Introduction
In the ever changing world of business, an organisation’s success depends on constantly meeting new challenges and adapting to the market place. In today’s global village, companies have made a journey throughout the world in search for ready sources of components, lower-priced labour, and talented workforce. Tough this has led to a drop in prices of the commodities but the spread and complexity of the supply chains has created unsettling situations for global supply chain executives.
Almost all manufacturing organisations grapple with volatility and disruption in supply and demand networks, waste management, rising distribution costs and on- time delivery problems. On the simplest level all these problems are about balancing supply and demand. Acc to PRTM’s Global Supply Chain Trends 2010–2012 Survey, three quarters of the respondents cite demand and supply volatility coupled with poor forecast accuracy to be the biggest roadblocks in capturing profits from economic upturn .Working closely with all the drivers and agents of supply and demand in a supply chain, organisations can work around such problems .
Supply chain management is essentially about management of relationships with suppliers, distributors, retailers, and the end consumers. The Manufacturer wishes to produce in volume whereas the retailer tries to maximize revenue per square foot. A very stark difference of objectives is visible here. Thus the objective of collaboration in supply chains is to get right product in the right store at the right time at the right price to maximize profitability for all.
Collaboration Re-Visited
Collaboration in itself is a quite an emotive term. In Europe the term “collaboration” is not always positively received. Infact one definition of collaboration is “the act of cooperating as a traitor, esp with an enemy occupying one's own country” .Whereas in the east, countries like India are very open to collaboration in various fields. In business context collaboration basically stands for a set of business processes that help eliminate demand and supply uncertainty through improved communications between supply chain trading partners. In other words in B2B relationships, collaboration is people working closely together to create win-win situations in order to get a multiplier effect.
One of the key things of starting collaboration is to choose the right partner at the right time.This is the link where most organisations make a mistake. Imagine what will happen if one goes to any girl and says “ hey, marry me”. The response will more often than not be negative.Similarly if any organisation goes to a supplier and says “hey , collaborate with me” chances are they will end up wasting a lot of time ,money and other resources which they initially set out to save.Collaboration in business should transcend through phases of willing cooperation and then coordination. Starting with small low risk projects and demonstrating high levels of C3 behaviour – cooperate , coordinate, collaborate will lead businesses to build trust and eventually higher gains for all the parties involved.
Roadblocks
According to the PRTM report cited earlier,More than 85 percent of companies expect the complexity of their supply chains to grow significantly by 2012, due to the challenges of expanding services to new global customers—their primary source of revenue growth. As a result managers must work to diminish these roadblocks.Mckinsey quarterly report on” building better links in supply chain “ identifies following major roadblocks
1) Partner Complexity and Churn : With a large number of multinationals operating today, it is no surprise that tier-1,tier-2 and tier -3 suppliers are all scattered around the globe.With the fast changing demand and product designs, building long lasting collabartion becomes secondary.for example in case of largest computer- systems company by market share,Dell rapid changes in technology make holding inventory a huge liability. Many components lose 0.5 to 2.0 percent of their value per week, and a supply chain packed with yesterday's technology is nearly worthless.
2) Silos and forecasts : As pointed earlier in the article, a manufacturer tries to produce by volume whereas a retailer wants to maximize revernue per unit of space available.hence genrerally conflicting forecasts and product demands pass among the partners. Bullwhip effect ,first explained in 1960, is a major effect of such spurious forecasts and it is one of the major problems organisations face till today.
3) Mistrust Spiral : Competion today is more fierce than ever before.There is a good reason for OEM’s to believe that their shared data with the suppliers isn’t secure as they provide material to competing OEMs.This lack of transparency makes the OEMs’ projections less than believable to suppliers, which then compensate by scaling production downward. That causes additional problems if demand is unusually strong
The Road Ahead : CPFR
Collaborative Planning, Forecasting and Replenishment (CPFR®) is a business practice that combines the intelligence of multiple trading partners in the planning and fulfilment of customer demand. CPFR links sales and marketing best practices, such as category management, to supply chain planning and execution processes to increase availability while reducing inventory, transportation and logistics costs.
In CPFR A buyer and a seller, as Collaboration Participants, work together to satisfy the demands of an end customer, who is at the center of the model.
In a typical CPFR model, the parties involved engage in strategy and planning for the product, demand and supply management, providing the product and analysis of the product sales.They set various KPIs and continuously monitor and adjust plans to get greater returns.CPFR specifies various processes and software tools to synchronize and exchange data between organizations,suppliers, distributors, retailers for better demand planning and forecasting.
CPFR creates a win–win scenario, tying the buyer and seller together so that their goals are compatible. By competing as one, the buyer and seller form a value chain that will come out ahead of other buyers and sellers who are still caught up in price negotiations.
As can be seen, organisations which experience variation in demand, deal in highly differentiated products and those that are not driven by price can think of implementing a CPFR model.The below graph illustrates the level of information regularly shared among business partners.
Conclusion
According to a study supply chain collaboration can drive margin improvements up to three percentage points. While the figure looks rewarding but the organisations should understand that building the right internal and external environment takes time. Most OEMs will first need to launch discussions about which companies can be their closest partners.
Early successes will set the stage for future growth. If that happens, executives will not take long to realize that with good collaboration they can lower the working capital levels while improving the service levels.
References
https://www.mckinseyquarterly.com/Building_better_links_in_high-tech_supply_chains_2251
http://www.logisticsmgmt.com/article/supply_chain_prtms_global_supply_chain_trends_20102012_survey_carries_mixed/
http://www.businessweek.com/adsections/chain/2.1/alookahead.html