Multiple Suppliers Across The Supply Chain example essay topic

Collaborate or Perish! The just-in-time supply model-an absolute requirement for e-commerce fulfillment-calls for closer collaboration with suppliers and partners than ever By Scott Joyner Today's corporations do not rely simply on brand loyalty. The sale now goes to companies that can implement a "just-in-time" business practice by quickly providing customized products. To do so, your organization can no longer be hierarchical. Instead, it must have an open-minded management team that can channel the necessary resources to meet demand.

Consumer demand for customized products and services delivered quickly has forced retail outlets into a "We won't make it until you order it" mentality. What's more important, retailers are telling their suppliers, "We won't ask you to make it until our customers order it". Consequently, recognizing and responding to customer demand must be instantaneous. Both vendors and suppliers require the ability to transfer information at fiber-optic speed across their distribution channel. However, speed is just one factor.

Successful product management and distribution requires synchronization with suppliers at the fastest speed possible, creating a collaborative relationship with all suppliers down the chain. Your organization can no longer afford an "us vs. them" mentality with your suppliers-it must be "we". Previously, the business model assumed that inventory existed or was in the manufacturing process, that is, "available to promise" (ATP). Today, executing the just-in-time model requires a "capable to promise" (CTP) value stream. In this article, I'll examine how your business can implement a CTP value stream and how doing so will affect relationships with suppliers. I'll also discuss the technology that is necessary to implement the just-in-time model internally as well as with multiple suppliers across the supply chain.

Capable to Promise The ATP and CTP dates are extremely important, in that companies want to tell customers when they will receive their products. ATP is based on the premise that your company has a finished-goods inventory that contains fairly standard products. Companies build an inventory of products to sell, and perform an ATP calculation, providing the date for product delivery. A finished-goods inventory ensures that when the customer calls and says, "I'm looking to buy a car battery", you have a standard supply of batteries ready for delivery. ATP also applies to goods that are in the production process. For example, your company may be in a situation where it does not immediately have the product in the finished-goods inventory, but is near enough to completion that it can guarantee delivery within a well-defined time frame.

However, as the business "ecosystem" has changed, companies and consumers now look for more highly customized products. With this increase in product variations, maintaining a large finished-goods inventory becomes cost prohibitive because it translates into a higher cost for the final product. Therefore, the need to meet business and consumer demand for rapidly delivered customized products-while keeping finished goods inventory to a minimum-calls for an adjusted time, or CTP, manufacturing process. With CTP, in promising product delivery to the customer, your company could say, "We are capable of manufacturing the product that you want and delivering it to you in four days from the day that you placed an order".

To keep this promise, you would have to very clearly communicate with your suppliers in order to receive the raw materials for the end product. You must also look at the capability of the entire supply chain and facilitate it with an underlying IT support system that lets you place an order with a supplier and quickly determines the parameters in which that supplier can meet the pro-mise date. This task must occur at near fiber-optic speed. Ultimately, your goal should be to have an entire ecosystem defined by a reliable, core group of suppliers that are linked electronically. Certified Suppliers Once you have identified reliable suppliers, you should request that the supplier be certified. Certifications encompass criteria including guaranteed on-time supply of materials as well as predetermined quality standards for the materials.

In return, you guarantee the supplier a certain level of demand. For example, say a supermarket chain predicts the buying patterns for a laundry detergent and communicates it to suppliers. The suppliers will then guarantee deliveries of a predetermined amount of laundry detergent based on the described pattern. For example, Franklins Ltd., a large Australian retail outlet in the discount grocery area, applies "narrowing" techniques that base the amount of inventory replenishment on sales results at the store level.

