When I need inspiration I normally go to TED. I can normally find a topic that is peripheral but pertinent. Such was my quest with “collaboration”. I believe very strongly in the value that collaboration can bring to massively outsourced supply chains such as we see in electronics and apparel. But what is collaboration and what value does it bring?
All too often what we see as progress in collaboration is an exchange of data, perhaps on a more frequent basis, using EDI, when really collaboration is about working together to achieve a shared objective, but perhaps not a common goal. By that I mean each party is playing a part (their individual goal) in reaching the shared objective. Watching two fascinating talks on TED titled “Deborah Gordon digs ants” and “Howard Rheingold on collaboration” helped me to frame this discussion.
Ants do indeed exchange “data” with each other, but somehow they are able to determine which task to perform that is in the best interest of the colony, changing their roles on an as-needed basis. People went from hunting rabbits through individual action to hunting mastodons through collective action. In other words, collaboration is a lot more than exchanging data using EDI. Or is it? A search of the internet brings up the following definition for “collaborate”:
col•lab•o•rate (k -l b -r t)
intr.v.col•lab•o•rat•ed, col•lab•o•rat•ing, col•lab•o•rates
1. To work together, especially in a joint intellectual effort.
2. To cooperate treasonably, as with an enemy occupation force in one's country. I think this definition brings together the ying and yang of collaboration very neatly.
On the one hand we see collaboration as something positive that will bring mutual value. On the other hand we view collaboration as working with the enemy to the detriment of our own group.
What I find fascinating is that the same action can be perceived to fall in either category depending on the perceived objective and the level of trust one has of the party with which one is collaborating.
The conclusion I came to is that the real barrier to collaboration is not technology, but trust. This came out loud and clear in a recent discussion titled “What’s happened to CPFR” in the Institute of Business Forecasting (IBF) group on LinkedIn (membership required) that was started by a guest blog by Lora Cecere of the same title on IBF.
For those who may be unfamiliar with the term CPFR it is an abbreviation for Collaborative Planning, Forecasting, and Replenishment which starting in 1995 as a Wal-Mart initiative to improve the efficiency of planning and replenishment between retailers and suppliers. Clearly collaboration is at the very heart of this initiative.
The VICS organization has been promoting CPFR for a number of years, which is where I found the diagram below. Notice the x-axis of “Time degree of trust and complexity”.
As one commenter in the LinkedIn group states:
I tried CPFR with one of my biggest customers. It was failed before it started to work. The customer's only interest was to put all the risk/cost on my side. They even didn't want to be [bound] by their own plan.
Where’s the trust in that statement! Another commenter on the LinkedIn group, whom I presume works for a retailer, states (with minor edits from me):
I don’t think CPFR can work... Retailers also don’t receive any info from the consumers of what and when they will be purchasing. I think [the] process [should] start [with] the “Voice of the Customer”. … ( I want to find the product I am looking for on the shelve and buy and take it home if possible).
To bring it all together a 3rd commenter stated that:
… forecasting and planning process is used to set sales targets, rather than predicting demand…
Lora Cecere’s opening statements are also very direct.
Go to any supply chain conference, and you will hear it. Yes, the term collaboration is bandied about. It is over-used and often over-hyped in discussions largely without meaning. So, what does it mean? And, what happened to the supply chain collaboration initiatives of the 1990s? Let’s start with the definition. The greatest success in supply chain relationships is when true collaboration happens. What does it look like? It is a when a sustainable win/win value proposition. Six elements are required: resources, skills, joint vision, leadership, a plan, and aligned incentives. The problem is that the so-called “collaborative programs” of the 1990s focused solely on process missing the mark on these six elements. The tenants of VMI and CPFR were well-intended, but they fell short in building true collaborative relationships.
