Collaboration: The supply chain reaction

Along with requiring tools for internal communication, businesses need solutions for working with partners outside their firewalls. Anthony Plewes looks at the promise and challenges of this space.

Read more stories on collaboration in silicon.com's special report.

Modern supply chains are highly complex systems. The proliferation of just-in-time manufacturing and stock minimisation strategies means that companies all along the supply chain need to accurately forecast demand to meet supply. It's for these reasons supply chain management (SCM) systems became so de rigueur during the 1990s.

Optimising the supply chain does not cease at SCM, however. Increasingly, collaborative working tools are helping to find even more efficiencies.

David Coleman, managing director of analyst firm Collaborative Strategies, insists that "pushing collaboration out to the supply chain is very important. In the 1990s most collaboration was used inside the firewall, but now organisations are finding that they can gain most benefit outside the firewall."

During the dot-com boom, collaboration in the supply chain often manifested itself in groups of suppliers and purchasers joining together to create an electronic marketplace. Since then, though, most e-marketplaces have faded from view. What they lacked was a dominant force, pushing through a standardised process for transacting.

The most successful supply chain initiatives have tended to be driven by the largest player in the value chain. According to Nikos Drakos, research director at market analyst house Gartner: "The relationship is often uneven and there is usually one dominant partner and they will insist that processes are done a specific way. Their partners have to accept the terms of engagement if they want to work with them."

Among other things, collaboration helps retailers and suppliers accurately judge their stock requirements and forecasts. Lee Bamber, senior supply chain consultant for SAP UK, explains that "Without collaboration each company will have their own forecasts, but these don't usually tally." Colgate and Walmart, for example, do their forecasting jointly allowing them to incorporate data such as promotions for a collaborative forecast.

The next step up from collaborative forecasting is vendor-managed inventory, an approach being adopted by many big retailers. "The technology is straightforward, but changing the business process is difficult," says Bamber. "There is the very real issue of trust, because you are exposing commercially confidential and very valuable information to your suppliers."

For many companies it's enough just to share data, for example providing suppliers with the retailers' stock levels to help them plan their supply. But given the dominance of big retailers, if they decide that all their suppliers need to trade using supplier-managed inventory, then suppliers will have little choice to follow the approach if they want to trade with them.

Supply chain collaboration costs are also falling, thanks to collaborative tools. The traditional approach of EDI VANs was often prohibitively expensive for smaller suppliers, making it hard for them to trade with the larger retailers. Chris Tracey, Biztalk product manager for Microsoft in the UK, says that VAN costs typically make up some 75 per cent of the communications costs between suppliers.

The House of Fraser is using Microsoft's Biztalk to pass trading messages across the firewall. "This approach allows the House of Fraser to lower the cost of entry for the other suppliers," explains Tracey.