Cost reduction. Now there’s a pair of words you’ve heard a lot since last decade no matter with which function you’re working with in a business. I don’t really like the saying since it has a negative tone in it and is a kind of a signal that we need to use the cheese slicer a bit here and there, slice by slice. I prefer something like value stream optimization or resource optimization instead. Is it something that can be achieved with Supply Chain Collaboration? Maybe and yes, I think we can call it SCC as we all love these acronyms, but let’s find out.
I’d argue that the ultimate goal of a business anyway is not to offer something cheap low value product or service which is eventually an outcome of this cost cutting strive, but actually optimized value offering which meets customers value expectation. Cost and price is only one part of the equation.
Now this SCC. What it is, what it enables and how it fits here. I would claim it’s not driving cost reduction, but instead increasing value with your (not suppliers, but) partners without utilizing more input resources. Let’s look what is really written behind those words. Let us take definitions from Wikipedia, as I know that they know what there is to be known from known things over there.
COLLABORATION is defined as working with others to do a task and to achieve shared goals. What is more rewarding than reaching a goal? I would say it’s reaching a goal with someone else, with a partner or a team with whom you have shared values, vision and goals. But hey, I am a team player, go ask from some individual artist or sportsman and he could claim the opposite, and I would argue that it was still a team effort!
A SUPPLY CHAIN on the other hand is a system of organizations, people, activities, information, and resources involved in moving a product or service from SUPPLIER to CUSTOMER. It can be a very complex system with multiple tiers of companies in a network, needed to be working on the same pace towards same goals in order to fulfill the needs of the final customer or consumer.
Considering these, I could define SCC as something like a method to utilize the knowhow of your partner companies and optimize the resource utilization in your supply chain to increase end customer value. Now that became too long, maybe you could come up with a better version?
Anyway. To drive supply chain collaboration one should have a mutually respectful approach, meaning there are a couple of prerequisites that should be in place:
1. See your suppliers as partners in value creation, not as your “suppliers” or “minions”
2. Foster trustworthy and openness in cooperation with your partners
3. Invest in developing and training your supply chain
4. Use the carrot instead of the stick ie. recognize good performance and align the objectives
The outmost importance anyhow in the end is communication between the companies and within the entire supply network. As important is that the information that is being shared is managed properly and that required information is readily available in the business context to anyone who needs it and can contribute to it.
On my next posting, I’m planning to further introduce the concept and how supply chain collaboration can be utilized as a strategic tool to increase end customer value. Meanwhile let’s collaborate, so share your thoughts and ideas. Is it another buzzword or something more?
Matti Manner
CEO of Prohoc Ltd
Chairman of Jakamo Limited
Supply chain collaboration is definitely not just a buzzword. It has been one of the cornerstones of Lean for a long time as pioneered by Toyota and their approach to their supply chain as collaborators and not a resource to be squeezed dry. Toyota has famously employed consultants to advice their suppliers in order to help them reach their goals, integrated their suppliers deeply into their processes, and worked together with the same suppliers for extended periods of time.
When you look at Finland, a somewhat similar approach has been adopted, for example, by Sandvik. On the other hand, the tradition of Nokia is very, very far from this approach, so it might seem novel or strange in Finland given the prevalence of Nokia’s glory days in the Finnish economy.
What I find even more interesting, however, is whether new tools can bring a fresh breath of air into this practice. Social collaboration tools in particular are promising in making supply chain collaboration easier and expanding it to more complex areas with increasing effectiveness.
Regardless of the tools employed, your main point remains central: the first step is to see your supply chain as partners. The tools can vary between different environments and applications, but that central principle is present in all instances of supply chain collaboration.
You’re very much correct Ville. It’s nothing new someone invented just recently, but still remains too much unutilized considering the potential there is.
When still working as an SCM director, I always pointed out that in the past we were doing all these things internally, when now most of the value creation is outsourced. When we still had these functions internally, weren’t we communicating with them frequently? Did we not invite them to join our development programs and did we not ask them to bring their initiatives to improve the product, design or manufacturability?
For me it is paradoxical that there are still a lot of companies that don’t see the point, which should be fundamental. For sure there are other strategies that should be in place as well, but here we’re talking about ‘strategic suppliers’, ie. the top right corner of the famous ‘chessboard’ : http://www.purchasingchessboard.com/content/en_en/esb/index.php
Let’s strive to convince the industry to harness the potential there is!
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