And yet the potential value is enormous in terms of both reduced inventory and in terms of supply chain agility, not to mention the cost of ‘policing’ the supply chain relationships. The concept of the Bullwhip Effect has been around for 50 years now, having been defined by Jay Forrester in 1961 in his seminal book ‘Industrial Dynamics’. What amazes me is that the central lesson learned from the exercise is that end-to-end visibility, in other words a rudimentary form of collaboration, has an enormous positive effect on the efficiency of the supply chain.
So is it really just power and control, or lack of trust, which is preventing the adoption of this core learning? And yet the evidence is difficult to refute. In an article titled “Supply Chain Management Application Trends, 2010” which was published by Gartner on Nov-30, 2010 (subscription required), the authors Dwight Klappich and Chad Eschinger included the following diagram, clearly indicating a much lower level of interest in “Inability to coordinate and synchronize end-to-end supply chain processes” (in other words cross-company collaboration) than other areas, although “Lack of internal, cross-functional collaboration and visibility” is clearly an opportunity for collaboration within the 4 walls of an organization.
What really jumps out at me in the diagram is that the biggest issue is “Forecast accuracy, demand variability”, exactly the point raised by one of the LinkedIn commenters. But didn’t the Bullwhip Effect show 50 years ago that visibility and collaboration across organizational and functional boundaries, particularly with respect to the demand signal, leads to a far more effective and efficient supply chain?
In a recent conversation with Lora Cecere we agreed that our guestimate, based upon discussions with customers, is that the inquiry-to-quote-to-order process, in other words the decision process, often takes longer than the order-to-delivery process, in other words the physical process. How sad is that? This is where a great deal of the agility can be extracted from the supply chain processes, especially when we hear of customer expectation of shorter order lead times. George Stalk was writing about time-based competition 20 years ago in which he captures the basic tenets of time-based supply chain inefficiencies in the following 4 rules:
- The .05 to 5 Rule Most products and many services are actually receiving value for only 0.05 to 5 percent of the time they are in the value-delivery of their companies
- The 3/3 Rule The waiting time has 3 components, which are the time lost while waiting for: - Completion of the batch a particular product or service is part of - Completion of the batch ahead of the batch a particular product or service is part of - Management to get around to making and executing the decision to send the batch on to the next step of the value added process
- The ¼-2-20 Rule For every quartering of the time interval required to provide a service or product, the productivity of labour and of working capital can often double, resulting is as much as a 20% reduction in costs.
- The 3 x 2 Rule Companies that cut the time consumption of their value-delivery systems experience growth rates of 3 times the industry average and 2 times the profit margins
I wonder how much of the lack of adoption is due to people being used to the ‘open’ world provided by the internet? I think that the First Things Monday blog (registration required) of Dec-12, 2010 titled “Reader Response to ERP in the Cloud” by Dennis Gaughan goes quite a long way to suggest that social media concepts combined with cloud computing are beginning to increase the level of interest expressed by enquiries: They would like to see applications that blended business processes from ERP with social networking technologies and the cloud to truly deliver a new way of collaborating with their trading partners. To quote one reader, "The power of a supply chain which identifies and allows various sourcing options based on product availability, right now, is compelling." And yet there is an argument raging between Dennis Howlett and Andrew McAfee.
I commented on Andrew’s blog with reference to process/decision vs physical lead times. Dennis is arguing, I believe, that trust is a major barrier to adoption of Enterprise 2.0, or Social Business, concepts within an organization, let along across organizations. Andrew McAfee on the other hand points to real examples where value and trust have been delivered by Enterprise 2.0 technology, although, unfortunately, none of his examples are within the supply chain space. I don’t believe these positions need to be mutually exclusive or diametrically opposed, or argued quite as ‘loudly’ as they are by Dennis and Andrew.
