All Systems Go: Building a Collaborative Supply Chain while Minimizing Risk

Aug 17, 2010 9:21 PM  By

Creating a collaborative supply chain helps you ensure that all supply chain partners have aligned their visions and goals for satisfying supply chain cost and fulfillment service needs. But as with any IT systems-supported initiative that involves multiple viewpoints, it also carries risk, so you need a solid, secure plan before allowing your supply chain partners to access your data.

The key information components that can help build collaboration – as well as a more efficient supply chain – include:

Forecast: Visibility into the sales forecast is a good starting point. Sales forecasts at the stocking unit and stocking location are valuable pieces of information for suppliers that provide materials or finished goods. Ultimately, and depending on a company’s forecasting capabilities, involvement with suppliers in collaborative forecast updates will yield future improvements in forecast accuracy.

Sales history: This information is similar to forecast data in its value to suppliers. Sales history provides a basis for understanding how forecasts are developed and insight into past activity, which can further secure the supplier’s commitment to a forecast. Sources for sales history may be detailed, point-of-sale data or they may be a refined version that supports the forecasting process.

Inventory on hand: Visibility into current on-hand inventory provides yet another validation point for suppliers in knowing where their inventory is within the supply chain. Over time this will provide additional insight into typical product movement, which may not be evident in the sales forecast or sales history.

Replenishment needs: Communicating replenishment needs to suppliers is central to any supply chain operation, and the need to collaborate in this area is not a new concept. The transmission of the purchase order and the acknowledgement from the supplier are typically the key elements. E-mail, fax and paper-based operations are the lowest common denominator for many organizations, and moving toward an electronic system is often met with resistance.

The more advanced solution that supports collaborative replenishment involves real-time communication of inventory needs based on the supplier’s order-quantity capabilities. This is followed up with a timely acknowledgement including any adjustments, and lastly an advanced ship notification, which represents the shipments that will arrive at the company’s doorstep.

It’s critical with meaningful collaborative supply chain to make the relevant, available information accessible to the appropriate parties. For example, sending a supplier the company’s sales forecast through a production scheduler via e-mail shows positive collaboration.

But making that forecast available on a single platform that can be seen by the supplier’s finance group, sales group, distribution center operations, and transportation providers ensures they are all referencing the same version and are planning or operating based on more than delayed or distilled information. This type of open visibility and collaboration with the right channels is a delicate balancing act. But the downside of delayed point-to-point communications and related inaccuracies make the more elaborate balance worthwhile.

While risks abound in opening up visibility and input into the supply chain management areas, you can constantly make improvements and leverage trading partners’ capabilities. Some key risk factors to overcome include:

Security of information: Opening up to suppliers and logistics partners relies on I.T. systems that provide data security. Also, creating collaborative agreements for all parties will help ensure that all data is recognized as proprietary.

Stability and availability of data: Once the supply chain evolves into the collaborative model, reverting back to manual methods in the event of system downtime may mean considerable disruption. Ensuring system uptime and redundancy of processes is essential.

Single version of the truth: Consolidating all elements of the collaborative relationship in a synchronized manner allows suppliers and logistics partners better visibility for planning. Otherwise, multiple point-to-point communications may lead to chaos.

Matt Wilkerson is a principal at Tompkins Associates, a global supply chain consulting and integration firm.