Are we all embracing trading partner collaboration to the degree that we all say? What opportunities are we missing?
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Where We Are Now
Raise your hands if your company has fully embraced and implemented collaborative partnerships. I am sure if I took a survey on the state of collaboration, that we all would say – “Oh, we do that…” Recently, a close colleague of mine shared a quick story with me that got me thinking. Are we all embracing trading-partner collaboration to the degree that we can say “…that an industry standard-operating practice is now in place and has been fully leveraged across the industry”?
My colleague mentioned that he was sharing the potential benefits available to their company after implementing a few select process based initiatives. The response from the CEO? “These numbers are unbelievable and I just can’t wrap my head around it. I just can’t see how those kinds of numbers can be achieved….” The result? The CEO approved another request for a new system justified by a small fraction of the benefits that my colleague proposed.
To me, this little story reinforces the on-going challenge and the current state of collaboration across the industry. Is collaboration a fully matured initiative or is its potential missunderstood and under leveraged? There are stellar companies that have clarity on the scope, potential, and roadmap to enterprise or network collaboration and have realized significant benefits along the way. As an industry initiative, however, “Collaboration” has fallen short in reaching its broad and strategic potential envisioned over 10 years ago.
No one questions that CPFR continues to represent a huge opportunity. The potential benefits of collaborating on forecasts and driving a forecast of orders up the supply chain are staggering. In most cases, companies have failed to fully extend collaborative supply chain concepts, principles and strategies beyond their current CPFR programs within their companies. As I have written in the past, “CPFR” was only one aspect of the total enterprise strategy and one of the initial steps in a migration path to a more robust end-to-end network application. It is time to shift into second gear…
Where We Need to Go
For retailers, manufacturers, and suppliers/OEMs, the focus has been to continue to refine operating practices and efficiencies that lower the cost of goods and improve overall company profitability. True network or enterprise collaboration – end-to-end – has fallen short. This is where the potential, and the future state and direction is for collaboration. In many cases what we have are “islands of collaboration” that are not seamless, linked, and integrated, nor are they necessarily integrated with upstream and downstream processes.
There are a few core phases or steps to the migration path complimented by technology options to help facilitate and scale. The diagram below shows an overview of the value chain and its end-to-end linkages, each representing a potential disconnect between trading partners:
Questions still remain:
Is there a flow and linkage of business processes and systems from top to bottom?
Do the systems talk or feed each other? Are they single or multi-echelon?
What are the inputs or drivers of data input for each of these steps and systems?
Is it a top down allocation or a bottom up customer-driven approach or both?
Who is the master conductor of the orchestra, instruments and players?
I believe the answers to these questions point out that the current state of collaboration only goes so far.
Leading retailers see the manufacturer as part of their extended enterprise that, ultimately, has a large bearing on a retailer's performance and the consumer’s value proposition. Conversely, manufacturers see the retailer as an extension of their enterprise that also has a large bearing on a manufacturer's performance. Each needs the other, and both need to be in sync, matching each other's capabilities. In essence, this was the basic foundation for developing Cross-Functional Trading Partner Relationships enhanced by Customer-Driven Demand Plans, Information Visibility and Total Enterprise-Wide Demand view and coordination.
Available technologies and technical applications ease the cost of entry and provide the appropriate capabilities for large, medium, and smaller companies. Technologies and applications also now have the ability to crunch and process very large amounts of data. Third-party/cloud applications reduce the cost of entry, and analytics are now possible that facilitate analysis and rapid trend identification and decision making. But at the core, collaborative business practices (both internal and external to an organization) lays the foundation, enabling the full utilization and potential of new initiatives such as “Big Data” and “Cloud” along with recent advances in data-processing logic.
Creating a Unique Value Proposition
The ultimate goal in aligning functional objectives and optimizing decisions across the extended supply chain is to drive consumer value. This translates into continuing to refine internal processes, activities, and decision to significantly drive sales and profitability for competitive parity and advantage.
Once supply chain decisions have been optimized, one must focus on aligning time, space, quantity, and cost. Advanced supply chain approaches expand beyond product to all those activities that support the extended product flow. Analyzing these supply chain enablers is yet another level of business analytics that focus on identifying supply chain inhibitors looking at process, methods and practices.
The analysis applies the cost and asset expense of activities to select the channel that is the best fit to optimize product flow through to the store shelf. Activity-based costing best describes the process of identifying and assigning all the costs incurred to the product. This loaded cost reflects the true net profitability per product. When aggregated, data reveal what products and/or categories are driving supply chain cost or drag on profitability. This results in the intelligence to make wise decisions and modifications to further optimize net profitability, value, and competitive advantage.
Taking the analysis to another level reveals a wealth of knowledge about your business processes, methods, channels, and just what kind of consumer value you are presenting in comparison to your competition. Business analytics gives you the intelligence to also breakdown cost elements in your business, enabling actions that can radically change your profitability mix. The result is in identifying opportunities with labor expense, asset utilization and merchandising effectiveness for true “value chain” efficiency. In some respects we are driving a Porsche 911 with a host of options, but not able to get it out of second gear.