VANTAGE POINT: Supply Chain Collaboration

As retailers face shortened product lifecycles, shifting consumer demand and the emergence of new and developing markets, finding new ways to achieve efficiency and scale in their supply chains remains an ongoing challenge. As a result, and more than ever before, retailers are exploring innovative approaches to identify cost savings by collaborating with suppliers.

The economic downturn has wreaked havoc on the retail industry. Weakened consumer demand has forced contract manufacturers and other suppliers to slow down delivery of product to retailers, resulting in excess inventory in the supply chain. To mitigate inventory build up, manufacturing and production schedules have been scaled back.

The many manufacturers that source products from global destination points are experiencing additional challenges, such as longer lead times and an increase in buffer inventory to compensate for unpredictability.

So what lessons are retailers learning from the current business environment? The most recent downturn has clearly highlighted for retailers that the traditional approaches they have taken with their suppliers, such as tightening delivery guidelines, increasing shelving compliance and making smaller shipments more frequently to stores, are no longer sufficient to achieve their supply chain objectives.

These factors have prompted retailers and suppliers alike to ask themselves how they can institute more flexible, adaptable supply chain networks. As a result, we're now seeing the emergence of true demand driven supply chain strategies that 'sense the shelf' -- that is, models that anticipate consumer demand and identify shifts in purchasing patterns even before replenishment inventory is in transit to retail locations. But for a truly demand-driven network to be successful, the "extended enterprise" of the supply chain, which includes all of its manufacturers, suppliers and end consumers, must work in concert.

Faced with an unprecedented need for supply chain network flexibility, retailers are looking at their extended enterprise for value creation, efficiency gains, and cost savings. For example, there are common suppliers and common manufacturers that exist across retailers and consumer packaged goods companies. These vital participants in the extended enterprise often have similar supply chain networks, including delivery and origin points, shared cross docks and warehouse campuses, and transportation routes. Furthermore, they all must achieve aggressive cost-down initiatives from retailers. A key area of opportunity that emerges is the elimination of wasteful, duplicated supply chain networks that occur across manufacturers, CPG companies, and retailers serving the same markets.

By comparing supply chain networks and identifying opportunities to pool volumes, share facilities, and take advantage of third-party suppliers' economies of scale, retailers can realize significant cost savings while still achieving outstanding customer service levels.

Results of Supply Chain Collaboration

Retailers can achieve numerous benefits by instituting a collaborative supply chain network that actively involves all of the participants in the extended enterprise.

First, sharing facility, supplier and other network resources under a common umbrella, helps to increase end-to-end visibility of products, whether they're in production, in transit, arriving at retail locations or ultimately, being purchased. This increased visibility improves decision making within a shorter timeframe, and adjustments in the supply chain can be made real-time.

Companies can also realize significant reductions in inventory, because all the participants in the supply chain are working from a common platform to achieve more accurate fulfillment and replenishment cycles. Previous requirements for minimum quantity thresholds are eliminated since pooled volume levels are fulfilled across the shared network. Further, the increase in common platform visibility eliminates the need for buffer stock.

Lastly, retailers and CPG companies who successfully institute collaborative supply chain practices can see dramatic improvements in order-to-cash cycles. In a collaborative supply chain, goods move seamlessly and are synchronized over the shared network, and transit and delivery times are clearly tracked to provide triggers for ownership and payment transfers.

All of these benefits are not only relevant in an economic downturn, but also help to better position a retailer to meet pent-up consumer demand when the economy recovers.

I'm interested to find out what your company is doing to take advantage of collaboration opportunities in your extended enterprise. Contact me at [email protected].

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