of the supply chain need
only a PC with an Internet browser to participate in
collaborative activities. They need pay only a small amount in
administrative fees to the host. This breaks the entire
investment barrier that previously inhibited smaller parties from
embarking on SCC. Furthermore, major ERP solution providers like
Oracle, SAP and Peoplesoft currently offer some off-the-shelf
application packages for these collaborative activities.

The solution comes in the form of Internet supplier portal,
Internet customer portal or any other collaborative supply chain
products.

This E-commerce technology has and will continue to have a
significant impact on how we conduct business. This includes
queries, transactions, decision-making, and customer
relationships, which eventually increase overall efficiency to
the members of the supply chain. Major companies all over the
world got on board in managing their supply chain online
collaboratively to maintain their competitiveness. Indonesian
companies need to start developing and implementing plans to take
part in these initiatives within their own supply chain. This
collaborative strategy along the value chain sometimes does not
only mean efficiency; in some instances it is a survival
strategy.