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Collaborative Strategies & Tools Reduce Overall Supply Chain Inventory


From the February 2001 edition of Managing Exports

It's easy to dismiss collaboration as another buzzword in the lexicon of today's business world. However, a recent survey of 2,000 U.S. manufacturers not only identifies the huge impact collaboration has on the supply chain but also reviews the practices that are most effective in reducing inventory levels. High Performance Value Chains (Cap Gemini Ernst & Young,, in collaboration with Industry Week) finds that ¤innovation, sharing specific types of information with customers and suppliers and improved inventory strategies help to create value chain collaboration.Ë This new study plus the list of new collaboration software offerings (see sidebar) give logistics managers most of what they need to know to begin plotting their strategy in this area.

"As more companies pursue internal models of cross-functional teaming, the types of information being shared between trading partners and the strategies being implemented are the significant differentiators," according to the report's co-authors (Al Youngberg, vice president, global supply chain practice, al.youngberg@us.cgeyc.-com, and Kevin O'Laughlin, vice president, global supply chain practice, kevin.o'laughlin@us.-cgeyc. com). Not surprisingly, the information most shared with suppliers is purchase orders, followed by inventory and production information However, sharing data with customers takes on a ¤dramatically different perspective,Ë they find. The most shared data includes new product development information, followed by production, inventory and sales order information.

Value chain collaboration involves gaining trust of partners and sharing reliable data.

That's a major conclusion of the survey. "The findings strongly show that companies with top-performing value chains share a wider range of information with their customers and suppliers than do those with poor-performing value chains," Youngberg and O'Laughlin report. The value chain survey verifies that collaboration and information sharing deliver a wealth of benefits, such as timelier delivery of goods, reduced inventory costs, and enhanced product quality using the knowledge of all partners. For example, 51% of respondents in excellent or very good chains report the tangible benefit of inventory reduction. Only 18% in poor chains so report. Overall, 35% of respondents say they have reduced inventory through collaboration (see Figures 1, 2, and 3).

Collaborative inventory strategies reduce value chain inventory levels. ¤Collaborative inventory strategies are effective in reducing inventory levels when information replaces inventory,Ë maintain Youngberg and O'Laughlin. Information becomes available either by sharing between suppliers and customers, or because collaborative strategies allow decisions requiring requirements to be delayed until information regarding real demand becomes available, they explain. The most commonly used inventory management practices according to the survey are just-in-time delivery, vendor-managed inventory, and real time inventory tracking. ¤Some collaborative inventory strategies, such as VMI, may not take inventory out of the value chain, but may merely shift the ownership of the product, thus increasing inventory levels for one party and decreasing them for another,Ë they caution. They note other collaborative inventory reduction strategies, although at present they are ¤less widely embraced.Ë They include:

  • Collaborative planning, forecasting and replenishment (CPFR).
    One fourth of the respondents say they practice CPFR, in which both supplier and customer share information on demand and product availability, so each can plan more effectively.
  • Cross-docking.
    Product is moved directly from the receiving dock to the shipping dock without placing the product in storage. Cross-docking requires real-time communication and information from suppliers, as the receiving function must know what is on a shipment before it arrives.
  • Merge-in-transit.
    Order components from suppliers are brought together at a merge hub, consolidated, and then shipped to customers. Because final consolidation takes place immediately before shipment to the customer based on known customer requirements, there is no need to maintain inventory of consolidated products.

Inventory reductions are most noticeable in the top quartile of the survey responses. A small number of companies in each industry that are very effectively implementing collaborative inventory strategies. In each case, they note, these represent the industry's top performers, which are ¤enjoying a significant competitive advantage due to the adaptation of these strategies. For example:

