Early enthusiasm for making supply chains more efficient through collaborative planning, forecasting and replenishment (CPFR) seemed to flag at the beginning of this decade. Now interest in collaboration has been revived thanks to a second generation of technology and renewed efforts to agree vital standards.
The prize of closer collaboration between supply chain participants is significant: higher sales, lower inventory levels and an ability to react more quickly to market demands than the competition.
But to achieve a competitive edge, companies must set aside the normal divisions between buyer and seller and share information on forecasts, promotions and stock levels to an unprecedented degree. Perhaps because of this huge cultural change, progress has been slow.
Lora Cecere, research director at technology advisory firm AMR, stresses the cultural aspects of collaboration. ‘You don’t have sustainable processes unless you have a win/win on both sides. Unless you have reasonable goals people won’t put in the time,’ she claims.
‘We talk about collaboration, but it’s never going to be successful unless you have mutually agreed goals. You need to define your terms: what is a forecast, what is a sales plan. People have to come up with common definitions because everyone has their own way of working.’
Cecere sees rules based technologies combined with instant messaging to keep partners informed immediately something occurs as critical to collaboration. ‘Electronic data interchange is two tin cans and a wire,’ she says.
A vital component
Other observers agree that the right technology is a vital component of collaboration. ‘We are on the second generation of collaborative technology,’ says Raja Chandrashekar, vice president of the Hi-Tech Industry Group at software firm i2 Technologies. ‘The first generation was connecting parts of the supply chain to processes.
‘The technology of the 1980s was electronic data interchange. By the 1990s a new type of web portal had emerged that enabled self-service, better visibility and forecasting, as well as providing performance related information.’
Exchanges, designed as hubs for collaboration, were set up during the business-to-business Internet boom of the early part of this decade. The exchanges involved logistics providers and customers sharing information and trying to reduce the time it took to communicate it. Private exchanges have had some success, according to Chandrashekar. He cites the way Dell has used the web to streamline processes with its suppliers as a good example.
‘Over the last two years we have begun to see a next generation in collaborative technologies. That has involved looking at the purpose and value of collaboration. Some of the processes are to do with managing volatility and demand variability.
‘We are starting to see a next generation in which the process around automation is tied in with exception management. This is important because you can easily get overwhelmed with information with the result that you can’t make sense of what is going on.’
Business practice is becoming more accommodating to collaboration too. Terms and conditions are less rigid. And not before time, because many suppliers still feel they have the bad end of the bargain. They feel they are collecting information that retailers can use to leverage negotiations.
‘They are saying just because we are the small guy we don’t want to be saddled with raw materials costs if an order is cancelled,’ Chandrashekar points out. ‘In return they are offering to manage replenishment. We are seeing more flexible contracts that are risk based.’
Collaboration is an overused term, opines Ron Kubera, senior vice president of Consumer Goods and European Operations at supply chain software firm Manugistics. But that hasn’t stopped more than half of Manugistics’ European customers from using collaborative technology. And Manugistics says that over the past two or three years it has sold more collaborative technology than any other type of product.
Three types of collaboration
‘There are three types of collaboration: internal collaboration, external collaboration with suppliers and external collaboration with customers,’ Kubera maintains. ‘So far as supplier collaboration is concerned we are doing work with Dixons, the UK electrical chain who are collaborating with some of their key suppliers and they have chosen to do this ahead of attending to their internal systems.
‘In general, what we see is two-fold collaboration: first on business planning and second on longer term capacity planning from six months to two or three years. People have a ton of benefit from collaboration technologies in terms of exception management.’
Manugistics also does a lot of education around inventory management: helping companies to achieve multi-echelon inventory solutions that use a series of distribution centres to pass goods down the supply chain.
‘It’s a matter of tackling uncertainties. The uncertainty of the customer caused by elongated supply chains and increased transport times. The uncertainty of supplier commitments, which mean that you have to keep safety stock. In practice only a handful of users have a systematic approach involving sharing instantaneous information.’
The key lies in the relationships companies establish, Kubera believes. ‘It helps if you arrange regular, scheduled meetings to negotiate. You need to separate discussions on prices from discussions on solving problems. You want to focus on questions such as “last Thursday this order was late how are we going to fix this?”. Talk to a supplier and they often believe that all you are trying to do is lower their rate.
‘The technology helps in the consistency of the process as well as its scalability. When you start collaborating on Excel there are inherent data difficulties. Being web enabled is important. You need a very thin client so that people can use the systems when travelling, but you also have to bear in mind that this is often very sensitive data that needs to be secured.
‘You need a user friendly screen that displays relevant data at aggregate levels. Only pass the data that’s relevant – we had one customer who wanted to pass over two years’ worth of data at a time – all you need is information covering the next season or next two seasons.’
Not everyone is as bullish about collaborative technologies. ‘Collaborative planning, replenishment and forecasting hasn’t really caught on, says Pierson Broome, business development manager for retail software supplier Aldata.
‘A lot of customers are focusing on internal replenishment: optimising the process of getting goods to the shelf in time for when customers want to buy them. They are not putting collaborative processes in place.’
Different sectors have different levels of collaboration, Ruediger Dorn, director, Process Manufacturing Industries at Microsoft EMEA, acknowledges. The automotive industry has a high level of collaboration and synchronisation. ‘Other industries such as pharmaceuticals are only just beginning to open up the stove pipes. The theory is very compelling; the hard bit is getting it into action. The main benefits of collaboration are better forecasting – being able to plan business in a more precise way – a reduction in inventory, increased capacity and a better return on assets.’