I think people largely come from different experiences and some are very distrustful of all things electronic let alone on the internet. As an example I will use my wife’s resistance to TiVo. She is a classic example of someone who should not be given a universal remote. In 2003, when we first got TiVo, she had only just mastered setting timed recordings on the VCR. I knew that presenting her with the TiVo remote with about 25 buttons would be the wrong approach. Instead I showed her what she could do with TiVo by recording films with actors that she liked, without having to page through the 120 page TV guide. Once she saw this value she was willing to tackle the complexity of the TiVo remote and expanded her use to much more complex use of TiVo.
Too many of us technologist (yes, I am one too) start with the cool technology stuff, forgetting to start by articulating and getting buy-in to the business benefit. Put differently, in building trust that the collaboration is of both individual and mutual benefit, and that technology is not a barrier but an enabler. So I am optimistic that a combination of unique circumstances of both business drivers and available technology will lead to increased adoption of collaboration within the supply chain space, both within an organization across functional boundaries, and across organizational boundaries.
I believe the diagram above from the Gartner article supports the business imperative in spades. After all, the challenge of “Lack of internal, cross-functional collaboration and visibility” is tied directly to S&OP because an absolutely key aspect of S&OP is internal, cross-functional collaboration. And we hear from all analysts that S&OP is the top enquiry by far. I also think that we need to restate CFPR as S&OP across organizational boundaries. The business case is there. What we need to do is to provide tools that make the collaboration feel natural. I think that the very rapid adoption of social media concepts inside the workplace, such as Salesforce Chatter, indicates that the users are ready.
To repeat, the conclusion I came to is that the real barrier to collaboration is not technology, but trust. How can we build the trust to make collaboration a reality?
This should be an article as a basis to rethink the hierarchical boundaries that most companies have created and still don't understand why they are struggling in the current market and evolving market place.
Besides the emphasis on developing trust to enable collaboration, your perspectives also clearly confirm my views on Knowledge Convergence = mix of Innovation, Marketing, c-SCM and have to admit we have to add to that: trusted collaboration across organizational boundaries = EXTENDED ENTERPRISE approach.
Have an ACCELERATing day
Working in supply management, we were under typical pressures to reduce costs, shrink lead times, improve inventory turns and improve on-time delivery to our customers. We had already established some tactical EDI automation but were looking to achieve better results by making our key suppliers an extension of our business.
Our initiative was to provide suppliers with a detailed component forecast in exchange for a four-week lead time, regardless of the actual time the suppliers needed to acquire raw material, build and ship their parts. We already had long term agreements in place and the suppliers had a level of comfort (trust) that they would get our business as long as they met various quality, delivery, cost and service objectives.
We “sold” the new approach by promising that the forecast always represented the best information we had available and it was the same information we used to execute inside our four walls. Everyone knew we had frequent and inexplicable changes in demand but, with this approach, we would no longer issue firm purchase orders through extremely long lead time horizons and then reschedule them countless times before the suppliers actually shipped the parts - saving us and the supplier the wasted effort of trying to chase the changes. We also guaranteed protection in the event demand dropped significantly so the suppliers were free to utilize the forecast to buy raw material and start production in lots of their choosing prior to the four-week firm window. We still worked with them to eliminate waste in their processes and achieve long-term reductions in cycle times but we also needed an immediate change in how we worked together.
That all sounded good as long as demand was on an increasing curve but many suppliers were skeptical because of failed initiatives in the past where promises were not kept and they got stuck with obsolete inventory. The key was for us to follow through on our promises when situations arose and ensure the supplier was not damaged by doing the right thing to support our forecast. We had a few examples early on that helped prove our integrity and once that happened, many of our suppliers started to operate as a true extension of our business by making better mid- and long-term decisions with raw material and plant capacity to support us as a customer. We also opened up communication lines between the suppliers and our master schedulers which provided for quick answers or assurances regarding anomalies in the forecast or as a sanity check before suppliers made decisions requiring significant investment.
Suppliers generally have longer memories than their customers so you must be prepared to repair the damage from the past and establish trust for the future before real collaboration can emerge, take root and help deliver next-level performance.
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