Collaboration roadmap: success depends on processes, not technology – Executive View
Kara Romanow
Collaboration has been a common rallying cry for several years. However, because of its somewhat spotty history of returning quantifiable gains for all parties, many companies have become skeptical about collaboration in general as a practice area.
Yet, this mentality ignores key potential gains, especially when collaborative processes and technologies are well focused and tactical. There are two reasons for such skepticism. First, companies assume that they need new technology to facilitate collaboration, when it’s often really not necessary until they begin to scale their practices. The other reason: most companies have unintentionally limited the long-term enterprise-wide gains and benefits by neglecting to adopt standard governance practices for collaborating with trading partners.
In a recent survey, AMR Research asked manufacturers to define collaboration to gain a thorough understanding of what types of relationships are successful and what advice others can glean from their experiences. In addition to the governance issues above, we found the following:
* While collaboration with customers is sold internally as a method for improving customer service, in consumer packaged goods (CPG) companies it can help achieve the ultimate goal–getting closer to consumers.
* There is no single right way to approach collaborative relationships; the structure will depend on how close both parties are willing to get.
* The acceptance of standards will push companies beyond transactional collaboration and further the adoption of portals and exchanges.
* Collaborating with logistics providers provides hard benefits.
Forms of collaboration
Collaborative activities are based on various business processes and technologies designed to facilitate cooperation. AMR specifies collaboration as any one of the following three types of business relationships:
Transactional–Transactions within a buyer-seller relationship involve the activities conducted to execute the buyer’s purchase of a commodity. These activities involve notifying the buyer and seller that a purchase is taking place and that funds need to be exchanged. Many of these activities still occur in non-automated ways via phone, fax or e-mail exchanges. Automation of these activities has been primarily EDI-based, whether through proprietary EDI networks or new Internet-based EDI technologies. For our purposes, only automated transactional relationships are considered collaborative.
Information-sharing–Various types of information can be shared by a buyer or seller, either before or after a purchase is made. This information may involve the seller’s offering or the buyer’s future needs. Historically, little information has been shared electronically among trading partners. In this type of relationship, supplementary information is shared on an FYI basis, meaning it can be used by the receiving party but not changed by that party. From the supply side, automation in this type of relationship has generally involved a seller electronically providing order status, product descriptions and prices, or product quantities available for purchase.
Joint planning and development–In this type of relationship, information is not just exchanged and transmitted, but also jointly developed by the buyer and seller. Generally, this information deals with future product plans and needs. Much of it is still developed in person or by phone, fax and e-mail. Electronic means of joint planning and development are becoming more common, but the personal element is likely to remain an important piece. Similar to information-sharing, information ancillary to the actual purchase is shared in this collaborative environment. However, unlike an information-sharing relationship, information is not shared on an FYI basis, since either party can change the information until both parties agree.
Technology not always needed
Collaboration is happening across many industries on a daily basis without any new technology. This is because successful collaborative relationships focus on the business process itself, not on the technology being used. One CPG company estimates that over half of its collaboration with suppliers takes place via phone, fax and e-mail. We find that most companies collaborate with a limited number of trading partners, so the less advanced types of technology (i.e., the telephone) suit them just fine. It is when companies begin to scale their collaborative practices that they need more sophisticated technology.
In addition, most collaboration initiatives within companies occur in departmental silos. The organizational governance for each initiative varies for each business unit: in other words, there is no internal collaboration for business practices. Departments are not informing others of collaboration successes using the tools already available in the company. Company-wide metrics on the effectiveness of collaborative initiatives are therefore either unknown or inaccurate, often only looking at a piece of the overall effort.
While an enterprise approach is not required for successful collaborative relationships, this would facilitate faster implementations at a lower cost and with more predictable results. The companies that are closing those internal loops have been able to achieve enterprise-wide improvements:
CPFR
In its analysis of collaborative planning, forecasting and replenishment (CPFR), AMR talked to several users and software vendors to establish the current state of collaborative systems and practices. Our findings:
* CPFR stalls at the information-sharing level of collaboration.
* Retailers and CPG manufacturers have big plans for CPFR, but their unwillingness to share control of business processes will impede adoption.
* To support future collaboration activity, a new application footprint is needed, composed of customizable applications with built-in workflow and optimization technologies.
* As companies make process and cultural changes, the market for CPFR and other collaborative applications will grow over the next four years.
While gaps exist in the current CPFR process standards and applications, early adopters have achieved important benefits. Retailers can pilot CPFR processes without making large up-front financial investments because the learning process, not the software, is the biggest commitment that the organization will need to make. CPFR is also a good way to collaborate with suppliers and build up to a larger collaborative footprint. Collaboration is a long-term business strategy for most companies and should be used to make the supply chain more efficient.
The vision of nine-step CPFR is being replaced by targeted partnerships between suppliers and retailers. These collaborative efforts are fueled by the realization that there is more to be gained from working together than from maintaining the traditional adversarial relationships. Collaborative forecasting and data synchronization is the focus (especially in grocery and CPG). These initiatives allow retailers and suppliers to work together without showing all their cards of actual sales and order backlog. In the end, the winners are the customers, who get what they want, when they want it, for a price they are willing to pay.
Governance issues
Because the biggest challenge of supply chain collaboration is change management, companies should address governance issues, such as changes in business process, project ownership, staffing, and internal communication prior to any technology selection.
* Adopt standard governance practices for supply chain collaboration throughout your enterprise.
* Understand that each relationship will vary, but have a set of common practices in place. Things such as accepted data standards and channel management should be uniform for most collaborative relationships.
* Be prepared to manage trading partner expectations, including roles and responsibilities, as well as determine the value of the relationship and how to share the savings.
* Create a customer qualification checklist to determine your partners. The list should include criteria that address the technical readiness of the customers as well as their overall store operations and frequency of ordering.
* Before adopting significant collaborative practices with suppliers, conduct a pilot with input from your suppliers. You should include suppliers that are technologically advanced and those that are less automated.
* Benchmark current practices to measure improvements. The most frequently used metrics: forecast accuracy, frequency of reappearing exceptions, types of exceptions, number of exceptions, in-stocks and perfect order/order quality.
Kara Romanow is a senior research analyst at AMR Research Inc., Boston. For more information, visit www.amrresearch.com.
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