Supply chain analyst Trevor Miles insists, “Collaboration can bring tremendous value to outsourced supply chains, such as we see in electronics and apparel.” [“Visibility is a Start. Collaboration is the Goal.” The 21st Century Supply Chain, 28 March 2011]. He then asks a fundamental question: “But what is collaboration?” He continues:
“All too often collaboration is viewed in the context of exchanging data. Visibility to data is important, but collaboration is ultimately about teams of people working together to achieve a shared objective (but perhaps not a common goal). The potential value of collaboration in the supply chain is enormous in terms of both reduced inventory and increased supply chain agility, not to mention the reduced cost of ‘policing’ supply chain relationships. Visibility is a start. Collaboration is the goal.”
Since collaboration is often viewed in the context of exchanging data, information sharing obviously plays a fundamental role in collaboration. But, as supply chain risk management expert Daniel Stengl reminds us, “There are many obstacles to information sharing in a supply chain.” [“Information Sharing in Supply Chains,” Supply Chain Risk Management, 7 March 2011]. He continues:
“Confidentiality is probably one of the biggest issues, but there are others not so obvious like antitrust regulations, the timeliness and accuracy of the provided information, differing technologies between the supply chain partners or a mismatch in the alignment of incentives. Therefore trust and cooperation become critical ingredients in a supply chain partnership.”
For more discussion about some of the conflicting agendas involved in collaboration, read my post entitled Supply Chain Collaboration. That post also contains a discussion about the importance of trust. The focus of Stengl’s post is an article published in 2000 that was written by Hau L. Lee and Seungjin Whang entitled “Information sharing in a supply chain.” [International Journal of Manufacturing Technology and Management, 1 (1), 2000] In the abstract for their paper, Lee and Whang state:
“Advances in information system technology have had a huge impact on the evolution of supply chain management. As a result of such technological advances, supply chain partners can now work in tight coordination to optimize the chain-wide performance, and the realized return may be shared among the partners. A basic enabler for tight coordination is information sharing, which has been greatly facilitated by the advances in information technology.”
Concerning their paper, Stengl writes:
“Lee and Whang discuss [obstacles to information sharing] and present some common types of information sharing. … In their view supply chain management primarily implies a focus change from the business to the supply chain. Inter-firm communication gains importance. The goal should be to integrate material, information and money as the three supply chain flows. Drivers behind this development are globalization and the more cost effective IT. Nonetheless, information sharing is only an enabler for better coordination and planning of the supply chain.”
In other words, Lee and Whang agree with Miles that the goal is collaboration not merely supply chain visibility. Stengl notes that “there are several different categories of information shared between companies.” The first is “Inventory Level.” Lee and Whang explain that inventory information is shared for the following reasons:
- Echelon-based inventory control is optimal under certain assumptions.
- A variation of the order-up-to policy based on the echelon inventory level would achieve near-optimum.
- Production rule will adjust the production rate at a stage according to the inventory levels at the downstream stages.
They note that inventory information sharing takes several forms:
- Continuous replenishment programs
- Vendor managed inventory
To read more about vendor managed inventory, see my post entitled Vendor Managed Inventory and Vendor Managed Availability. The biggest challenge they find with shared inventory information is the validity of the data itself. According to Lee and Whang it “can be a huge problem.” The second category of information that is commonly shared is “Sales Data.” According to Lee and Whang, this data is shared for the following reasons:
- Orders from downstream serve as a critical source of information about future business.
- The variance of orders is often larger than the variance of sales.
- Mitigation of the Bullwhip effect. By having sales data, manufacturers would be in a much better position to differentiate real demands and the so-called ‘phantom’ demands.
Another category of shared information according to Lee and Whang is “Order Status for Tracking/Tracing Sales Forecast.” This information is shared in an attempt to eliminate “the Bullwhip effect” and associated inefficiencies. The final specific category of shared information identified by Lee and Whang is “Production/Delivery Schedule.” This data is shared for the following reasons:
- Information about (raw) material availability helps the buyer to expand the planning horizon of his own production schedule.
- For the supplier knowledge about the manufacturers schedule can help to ensure reliable resupply.
Lee and Whang also note that other information, such as “performance metrics or capacity,” is shared to help “identify bottlenecks in the supply chain and improve the performance.” Stengl reports that “Lee and Whang explain three models of information sharing”:
“Information Transfer Model — In this model one partner takes the lead in the supply chain, the other partner(s) transfers their information to the other who maintains the database for decision making.
“Third Party Model — The 3rd-party model involves a third party whose main function is to collect information and maintain it in a database for the supply chain.
“Information Hub Model — The information hub model is similar to the 3rd-party model except that the third party is replaced by a system. In this case the information hub does not have to exist physically, individual functional modules may reside at scattered locations and be called and invoked only as needs arise. Thus, the information hub could exist only as a logical entity.”
