Supply Chain is essential in every business and it is something we cannot do without in the current market landscape. With globalization, it is very common for companies to do business with manufacturer, supplier or customer located in a faraway location. On top of the increased cost competitiveness, end customers also have increasing demands for innovative, quality products.
There are many factors weighing down on the firm, such as bringing in more sales, catching up with demand, faster product development time to catch up with the short product life cycles to keep customer interested. For bigger conglomerates, they can easily find expertise within the group or to buy over firms to take care of its supply chain.
The first step in integration is to adopt a collaborative mind-set. Traditional workplace settings set people to work in department and everyone is so used to working in silos of “departments” and missed seeing the fact that many times, what seems “best” for the department may not actually contribute anything to the company. This is true if we cannot break down the walls between the different departments.
Collaboration requires individuals adjust themselves from working and thinking independently to working and thinking interpedently. Thinking of not only themselves but how they can contribute as a team to win together. This collaborative mind-set becomes more critical when members of the supply chain are people outside your organisation.
Competencies Stock Take
Firms also have to consider its supply chain strategy. What exactly does the firm want to compete on to achieve it ultimate goal? Firms can compete on product differentiation, cost cutting, speedy delivery, market dominance or even providing superior customer service. Firms with different strategy will end up with different structure and focus. If the firm wants to compete on product differentiation, the firm may have to work with design firms for the product development, alternatively, if they choose to have market dominance, the company may have place more focus on its distribution channels.After defining the supply chain strategy, the firm have to take stock of what they can do well and what the firm is lacking. To do this, they have to determine the firm’s core competencies, find out where its gaps are and see which gap is worth closing out using internal resources. These gaps can be filled up by developing it internally, acquisitions of other firms to growth its competencies, market, outreach. This is sometimes known as horizontal integration. Alternatively, the firm may choose to outsource this activity to external supplier who can do the job more efficiently. Outsourcing is a good method to combine the expertise of the competencies which are lacking in the firms without much investment and it can maximise overall profit and competitiveness for both firms. This will bring us to the next point of supplier selection and development.
Supplier Partnership and Development
While firms can exercise pressure on the outsourced contractor to do at its bidding, this relationship may not be sustainable over a long time. These traditional unmanaged supply chain relationships are usually transactional, adversarial, have minimal communication, lack focus on benefit and risk sharing and value added services. Supplier will not always settle for the shorter end if the stick, they will continue to improve its customer base to recover the loss from your business. Ultimately, this relationship will break down. Time, resource and effort are needed again to source another supplier which is likely to end up in the same cycle. Having supplier relationship like these will also not allow the firm to benefit from savings that supplier can offer to their major customer. Supply Chain dis-integration costs money and may make the firm lose it competitive advantage over time.
For supplier assessment, the firm would need to conduct a joint discussion with the supplier on their problems, mitigation plans, and set up communication lines for feedback and sharing of information. Efforts will need to be put in by both parties to close the gaps as much as possible, so that both can work in synergy. The supplier’s next tier of supplier would also need to be access for the company to access how the supplier copes with issues. While having a long-term relationship with supplier is important, it is also prudent not to just rely on a single supplier.
The graph below show the level of trust, information sharing dependency and leverage increasing as the relationship gets closer.
Collaborative Planning, Forecasting and Replenishment (CPFR)
CPFR which is an abbreviation for Collaborative Planning, Forecasting and Replenishment is a business strategy which complements Supply chain integration. It allows a few firms to come together and align their S&OP processes and to achieve supply chain objective of delivering to customer with improved customer service, forecast accuracy, reduce inventory, stock out and cost.
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