It’s an all-too-familiar scenario: The Acme Pen Co. launches a 2021 special-edition fountain pen, and produces a quantity of 15,000. A national retailer, Johnson Pen Co., has priority with Acme and orders 12,000 pens. Michigan-based Pen-Set is also interested and orders 5,000 pens, but Acme is only able to supply the remaining 3,000.
By the end of the year, Johnson only sells 10,000 pens and returns 2,000. Acme later notices that Johnson also ordered too many limited-edition pens last year, and regrets not collaborating with them on their promotion plans for this year.
The COVID-19 pandemic this year has triggered several articles on the importance of setting up collaborative arrangements with business partners. They stress the importance of collaboration as part of implementing key planning techniques such as integrated business planning (IBP), sales and operations planning (S&OP), demand-driven materials requirement planning and, of course, collaborative planning, forecasting and replenishment (CPFR). Having so many planning models to choose from can be quite confusing in situations where there’s limited budget to implement new collaborative capabilities with business partners. How do you know when a collaborative tool will benefit your supply chain environment?
Certain business environments can benefit significantly from the development of a collaborative solution. Here are some examples.
Manufacturer and Retailer
In the mid-90s, many manufacturers began implementing CPFR with key retailer partners. It called for sharing the sales forecast between the manufacturer and retailer (or distributor). They exchange views on what might influence discrepancies in the forecast. The parties then agree on any adjustments to be made, and allow the forecast to become actual future order quantities. This allows the manufacturer to have a more accurate demand forecast, while giving the retailer more confidence that future orders will be fulfilled on time and in full. Companies should consider implementing CPFR when:
- There are frequent product changes (short product lifecycles) that increase risk of excessive channel inventory.
- Retailers have frequent promotions. The manufacturer and retailer can review historical data and promotional events to align on future order quantities for promotions.
- There is limited inventory, and demand will likely exceed supply in the short term.
Manufacturer and 3PL
Most major manufacturers have implemented capabilities to collaborate with their respective third-party logistics (3PL) providers, accessing virtual warehouses in their enterprise resource planning (ERP) environments. When working with 3PL, it’s important to ensure inventory accuracy for financial reporting. Collaborating with 3PLs is especially relevant when:
- Customers have extremely tight requirements for time-definite delivery windows.
- Stock is frequently transported between warehouses. For example, better collaboration with 3PLs will resolve issues where the physical goods receipt occurred, but the transaction isn’t reflected in the system.
- Serialized products are tracked throughout the supply chain.
- The manufacturer employs a consignment business model, whereby financial ownership remains with the manufacturer until the product is sold to the end customer.
Manufacturer and Supplier
Manufacturers are expanding programs to implement collaborative arrangements with their suppliers to reduce cost and ensure availability. The collaborative relationship often extends into the supplier’s manufacturing operations, to increase process efficiency and reduce cost. Companies benefit from a collaborative approach with a supplier when:
- There are frequent engineering changes that need to be communicated to the supplier.
- The manufacturer needs to ensure that supplier bids are aligned to the part’s cost estimates, along with future target costs.
- Supplier costs fluctuate through the year based on currency and precious metal exchange rates.
- The supplier receives components from the company to perform contract manufacturing and return a finished product component.
In the past, companies used spreadsheets and e-mail to collaborate with business partners, which proved difficult to scale and resulted in collaboration with only a few “strategic” suppliers. Given today’s digital environment, collaboration tools are much more secure, easier to scale and user-friendly — especially when drawing on Business 4.0 technologies such as mobility, cognitive analytics, artificial intelligence and machine learning, cloud-bases applications, and advanced cybersecurity. Companies can generate advanced analyses across the supply base to better understand bottlenecks and areas for improvement when working with business partners.
Business 4.0 will allow companies to harness an abundance of capabilities, by re-imagining the broader organizational environment and re-thinking the potential benefits of respective collaborative relationships. Customers, suppliers and logistics providers will benefit from the expanded integration and connectivity with the business ecosystem.
Harry Drake is engagement director at TCS Global Supply Chain Consulting.