It's not exactly a new idea—you probably first heard about the virtues of sharing in kindergarten. But you're probably hearing a lot about it again these days—albeit under a different name, like "collaboration" or even "trading partner management." Semantics aside, the idea's the same—if you work cooperatively with others (in this case, your supply chain trading partners), everyone will emerge a winner.
What's collaboration? Where the supply chain is concerned, collaboration means managing business processes, connecting systems and people—both internal and external—in a synchronized way, according to the ARC Advisory Group of Dedham, Mass. And if you're thinking that would likely require a big investment in software and advanced communications technology, you're right. But the companies that master the process early on are guaranteed to leave their competitors in the dust as they race to meet ever-increasing customer demands.
And to be honest, it's really not optional anymore. "Companies now ad ays are no longer masters of their own destiny," says Adrian Gonzalez, senior analyst for supply chain and logistics for ARC Advisory Group. "Companies are dependent on their suppliers, on their service providers, on their customers and financial institutions, and on a wide variety of parties that together enable the end-to-end processes that define our business. That's why there's been a lot of hype and activity over the last few years with regard to collaboration."
Look who's talking
Hype yes, activity—well, that's another story. Many companies are waking up to the benefits of communicating with their trading partners in real time, all the time, but it's hardly a given right now. "I'd say acceptance is somewhere in the middle," says Eddie Capel, vice president of Infolink, Manhattan Associates' collaboration unit. "It would be a push to say it is commonplace, but it's right in the middle, and moving much more toward being commonplace."
Collaboration's getting easier to sell as more manufacturers go public with the gains they've made. Several, for example, have made huge inroads in their transportation bills by letting their systems do the talking. Take the case of one UK-based high-fashion company, which used to fax bulk manufacturing orders to its off-shore supplier. The supplier would manufacture the required quantity and then ship it all back to the UK distribution center. The DC, meanwhile, collected customers' orders and then once the bulk order arrived, picked, packed and shipped the goods back out to its mostly overseas clientele.
Now, with a collaborative system in place, bulk orders are sent via a Web browser to the offshore supplier. And in a big departure from earlier operations, customer orders too are sent directly to that supplier, which picks, packs and ships the goods using data from the Web.
Everybody wins. Because all the info is available on the Web, customers now can receive advance shipment notices and enjoy newfound visibility into the process. The fashion company no longer has to pay to have goods shipped to the UK only to re-ship them. It also reports improvements in customer visibility and shorter source-to-consumption leadtimes (in some cases, leadtimes have dropped to five days from five weeks).
Heineken USA reported similar benefits following its recent installation of a collaborative planning system from Atlanta-based Logility. That move helped Heineken reduce order cycle times from three months to four weeks, simplified planning for its distributor customers and resulted in fresher product for consumers.
Large retailers, too, are going for the collaborative gold. Discount retailer Kohls, for example,is encouraging suppliers to pursue direct-to-store shipments. "They want to participate in the savings," reports Capel, "and when you have companies like that encouraging this type of practice, it becomes pretty compelling."
Closing the digital divide
Compelling and increasingly feasible. Gonzalez notes that until recently one of the big inhibitors to collaboration was the inability of many small and mid-sized companies to communicate or interface electronically with their trading partners.
"They couldn't afford electronic data interchange (EDI) and other systems," he says, "so they had to rely on manual processes like the phone or fax. Obviously, manual processes create data quality problems and require a lengthy exchange of information, which makes it difficult to be responsive and agile."
The advent of Web pOréals changed all that. Companies that don't participate in EDI are now able to log on to a Web site; enter data like order numbers, advance shipment notices and order confirmations; and have data transferred by ex tensible markup language (XML) to their trading partners. Gonzalez notes that many pOréals have data quality management software that blocks messages from being sent until all the required fields are filled in, which eliminates the need to track down missing information.
The rise of collaborative logistics networks has even downs and ups (side bar) allowed companies to hire an outside party to take care of integration and connectivity, Gonzalez adds. That means that instead of establishing hundreds or even thousands of one-to-one links with their trading partners, companies can now integrate once within one of the collaborative logistics networks now in place, which will in turn integrate with everyone else via XML or EDI and manage the flow of information that is shared across the network.
At the sametime, wireless technologies like radio-frequency identification, automated technology for material handling and logistics software solutions have helped companies capture and transfer information in real time from virtually any location in the world.
Crawl, walk, run, sprint
But you have to crawl before you can sprint. Capel says the first step for companies considering collaboration is to simply map out the processes of major departments within the company. He suggests starting with the areas that represent the biggest points of pain, which are usually where the highest potential savings can be found.
"If you attack the project all at once, it's very unlikely to happen," says Capel. "It's akin to boiling the ocean; it's just far too big to do. But by the same token, don't buy a solution that will leave you with pieces that don't fit together when you get to the end. The wonderful thing is that if you do it in steps, the cost of the project is bearable. If you do it right, the ROI from the project's first phase will pay for the second phase,and the second phase will pay for the third. You can actually fund it in a cyclical way, and then it becomes very attractive."
Though companies sometimes overlook this step, he reminds them to get the full buy-in of vendor partners, and make sure these partners clearly see the benefits. Without that, the project has no chance of succeeding.
"Start with low-risk,high-return projects, and be sure you're providing some value for your trading partner," says Capel. "If this is the 800-pound gorilla coercive type of program, it is unlikely to be successful."
Collaboration software may be fast developing a reputation for bringing huge dividends, but even that reputation couldn't save it from the slump. The market for collaboration software suffered along with the rest of the technology sector last year. According to a new study from ARC Advisory Group, the overall market for collaborative production management software and services for the process industries slipped between 2000 and 2001, dipping to $963 million in 2001 from $969 million in 2000.
That decline contrasts sharply with the historical double - digit growth the collaboration market had been experiencing. But those days shall return. After getting off to a slow start in 2002, the collaboration market will gain momentum and generate revenues in excess of $1.5 billion by the end of 2006, ARC predicts.
That represents an annual growth rate of about 10 percent, driven largely by an intensifying global competition that has forced manufacturers to find new ways to improve their return on assets. Manufacturers stand to increase operational performance, efficiency, agility, flexibility and customer responsiveness through the use of collaborative production systems. Collaboration also generates significant cost savings and results in a considerable competitive advantage.