Supply Chain Management
In supply chain management, collaboration is fraught with potential. Consider the possibilities for cross - enterprise collaboration - between retailers and their consumer products vendors, and between manufacturers and their tier-one and tier-two suppliers.
These possibilities do occasionally play out, but the road to successful collaboration is also strewn with false starts and failures. Collaborating companies struggle to reconcile conflicting goals, overcome trust issues and agree on how to share collaboration-related cost savings.
Despite these and other obstacles, trading partner collaboration eventually pans out. Eventually.
In the meantime, however, a huge opportunity related to collaborative supply chain management is easier, and closer, than we think. Specifically, companies can reduce cycle time and lower their total cost of product ownership through better internal collaboration and integration.
Benefits of Collaborative Supply Chain Management
That’s right. The benefits of collaborative supply chain management don’t have to start with your supplier colleague in Asia; they can start with your colleague down the hall. But many companies continue to operate in discrete functional silos. Strategies and data are not necessarily shared across supply chain management functions. As a result, individual functions are optimized at the expense of overall efficiency.
A major electronics manufacturer had the opportunity to reclaim batteries in returned units, at an extra cost of $500,000, in order to save $2 million on the cost of new batteries. The purchasing manager wanted to move forward, but the logistics leader rejected the initiative because it put him over budget. As a result, a $1.5 million profit opportunity was left on the table.
Barriers to Internal Collaboration
The compartmentalized structure of corporate supply chain organizations creates barriers to smarter supply chain management. These obstacles include:
- Total costs are difficult to track. For instance, the process of refurbishing and reselling an electronics device may involve costs from five P&Ls inside and outside the logistics organization - labor costs at the retail return center, transportation costs to move product from the retailer back to the manufacturer, receiving and product inspection costs, refurbishment costs, and sales costs to remarket the “new” products. Unless these costs are rolled up, it’s nearly impossible to determine the ROI on the refurbishment process.
- Departmental objectives are not always in sync. Within a retailer, a buyer for breakfast drinks and a buyer for cereal might order separately from the same manufacturer. These orders arrive at the loading dock on different days, adding labor costs for logistics to receive the product and ignoring the freight-savings potential of consolidating these orders. In this example, while the purchasing department might achieve its goal of saving a few thousand bucks on cereal purchases, the lack of internal coordination between buyers and logisticians creates tens of thousands of dollars in additional warehousing and freight costs.
- Information is not shared. Despite the information-sharing power of ERP systems and the Web, useful intelligence often remains within departmental silos. For example, the corporate group that handles store returns may note a consistent pattern of damage for one product. A simple change, such as stronger packaging material, could fix the problem. But because that knowledge is not always shared with the product manager or packaging group, the problem persists.
Combining Supply Chain Management with a Single Provider
These examples underscore why collaborative supply chain management must start at home. Companies need to look across, not within, supply chain functions to identify savings.
One way to speed up this process is to work with a third party logistics (3PL) provider. A new class of 3PL providers is emerging that lets you outsource logistics support for the entire product lifecycle.
Such providers have broad expertise across forward and reverse logistics functions, including postponement, transportation, packaging, distribution, returns processing, repair and liquidation. More importantly, their focus goes beyond optimizing individual functions to optimizing the entire supply chain.
The benefits of this product lifecycle approach include:
- Reduced cycle time as combining multiple functions, often in the same facility, eliminates touch points and extra freight runs.
- A single point of contact and accountability for supply chain execution.
- Visibility throughout the supply chain cycle.
Supply Chain Management and Product Lifecycle Logistics
Companies that invest thousands of hours developing collaborative strategies with trading partners can increase the efficiency of their supply chains by devoting a portion of this time to internal collaboration across the corporate supply chain organization.
By synchronizing the efforts of all departments, organizations become instantly smarter and drastically reduce their total cost of product ownership.