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.