What is a supply chain? If you’re in retail it’s your suppliers, and their suppliers, and in turn, their suppliers. If you’re a primary producer, it’s your customers, and their customers. Some organisations sit at the start of a supply chain, others at the end, with most businesses being somewhere in the middle – having both customers and suppliers. Until recent years, the workings of a typical supply chain have been somewhat haphazard - and far from collaborative. A good local example would be ice-cream in supermarkets. In the 1970s there were numerous ice-cream manufacturers here, and the product itself was so lacking in distinction that the term ‘vanilla’ became a descriptor for any featureless commodity product.

Supermarket retailing then was still in its infancy. Supermarkets were for the most part sole traders, and purchased from regional suppliers. In the late 70s, 80s and 90s the dynamic changed. Supermarket chains emerged and their buying power increased. As more chains started, price competition followed. Once consumers got a taste for cut price ice-cream, they were hooked and wouldn’t pay more. The supermarkets then pressured their suppliers for cheaper ice-cream. No longer forced to deal with local manufacturers, they’d buy their 2 litre vanilla tubs from the ice-cream maker that gave them the best price.

Their suppliers, in turn, realised their 2 litre tub business was a dead end. Instead, they concentrated on pushing the price of ice-cream back up the supply chain, by adding value. Moritz and Movenpick appeared and the ‘you squeeze me, I squeeze you’ circle continued. Was it good for anyone’s business? Judge for yourselves, but today there are only two supermarket operators in New Zealand, and most of the ice-cream manufacturers from the 1970s are out of business.

A new wave

At collaboration solutions providers Lawson, managing director Dougie Beck says this type of combative supply chain scenario was typical of many industries during the 80s and 90s, but he says it’s unlikely to be a workable model in the future. “What collaboration actually means,” he says, “is working together as a supply chain. It’s about all the individual members of that supply chain saying ‘we have a common problem here and if we work smartly together instead of throwing the problem at each other, we’ll all benefit’.

Beck says a dominant theory of future competition is the scenario of supply chains competing against other supply chains. “It won’t just be this producer against that producer,” he says. “Or this retailer against that retailer. It will be supply chains against supply chains - and the most highly optimised supply chains will be the ones that win.”

For most companies, streamlining and optimising their internal business processes won’t be enough to stay ahead of the competition, says Beck, and complete supply chains need to be planned and optimised to ensure advanced service levels. He points to the airline industry as a good example of where supply chain optimisation is heading. “It’s already well advanced in that sector,” he says. “At their core, [airline alliances] oneworld and Star Alliance are essentially two competing supply chains. What they’ve done is take out the inefficiencies of every airline trying to fly every route.

“So for a customer at the end of their supply chain, if you want to fly to the UK for example, you’ll fly on Qantas to Singapore and then on British Airways to London. It means British Airways doesn’t have to fly half empty from Singapore to Auckland, and Qantas doesn’t fly half empty from Singapore to London. It’s one of the best examples of strategic supply chain alignment around. The individual airlines previously competed with each other but now have formed a collaborative business relationship where they share resources and you end up with two supply chains competing against each other.” For the customer in the above supply chain model, the process needs to be seamless. For the system to work they must be able to buy one ticket, and fly to points A,B, C and D – perhaps, in the case of oneworld, on Qantas, British Airways, American Airlines and Cathay Pacific – hassle free. “And for that to happen,” says Beck, “the airlines have to have their systems interconnected.”

Optimising the chain

So collaborative solutions do not mean simply doing what you have always done. Rather, collaboration means altering the essence of the relationship between business partners. “The use of business tools such as ERP systems are vital to ensure organisations have control of their own processes,” says Beck. “But beyond that, supply chain planning and forecasting tools like those available with our Movex solution, are enabling companies to go beyond their own boundaries and communicate within their supply chain. The internet has given organisations the potential for true collaboration within their overall supply chain.

With Lawson’s significant experience in the FMCG, fashion … apparel and distribution sectors, Beck says Movex tools are available to cover all aspects of the supply chain planning process. These include collaborative demand management, supply chain design and optimisation, yield optimisation, multisite planning, and advanced scheduling. “In the case of the FMCG industry,” he says, “getting your planning right is especially challenging due to short lead times, low margins and frequently the seasonality of stock. What’s important for companies, when forecasting in that sector, is to be able to look at their likely demand by looking at their customers systems and beyond that to their customer’s customers systems. Supply chain optimisation is all about gaining access to that information - not having to wait for it to percolate its way through four or five intermediaries.”

The highly competitive fashion… apparel sector provides another example. “Let’s say there’s a T-shirt manufacturer with extra capacity,” says Beck, “and a broker somewhere secures an opportunity and needs T-shirts made. If everybody in an apparel supply chain is hooked up, that broker can log into the supply chain and see where extra manufacturing exists – the T-shirt manufacturer hasn’t actually had to tell anybody they had extra capacity, the information is available to all the supply chain partners. In this case a deal is done and the supply chain is optimised. So it’s all about providing access to that information on a much wider scale. That’s what collaboration is - freeing up resistance to enable information to flow - not just within your business but between businesses.”

Getting started

So how do you get started towards forming a collaborative supply chain? Think big, start small and be ready to scale fast, is a good way to approach it says Beck. Senior management must support the vision, he says, and be prepared to share the necessary information with trading partners, as unlike supply chains of old, the collaborative approach requires trust between parties. In terms of thinking big, starting small and scaling, Beck says this approach fits well with Movex’s core value proposition.

“With Movex implemented, organisations have a technological platform that allows them to trade electronically across the internet,” he says. “The question is ‘when will their supply chain partners be ready to trade and interact that way?’ With a Movex solution they can switch it on today, or in 12 months time, or in two years time. There’ll be no major reengineering required, because they’re already operating a solution that will support a collaborative supply chain scenario, as and when their partners are ready.” Compatibility is not an issue says Beck, as Movex is written in Java. “It can run on any platform,” he says. “As far as software development goes, Lawson is an IBM Business Partner and we’re committed to the IBM WebSphere technology. The whole collaboration concept and using the internet as a business medium depends on open standards technology so that’s what we’re doing and that’s why our relationship with IBM is so strong.”

But with a business idea as new as supply chain optimisation, there must be implementation challenges? Acknowledging that the ERP industry has had its share of failed installations, Beck says Lawson’s business model helps “de-risk” the purchase decision for clients. “With Lawson, you’re dealing with one entity,” he says. “It’s our software and we do the implementation, rather than selling it on to third parties. We do the process analysis and design work for clients, sort the hardware, configure the software, get it working live and provide ongoing support. We’re a one stop shop for a supply chain solution and that makes a big difference for clients - as they have one accountable organisation managing the total project for them.

For more information on optimising your supply chain, contact
Dougie Beck Lawson
Phone: 09 307 5960
Email: dougie.beck@lawson.com.au

December 2003