In this week’s Supply Chain Talk, Arkieva CEO, Harpal Singh discusses the key fundamental building blocks for creating a collaborative supply chain.
Talks of creating a supply chain have slowly transformed into a catchphrase that’s often touted at Supply chain conferences and lengthy S&OP meetings. However, for most manufacturing businesses, the concept is elusive and at best abstruse. And it’s not because it’s a difficult concept to understand.
Implementing a collaborative supply chain involves a continuous refinement and organizational commitment that’s sometimes not adhered.
With that said, how do you get started?
Last week, I wrote about key organizational structures that sometimes prevent supply chain planning teams from working properly. Today, I’ll turn my attention to discussing the fundamentals of creating a collaborative supply chain. Effective supply chain planning processes require collaboration and information sharing between planners.[Read Previous: Supply Chain Talk: Why Your Supply Chain Planning Team Isn’t Working ]
To create a collaborative supply chain planning process, here are some of the key fundamental building blocks.
1. Understand The Key Organizational Challenges
As companies recognize the importance of the supply chain, there has been a push to fill the void between Sales and Operations. Initially, this usually takes the form of functional coordination. Procurement, logistics, and manufacturing are combined into a single Supply or Operations organization. Demand planning, order fulfillment, and marketing are combined with Sales. At the same time, a position is established for a Sales and Operations Planning (S&OP) coordinator who coordinates the month to month tactical planning. Depending on the perceived importance of the supply chain, the coordinator’s position may evolve to a distinct organization tasked with planning and coordinating the day to day activities of the supply chain. In filling the void between sales and operations, it’s essential that each newly created position aims at improving communications between sales and operations given the current organizational challenges.[Related: Supply Chain Talk: 4 Effective Strategies for Creating a Robust Scheduling Process ]
2. Align Conflicting Functional Objectives
In manufacturing-centric organizations, the conflict between sales and operations is exacerbated by two other factors. First, the technical folks that staff the manufacturing organization are trained to be conservative because of their background. For instance, an engineer is usually not interested in the maximum load on a bridge that will cause it to fail. They want to know the maximum load that can be carried safely.
Second, the highest level of management is usually either from Sales or Operations. CEOs that are cultured in one of these areas often develop attitudes and biases that affect how they perceive the other functional areas of the organization. Aligning these conflicting views is often a misstep for businesses looking to implement a collaborative supply chain process.[Read Also: Supply Chain Talk: Integrating Finance and Operations – What You Should Know ]
3. Build a Balanced Proactive Organization
In functional organizations, the interface between Sales and Operations is buffered by inventory and clearly defined areas of responsibility. This works well in a static environment where the organization is not required to respond quickly to changes.
As the marketplace becomes more dynamic, the sales function demands higher inventory buffers. This is especially true if it is measured on revenue and not on working capital, operations attempts to insulate itself with inventory because higher inventories allow for a stabilized schedule and increased yields. Creating the right balance between quickly responding to market changes and operating on a productive schedule would often satisfy both parties involved and improve communication.[You May Also Like: Supply Chain Talk: The Secret to Standardization – Imagine Wearing a Standard Shoe Design on Both Feet ]
4. Create a Demand Plan That Incorporates a ‘Reality Check.’
An effective demand planner consolidates multiple inputs into a consistent, ‘reality checked’ whole. These include statistical forecasts as well as input from sales reps, sales management, marketing and other parties knowledgeable about the marketplace. The ‘reality check’ improves not only forecast accuracy but also the collaboration between the different departments involved.[Related Resource: Improving Your Supply Chain: Where Do You Start? ]
5. Allocate Resources after Communicating Constraints
The demand plan is used by planners to allocate resources. Often this is a negotiated process that involves demand planners communicating manufacturing constraints back to the sales organization. The process of negotiation helps operational planners and sales get on the same page. Once resources are allocated, the communication flow should be continuous between the different functional organizations in the business.