Supply chain collaboration
Supply chain collaboration is a real buzz word in our industry. While there is always great excitement when it comes to working with external supply chain partners, the huge potential rewards that can be yielded from building stronger bridges between internal teams is often overlooked. The question is: how can harnessing more effective internal collaboration help your business thrive?
In this article, I will explore how you can utilise internal supply chain collaboration within your organisation to deliver the following benefits:
- Establish a more harmonious operation
- Mitigate the risk of costly mistakes
- Exploit all sales opportunities fully
- Set the basis for wider collaboration with suppliers & customers
Taming the elephant in the room: managing different perspectives
Every team has its own set of objectives and therefore, its own agenda. The problem is that these different perspectives, unless openly discussed, can fester, resulting in siloed-decision making and sub-optimal performance.
Take for instance this typical supply chain example:
- The sales team want maximum availability to ensure they can fulfil customer orders
- The finance team want to minimise investment in stock to maximise the liquidity of the business- hence their focus is on minimised inventory levels
- Management simply want to maximise profitability
Without clear and open communication between each of the teams, the supply chain department face an impossible task of keeping everyone happy!
Effective internal collaboration is about breaking through these barriers to bring different teams from across the business together. In reality, however, this is often easier said than done!
Thankfully this is where Sales and Operations Planning (S&OP) comes into play!
What is S&OP and how can it bring harmony to your business?
According to Wikipedia, sales & operations planning can be defined as the following:
“…an integrated business management process through which the executive/leadership team continually achieves focus, alignment and synchronisation among all functions of the organisation.”
But what does this mean in the context of inventory and supply chain management? In essence, S&OP is all about pulling teams from across the business together to co-ordinate the needs and requirements of every department.
In order to establish a clear focus, and create a platform for open dialogue, an S&OP process is typically made up of 5 key areas:
In order to establish a clear focus, and create a platform for open dialogue, an S&OP process is typically made up of 5 key areas:
- Assortment review- defining what items should be stocked
- Demand review- creating robust forecasts based on historical demand
- Demand validation- enriching the forecast with current market intelligence
- Inventory & supply alignment- determining the most cost-effective steps to take in order to fulfil demand
- Management review- provide the direction and ensure all decision-making is well aligned
By creating a structured process where the needs and expectations of every department can be rationalised, the sales and operation planning process is designed to help businesses manage conflict in the decision-making process. Ultimately, by ensuring that all inventory and supply chain decisions are made in line with the goals of the wider organisation, the whole business becomes better positioned to make more strategic decisions.
How can internal collaboration mitigate the risk of costly mistakes?
Every process that involves people is subject to human error. However, in inventory and supply chain management the consequences of even seemingly small mistakes can have a far-reaching impact across the business. While it is not possible to eradicate these errors completely, encouraging internal collaboration can go a long way in preventing avoidable mistakes.
Take for instance over-ordering: the cause of this issue may be the result of something innocent such as a poorly constructed forecast or even a typo on a purchase order. In a scenario where internal teams do not openly communicate with one another; the mistake can be easily missed. As a consequence, no one realises the error until a huge surplus of inventory arrives at the distribution centre.
The first to be impacted is the operations department as the warehouse team struggle to find space to store all of this stock. However, it does not take long until the finance, marketing, sales and management teams have to take action in response to excess stock: A huge amount of fuss for the sake of a very small issue!
In a scenario where a robust S&OP process is in place, the initial issue should be identified and rectified long before the excess inventory arrives at the warehouse doors. Even if the problem is missed by one team, the beauty of the S&OP process is that there are multiple opportunities for the issue to be flagged and acted upon.
But how can internal collaboration help increase sales and profitability
Cutting costs through minimising errors is just one side of the story. The real value of internal collaboration is in exploiting every possible sales opportunity.
Imagine that the sales team is on the verge of closing a huge deal: unless this is communicated effectively across the organisation, when the deal is eventually closed, the business may not be ready to satisfy the additional demand. As a consequence, the new customer may face availability and service issue right from day one!
Likewise, in the event of promotional activity: if there is no way to notify the business of the potential impact of an upcoming promotion, this could have disastrous consequences. After all, there is little point in the marketing team investing time, money and effort into advertising special offers if the business has insufficient levels of inventory to satisfy customer demand!
When teams work in a siloed fashion, it’s easy for this information to slip through the net. However, an effective collaborative process such as an S&OP process enables businesses to capture and enrich their operations with marketing intelligence. This, in turn, means businesses can ramp up orders to ensure the inventory is available as and when it is required. Ultimately, by helping teams to better position themselves to fulfil customer demand, businesses are able to increase revenues and therefore profitability.
Author: Scott Curtis
Pre-Sales | Supply Chain , Category Management , Space & Assortment Optimization at Slimstock UK