It all starts with a better prediction of what is going to happen, says Microsoft’s manufacturing supremo. The exceptions are most important. ‘You don’t want to know that the 100 tons of goods that you expected has been delivered, only when it is 90 tons. Visibility is the key to exception based flagging, so that you can discuss the implication of events.
‘In establishing a culture of collaboration, technology can take out the emotions and turn losing face into a more regular thing. You need to avoid a blame culture and emotionally not admitting things. Collaboration technology provides a process to manage these exceptions and a consistent way of dealing with them.’
Technology is quite advanced, says Dorn. If companies start from a green field position they can do a lot. Historical technology is more problematic. ‘The big bang approach is something that doesn’t work anymore. It is hard to justify these days. You need systems that can be implemented quickly enough to justify return on investment to senior managers.
‘No dip in business performance is acceptable. I see a lot of small projects rather than change reengineering projects. You need to protect existing investments. Whenever you introduce new technologies you have to be bold and be prepared. You can get a competitive advantage if you can overcome the reluctance to share information.
‘Have we eliminated five weeks of inventory because of collaborative technology? It’s hard to pin down. Certainly there is more forecast accuracy and more transferability of information between partners.’
When retailers in the Netherlands decided to switch from distribution centres to smaller, transit centres they asked their suppliers to make more frequent deliveries. Paper products maker Kimberly Clark teamed up with Unilever Fabergé to share warehouse and transport facilities.
‘We said we could deliver more frequently if you can give us fixed times and fixed doors. They agreed and we have reduced costs by over 10 per cent and met retailers’ need for faster lead times,’ explains Peter Surtees, European Supply Chain Director at Kimberly Clark Europe.
Surtees is involved in the 400-strong European Logistics Users, Providers and Enablers Group (ELUPEG) which aims to encourage logistics providers and their customers to work on a pan-European basis. ELUPEG is now talking to other fast moving consumer goods companies about similar collaborations.
The big problem
Kimberly Clark is also collaborating with its 127 carriers across Europe using IT services provided by OmPrompt. ‘Integration is the number one problem for the supply chain industry as they search for economies in collaborative planning, forecasting and asset utilisation,’ says Brian Bolam, CEO at OmPrompt.
‘Our objective is to find ways to help our customers collaborate, the problem is there is a major lack of interoperability between systems. Industry is overburdened with the use of phone and fax. We are building a total community in which no one has to change anything in order to collaborate.’
Danny Edsall, Supply Chain consultant at IBM Business Consulting Services has been around since the early days of CPFR. ‘Collaboration is not a popular word,’ he acknowledges. ‘I ran four or five projects based on the VICS standard. They suffered from the hype curve: wild enthusiasm followed by a reaction. In the end 70 per cent said it was really hard to do – one of the reasons is we over engineered the process. Nonetheless 25 per cent of pilots have begun to scale up their systems.
‘Real collaboration is about using the resources and brainpower of retailers and consumer product companies to solve a problem,’ says Edsall. He points to collaborative category management (the art of working out what consumers at an individual store want in various product categories) as an example.
In the mid-nineties, supermarket groups looked to collaborative category management as a way of getting the right assortments at the right prices in each of their stores. ‘However, once people had done a project they put it under the “too hard” category,’ Edsall admits. But it taught the vendors that they needed global synchronisation of product data.
Now Edsall sees renewed interest in collaboration in this area thanks to developments such as the GS1 initiative to standardise product descriptions and develop networks for exchanging data about products. ‘The business consulting group has been setting up supplier portals to do category management around the world using very different structures and a whole bunch of different techniques,’ says Edsall.
Collaboration on category management goes so far at some supermarket chains that it involves a supplier taking on the role of category captain and being responsible for pricing and assortments on behalf of all suppliers of a particular group of products. Retailers even give representatives from key suppliers desk space at their offices to crunch numbers and manage the process.
In the high tech sector service level agreements play a critical part in ensuring the smooth flow of products along the supply chain. Motorola has been using web-based business activity monitoring software to bring its manufacturing partners together and keep an eye on the status of orders in off-shore manufacturing facilities supplying its South American markets.
The software, developed by webMethods, allows Motorola to predict when orders are likely to back-up and has resulted in an 85 per cent reduction in the time it takes to discover and reduce production problems.
‘Each company involved had its own enterprise resource planning system, so we used RosettaNet standards to link them up,’ says Richard Douglass, director, Global Strategic Business Solutions High Tech / Discrete Manufacturing at webMethods. ‘Business activity monitoring builds up a baseline of normal behaviour so that it is possible to identify discrepancies in real time.’
Tesco’s web approach
Tesco, the UK supermarket group, uses a web-based service from Eqos for sourcing and supplier management in its fashion business. Suppliers bidding for business from Tesco are invited to the company’s website to fill in bid details. The system helps Tesco’s new product staff to build up the detail around a product and its supplier up to the point where Tesco places an order. Previously teams working on new products might have up to 30 spreadsheets on the go for each product.
‘With 1,000 products that’s 30,000 spreadsheets,’ says Mark McDonnell, marketing and business development director at Eqos. ‘Spreadsheets are all very well, but you haven’t got one version of the truth and you haven’t got visibility. One of the big things about collaboration is that it has really come to the fore in global sourcing because of the complexity and distance involved.’
Whatever the challenges of cultural changes and technology standards, the benefit of collaborative supply chains make them worth the effort. With a new generation of technology looming maybe customers will finally get the kind of efficient response that can only be delivered by creating close ties between every stage of the manufacturing, sales and distribution process.