Collaboration key to achieving supply chain excellence

Customers and suppliers need to play “The Collaboration Game” if they want to achieve supply chain excellence, explains Crimson & Co’s prinicpal consultant Natalie Henfrey.

Automating the Supply Chain
Having to change suppliers can be expensive and troublesome.

Inefficient daily supply chain operations and unsuccessful new product launches are just two of the common symptoms of underlying problems in how a customer and its suppliers are collaborating.

But rather than consider the root cause of the issue, and accept that their own processes and behaviour may be partly to blame, a customer’s knee-jerk reaction is often to ask procurement to run a tender exercise to replace the supplier.

Replacing a supplier is appropriate when their costs, quality and service are sub-standard and they are unwilling or unable to do anything about it. However, changing suppliers is expensive and troublesome.

Even if a new supplier bears some of the costs (for example, new plates or moulds), the process is time consuming, disrupts operations and almost always results in service issues during implementation.

If, however, it is the interface between the customer and the supplier that is broken, then simply replacing the supplier will not necessarily relieve all the symptoms (poor service; wrongly interpreted product specifications; late new product introduction; higher costs, and high customer inventory).

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Its supply chain philosophy, processes and attitudes can all inhibit a supplier’s performance.

The problem can in fact lie within the customer’s fundamental supply chain philosophy, processes and attitudes, all of which can inhibit the supplier in providing the service levels required. In this instance a change of supplier might purely replace one set of problems with another.

Collaboration is a less disruptive and more sustainable solution, which focuses on building a mature relationship – a journey which starts by fixing the immediate issues together through better processes and communication, and develops through integrating processes until exception management becomes the norm.

Collaboration explores elements of the total cost of ownership, not just purchase price, so typically the scope includes logistics; planning; inventory; quality; operations, and management costs, as well as evaluating product specifications.

The result is that cost reduction occurs throughout the customer’s supply chain and savings are often higher than or at least equal to those achieved in a procurement-led tender exercise.

Photography by Jim Bahn.
Recognising that poor supplier performance can be a two-way failure is a crucial step (image courtesy of Jim Bahn).

Technical changes tend to be the most lucrative source of benefits – typically 40% of the total benefits), with inventory, logistics and process savings delivering around 30%, 20% and 10% respectively. The high percentage of benefits achieved from technical changes is generally a sign that suppliers have not been previously been involved in the new product development process early enough and therefore opportunities to value engineer the product have been lost.

Communication is important within both parties once activity is established and if done well can eradicate remaining scepticism. Leaders of collaboration projects need to be clear that they are aiming to drive tangible benefits, not simply implementing a series of review meetings. Being clear with everyone about what those benefits are and how they are measured is a powerful way of uniting those involved in supporting the end goal.

This will become increasingly important as the initial aims are achieved and forgotten and the slower process of building a long-term mature partnership begins. For this reason, it’s important to showcase and celebrate achievements as much as possible, as early as possible.  Sustaining momentum, sponsorship and support in the long term can be difficult but is essential to realising long-term benefits.

Being unafraid to recognise that poor supplier performance can be a two-way failure is the first step to using collaboration to resolve it. Methodically defining benefits and engaging people to support and deliver them are vital to success and sustaining it.