Supply chain efficiency stymied by mindsets

Effective supply chains are driven by information.  While the technology that enables the effective exchange of information across the extended supply chain is available, affordable and practical, it has yet to be fully exploited in the real world.

According to Philip Savides, regional chief executive of Business Connexion’s Western Cape Regional Office, says that despite the availability of technology to enable demand management, true value is not being realised.

“Modern demand management is very different from traditional demand forecasts and planning.  Based on planning and real-time information, it requires an understanding of the current reality.  Information on consumer demand and spending, an awareness of stock position and sell rates at the retailer, and real-time updates on stock in the warehouse are important inputs.  All this information can be gathered and is dependent on collaboration, both downstream to the point of the end customer, as well as upstream to the suppliers,” he says.

While it may sound theoretical, several technologies enable this collaboration – and at a low cost.  “With electronic data interchange, email and Intelligent Forms, collaboration is no longer exclusive to large organisations running integrated ERP applications like SAP.  It can now be achieved with low-cost technologies in an open systems environment,” says Savides.

The issue restricting technology from enabling the collaborative supply chain is often a human one.  “People are accustomed to working in batch mode,” he says, comparing this approach to how computers handle ‘orders’ for information processing.  “In batch mode, responses occur in a ‘stop and go’ fashion, essentially responding in a static manner to a dynamic market,” he explains.

The real challenge in enabling more efficient supply chains depends on breaking the barriers that exist among the many elements in the supply chain – raw materials suppliers, manufacturers, packers, distributors, logistics providers and retailers.  Once information sharing can be established as a culture across the chain, the potential for technology to have a significantly positive effect is released.  “Until this mindset is adopted, up and down the supply chain, the value that technology can add is limited,” says Savides.

He says the technologies are matched by appropriate business models such as Collaborative Planning Forecasting and Replenishment (CPFR) which extends Vendor Managed Inventory principles.  This is done by taking a holistic approach to supply chain management among a network of trading partners.  The advantages of such a model are numerous.  It has the potential to deliver increased sales and improve organisational streamlining and alignment.  Other advantages include better administrative and operational efficiency as well as improved cash flow and return-on-assets performance.

However, Savides notes that the best technology will not deliver if it is not matched with the appropriate business behaviour.  He concedes that encouraging collaboration across the supply chain is easier said than done.  “For example, if a supplier receives an order that is too big for it to handle, it is more likely to under-deliver than acknowledge a capacity shortage. It happens all the time,” he says.

He believes the answer to encouraging increased collaboration lies in tackling one channel at a time – working with one retailer, one supplier and one raw material supplier to establish the communication lines and demonstrate the benefits.  “Going too broad or trying for too dramatic a change could be risky.  Creating a true collaborative supply chain is a process that must be introduced in a phased manner, alongside the ‘traditional’ methods of doing things.  Once the benefits become apparent, the business ethic of isolationism should give way to one of collaboration.”

Source:MMS mag11