Improving the performance of people and processes

Introduction:

Large retailers are reaping the benefits of working more closely with their suppliers: sharing plans, forecasts and consumer data electronically to help predict market trends and buying patterns. Small businesses too can benefit hugely from a collaborative approach. In fact is has been described as ‘the 21st century’s most powerful process for consumer satisfaction.’
Imagine: your customer (a retailer) sets up an automatic email alert to tell you a certain product’s selling out faster than forecast. The quicker you know this, the quicker you, the supplier, can react to consumer demand. More accurate forecasting means you can set up just-in-time Working (JIT), with a faster turnaround so you’re more likely to have the goods or services the customer wants, when they want them. It also means you manage production better, end up with less inventory, so you need less warehouse space, and benefit from a better cash flow. To businesses more used to crossing swords over price negotiations, collaborative planning can seem like a daunting leap of faith. It may take a change of culture, but it’s worth investigating, whatever your size, and wherever you sit in the supply chain.

The Benefits

Although it’s been the major retailers and the automotive industry that have so far implemented collaborative planning and forecasting, small businesses have much to gain from it in today’s increasingly competitive market. Pooling data with your suppliers/customers will make it easier to:

1. Analyze real-time information about inventory, sales, forward orders and trends
2. Manage your just-in-time strategy
3. Replenish stock and meet orders

Most companies use regular forecasting and planning. With collaborative planning, you extend it to include the experience of your suppliers. For instance, the retailer knows about demand, the manufacturer about supply. Focus both sets of eyes on the same goal (the end customer), share ownership of the process, and both retailer and manufacturer win. It may not need a huge investment – you could start off by feeding data into an Excel spreadsheet. Or, if you are considering reorganizing the way your company works (business process re-engineering), you could look at an ERP system, linked to your suppliers/customers via the Internet.
The goal is to reduce waste and speed up efficiency for your company and everyone you trade with. The benefits are:

1.Greater efficiency. Companies are working with real-time information about stocks and scheduling, so need fewer inventories – you may see10 - 40% inventory reductions across the supply chain.
2.More accurate forecasting – it means less redundant stock, better production management, better cash-flow management.
3.It also promotes loyalty and trust, which makes for a closer working relationship.

Collaborative planning and forecasting options:

There are various levels that a company can opt for. Businesses can collaborate at a basic level, using email and Excel worksheets. However, the big benefits of collaborative forecasting come when partners share information automatically in ‘real-time’: that is, where all the partners can share information continually as it is updated. And for that you need a more sophisticated system. Businesses can opt for one-off pieces of software such as inventory planning systems or forecasting systems, or they can take a ‘big bang’ approach and implement an integrated business system, such as ERP. Whichever solution you choose, the most cost-effective network to communicate with your suppliers is likely to be the Internet. The price of high-speed Internet connections (such as Broadband) continues to come down, and XML is emerging as the new standard for exchanging information between different supplier systems over the Internet. If you have many suppliers/customers that you need to hook up to, consider using a B2B e-marketplace to exchange data.

Inventory planning systems

As you and all your suppliers/customers have inventories, you need collaborative technology that can perform demand forecasting, and set optimum stock levels. It needs to be able to identify excess inventory and critical shortages. Web-based systems can be integrated quickly, and made accessible to your partners.

Online analytical processing (OLAP) systems for forecasting

Again web-based, these applications are used to analyze data held on relational databases. A sophisticated system can quickly process large quantities of database information, and offer a high level of security. OLAP systems will:
1.analyze past sales performance, and use this to forecast future sales.
2.summarise information, and compare forecasts from different suppliers in the supply chain.
3.analyse these suppliers’ forecasts and identify any significant discrepancies.
Integrated business systems to manage your whole enterprise specially designed for sharing information between several suppliers, these systems enable you to develop sales plans, update shared sales forecasts and replenishment schedules.

1. MRPII (Manufacturing Resources Panning) are advanced systems for scheduling and planning production cycles, which take account of supplier lead times.
2. ERP (Enterprise Resource Planning) systems can plan and schedule across your entire business and also integrate with your supply chain partners for stock ordering and accounting.
If you don’t want the expense of purchasing a new ERP system, you can rent one from an Application Service Provider (ASP). This way the ASP provides – and maintains – the hardware, so you don’t need technical expertise and you don’t need to invest in new systems. What you are buying is access to an application – sometimes of a higher specification than you could otherwise afford. Some ASPs even offer short try-out periods.

Considerations:

Small businesses need to weigh up the potential gains against the costs of implementation and running a new system. If you’re renting an application from an ASP, rather than purchasing a new system, you still need to factor in hidden costs such as staff training. You need to look at return on investment. Quantify the impact of improved forecasting accuracy on inventory, sales and lead times. Many websites of software vendors and e-marketplaces offer investment calculators that is free to use. Network security may also be an issue if you are opening up your internal systems to suppliers/customers. As with any collaborative venture, it brings a risk – you will have to ensure that your – and your supplier’s/customer’s – data is protected. Pooling data with suppliers/customers means you need a closer working relationship with them. It’s not just a question of implementing a new system and a new network to share data – you need to think through the knock-on effect on staff of this new transparency between your companies. The concept is simple enough: that customers, suppliers and retailers can all gain by co-operating, rather than being adversarial. A good working relationship with suppliers and customers can encourage innovation and improves the quality of service. If you are changing the way you work, for example implementing JIT, it’s crucial that the lead comes from the top, with senior management making any new ways of working crystal clear. Communicating with your staff is vital to make sure everyone involved knows exactly what is expected and how to achieve it.