For example, if a Franklins outlet carries a brand of dog food that is not selling well, the store will "narrow", carrying less of that brand and more of the dog food brands that are selling well. The store establishes the supply pattern, or replenishment schedule, with the dog food supplier; that is, the next order of dog food should be ordered on Monday because the supplier delivers on Wednesday. These close ties with the certified supplier create a predictable pattern of order replenishment and ensure that the supplier will fulfill the order for Franklins. Vendor / Supplier Relationships The CTP value stream lets you maintain a minimum of finished goods inventory and also lets your supplier carry a minimum amount of components and raw materials for the manufacturing process. However, you and your supplier must always be aware of varying lead times associated with certain materials and ensure that countermeasures are in place. Gold is a good example.

Vendors do not always have access to gold, regardless of what they are willing to pay. Long lead times with raw materials such as gold require the vendor to keep a fairly robust amount of the material on site in order to meet customer demand. Meanwhile, another component in the finished product that uses gold may be very easy to obtain and require minimal onsite inventory. By working with the certified strategic suppliers, the vendor can host the inventory although it is still owned by the suppliers. This vendor-managed inventory guarantees that the vendor will always have the inventory available, even though it is not paid for until used. Your organization must also establish a collaborative relationship with its suppliers that can include sharing significant amounts of sensitive data.

Details on the delivery of raw materials from the supplier are crucial. If you can otherwise deliver a product to your customer in two days, yet your supplier can't get you the necessary raw materials quickly, then the total manufacturing time will increase. It is therefore imperative that your company knows its suppliers' capabilities and requirements in detail-and vice versa. The automotive industry is a prime example. The product-development cycle for a new car model spans multiple years, so the year 2000 model, for example, may have been on the engineers' drawing board since 1998. The engineer must pass along the new model's specifications to the first tier of suppliers so that those suppliers can go through their own engineering process.

This action will give them enough time to ensure they can correctly produce everything from the starter to the engine, brakes, and windshield. The same thing holds true for any highly engineered product-the vendor must communicate the specifications appropriately to its various suppliers. A Black Box As I explained earlier, you can no longer afford to organize your business processes hierarchically. You can have a standard hierarchical organizational chart, but the focus of successful digital business must be on satisfying the customer.

Remember something important: The customer sees you, the product vendor, as a "black box". The customer orders something, they receive something; they ask a question, it gets answered. The worst-case scenario is the customer having to call multiple numbers and access multiple people to get a question answered. From the customer's perspective, a value stream provides whatever it is he or she needs.

That value stream flows across your entire organization and it isn't hierarchical, rather, it's very flat. Today, the emphasis is on building customer teams. If a company has a customer that provides 60 to 70 percent of its revenue, that company should have a customer team that is organized and focused from all different disciplines solely to satisfy that customer. The fact that engineering is in a separate department is irrelevant.

All the customer cares about is that his or her engineering question is answered right away. Therefore, the engineer will have to be a part of that customer response team to that client. In addition, your organization must look carefully at the delivery side of the supply chain, which should also be flatly organized. How do you get your products to the customer? Doing so requires equally strong relationships with distributors and suppliers-FedEx and UPS are vendors, too. Your business is closely tied to them for its needs and requirements, so the distributor needs to understand how to tailor its responses.

Communicating with Suppliers To reduce stress on suppliers that must provide components and raw materials to multiple vendors using a variety of systems, your organization (as well as its multi tiered suppliers) should consider working with a company that specializes in supply-chain integration. Doing so is important for two reasons. First, the further the product order is "translated" away from the end product, the less identifiable it becomes. Second, there will likely be low-tech suppliers down the chain that may, using their existing infrastructure, have difficulty communicating with more high-tech entities. Take a manufacturer that supplies windshields to a car company, for example. That manufacturer, or first-tier supplier, gets an order from the car company to supply windshields of a certain size and dimension.

The first-tier supplier understands very clearly what the end product, a windshield, is going to look like. However, when the order goes back another tier, it's not for a windshield, but for the rubber grommet that goes around the windshield or the silicon or glass used to make the windshield. Tier 1's view of demand for a windshield order is: "I assemble, treat, package and ship to the auto manufacturer". Tier 2's view of demand is of the rubber grommet or a windshield of a certain dimension. Go back to the Tier 3, and the supplier of silicon to the window manufacturer is totally unaware of the windshield because its view of the order is for a specific quantity of silicon. That supplier has no sensitivity to the end product.