  • Automotive/industrial products.
    In this sector, collaborative inventory strategies such as cross-docking with suppliers result in a significant reduction in inventory levels. The survey shows that inventory turns for the top quartile exceed 40 turns for those using cross-docking versus 25 turns for the entire automotive response (see cover illustration). Similarly inventory turns for the top quartile of the industrial products industry exceed 13 for those using cross-docking, compared with 10 for the entire industry response.
  • High technology.
    The companies with high performing chains are two to four times more likely to share multiple types of information. Less widely practiced than other inventory management strategies, cross-docking with suppliers does result in inventory reductions among the high-tech companies. Those companies practicing merge-in-transit with suppliers also realized significant inventory reductions. The top quartile for the industry as a whole reported inventory turns of 12 or greater. The top quartile of those companies using merge-in-transit report inventory turn levels of 32 or greater. That represents almost a threefold reduction in inventory levels using this collaborative strategy.
  • Retail/consumer goods.
    Information sharing is a major component of the strategic imperative for companies in this sector. Purchase orders, product information, inventory levels and sales forecasts are the top information items shared. Within consumer goods manufacturing, several collaborative inventory techniques are used. They include: JIT deliveries, cross-docking, resident suppliers, VMI, consignment, synchronized demand/supply planning, and CPFR. The study shows that some of these strategies result in real inventory savings across the supply chain, while other strategies merely decrease inventory at one point and increase it at another.

New Products Spark Logistics Managers' Interest at APICS 2000

For logistics managers, the holiday shopping season came early as software providers put on an awesome display at the APICS 2000 International Conference and Exposition. Leading the way were a multitude of collaboration software and a variety of planning and supply chain products. Among those that caught ML's attention are the following:

eCAS version 2.0 automated supply chain collaboration solution for small and midsize organizations. CastaLink's (Mountain View, Calif; www.castalink. com) Web-based eCAS (electronic collaborative application solution) suite enables all members of the supply chain to communicate in real time and collaborate from anywhere. It offers tight integration of customer ordering, supplier commitments and collaborative planning. Among its seven modules are eOrder, eMessaging, eAnalysis and eSupply. eCAS is delivered to users via the Application Service Provider model.

OneWorld Advanced Planning an Internet-de-signed solution for effective collaboration. J.D. Edwards & Company's (Denver; latest version of Advanced Planning includes the Demand Collaboration module that allows casual remote users to log-on over the Web to view and/or modify forecasts. Spreadsheets can be saved locally and later synchronized with the central forecast. Demand Collaboration allows companies to share real-time, accurate and appropriate information with their field organizations. as well as trading partners. a tool for on-line B2B collaboration. Prescient Systems (West Chester, Pa.; enables manufacturers and distributors to collaborate through a dynamic e-business network, allowing the exchange and optimization of critical trading information. Powered by the organization's Collaboration Engine, a suite of collaborative templates, and Internet-hosted Prescient XEi supply chain modules, such as Demand Planning and APS Workbench, facilitates the integration of people, process and data within an enterprise and across corporate boundaries.

TeamWeRX enterprise portal provides B2B e-collaboration capabilities. The MAPICS (Alpharetta, Ga.; portal enables manufacturers to create a seamless virtual enterprise that integrates the entire value chain. The solution can be tailored to allow manufacturers to aggregate business content and applications within a common collaborative framework, providing the entire value chain with access to personalized views, discussion threads, collaboration on any object and task and project management

Supply Planning added to Logility Voyager Solutions suite. Logility's (Atlanta; Supply Planning advances traditional distribution resource planning and planning systems by applying advanced financial and optimization capabilities to sourcing decisions. It addresses business issues concerning all aspects of searching and deploying products and materials throughout the supply chain to improve asset optimization. Among considerations: inventory, storage capacities, costs and other operational constraints. It also offers online exception management.

PeopleSoft 8 Supply Chain Planning announces analytic application for collaborative forecasting, planning operations. PeopleSoft's (Pleasanton, Ca-lif.; pure Internet workbenches enable businesses to publish supply plans in collaboration with customers, suppliers and channel partners. The analytic applications include collaborative forecasting, distribution planning, capacity planning, and material planning. PeopleSoft 8 Supply Chain Planning also has several new features, including a graphical production scheduling tool, visualization of interconnected supply and demand orders across the enterprise, and enhanced planning solvers. There's also user-defined OLAP cubes for analyzing inventory strategy scenario costs based on service levels, order policies, forecast error and target inventory turns.

VendorSite 3.0 manages order-through-pay-ment processes of direct material supply chain. Eventra's (Milford, Conn.; latest release of its Internet-based supplier relationship management solution includes enhancements for buyer/ planners. Among them: ability to track delivery and commit performance as part of the Shipment Performance Module, and the ability to modify previous advance ship notices. A suite of add-on modules covering key areas of the inbound supply chain is available

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