Collaborating in the e-Commerce Age
By Larry Lapide -- Supply Chain Management Review, 6/1/1999
The success of a free-market capitalist system is based on the inherent tendency of individuals to look out for themselves, behaving in accordance with one of the seven deadly sins: greed. This trait has long been evident in buyer-seller relationships up and down the supply chain. Traditionally, these relationships have been characterized by intense negotiation, which often turns out to be downright adversarial.
Over the last decade, however, things have begun to change. Manufacturers, recognizing that traditional supply chains are inherently inefficient—resulting in excess inventories, unproductive assets, and nonresponsiveness to consumer demands—are learning how to partner. They're following the tenet of supply chain management to "integrate from your suppliers' suppliers to your customers' customers."
This concept of collaboration is taking hold across all business sectors. It first came to light in the pioneering work on Collaborative Planning, Forecasting, and Replenishment (CPFR) done by Wal-Mart and Warner Lambert as well as in the CPFR pilots conducted by the Voluntary Inter-Industry Commerce Standards (VICS) Committee. Today, collaboration is one of the hottest topics at seminars and conferences and in industry publications.
This column discusses collaboration in the context of business-to-business electronic commerce. It explains the evolutionary stages of e-commerce relationships and then outlines the major collaboration opportunities open to supply chain trading partners.
The Stages of e-Commerce Relationships
Trading partnerships typically evolve in three stages. They start on a transactional level and then move toward information sharing. The third stage, collaboration, builds upon the transactional and information-sharing infrastructures.
Transactional. Most of the early discussions and implementations of interenterprise electronic trading partnerships have focused on business-to-business e-commerce through EDI transactions. The automated buying and selling process uses standardized ANSI-based transactions to represent, for example, purchase orders, invoices, advance shipment notices, load tendering and acknowledgements, and freight invoices and payments. Companies usually transmit transactions over proprietary intranets and commercial Value Added Networks (VANs). Some now are beginning to look at the Internet as a more affordable alternative.
EDI-based transactional relationships have grown significantly over the past decade primarily because users can derive almost immediate benefit from automating their execution activities. EDI facilitates business transactions, improves accuracy, eliminates paperwork, and reduces costs. Yet although it enhances execution capabilities, EDI has negligible impact on supply chain planning and scheduling.
Information sharing. The next step in the evolutionary process is information sharing or data exchange. Typically, a partner is given access to information, or one partner transmits information to the other. Wal-Mart's RetailLink system, for example, grants suppliers access to a database of store-level POS (point-of-sale) data. In the automotive industry, tier suppliers are sent a forecast of an OEM's material requirements to help them schedule plant operations. Similarly, some OEMs electronically transmit design and component specification information to tier suppliers. Electronic catalogs represent a newer form of information sharing.
The shared information might include data on order status and forecasts, shipment tracking and tracing, product design, and inventory status. This information is immensely useful in improving supply chain performance, as it helps to synchronize trading partners' supply/demand plans. At this stage, information is sent on an FYI (for your information) basis since the recipient uses the data on an "as-is" basis. This information-sharing approach is expanded significantly in the next stage.
Collaboration. Although information-sharing relationships go a long way toward enabling supply/demand synchronization, they do little to help reduce the uncertainty trading partners face in determining future product supply/demand. To enhance the buyer-seller relationship further, some trading partners are adopting a more collaborative approach. Collaboration enables partners to jointly gain a better understanding of future product demand and implement more realistic programs to satisfy that demand.
When collaborating on consumer requirements, for example, trading partners might work jointly on new-product designs and forecasting consumer demand. When striving to match supply with demand, the trading partners would decide on how much product will be produced and when. Collaborative planning efforts could focus on new product planning, demand forecasting, package design, and category management, among other areas.
Collaborative Relationships Along a Supply Chain
Opportunities for collaboration among the trading partners will vary depending upon the organizations' respective roles in the supply chain. The three major types of buyer-seller collaborative relationships are depicted in Exhibit 1 and discussed below.
Manufacturer/Supplier Collaboration
By collaborating with suppliers, manufacturers will derive benefits in such key activities as new-product development and synchronized production scheduling. Collaborative product development enabled by sharing and modifying design documents (e.g., CAD files) will help manufacturers develop products better and faster. Similarly, coordinating all tier-supplier production schedules will help ensure that future material needs are satisfied. This, in turn, results in improved order fulfillment and increased capacity utilization.
A good example of this type of collaboration can be seen at Adaptec, a "fabless" electronic chip and board manufacturer. Using software from Extricity, the company is installing a sophisticated system to communicate electronically over the Internet with manufacturing subcontractors in Asia. Adaptec plans to use the system to send assembly drawings, transmit electronic purchase orders, and obtain work-in-process updates.
Manufacturer/Customer Collaboration
The collaborative opportunities between manufacturers and customers (such as wholesale-distributors and retailers) center on demand planning and inventory replenishment—as in CPFR. The focus is on jointly developing an understanding of demand at the point of consumption, followed by creation of a mutually agreed-upon replenishment plan. This approach helps ensure that consumer requirements are met efficiently.
To collaborate on demand planning successfully, trading partners need to share and modify each other's demand plans and forecasts electronically. Importantly, each partner needs to understand and electronically share its promotional plans. Once demand plans and forecasts are in place, replenishment plans designed to assure adequate product availability would be jointly developed.
Whirlpool is exhibiting this level of collaboration with its major channel partners, such as Sears. Each week, the trading partners send Whirlpool a forecast of their needs for the next 16 weeks, with detail on the first three weeks. The manufacturer and its partners plan their replenishments based on this information. In doing so, they pay particular attention to the first three weeks—those that are most affected by promotional programs, which are major drivers of demand variability.
Collaboration With Third-Party Logistics Providers
Collaboration between companies and third-party logistics (3PL) providers will focus on joint planning of logistics activities. With regard to transportation services, collaboration will improve equipment utilization by enabling the consolidation of inbound, interfacility, and outbound shipments among trading partners. This can be accomplished through electronic sharing of information on shipment plans and availability of transportation resources. Packaging is another potential area for logistics collaboration. FedEx, to cite one example, is working with customers on packaging designs that will reduce freight costs.
Collaboration with 3PLs providing distribution center (DC) services would focus on the productive use of facilities, labor, and equipment. This involves electronic sharing of inventory-replenishment plans so that receipts do not overload a DC's receiving function or storage capacity. Electronic visibility into the availability of distribution center resources would support this type of collaboration.
Why You Can't Fall Behind
All forms of electronic commerce—transactional, information-sharing, and collaborative—offer opportunities to improve supply chain performance by reducing costs, improving asset utilization, and increasing customer service and revenues. Interenterprise collaboration, while still in its infancy, holds out the greatest potential to improve supply chain performance significantly via collaborative demand planning, logistics planning, synchronized production scheduling, and product development.
Companies need to stay constantly aware of e-commerce developments and not be afraid of trying the new collaborative techniques. To paraphrase an industry adage, "Most people overestimate the speed of technology but underestimate its impact." This holds true for electronic supply chain collaboration. Those that fall behind their competitors in collaborating with trading partners will quickly find themselves at a disadvantage. The profitability and customer-service performance improvements that flow from collaboration are quantum in nature. They should never be underestimated.
untitled
03/16/2010Information Gap
08/31/2001Collaboration Lessens Supply Chain Swings
01/01/2002BDP-02-14a
03/16/2010
View All On-Demand Webcasts
