Collaboration: The key to value creation in supply chain management

Abstract

As global markets grow increasingly efficient, competition no longer takes place between individual businesses, but between entire value chains. Collaboration through intelligent e-business networks will provide the competitive edge that enables all the participants in a value chain to prevail and grow. Collaboration requires individual participants to adopt simplified, standardized solutions based on common architectures and data models. Time to market is critical, and participants will have to forego the luxuries of customization and modification that characterized the proprietary infrastructures of the past.

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Keywords

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Internet, Business development, Supply-chain management

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Abstract

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As global markets grow increasingly efficient, competition no longer takes place between individual businesses, but between entire value chains. Collaboration through intelligent e-business networks will provide the competitive edge that enables all the participants in a value chain to prevail and grow. Collaboration requires individual participants to adopt simplified, standardized solutions based on common architectures and data models. Time to market is critical, and participants will have to forego the luxuries of customization and modification that characterized the proprietary infrastructures of the past.

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Electronic access

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The current issue and full text archive of this journal is available at

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Introduction

Advanced supply chain management (SCM) capabilities are already delivering major economic benefits to businesses as diverse as computer manufacturers, retailers, and construction firms. Benefits include such classic supply chain functions as inventory control, purchasing, and order fulfillment. But it is a mistake for businesses to think of SCM as limited to these functions alone. Enhanced SCM capabilities can create efficiencies and cost savings across a wide range of business processes. Properly implemented, SCM is a strategic activity that must be conducted across the entire enterprise, from marketing and product design groups all the way through to the accounts receivable department. Ultimately, SCM must be conducted between enterprises, since optimizing entire supply chains will require a level of information sharing and collaboration among enterprises previously unknown in most businesses.

These observations are based on both the current successes and anticipated future requirements reported to Oracle Corp. by businesses running Oracle's numerous SCM applications. Oracle currently serves more than 4,000 customers with some 24 SCM-specific e-business applications. These clients range from a major automobile manufacturer to a leading newspaper publisher. The challenge for Oracle is to effectively translate the information technology requirements of this diverse client base into strategic planning applications that can span entire supply chains.

Benefits of strategic SCM

The most immediate benefits that businesses can expect from strategic SCM are lowered inventory risks and costs, along with reductions in warehousing, distribution, and transportation costs. Over time firms will also experience sustainable cost savings through increased productivity and streamlined

business processes in procurement and purchasing, order fulfillment, accounts receivable and payable, and exception management. More subtle benefits can include accelerated product delivery times, more efficient product development efforts, and lower product manufacturing costs. In the long term, the most significant benefits to businesses with advanced SCM capabilities will be dramatically improved customer responsiveness, increased flexibility for changing market conditions, improved customer service and satisfaction, increased customer retention, and more effective marketing.

Businesses can use SCM capabilities to manage demand as well as supply. Indeed the distinction between supply and demand chains seems increasingly arbitrary. In actuality there is only one type of chain, the value chain. What you see as demand your customers see as supply. "Demand" and "supply" are functions of a firm's position relative to other participants on the same value chain. Upstream participants constitute an individual firm's supply chain. Downstream participants constitute its demand chain.

Collaboration is the key

The driving force of effective SCM is collaboration. Strategic SCM demands collaboration among all participants in the value chain, whatever their size, function, or relative position. You cannot optimize your own operations until you understand the realtime demands of your customers' customers as well as the current constraints for your suppliers' suppliers. It is the ability to apprehend and respond to the changing needs of customers far down the demand chain that produces such strategic benefits as improved project design and more effective marketing.

The order of magnitude increases in levels of collaboration and information sharing associated with strategic SCM will demand a new form of collaborative technology infrastructure. The exact infrastructure capacities required will vary with the role and size of each participant, but certain fundamental attributes of an SCM network will be constant. These include:

Open, low-cost connectivity. Smaller players must be able to access a collaborative infrastructure without major investments in proprietary technology. They must in fact be able to tap into a variety of collaborative systems run by the various firms with whom they do business. Therefore, access to networked SCM applications must be browser-based through broadband Internet connections or virtual private networks. The role of application service providers, who host specific applications for use by others on a fee basis, will be critical in enabling smaller players who cannot afford major investments in infrastructure to participate fully in the collaborative process.

