Supplier relationships

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The Consortium started life in 1971 as the buying department of a local authority in Wiltshire. Within a short time it had expanded to become the supplies organisation for a large group of local authorities across the South-west and Wales.

Following a management buy-out (MBO) the company is now a £41M organisation, budgeting for a £1M profit in 2004 and employing 200 people. Its customers encompass 26,000 establishments, including schools, colleges, local authorities, care homes, nurseries and private companies.

It provides 30,000 products via a 1,000-page catalogue, now available on the web, from stationery and office equipment through to vehicles and food. It supplies goods right across the UK and to customers as far away as Indonesia and South Africa.

Since the MBO in 1995 The Consortium has had to ‘stand on its own feet’ as it no longer operates with a local authority mandate demanding customers buy from it. As a result, it constantly needs to operate efficiently and drive out any waste whilst maintaining a high level of responsiveness in its supply chain operations.

Therefore, The Consortium has undergone significant customer-focused improvements over recent years.

The Consortium has undertaken a fundamental re-engineering programme, realigning its supply chain to ensure best possible service at the lowest cost. As a result it now operates with three different supply chain models to provide the best price/service combination for every product.

Category 1 products are off-the-shelf items and frequently ordered by customers. These are supplied by up to 200 suppliers and stocked in the company’s 8,928sq m warehouse at Trowbridge.

Category 2 products are higher value products which need more customisation and aftersales service support, such as furniture and white goods. Orders are taken by The Consortium and sent by email, phone, post and fax directly to suppliers to carry out fulfilment. Suppliers are then expected to keep The Consortium up-to-date on delivery times and despatch goods direct to customers.

Very low margin products, like PCs and fuel, are handled within the Category 3 supply chain, for which The Consortium earns a commission. The supply of these products is completely outsourced to specialist suppliers who can add the most value by handling all contact with the customer.

To streamline its three supply chains, The Consortium has increasingly become an advanced user of technology. It has deployed high levels of automation and computer control in its warehouse (for category 1 products) whilst running its core financial and distribution operations using System21 enterprise resource planning (ERP) software from Geac, a global enterprise software company for business performance management.

Performance levels

Since the reorganisation of its supply chain in the late 1990s, and the introduction of new technology, there have been some significant benefits for The Consortium. Overall inventory levels have reduced by £1M, with stock turns increasing from eight to 15 a year. On-time, in-full deliveries of category 1 products have also improved form 32% in 2001 to 91% in 2004.

Although a great success, The Consortium has a culture of continuous improvement and so it is always looking to drive greater levels of performance right throughout its supply chain operations by deploying new practices and supporting technology.

Over the past 12 years, the company has worked in very close partnership with Geac in order to provide an electronic supply chain with customers and suppliers.

During this time, The Consortium has been through three major phases of the electronic commerce evolution. In the 1990s it wholeheartedly embraced electronic data interchange (EDI) with individual schools placing orders direct with The Consortium. However, this approach was not practical for the many thousands of daily communications within its supply chain as each attracted a transmission charge. Email orders were also not the answer as they would have been unstructured and required re-keying on receipt.

Phase two embraced Internet technology. One of the drivers for this was the burden of the annual production of its 1,000-page paper catalogue. Customers placed catalogue orders by phone, fax or post but the catalogue itself was deemed inflexible and too restrictive. So The Consortium deployed a catalogue management system to replicate this catalogue on the web – displaying images and text via a browser.

It is linked directly to finance and inventory information held in System21 to provide a complete browse, buy and enquiry solution for customers in real-time. This ensures that product availability and order status information is always up-to-date. Already 10% to 12% of orders are being placed through the site and this is steadily growing.

In 2003, having established a true electronic commerce window for its customers, The Consortium turned its attention to the third phase – providing excellent customer service by securing the best possible relations with its supplier base supported by Internet technology.

Mark Barnett, supply chain director for The Consortium, comments: “Initially we considered a ‘lean strategy’ for our supply chain. Undoubtedly, this would drive down stock and eliminate non-value-added processes, making things even more cost-effective. However with 26,000 customers with significantly different requirements, we must be more ‘agile’ and responsive to their needs. A pure focus on lean stocks would not be right for us so we turned to Geac to help look at information flows and visibility right up and down our supply chain, to help make us more flexible and responsive.”

Order fulfilment

To meet The Consortium’s needs, Geac deployed one of its eCommerce systems called vendor.connect. The system provides suppliers with controlled access to System21, via a browser, to view historic buying patterns and current orders. Suppliers can view a list of daily orders, without the need to receive manual purchase orders, whilst confirming precise delivery dates that they undertake on The Consortium’s behalf. Any changes to dates means The Consortium can then notify its customers straight away.

The idea was to deploy vendor.connect to improve the efficiency and customer service levels within The Consortium’s £15M direct delivery (category 2) supply chain. Typically, goods were supplied on longer lead times and on time performance was poor. This was because many of the 2,000 daily purchase orders had to be faxed or posted – inevitably, some did not arrive with the supplier.

This meant involving the 40 staff in customer services in sending weekly reports to each supplier just to confirm how many orders had been placed. Sometimes, this could entail 5,000 orders and suppliers. If undelivered customers would contact The Consortium to chase orders causing customer service staff to contact suppliers in order to expedite late orders. This was a huge administrative burden and meant customer services were not always able to answer incoming calls because of the number of outbound enquiries being made.

Worse still for customer service, The Consortium had no visibility of order fulfilment. It did not know if an order had been despatched until an invoice arrived from the supplier. Furthermore, every time orders were misplaced it impacted its cash flow.

Hence there were significant business drivers to making the vendor.connect project a success. As a result The Consortium took a measured approach to the roll out and provided only six key suppliers with access to System21 at first. Although some of these suppliers offered initial resistance, with appropriate communication, the creation of a well explained brochure and detailed face-to-face training, they soon readily adopted it – many have since encouraged other supply chain partners to adopt the same model. The Consortium has since rolled it out to 65 of its 76 direct suppliers, including companies like Staedtler and Agenta Marketing.

Supplier Relationship Management (SRM) is not just about deploying Internet technology. It also requires a new working culture which embraces supplier responsiveness and performance through close collaboration, as Barnett continues:

“A responsive demand-driven supply chain calls upon participation amongst all supply chain partners – not just from The Consortium as the primary client contact. However, you cannot embrace the necessary levels of supplier participation under traditional business relationships – where typically customers constantly review and change their supplier community purely based on price. Instead it takes a whole new and professional long term stance from both sides of the table.”

The Consortium has also recruited more purchasing professionals – many with qualifications from the Chartered Institute of Purchasing and Supply. It now has a ten-strong team focused on fostering longer-term relationships with a smaller number of trusted suppliers who want to work collaboratively for longer-term gain. These buyers now spend significant amounts of time identifying the best suppliers around the world with whom The Consortium wants to do business. Time is then invested with them to really get to understand their needs and operational constraints. In this way, The Consortium has far greater understanding and empathy with its partners.

As a result, The Consortium has reviewed its entire direct supplier base in order to find companies who are have the right cultural fit and are prepared to invest in a long term partnership. Sixteen of its top 20 suppliers have since been phased out and replaced.

Working practices

The new breed of suppliers also want successful long-term relationships with The Consortium and are happy to adopt new working practices. This includes periodically logging onto The Consortium’s website to review orders that they have been sent that day. They then make their own internal inventory enquiries and either confirm the proposed delivery date or offer a new one based on their own supply chain constraints.

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