Supply Network Collaboration
In the IM&C industry, the focus has traditionally been on manufacturing excellence, but now, the ability to manage the ecosystem is coming to the fore as a vital competitive consideration. The reason, essentially, is change throughout the industry. Emerging economies are altering the competitive landscape, and profit margins on products are shrinking. As a result, companies need to find new ways to differentiate themselves, and new revenue streams to complement core products. That means not only selling products, but also providing aftermarket service, support, financing and other value-added services. That represents a big shift in the business, and IM&C companies need to fundamentally change the way they operate to succeed in this emerging world. In particular, they need to think about transforming the supply chain into a Solution Provider Network (SPN)- a collection of ecosystems that includes all the supplier, customer, manufacturing and distribution members of the value chain. The SPN enables these partners to work together closely to deliver a range of full lifecycle products and services to customers with high levels of efficiency and flexibility-and ultimately differentiate themselves from competitors. A key enabler of the SPN is, of course, the ability to collaborate throughout the supply network. Companies have to work across boundaries so that the network can act cohesively to sense and respond to customers’ evolving needs. Indeed, as the industry evolves, we think that tighter collaboration with a broad range of suppliers and customers is going to become a key competitive ability for IM&C companies. It’s one thing to talk about transformation, and another to actually transform. In thinking about how to create the collaborative capabilities required by the SPN, IM&C companies should consider several basic principles:
- Leverage the extended organization. IM&C companies should develop the ability to work with suppliers, outsourcing partners, customers and service providers as an extension of their own organization. Close links with suppliers and contract manufacturers should enable fast response and provide better visibility into operations, and enable the company to provide additional services to customers. Internally, areas such as demand management, planning and procurement need to be able to communicate and collaborate with each other as well, and have visibility into the entire extended organization.
- Create more strategic relationships. Companies can create deeper links with strategic partners by connecting business processes, integrating planning and collaboration, and using analytics and key performance indicators to monitor service and responsiveness. At the same time, they can streamline interactions with second-tier partners using online tools as a low-cost collaboration option.
- Adjust the infrastructure to support better supplier interactions. For too many IM&C companies, phone and fax remain the primary medium for interaction; document exchange is often handled through expensive and cumbersome EDI connections; and supplier extranets are linked into enterprise systems via inflexible virtual private networks. Newer infrastructures offer increased efficiency and flexibility, with communications standards such as XML and RosettaNet and the ability to automate many interactions with partners.
- Take a multi-channel approach. Today, companies can link up with virtually any type of supplier using different channels that are appropriate for each type. For example, high-volume suppliers can be tied in through the direct integration of back-end systems. Mid-volume suppliers can use web/file upload and download capabilities. Low-volume suppliers can use cost-effective browser-only links.
To help companies put those kinds of concepts into effect, SAP offers the SAP Supply Network Collaboration application, part of the SAP Supply Chain Management solution. With this application, IM&C companies can have a comprehensive platform for collaboration and extend lean collaboration processes deep into their supply chains. You can work with suppliers on everything from Web-based collaboration to supplier managed inventory, dynamic replenishment, Kanban-based collaboration and supply network inventory. You can also collaborate with customers on processes such as responsive replenishment and demand forecasting. The prospect of wholesale transformation of the supply chain can be daunting. With SAP Supply Network Collaboration, companies can move toward greater levels of collaboration in an evolutionary fashion, addressing more and more processes in incremental steps. The application can be run as part of the SAP SCM solution, or as a standalone system. SAP also has a rapid deployment option for the application that lets you get started with a quick roll-out of processes such as planning and fulfillment to an extended range of suppliers. This approach gives you a straightforward entry point to collaboration, a short time-to-results, and valuable experience with XML-based integration. With effective collaboration capabilities, companies can develop lean, extended supply networks that have extensive visibility into supply and demand. As a result, everyone benefits, as the supply chain as a whole performs at a higher levels. For example, a company’s customers can typically benefit from things such as reduced inventory, reduced supply risk and improved order fill rates. Suppliers benefit from things such as improved customer service capabilities, reduced inventories and expediting costs, and increased order accuracy. And collaboration helps the company itself reduce costs and inventory, improve asset utilization, and increase revenue. In fact, the benefits of an integrated, lean, collaborative supply network can be significant. For example, in terms of operating costs, SAP estimates indicate that IM&C companies could see:
- Inventory carrying cost reductions of 10% to 20%
- Manufacturing cost reductions of 15% to 25%
- Material cost reductions of 3% to 10%
- Administration cost reductions of 15 % to 25%
- Warehouse/distribution cost reductions of 10% to 15%
Estimated working-capital improvements include:
- Inventory level reductions of 10% to 25%
- Accounts receivable reductions of 5% to 15%
And estimated revenue-enhancement benefits include
Demand response improvements of 10% to 20%
Fill rate improvements of 5% to 15%.
Those kinds of results underscore the power of supply network collaboration-and the fact that solid collaboration capabilities are becoming increasingly vital. As Thomas Friedman writes in his book, The World is Flat, “We are required to run faster just to stay in place.” For companies in the IM&C industry, keeping up with that ambitious pace is easier when supply chain partners can work together in a responsive network to meet the customer’s needs. In future blogs, I plan to look more deeply into the collaboration capabilities that enable the SPN, and how IM&C companies can move forward on the road to collaboration. In the meantime, let me know if you have questions or comments.