Supply Chain Collaboration: It’s Not a Choice

Academics have espoused the ideal supply chain as one that integrates firms from where materials are originally sourced downstream to the final consumer. For a soft drink manufacturer, for instance, this can be from the company that makes the aluminum can to the grocer that sells the soda-in-can. In such a scenario, the company that mines the bauxite for the aluminum is synchronized with the canning manufacturer, the soft-drink beverage firm, the soft-drink distributor, and finally the grocer. This example exemplifies the holy grail of the extended supply chain in which firms aspire toward this ideal.

The cooperation between firms in an extended supply chain, otherwise known as collaboration, is no longer just another innovative option for businesses. It is a must-have for every supply chain in the increasingly competitive arena of 21st-century commerce.

Supply Chain Collaboration has evolved from the simple vendor-and-customer meetings to that which synchronizes information databases and establishes response protocols not only between purchasing agents and sales reps but also between accounts payable and receivable managers, quality assurance inspectors, and manufacturing personnel, as well as between inbound receiving operators and outbound shippers.

Supply chain managers would do well with the following three (3) approaches to swiftly get started on collaboration:

Fix the internal supply chain

Before a firm can collaborate with vendors and customers, it has to fix its own supply chain first. From order entry to production planning, from procurement to manufacturing, and from warehousing to delivery, a firm’s internal supply chain would need to shift from that made up of independent departments to that of a seamless unit geared toward the common mission of serving customers.

This is easier said than done. For instance, many companies today separate their purchasing functions from that of the supply chain, thinking that procurement should be focused on buying goods at the lowest possible price. What often happens is firms buy in bulk or in high lot quantities to take advantage of attractive quantity discounts. While the company may save millions from the lower price, it suffers in terms of higher inventories which bring about higher storage expenses and a more difficult inventory management system. Despite this, firms would stubbornly cling to this bulk buying policy, not realizing the negative impact on working capital and lower customer satisfaction.

Remove the Communication Roadblocks

Companies unwittingly set up roadblocks to communicating with vendors and customers. Some firms have policies that prohibit managers other than purchasing representatives from dialogue with vendors. Likewise, some firms have rules limiting customer interaction only with salespersons. These restrictions probably came with good intentions but because of them, collaboration becomes impossible.

In order for collaborative partnerships to develop, companies need to establish communication ties not only between purchasers and sellers but also between managers of other functions from each side, from vendor to firm to customer. It’s not just about having financial managers from all parties know each other’s phone numbers but also about having support and visibility between established information systems. Vendors should have a window to a client firm’s accounts payable system and know when payments are forthcoming. Likewise, client firms should know the schedules of materials deliveries even if the materials haven’t been made yet. Firms should know if a customer has enough storage capacity to accept earlier deliveries and customers should know if newer products are coming soon so as to manage inventories.

Establish Response Protocols

Communication and information visibility are must-haves in collaboration but aren’t enough if there are no response protocols in place. Large conglomerates pride themselves on the global partnerships they have with suppliers and customers but all these almost came to naught when natural disasters and political turmoil from 2009 to 2011 rocked the supply of critical materials. The information was there but no one knew how to respond. Firms learned that what comes with information visibility, and response protocols should follow. Small businesses ironically seem to be ahead in this regard. Experienced owners of local hardware stores, for example, keep tabs on major suppliers and order based on availability and trending commodity prices.

Supply Chain collaboration is a must-have for firms if they want to grow their business into the 21st century. It is not only about having a high level of mutual trust among supply chain players but also about establishing communication ties and response protocols far more developed than what they have in the present day.

About the author 

Jovy Jader

Mr. Jovy Jader is a Management Consultant and Regional Speaker on Supply Chain Management. He has directed and implemented Supply Chain Management projects both local and international which have resulted to company-wide improvements in revenue, working capital, total cost, and service levels. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers.

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