How to Collaborate Externally in Supply Chain Management – competition | agenda | inventory
How to Collaborate Externally in Supply Chain Management
Competition doesn’t just occur between companies. Competition occurs between supply chains, too. Where you really start to get benefits from supply chain management is when you begin to collaborate with your customers and suppliers. That’s why the fourth step in the new Supply Chain Agenda is to collaborate externally. So, let’s look at how external collaboration can help you streamline processes and eliminate waste throughout your supply chain.
One of the amazing things that you discover in a supply chain is how small changes in one place can have big impacts in another, and when you can have candid conversations, it’s common to find lots of things that your customers and your suppliers are doing that are causing you to be less efficient than you could be. And vice versa. For example, let’s say that you buy packaging materials from a supplier on the other side of town. It’s critical for your business that you always have at least one palette of these packing materials available. So, there’s someone on your team who’s responsible for watching the level of packaging inventory and placing a replenishment order whenever it’s necessary. Meanwhile, on the other side of town, your supplier keep extra inventory of packaging just for you because they need to be able to deliver it quickly if you place an order but is that really the most efficient solution? What if the supplier were to have someone stop in your facility every morning to check on your packaging level? And then, they could place the orders automatically when you’re running low.
The supplier would have better visibility to your real inventory levels and your consumption rate, and that would allow them to carry less inventory, and you would have packaging appear almost magically, without the cost for the resources involved with having someone on your team do that job. This approach is called vendor managed inventory or VMI.
VMI is good for suppliers because they can often increase sales, improve service, and reduce their inventory, and it’s good for customers because it saves the time and expense of having a person to monitor inventories and place orders. In many cases, VMI allows a customer to have a high level of product availability while carrying almost no inventory but in order for VMI to work, both the customer and the supplier need to trust one another, and they need to live up to their commitments. In other words, they need to collaborate. There are lots of other ways that companies can collaborate to make their supply chains more competitive.
If your customers are able to share sales and inventory data with you, then you can do a better job of making sure you have enough inventory to meet their needs but not more. External collaboration can help your company compete effectively and enjoy the benefits of implementing supply chain management. Done right, collaboration is good for your customers, good for your suppliers, and it’s good for you and your company, too.