Very large, flexible, multimedia data storage capabilities. The infrastructure for the value chain must be able to store and relate large quantities of data from many different sources, in many different media. These could include images, engineering drawings and program code as well as conventional data files and text documents. Implementation of a common data model for data storage may prove simpler, faster, and far more efficient than an attempt to integrate all the various data models in use across the chain.

Systems and channel integration.

Participants must be able to integrate and access information regardless of the application or channel used to acquire it. Such channels could include Web sites, online marketplaces and intranets, proprietary networks, call centers, physical stores and branches, and even snail mail. Applications may range from sales to accounts payable to order management to master customer information files.

Higher-level self service capabilities.

Collaborative supply chains must offer a new level of self-service capabilities. To assure prompt and widespread customer adoption, these new capabilities must be easy to use, requiring little training. They should not only include access to order tracking, logistics and billing information, but also "intelligence" capabilities for automated product configuration, payment, and dispute resolution. Intelligence gathering and analysis. Firms will need improved business intelligence capabilities to analyze the ongoing flow of information that higher-level self-service capabilities will generate. By analyzing information drawn from the entire value chain, companies can make improvement in internal operations and collaborative capabilities an ongoing process. The power of collaboration does not lie in reaching pre-defined finish lines, but in enabling a firm to support continuous learning and improvement.

Supply chain collaboration exchanges. Today's e-business exchanges are essentially markets, with value exchanges limited to buying and selling. Advanced SCM will offer exchanges that allow members of the value chain to collaborate in the design and development of products, manufacturing processes, logistic and distribution strategies, and all related forms of supply chain and demand chain planning. Supply chain collaboration exchanges will also offer many value-added capabilities to their communities, including commerce, business, and enablement services. Community members will benefit from proven complete collaboration solutions from service industry leaders.

Sophisticated security capabilities. Collaboration makes more, and more sensitive, information available to larger constituencies. Infrastructure components like supply chain management exchanges will need to make fast and accurate decisions about access to sensitive engineering, financial, and customer data. New identification technologies like digital certification and even biometrics may play an increasing role in assuring security.

New electronic commerce capabilities. To reduce costs and speed settlements, the collaborative infrastructure will incorporate innovative financial arrangements, such as electronic billing and payment, automatic progress payments on expensive engineered products, and settlement netting among parties.

Implementing these new SCM capabilities must itself become a collaborative process, requiring individual participants to adopt simplified, standardized solutions based on common architectures and data models. Time to market is critical, and participants will have to forego the luxuries of customization and modification that characterized the proprietary infrastructures of the past. After all, the objective of the SCM infrastructure is not to keep competitors out, but to pull vital collaborative information in.

Conclusions

Ultimately, competitive advantage will no longer reside in the ability of a business to erect technological barriers to rivals, but in its ability to leverage the intelligence inherent in the SCM network and transform existing business processes. The most advanced supply chain infrastructures are certain to fail if a business does not restructure existing business processes to take full advantage of new capabilities and opportunities. Firms must be especially careful to achieve buy-in from all stakeholders before proceeding, and to see that users are fully trained before the new systems go into beneficial operation.

Dr Hau Lee, director of Stanford's Global Supply Chain Management Forum, has recently argued that "inserting intelligence" into e-businesses processes is the next major opportunity for value creation. He identifies design collaboration and price optimization as areas of particular potential. By encouraging ongoing collaboration among participants all along the value chain, advanced SCM practices will be inserting intelligence into e-business processes at every network node. They will also generate remarkable opportunities to leverage the intelligence embedded through the collaborative process, enabling businesses to reduce costs, create more value for customers, and detect critical demand changes quickly enough to design and execute optimal responses.

As global markets grow increasingly efficient, competition no longer takes place between individual businesses, but between entire value chains. Collaboration through intelligent e-business networks will provide the competitive edge that enables all the participants in a value chain to prevail and grow.