Supplier relationships have always been a critical component of business success. But in an increasingly competitive and fast-paced world, the role of the supplier is becoming even more important. Today the world's smartest and most successful companies see their vendors not as adversaries who must be bargained with, threatened or cajoled but as powerful resources that can be leveraged to move products to market faster, slash supply chain costs and significantly enhance customer-service levels.
While an atmosphere of mistrust and gamesmanship historically characterized many supplier relationships, the era of just-in-time operations revealed the limitations of such an environment. Today, suppliers are viewed as true partners who can help to successfully implement top-level strategies and secure bottom-line results. In recent years, there has been a widespread effort to establish ongoing two-way communications with suppliers, sharing both overall corporate strategies and the specific initiatives in which suppliers are expected to play a central role. In fact, most businesses have taken concrete steps to open up communications and share strategies with their key vendors. Such initiatives range from quarterly meetings and cooperative product launches to the daily use of electronic data interchange.
But only the most sophisticated companies have taken the idea of supplier collaboration a step further, by using innovative new technology tools to extend their supply chains back into their vendors' operations—ensuring real-time visibility and agility across both businesses and eliminating the element of surprise. Their results should be an inspiration to any business seeking to leverage value-added supplier partnerships as a significant competitive weapon.
High-impact, real-time partnerships
The principle of supplier collaboration is based on gaining visibility and control not within a single company, but across an enterprise and its key suppliers. By linking their supply chain technology solutions to the information systems of key suppliers, businesses of all types can collaboratively manage such critical activities as procurement, replenishment and material management.
Through Web-based interfaces, an organization can execute all of its supplier-related processes and workflows in real time—allowing for both proactive problem notification and rapid replanning. Businesses can react quickly to demand changes by sharing this information with key suppliers immediately, thereby decreasing the likelihood of stockouts and excess inventory. In return, suppliers can give advance notice of product shortfalls, delivery delays and other performance issues.
Because trading partners share visibility, control and accountability for their cooperative activities, trust and dependability are increased—and surprises are all but eliminated, since everyone shares the same information and agenda. Purchase orders are more accurate, inventory levels can be minimized, service levels and delivery performance improve dramatically, and, when the unexpected does occur, the entire supply chain can react with greater responsiveness and agility.
Traditionally, many supplier relationships have been characterized by an atmosphere of gaming, in which customers make inflated forecast demands to ensure that their actual needs will be met. In this scenario, vendors, in turn, make unrealistic promises just to win the business. But supplier collaboration ensures true visibility into actual supplier performance, and creates accountability on a day-to-day basis. In fact, collaborative technology solutions can define rewards and penalties for supplier performance and even help to define the legal issues at each stage of procurement and delivery, reinforcing supplier accountability.
Supplier collaboration also has tremendous productivity and efficiency benefits, streamlining and even automating the traditionally paper- and time-intensive activities associated with procurement and delivery, including purchase orders, invoices and receipts. Faxes, e-mails, conference calls and express packages across large physical distances and multiple time zones can be virtually eliminated, replaced with a user-friendly, online interface that can be customized to the unique demands of every supplier relationship.
And, in an increasingly globalized business world, Web-based supplier collaboration has other obvious productivity benefits. Not only do shared technology systems and data help to overcome cultural differences and disparate business processes, but they also ensure that the supply chain is productive around the clock. No matter what country or time zone key vendors are in, real-time information sharing ensures that there are no delays in response. Key participants in the supply chain can react to changes on the fly, no matter what part of the world they are in—or what time it is there.
Managing volatility in the marketplace
Perhaps the best way to illustrate the benefits of supplier collaboration is by describing how two very different businesses are applying this philosophy.While the actual benefits achieved through supplier collaboration will depend upon each unique business—and the specific challenges it faces in managing its key supplier relationships— such examples may inspire other organizations to explore this new competitive edge.
A major wireless communications provider is using supplier collaboration with its primary vendor of cell phones in an effort to manage the volatility of the marketplace— with new phone designs and innovative technologies emerging constantly—as well as long manufacturing lead times. In this atmosphere, accurate demand forecasts and ongoing supply chain visibility are critical to meeting commitments across the company's many sales channels, implementing scheduled product promotions and launching innovative technologies or phone designs before competitors.
This wireless provider has addressed these issues by implementing a new planning framework and using a supplier collaboration tool to manage all aspects of forecasting, purchase orders and replenishment. In the area of forecasting, market demand is monitored on a weekly basis to identify any mismatches between current and future demand levels and the supplier's capabilities. If such a mismatch exists, both partners are immediately aware of the discrepancy and able to follow predefined processes to resolve any conflicts.With regard to purchase orders, the collaborative technology interface enables the wireless provider to post new purchase orders and gain immediate supplier commitments—as well as to confirm costs, shipping schedules and delivery dates. As purchase orders move forward, changes can be made easily in real time—including revised quantities, new ship-to locations or new transit schedules—as long as they are accepted by both parties.
