Three effective ways to build supply chain collaboration

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Academics have espoused the ideal supply chain as one that integrates firms from where materials are originally sourced to downstream to the final consumer.

For a soft-drink manufacturer, for instance, this can be from the company that makes the aluminum can to the grocer that sells the soda-in-can. In such a scenario, the company that mines the bauxite for the aluminum is synchronized with the canning manufacturer, the soft-drink beverage firm, the soft-drink distributor, and finally the grocer. This example exemplifies the holy grail of the extended supply chain in which firms aspire toward this ideal.

The covid-19 has taught companies how critical the supply chain collaboration is. Visibility is a crucial element in collaboration. Companies who do not have the total visibility across their supply chain are suffering from supply or demand shocks, causing their supply chains to collapse. But firms with strong collaboration with their suppliers and customers have been able to manage the impact of the pandemic on their supply chains.

The cooperation between firms in an extended supply chain, otherwise known as collaboration or coordination, is no longer just another innovative option for businesses, rather is a critical component to thrive in the competitive 21st century business.

The lack of supply chain coordination will lead to many negative impacts on company’s supply chain.

Supply chain collaboration has evolved from the simple vendor-and-customer meetings to that which synchronizes information databases and establishes response protocols not only between purchasing agents and sales reps but also between accounts payable and receivable managers, quality assurance inspectors and manufacturing personnel, as well as between inbound receiving operators and outbound shippers.

Supply chain managers would do well with the following three approaches to swiftly get started on collaboration:

Fix the internal supply chain

Before a firm can coordinate with vendors and customers, it has to fix its own supply chain first. From orders entry to production planning, from procurement to manufacturing, and from warehousing to delivery. A firm’s internal supply chain would need to shift from independent departments to a seamless unit geared toward the common mission of serving customers.

This is easier said than done. For instance, many companies today separate their purchasing functions from the supply chain, thinking that procurement should be focused towards buying goods at the lowest possible price. What often happens is firms buy in bulk or in high lot quantities to take advantage of attractive quantity discounts.

While the company may save millions from the lower price, it suffers in from higher storage costs and difficult inventory management system. Despite this, firms would stubbornly cling to this bulk buying policy, not realizing the negative impact on working capital and lower customer satisfaction.

Remove the communication roadblocks

Companies unwittingly set up roadblocks to communicating with vendors and customers. Some firms have policies that prohibit managers other than purchasing representatives from dialogue with vendors. Likewise, some firms have rules limiting customer interaction only with salespersons. These restrictions probably came with good intentions but because of them, supply chain coordination becomes impossible.

In order for collaborative partnerships to develop, companies need to establish communication ties not only between purchasers and sellers but also between managers of other functions from each side, from vendor to firm to customer. It’s not just about having financial managers from all parties knowing each other’s phone number but also about having support and visibility between established information systems.

Vendors should have a window to a client firm’s accounts payable system and know when payments are forthcoming. Likewise client firms should know schedules of materials deliveries even if the materials aren’t made yet. Firms should know if a customer has enough storage capacity to accept earlier deliveries and customers should know if newer products are coming soon so as to manage inventories.

Establish response protocols

Communication and information visibility are must-haves in collaboration but aren’t enough if there are no response protocols in place. Large conglomerates pride themselves on the global partnerships they have with suppliers and customers but all these almost came to naught when massive crisis such as the coronavirus pandemic disrupted the global supply chain.

The information was there but no one knew how to respond. Firms learned that what comes with information visibility, response protocols should follow. Small businesses ironically seem to be ahead in this regard. Experienced owners of local hardware stores, for example, keep tabs with major suppliers and order based on availability and trending commodity prices.

Supply chain collaboration is a must-have for firms if they want to grow their business into the 21st century. It is not only about having a high level of mutual trust among supply chain players but also about establishing communication ties and response protocols far more developed than what they have in the present day.

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