Collaboration: tough, but required
During the Hi-Tech & Consumer Electronic Summit held in Singapore, where ModusLink was a sponsor, the topic of Supply Chain Collaboration was a focal point both in panel discussions and keynote presentations. The two day event saw around 150 supply chain professionals congregated to listen, discuss and educate one another over a wide spectrum of topics.
Collaboration in recent times has become such a business-critical driver that Ronald K. Ireland, together with Colleen Crum, in their book entitled “Supply Chain Collaboration” argued that collaborative commerce will be the defining business discipline for the 21st century.
The concept of a collaborative supply chain is fueled by a very uncertain business climate where the rate of change is accelerating. If we look at the US economy as far as 20 years back, we will see that the boom cycles have halved from a ten year cycle (1991- 2001) to a 5 year cycle (2003- 2008). Now, based on some analysts’ outlook, the boom cycle might shrink to a 2 to 2.5 year cycle. This is compounded with today’s other business realities: a fragmented consumer base with lower brand loyalty, shorter product life cycles fueled by disruptive technologies, and weak business forecast accuracy—especially in the hi-tech and consumer electronic industry. The result is the vertical integration model of supply chain has given way to a virtual integration model involving multiple supply chain parties for better market responsiveness.
Judging from the discussion and presentations on this topic during the two day event, supply chain collaboration is both business-critical and elusive at the same time. It is elusive to many businesses because there’s no one boilerplate answer to achieving it. Businesses have to be very savvy in managing genuine collaboration among its supply chain partners and should:
- Establish Shared Goals: This is both the starting and the end-point for a successful collaboration. The success of any collaboration lies unequivocally with the results that should be spelled out with clarity and agreed on at the start of any collaborative efforts. Goals have to be translated to a mutually agreeable set of metrics and KPIs and should address a wide spectrum of supply chain performance themes including customer service, internal efficiency, demand flexibility and product development. (For more discussion on the areas a company can look at when trying to improve supply chain performance, please read my previous blog post Keeping Score on Supply Chain Management Performance.) Establishing mutually agreeable metrics and KPIs can involve considerable effort, especially if it is consequential. Targets not attuned to reality and the dynamics of the environment and that are set with the interest of only one party are unlikely to elicit the desired level of collaboration or end results. Onerous goals often produce transaction-based compliance.
- Demand Accountability: Once shared goals are agreed upon by the supply chain partners, businesses need all players to put “skin in the game” so that rewards and sanctions are tied back to what the partners have ploughed into the collaboration and to what extent the shared goals or expectations are met. Rewards and sanctions can be based on end results, behaviour and process/ standard adherence, or both. There has to be a culture of accountability. One of the ways to actualize it is to have the shared goals and mutually agreed metrics and KPIs codified in enforceable agreement. This argument of “you are either all in or you are not in it at all” sense of collaboration was brought home during one of the panel discussion at the Hi-Tech Summit when a head of supply chain at a leading technology firm shared that a ultimatum was given to their supply chain partner to either collaborate or they will start looking for new partner that will. Apart from the “carrot and stick” approach, establishing and institutionalizing constant business communication practices or rituals such as weekly or monthly operations review and Quarterly Business Reviews to establish alignment will be equally important.
- Manage Tensions: During one of the panel discussions at the same event, a company president in the mobile media space shared that managing inherent tensions among supply chain partners is key to actualizing the full potential of the collaborations. How to manage the potential loss of a company’s proprietary technology or know-how while staying true to an open and collaborative working approach with partners was a focal point in the discussion of managing tensions in collaborations. Mark Millar, the chairman for the summit, captured this relationship with a concept called “coopetition” where partners cooperate in areas where the value generated through joint efforts are greater than the individual endeavour, while competing with each other on one or several fronts. It is my opinion that unless parties have considerable confidence in managing the risk factor, one way or another, or are willing to give up what is at risk over time in exchange for tighter collaboration, the objectives of collaboration cannot be adequately actualized.
- Execute Methodically: This is the “how” part of collaboration. The head of business management at ST Ericsson discussed this in his keynote speech at the summit saying that businesses can leverage on time-tested methodologies to manage visibility, facilitate alignment and co-ordination in terms of practices and processes across the supply chain partners. The lack of such visibility and alignment across the supply chain have been known to create supply phenomenon called the “bull whip effect” where demand is amplified at the point in the supply chain furthest from the end-user. Michael H. Hugos explained the phenomenon in his book “Essentials of Supply Chain Management” saying small fluctuations in product demand by consumer at the front of the supply chain ripples into wider and wider fluctuations in demand experienced by company further back in the supply chain.
- Enable Through Technology: In their book Ireland and Crum observe that while there are cases of success with what we may define as “manual collaboration” efforts, technology is necessary to take collaboration to scale and to a much lower level of detail.
Two of the leading supply chain management methodologies that businesses can consider implementing:
- Supply Chain Operations Reference Model (SCOR): In the definitive subject matter book on SCOR, authors Peter Bolstorff & Robert Rosenbaum in their book “Supply Chain Excellence”, explained SCOR as a comprehensive and eclectic framework that combines elements of business process engineering, metrics, benchmarking, leading practices, and people skills into a single framework. Under SCOR, the key constituents of supply chain management include PLAN, SOURCE, MAKE, DELIVER and RETURN.
- Collaborative Planning, Forecasting, and Replenishment (CPFR): The objective of the model is the integration of supply chain and to facilitate cooperation in the management of inventory by providing visibility and replenishment of products throughout the supply chain. There are nine steps to CPRF involving 1. Develop Front End Agreement 2. Create the Joint Business Plan 3. Create the Sales Forecast 4. Identify Exceptions for Sales Forecast 5. Resolve/Collaborate on Exception Items 6. Create Order Forecast 7. Identify Exceptions for Order Forecast 8. Resolve/Collaborate on Exception Items 9. Order Generation
What are the measures your company is taking to promote collaboration? Write and let us know.