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Updated: March 14, 2011 12:19 IST

Towards collaborative supply chains

D. Murali
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In times where customers’ tastes change frequently, supply chain success may best be achieved through win-win cultures, observe Eli Schragenheim, H. William Dettmer, and J. Wayne Patterson, the authors of ‘Supply Chain Management at Warp Speed: Integrating the system from end to end’ (www.kkbooks.com).

New business practices

The authors recommend, for the purpose, that appropriate performance measurements should be in place to ensure trust in collaboration and mutual gains. Also, “the suppliers, producers, distributors, and the sellers should be evaluated based on their contribution to the chain’s success in delivering the final product to the customer.”

The book calls for appropriate business practices to implement such a logistical scheme, with rules of partnership leading to the idea of dividing the throughput generated by every sale to a customer to every participant in the sale. For instance, to tie the chain members together tightly the authors suggest that payment to all links be made only after the end item is sold, and that the supply chain take on another partner to manage the financial transactions.

The two objectives that drive what may seem a radical proposal as above are ‘very fast replenishment times throughout the chain’ and ‘relatively low levels of stock at each link in the chain to allow for fast introduction of new products.’

Links in the chain

To those in the SCM (supply chain management) space who wonder where to start, the guidance offered by the book is to focus on the distribution links, which are collectively the largest and the most powerful portion of the supply chain. Implementing the book’s concepts in distribution companies would impose pressure on suppliers to ‘do the right thing’ by providing vendor-managed inventory using make-to-availability procedures, the authors reason.

They underline that it is important for the distribution links of the chain to reduce slow-moving inventory and to improve the availability of fast movers, because doing so improves the profitability of the whole chain. For, the replenishment of sales signals the remainder of the chain about the customer’s taste.

The authors remind that while a distributor with a superior response to customers is an asset in any supply chain, gaining competitive edge can become difficult without the active collaboration of the suppliers. “The fact that the chain is a series of links makes the results at one link dependent on its feeding link, and so on throughout the chain. A shortage anywhere in the chain may have far-reaching effects.”

Swim together

An instructive section in the book is the one titled ‘supply chain members sink or swim together.’ It cautions that even if a distributor astutely uses Theory of Constraints (TOC) buffer techniques to ensure reliable availability, an unreliable, slow producer typically negates a major benefit of TOC by forcing downstream links to maintain unnecessarily high stock buffers. “When an entire supply chain holds too much stock, some of it is sure to be in slower-selling items – those that, if only you had known ahead of time, you would have ordered very few (or none) of them. Non-productive stock like this limits investment in stocks of faster-selling items that could be more profitable.”

Looking around at common reactions to supply chain problems, the authors find that members of supply chains commonly believe lack of information to be the issue. Thus, the remedy these members go for is to generate more information, to reach out for new communication technology, and to share information throughout the chain. But is this really the problem, the authors wonder.

Their advice, therefore, is that whenever two companies collaborate, it is necessary to consider the respective individual interests. “A supply chain creates a unique association between various organisations. Their business transactions must truly support a win-win partnership. Only such relationships will lead to the optimum performance of each individual partner in the chain in a way that benefits the whole chain.”

Insightful study for those in the supply chain domain.

**

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