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In high-tech industries, a key roadblock to increasing supply chain collaboration between suppliers and customers is the creation (and alignment of) industry standards. Creating and aligning industry standards drive simplicity, efficiency, and velocity in the collaborative fulfillment processes and is an essential component of achieving true demand-driven networks.
To effectively implement collaboration models, it is important to understand and address the roadblocks that high-tech industry companies face today. These roadblocks, can be grouped under two categories: "what" (or business) issues and "how" (or technical) issues.
The "what" issues can be summarized as follows:
1. Lack of standardization--There are no standard definitions of collaborative fulfillment models, their usage, and their associated attributes. For example, even the definition of vendor-managed inventory (VMI) differs significantly among partner companies. This makes it very difficult to even explore supply chain partnership opportunities.
2. Inconsistent processes--Consistent processes provide the building blocks for collaborative fulfillment. However, key processes and elements such as forecast, response to forecast, and buffer inventory (with associated visibility options) are inconsistently defined and applied. These processes, applied consistently, are key to establishing supply chain partnerships.
The "how" issues can be summarized as follows:
1. Lack of acceptable standards--In general, no acceptably standard choreography and sequencing of sub-processes exist in the high-tech industry (outside of the tactical processes of order receipt and shipment notification/invoicing). Such standardization is essential to baselining any technical solution.
2. Lack of alignment--Although several differing standards exist for business-to-business commerce (B2B) information exchange, there is lack of alignment in the high-tech industry on B2B standards. Without this alignment, companies are unable to rapidly exchange information--a key element of collaborative fulfillment. This also makes it difficult, expensive, and time-consuming to bring new partners on board, which creates yet another roadblock.
3. Lack of standard "middleware" solutions--No open standard "middleware" solutions are widely available from leading providers. Open standard "middleware" solutions seamlessly link shared data flow with existing planning and manufacturing systems. So, even if the other problems above were addressed, supply chain partners would have yet more roadblocks to effectively using shared information for mutual benefit.
As the momentum toward creating demand-driven networks and collaborative fulfillment increases every day, solutions to these issues must be found quickly. SAP is taking the lead by facilitating a community definition group (CDG). The Collaborative Fulfillment CDG comprises several high-tech companies, including Celestica, Dell, Fujitsu-Siemens Computers, HP, Intel, Lenovo, nVidia, and Phillips-NXP.
The CDG identified six primary collaboration models to be used in the high-tech industry and made a concerted attempt to unambiguously describe these models and their differentiating characteristics, usage guidelines, and typical operational supply chain agreements and metrics. These collaboration models represent the different ways in which a customer and a supplier interact with each other. One or more of the collaboration models can be implemented within a collaborative fulfillment partnership, as deemed appropriate.
Of the six models, five are considered prevalent, while the sixth (Dynamic VMI model) has not been published previously. These models are:
1. Purchase Order--Shipments to customers are based on discrete purchase orders. There is no inventory buffer or any forecast sharing in place.
2. Forecast and Purchase Order--Shipments to the customer are based on discrete purchase orders. However, forecast and response processes are in place outside lead times to set the baseline for customer and supplier collaboration.
3. Forecast and Release--Similar to forecast and purchase order, but shipments are based on discrete, Just-in-Time (JIT) or call-off signals based on a forecast and response process. Blanket purchase orders are typically used.
4. Standard VMI--Supplier plans buffer inventory to support demand variability. The buffer inventory is physically located at the customer site or at a third-party logistics (3PL) vendor site. This buffer inventory is planned and replenished by the supplier per min-max agreements but is owned by the customer. A high degree of information sharing (e.g., forecast, inventory on hand) is expected.
5. Consigned VMI--This model is similar to the Standard VMI model, with one key difference. The inventory is owned by the supplier even though physically located at the customer's site or a 3PL site. The use of this model (including in the high-tech industry) mostly applies to products that compete on price and generally provides greater benefits to the customer at the expense of the supplier, who bears the majority of costs and risks.
6. Dynamic VMI--The buffer inventory is physically located at the supplier's site--ideally close to the customer's manufacturing location--and may be segmented by the customer physically or virtually. This model introduces the concept of pooling the buffer to optimize inventory across the supply chain, thus balancing the costs and risks across the supplier and customer.
The Dynamic VMI model fills an important industry need where a high level of collaboration is sought, yet product attributes such as high cost/price, shorter life cycles, longer lead times, and high variability of supply and demand require a high degree of inventory optimization across the supply chain. A CDG analysis shows that Dynamic VMI is the lowest cost collaborative fulfillment model out of the six (based on inventory, operating, and variability cost factors).
In addition to these model definitions, the Collaborative Fulfillment CDG has also created standard definitions of processes and sub-processes, as well as the information exchange messages and their choreography, to make these models standard.
Work is now beginning on Phase II of this effort. Phase II goals include defining (a) how SAP solutions work with respect to the six Collaboration Models, (b) the specific data that are required to support the message exchange patterns, (c) consistent measurement of key performance indicators (KPIs) based on the SCOR model, and (d) "Go To Market" activities to disseminate the work created in Phase I to the broader high-tech community for feedback, validation, and baselining for standards creation.
About the author: Nikhil Chhabra, strategic capabilities program manager, Supply Chain Strategy Development, Intel Corporation, can be reached at (916) 356-0942 or via e-mail at email@example.com.
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