Therefore, for the value chain to be effective, the vendor must speak to the silicon supplier in terms that it can understand. In other words, it has to be able to translate the order into something meaningful to that third- and fourth-tier supplier. Digital business integration-integrating the front-end system with the back end, the back end with the suppliers, and configuring all those interfaces so that communication is instantaneous-makes that happen. Middleware Digital business integration also requires seamless internal communication. The increase in mergers and acquisitions, along with businesses fusing to offer a consolidated set of services, require a significant amount of information sharing among parties. While their systems may have different protocols, or technical architecture, they will also have a lot of redundancies.

For example, customer information-names, addresses, phone numbers-is the same and is shared across different platforms. Hence, there is a need to interact at a digital level and pass this information to the systems supporting all the businesses involved. Middleware was developed to address this piece of digital business integration. Multiple varieties of middle ware systems are available, each offering a different level of capability and sophistication to address a specific set of business requirements. One vendor may require only a simple messaging service, while another may have complex needs and invest in a more robust piece of soft-ware.

Companies such as New Era of Networks Inc. (NEON), Vitria Inc., and Cross Worlds Inc. are supplying software that lets businesses quickly share information from a common source to disparate systems. Vitria, for example, provides a complete suite of applications, including integration, workflow management, and business process engineering within its middle ware product. The software can analyze and detail, from a business process flow standpoint, how the interface is actually working. Furthermore, products with more limited capabilities exist that can serve as message carriers. They enable interface integration to address the transport of information from one system to another in order to complete a business transaction.

The business requirements for information integration should drive the middle ware decision. If all you need to do is share information between two systems in the same company or across companies, it isn't necessary to invest in more than a basic piece of middle ware. Prices vary with each product, but most are very cost effective for the services they provide. The alternative is to handcraft a point-to-point interface solution that changes every time either the business, the technology, or the level of software to which the vendor interfaces changes. Outsourcing As businesses ponder the costs and benefits of investing in digital business integration, they are basing their final decisions on a variety of factors, including size and scope, risk to shareholders, and new business potential. Other questions that need to be answered include, "What is the investment in terms of dollars?" and "What resources will this require in terms of people and infrastructure?" If the investment is deemed too high to go it alone, many companies will conduct joint ventures with application service providers (ASPs) that let them create a digital presence.

A company may pursue a business model in which it acts as an auction site, enabling it to reduce costs by auctioning off excess inventory. For example, say a golf course in North Carolina has an abundance of fertilizer and would like to sell a portion of it for extra cash. It can turn to its auction site and offer the fertilizer to the highest bidder, which may turn out to be a golf course on the West Coast. The company in North Carolina is able to do this thanks to the help of a local ASP. The company's staff power and time is not compromised, as the ASP manages the auction site operation. This trend will continue across all segments of digital business as companies look for new ways to expand and evolve.

For example, businesses that began by offering books via the Internet now offer everything from movies to toys to rental capabilities. Outsourcing can make the growth process less of a burden on the corporation. Regardless of how a company chooses to expand its business, a close relationship with suppliers and distributors will remain the key asset. The just-in-time model will only increase in relevance as business and consumer expectations continue to rise. Businesses that can best address the demand for speed, varied product offerings, and effective customer service-while keeping finished-goods inventory to a minimum-will remain the most profitable over the long run. Scott Joyner is supply-chain principal, North America, for James Martin + Co.

He is responsible for the sale and delivery of supply-chain solutions to the manufacturing, retail, distribution, and transportation communities. Copyright (c) 2000 CMP Media Inc. ALL RIGHTS RESERVED No Reproduction without permission Links: Home | Subscribe | About | Media Kit | Contacts | Edit Cal | Submissions | Archives | White Papers Communities: Intelligent ERP | Intelligent EAI | Intelligent CRM | Intelligent KM.