We have all heard horror stories about the impact de-stocking initiatives such as just in time, cross docking and direct shipping have had on smaller suppliers in the supply chain. And to be fair, it was always thus – when the big guy shouted, the little guy jumped. That is all about to change with the advent of new technology that could herald a quiet revolution in the supply chain world.
The reality in the supply chain was that large players imposed ridiculously short lead times on suppliers further downstream. Not being able to respond in time caused “just-in-time” to become, more often than not, “just too late”. As logistics managers fought with every tool in their armoury to keep service levels up, a new breed of short term solutions evolved. The Panic Van and Express Courier became regular sights, along with a sharp rise in overtime working at distribution centres. Logistics spending went through the roof – as did the heart rates of suppliers desperately running quicker to keep up with unpredictable demand.
Lower stock, unreliable supply, higher logistical costs and disgruntled customers became the norm. So why did the measures to lower costs by reducing stockholding cause chaos in the supply chain and in many cases ultimately cause more damage to the bottom line than the original stock holding? Quite simply, the problems of stockholding were moved from one place to another. If you place an order with a supplier at 3.30pm on Thursday, it is unreasonable to expect delivery of parts at 6am the following morning to enable you to deliver to your customer for 9am. This only works if your suppliers are prepared to hold large buffer stocks on the off-chance you might place an order. In the current climate of everybody trying to reduce stock, that is unlikely.
Now we face the situation where nobody wants high stocks shown on the balance sheet and everybody has pushed the problem down stream to their smaller dependant suppliers. As smaller suppliers typically do not have sophisticated IT systems (or crystal balls) this strategy seems doomed to failure. Or is it?
Since the end of the 1990s people have started to talk about a new Holy Grail – total supply chain visibility and synchronisation across the extended supply chain. Indeed, there have been seminars, speeches, books and web conferences all urging supply chain and logistics professionals to embrace this new answer to supply chain woes. Only one small but important piece of the jigsaw was missing: how could different systems be linked to provide this all important information transparency up and down the supply chain?
Because of the way in which the problem has been pushed back up the supply chain, the suppliers least likely to have the technology and budgets to create such links have inherited the pain. There simply were no easy ways to integrate a raft of different systems without embarking on a project of indefinable length and cost.
The advent of “on-demand” technology looks set to change all that. Its relatively low set up costs, rapid implementation and speedy (and measurable) return on investment are a few of the reasons why more businesses are now turning to services that can be delivered via the Internet on a needs-only basis.
This approach to supply chain management works especially well in the manufacturing, food and beverage and retail environments, where there has traditionally been a tendency for the master/servant relationship to pervade the supply chain. That is now changing. Both multinationals and their trading partners have access to information that benefits the customer in terms of a more efficient and effective supply chain management system.
For decades, too many supply chain relationships have been characterised by the “knowledge is power” maxim, where cash rich multinationals have – often unintentionally – kept suppliers in the dark, and not created a culture of genuine collaboration. With the advent of on-demand solutions, that can now become a thing of the past. “Top table” suppliers need to encourage collaborative relationships with their trading partners, while small suppliers need to grab the opportunity offered to them now of using affordable technology to break the master-servant habit.
Brian Marsden is CEO of Wesupply, an established leader in on-demand supply chain management. He can be contacted on 08700 706670.