To add even greater impact, this wireless provider has extended its supplier collaboration strategy to its major retail customers.When these customers enter their own forecast data into the collaborative technology interface, this information travels back through the supply chain— eventually reaching the supplier who will be affected by ever-fluctuating market demand.
The results for this business have included significantly improved customer-service levels, despite the long lead times associated with cell-phone manufacturing. The wireless provider can execute marketing-channel-specific promotions with a high degree of confidence that phones will be available, and can plan for the unexpected far in advance. Inventory levels have also been optimized, ensuring that retail customers are neither starved for product nor over-inventoried at any given time.
Implementing global business processes
Another company—a leading manufacturer in the automotive industry—is using supplier collaboration to manage its offshore supply of finished goods, an initiative aimed at enhancing its market position and cost competitiveness. This represents a significant shift for the company, which had previously only purchased raw materials for its own internal manufacturing operations. An added challenge was that supplier capacity would be shared by the company's European and North American operations, which relied on different business processes and IT environments. This meant implementing a challenging, three-way collaboration to link customer divisions in Europe and North America with vendors in Asia. Like many other companies implementing global business processes, this manufacturer faced the challenge of creating a supply chain spanning multiple continents, cultures and time zones—and accommodating the partners' varying levels of technology sophistication.
A customized technology solution was key to ensuring that all parties shared the same work processes and information formats—despite obvious regional differences. Today, a new supplier collaboration system is helping this automotive-parts manufacturer to consolidate its global purchases of finished goods, deploy sourced products where they make the most sense and more effectively meet worldwide demand with cost-effective finished goods.
On a daily basis, this tool is used to make collaborative decisions about purchase orders, shipments and supplier schedules with a high degree of flexibility and agility. For example, sometimes the manufacturer accepts deliveries in Europe; sometimes finished goods are shipped to the United States; and sometimes Asian suppliers ship direct to customers around the world. Instead of making these decisions weeks or months in advance, the manufacturer can monitor market demand and make real-time decisions, resulting in high service levels at the lowest possible logistics costs. Despite implementing a much longer and more complex supply chain, the company is on its way to significantly improving end-customer service levels.
Equally important, this manufacturer has a new collaborative framework and specific processes in place to manage its supplier relationships, as well as supplier capacity, worldwide. This company can now easily add new business partners or reconfigure its existing business relationships without significant manual effort. This opens many new strategic options for the company.
Realizing bottom-line benefits
While the specific results of supplier collaboration will vary, based on the unique business model, competitive environment and supply network of each company, nearly any organization can realize bottom-line results from such an initiative. The most obvious and immediate benefits may include enhanced internal productivity and efficiency— such as eliminating paperwork and working more effectively across large physical distances. But the most important impact of supplier collaboration can be seen in improved financial results over the longer term.
Companies that have implemented supplier collaboration initiatives consistently refer to three high-impact benefits for their organizations: increased visibility and responsiveness, optimal inventory levels and improved customer service—all of which have an obvious impact on revenues and profitability. Other important financial benefits include lower logistics expenses and a reduced total cost of supply chain ownership.
While supplier collaboration focuses on the back end of the supply chain, its benefits reach all the way to the front end, driving improved customer satisfaction and continued marketplace success. For those companies who choose to embrace this new capability, supplier collaboration can become one of their greatest competitive advantages.
Introducing i2 Intelligence
The i2 Intelligence solutions suite, scheduled for release in the second quarter of 2007, represents an innovative new generation of performance measurement and analysis. It will include the following primary capabilities, which enable organizations to link hundreds of individual performance metrics to the top-level strategic goals of the enterprise:
- Performance Management i2 Intelligence is being designed to include an extensive library of metrics and reports aimed at improving supply chain performance management. These metrics will share a rich data model that accommodates industryspecific nuances. Intuitive graphical dashboards will allow quick, easy access to key performance indicators and reports.
- Root-Cause Analysis Bundled in the i2 Intelligence solutions suite will be best-practice analysis paths to guide users through pre-defined analyses—as well as resolutions that are in keeping with the top-level strategy. These "playbooks" can be enhanced and improved as business needs change.
- Alerts and Notifications Businesses can use i2 Intelligence to monitor key metrics via an automated system of event-driven alerts. Targeted notifications will ensure that the right people are involved in resolution—while links to existing enterprise systems and i2 applications will trigger appropriate resolution workflows.
- Collaboration Portals The i2 Intelligence solutions suite is being developed to empower users to share information and collaborate in defining metrics, reports and analytic workflows. As a result, user roles and privileges can be configured to allow more extensive changes, including data feeds, events and notifications. Integration with instant messaging tools enables collaboration in real time.
- Data Warehousing Organizations will have the ability to leverage i2 Intelligence to create and manage a central, integrated data warehouse that aggregates information from across the enterprise. Users will be able to "mine" this collected data in order to understand trends and patterns, with applications in point-of-sale data analysis, market segmentation studies and the identification of new cross-selling opportunities.
by Kamalakar Poonuru and Mukund Srinivas
Kamalakar Poonuru is director of consulting services at i2. Mukund Srinivas is a senior solutions strategist at i2. For more information, contact: supply _chain_leader@i2.com. |
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