At Enterra Solutions®, we believe that the best method to share sensitive data in a “permission-based ‘virtual’ trading community” is using Attributes-Based Access Control (ABAC). As I wrote in a post entitled Sharing Sensitive Information:
“The goal of an Attribute-Based Access Control framework is to provide a community the ability to manage secure information and resource exchange while instilling confidence among information owners that only authorized users can access appropriate data and information. Role-based access control (RBAC) functions accomplish this today for stand-alone systems and enterprises but do not scale for enterprise and multi-party communities that need to share real-time data at a granular level (e.g., individual document) and/or under specific conditions. ABAC frameworks deal with both granularity and scalability challenges and are able to address dynamic situations. Because information owners retain control over access to their information, authority is inherently distributed and managed. ABAC, however, provides a means for information granting authority to determine and specify who gets access and when. As a result, while control policies are centralized, decentralized resource owners retain fine-grained control of their own information. As one academic paper concludes, ‘Attribute-based access control, making access decisions based on the attributes of requestors, resources, and the environment, provides the flexibility and scalability that are essential to large-scale distributed systems such as the Grid’ [‘Attribute Based Access Control for Grid Computing,’ by Bo Lang, Ian Foster, Frank Siebenlist, Rachana Ananthakrishnan, and Tim Freeman, Argonne National Laboratory]. These distributed systems are growing in complexity and deal with security controls for sensitive information, as I discussed earlier, as well as proprietary information (think secure supply chains) and privacy issues (think new federal health care and smart grid programs). As things now stand, the technology for secure information sharing will likely be in place before the culture that it will ultimately support is fully embraced. If I’m correct, the technology will actually help speed up the process of culturalization and provide the means to address difficult security requirements at a reasonable cost.”
The editorial staff at Supply Chain Brain reports that “during the past year, executives from across the retail and consumer goods spectrum have worked together, as part of the Future Value Chain initiative, to focus on how to continue to bring benefits to consumers through collaborative efforts of the industries.” [“CPG, Retail Execs Map Strategy to Collaborate for the Benefit of their Customers,” 3 March 2011]. Their article reports that “the Future Value Chain program, facilitated by The Consumer Goods Forum together with Capgemini, HP and Microsoft Corp., has produced a new report, 2020 Future Value Chain: Building Strategies for the New Decade.” [To access the full report, visit www.FutureValueChain.com.] The primary purpose of the article was to describe working sessions of the program that “brought together 200 executives from some of the world’s leading retailers, manufacturers, academics, third-party providers and industry organizations.” Together they examined the impact of collaboration and “defined the strategic objectives on which the industry should focus its energies.” The objectives identified were:
“1) Make Our Business More Sustainable — In 20 years, the world’s population will reach 8.3 billion and this growth will put more pressure on natural resources affecting the cost and availability of ingredients. The industry needs to collaborate to address sustainability in future business practices in a trustworthy manner, particularly as sustainability becomes an increasingly important aspect in consumers’ buying decisions.
“2) Optimize a Shared Supply Chain — Key trends such as increasing urbanization, consumer awareness about sustainability and the increased adoption of consumer and business technologies will require new and collaborative distribution models and optimized ‘smart’ supply chains where information as well as assets are shared.
“3) Engage with Technology-Enabled Consumers — One of the specific challenges highlighted is sustaining a dialogue with consumers through their preferred channels and technologies. Consumer buying behavior has been impacted by the use of the variety of technologies in people’s lives, accessible at any time, from any location, leaving consumers more informed about products and services. Companies need to drive greater value by engaging with consumers and maintaining a two-way dialogue to improve responsiveness to their changing needs.
“4) Serve the Health and Well-being of Consumers — The overall increased importance placed on health and well-being will bring strong pressure on the industry to find new ways to inform and engage consumers, governments and other stakeholders. Achieving this objective requires full industry collaboration and a focus on issues such as product safety and providing healthier choices, with an emphasis on ‘quality of life.'”
As you can see, this industry group has certainly broadened the definition of collaboration beyond the sharing of information. It’s not clear that the goals were listed in priority order. Had they been, I would have expected optimizing a shared supply chain to top the list. Instead, supply chain sustainability is listed first. I can’t help but wonder if this isn’t a bit of a public relations ploy. Regardless, the lesson is clear — collaboration is going to be a defining characteristic of future supply chains. Nigel Bagley, Director for Industry Affairs, Unilever, and Co-Chairman of 2020 Future Value Chain, stated, “The trends highlighted in the report underline the need for even more collaboration among all parties in the value chain as we move through these challenging times. We should treat this as an opportunity to urgently act through putting in practice new plans and strategies that better suit the changing needs of our consumers.”
Bagley’s use of “value chain” vice “supply chain” underscores the fact that more and more business executives are starting to appreciate the fundamental importance of the supply chain. Dr. Gerd Wolfram, Managing Director, METRO Systems and Co-Chairman of 2020 Future Value Chain, stated, “Consumer demands have already increasingly changed in the last few years through the use of new technologies. It is time now to sit down with our industry partners and talk about how, by working together, our industry can better serve the 2020 consumer. We are very excited about what the future holds.”
When it comes to collaboration, talking about it is easier than doing something about it. Daniel Stengl notes, “Setting up the right partnerships is hard to do. There are multiple levels to the decision [about] with which companies to setup formal relations and how deep this relationship should be?” [“Managing Strategic Partnerships,” Supply Chain Risk Management, 9 March 2011]. He provides an overview of a study written by Martin Christopher and Uta Jüttner that examines describes some current practices in several industries with respect to managing supply chain relationships. He calls their approach “refreshing.” If you are trying to improve your collaboration, you should check it out.