The importance of collaboration in the e-economy

The importance of collaboration in the e-economy

 

Supply-chain management

A supply chain consists of different levels that products or services move through before they reach the consumer. A simple example for a manufactured product might be procuring raw materials, transforming these raw materials into finished goods, and distributing these goods to retailers who sell them on to the consumer. Supply-chain management ensures the timely and correct quantity of a product at the right level in the supply chain, minimizing inventory levels and overall costs.

Electronic Data Interchange (EDI) systems are often based on legacy technology and confined to particular areas

Electronic Data Interchange (EDI) systems are widely implemented as part of an enterprise's supply chain, but they are often based on legacy technology and confined to particular areas, such as purchasing and invoicing. Enterprise Resource Planning (ERP) systems attempt to standardize and automate business processes using more up-to-date technology, but many lack a cross-enterprise collaborative framework. However, this is slowly changing with advances in technology and the emergence of web-supporting vendor software.

Supply-chain collaboration

The rapid evolution of the Internet has facilitated an infrastructure to support more widespread and diverse business-to-business (B2B) interaction at a much lower cost than legacy systems. No longer is it solely an open platform for conducting transactions - it is now more of a medium facilitating web collaboration among supply-chain partners. An initiative from the Voluntary Inter-industry Commerce Standards (VICS) entails a collaborative approach called the Collaborative Planning, Forecasting and Replenishment (CPFR) model. This differs radically from traditional models and is considered by many to represent the future for supply-chain management.

CPFR's aim is to align supply with demand by getting suppliers and buyers to truly link their systems

CPFR's aim is to align supply with demand more accurately by getting suppliers and buyers to truly link their systems, enabling a more synchronized and transparent solution that crosses traditional boundaries. This requires trust and commitment from both partners, bringing cost savings and, more importantly, enabling both partners to share in the rewards as well as the risks.

Both the buyer and the supplier enter into a collaborative working relationship to develop automatic replenishment processes. Rather than supply-chain partners determining supply and demand in isolation from each other, which is often less accurate, a collective approach is taken - collaborative demand planning. Order and market information initiated by the consumer travels up the supply chain, while information on product availability and inventory levels travels down the supply chain.

Buyers no longer have to carry out costly and wasteful activities such as pricing, order promising, order tracking, and expediting. Suppliers benefit by having more accurate control over inventory levels and cycle times. As suppliers can now gauge demand better, they can adjust production accordingly and pass these efficiencies on to the buyer in terms of better customer service and, ultimately, lower prices. This effectively allows consumer demand to directly drive the order process, making the process of forecasting and order tracking redundant. Transactions become automatic and transparent, resulting in an efficient supply chain that is truly demand driven. The benefits for the consumer are obvious - they get what they want, when they want it, and often at a lower price.

Supply-chain collaboration requires organizations to extend their systems beyond their own organizations

Supply-chain collaboration requires organizations to extend their systems beyond their own organizations, effectively blurring the boundaries and providing a path for information flow. Change is inevitable. The best-suited corporate entity will assume ownership of a particular business process or activity that may have previously remained under the remit of a particular supply-chain partner. The flow of proprietary information for analysis by cross-company and cross-functional teams provides for more strategic planning and forecasting, which benefits all supply-chain partners.

The future

True collaborative design on an extended-enterprise scale is still very much in its infancy. Many ERP software products described as collaborative are collaborative in only the most primitive way.

That said, it has been found that companies that attempted to implement a more collaborative approach in their supply chain achieved higher-than-average profitability. A web-enabled collaborative model that extends to encompass the entire supply chain is the long-term design objective that will ultimately provide long-term competitive advantage for all the companies involved.

It is clear that technology and the World Wide Web will be key facilitators of any innovative supply-chain strategy. And it is equally clear that restructuring and retraining are essential if collaborative models are to be successfully implemented.