Working on the Chain

With profits down and perils up, companies are focusing on supply-chain management.

But software isn’t the whole story. Although SCM systems can work wonders, experienced managers know that projects will fail if process and people issues are ignored. Supply chain consultants insist that companies rethink old assumptions, replace inefficient processes, and prepare for change management before they embark on an expensive software implementation.

First, Collaborate

One ambitious effort by retailers and manufacturers to implement supply chain best practices is called collaborative planning, forecasting, and replenishment (CPFR). A set of process and technology models that build on vendor-managed inventory programs, CPFR promises to optimize information sharing between buyers and suppliers. But although numerous pilot projects are under way, CPFR’s time will be slow to arrive, as it requires extensive process and technology reengineering.

Best-practice collaborative forecasting can be done in the here and now, says Kevin O’Marah, vice president for supply chain strategies at AMR. He argues that collaborative forecasting isn’t technology-dependent, but relies instead on process rigor, relationships, and trust. The goal is to get everybody on the same page, from a company’s internal departments to its outside trading partners. (The goal is not to achieve a perfect forecast or even 90 percent accuracy; suppliers understand that demand uncertainty is inevitable, says O’Marah.)

Successful collaborative forecasting rests on a rigorous sales and operations planning process, says O’Marah. That amounts to convening formal, regular meetings between sales managers, who know what customers will pay for, and operations managers, who can match that demand with sourcing, production, and logistics requirements. Does this sound too simple? “A lot of best practices end up being really simple, like collaborative forecasting,” he responds. Too obvious? “It doesn’t go on as much as you think.”

And if collaborative forecasting doesn’t happen that much within the four walls of a company, it’s not all that frequent between companies either, say consultants. John Leffler, global head of collaborative value chain solutions at PwC Consulting, recalls a recent meeting between managers of two companies in the entertainment industry: a large, multimedia concern and one of its major suppliers. “The supplier was outlining in detail the major supply chain issues they had that hurt their profitability” — issues the larger company didn’t have visibility into, says Leffler. As a result of the powwow, the managers agreed that instead of giving the supplier the usual range of forecasts, the company would start from a baseline amount and provide timely updates as it received better demand signals from its customers.

The specific technology used to collaborate with suppliers doesn’t matter, says O’Marah, as long as it’s simple and fast; EDI or E-mail may serve as well as collaborative supply chain applications. The quality of information does matter, though. That might mean, for example, an end to forecast padding, a practice especially rampant in high tech, where companies have routinely overstated their need for electronics parts. Instead, a new level of trust is required. Ideally, suppliers could pass on savings from collaboration without fear of being squeezed or replaced.

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