July 12, 2002, 12:00 AM

Supply chain collaboration has a long way to go

While half of companies participate in sharing of information, it isn’t enough to make effective supply chain collaboration, says Capital Consulting.

Kurt Peters

Executive Editor

Collaboration among supply chain partners has been talked up for several years, but most partners have a long way to go to reach true collaboration, says Scott Elliff, president of Alexandria, VA-based Capital Consulting & Management Inc., a supply chain-focused consulting firm. "In terms of real bottom-line improvement, it`s much ado about not much, so far, since most supply chains continue to have substantial inefficiencies, redundant activities and a lack of true collaborative action," he says.

Capital Consulting says the issues are ones of culture, tradition and practices, not technology. “There is a dizzying array of software support tools to help achieve improvements, so it`s not an information systems issue any more,” the company says in a report out this week. “Rather, companies need to be willing to change their historical practices in order to take full advantage of both the coordinated execution and optimized planning stages of collaboration.”

While half of companies participate in Capital Consulting’s Stage One: Information Sharing, providing access and visibility to short-term information such as order and shipping status, such sharing isn’t enough. For example, the company says, telling a supplier that a large unanticipated order will be placed next week, or advising customers that their prior orders were out of stock and didn`t ship still yields parts shortages, production overtime, expediting costs, stock-outs and customer dissatisfaction. "To obtain the substantial benefits available from true collaboration, companies need to go far beyond the basic information-sharing activities that typically are being done today,” Elliff says.

Capital Consulting says 30-40% of companies are in Stage Two: Coordinated Execution and are beginning to change historical processes to achieve bottom-line value from supply chain collaboration. Examples of beneficial collaboration activities in this stage include instituting vendor-managed inventory and automatic replenishment programs with suppliers and working with customers and logistics providers to implement programs such as shipment consolidation, direct store delivery and merge-in-transit transportation.

Fewer than 5% of companies have reached Stage Three: Optimized Planning, where the most substantial supply chain benefits exist, Capital Consulting says. At this level companies take a broad view of collaboration and make underlying and sometimes difficult changes in order to achieve improvements, such as:
* Instituting new programs and shared incentives with customers to avoid traditional end-of-quarter sales and shipping spikes
* Coordinating sales and marketing campaigns across all supply chain participants to reduce the level of markdowns, returns and inventory write-offs
* Jointly designing new products with suppliers
* Realigning manufacturing and distribution processes to increase flexibility, reduce the level of costly expediting and optimize overall product flows
* Changing logistics and transportation practices and responsibilities to obtain better routings, equipment utilization, delivery costs and response times
* Coordinating shipment flows with other manufacturers that have compatible needs--both within an industry and across industry lines.

"The industry leaders in supply chain collaboration recognize that supply chain inefficiencies have a direct impact on their bottom lines and the competitiveness of the entire supply chain," Elliff says. "Aligning incentives and changing processes, roles and objectives drives success in collaboration--and leads to improvements in costs, cycle times, inventory levels, order fulfillment and customer satisfaction."

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