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2011

Last week I started the discussion on measuring benefits and the two types, or groups, of benefits;

 

  • Hard Benefit ROI – For instance, improved collaboration will support efficient shipment consolidation across suppliers and thereby reduce the LTL shipments by 30% which will reduce the overall transportation costs by 5%.
  • Soft Benefit ROI – For instance, improved collaboration will increase the flow of information and simplify shipment tracking.

 

This week I thought it would be helpful to discuss some of the benefits that can be achieved through collaborative forecasting and planning.  I think that everyone can agree that there are many benefits that can be achieved through improvements in collaboration and communication with your suppliers and partners within your extended supply chain.  As I mentioned in my last article I saw in a recent study that said that only 7.5 percent of key suppliers and 6.3 percent of key customers are highly involved in collaborative forecasting and planning process!  This indicates that the opportunities for improvements through collaboration and improved communications in the extended supply chain are still in their infancy.  The challenge, however, is to identify and segregate the benefits that are ‘hard’ (can be measured for instance through cost savings) and ‘soft’ (more general types of benefits that are difficult to attach a financial savings).

 

So, what types of benefits should you expect from implementing a collaborative forecasting and planning process?  Every organization is different and the improvements must be focused on the specific areas required by the individual situations.  This will bring different benefits and amounts to the table, depending on the individual needs and costs of each organization. These improvements and benefits should be developed as a part of a continuous improvement program in order to ensure that the improvements can be focused in the areas that provide the greatest benefits.

 

Here are some suggestions for areas to evaluate for benefits;

 

  • Inventory – Improved forecasting and planning can have a dramatic impact on your inventory and improve the turns!  A simple reduction of 1% or 2% in inventory carrying costs can bring dramatic reductions to your bottom line!  This requires a collaborative approach and sharing forecast information from both the sales and the manufacturing perspective in order for the full benefits to be achieved.   
  • Transportation – This is another area that can provide dramatic improvements and reductions in costs through consolidation of shipments. These improvements can take similar courses for import and domestic shipments; a reduction in less-than-container loads for imports and reduction in the less-than-trailer load shipments for domestic shipments.
  • Customs / Global Trade Management – Don’t overlook the potential for savings provided through improved collaboration and partnerships with import suppliers and shippers that can be realized with improvements in managing the global trade customs paperwork required for all import shipments.  There are two areas for improvement that can be achieved in this area; reductions in delays and handling charges for delayed or incomplete paperwork in the ports (the delays can incur additional costs at both the import and domestic ports), and, reductions in the effort and potential customs fines incurred due to inaccurate, late or incomplete paperwork!
  • Receiving and quality control – Collaboration and forecasting improvements will also provide the opportunity to improve the flow and handling through improved scheduling when product is delivered to your distribution center.  This has the potential to improve your yard management with trailer coordination, scheduling of shipments to reduce wait time and even eliminate trailer drops and pick-ups, which incur additional costs. Improved delivery coordination will also improve the flow through the receiving area and allow for improved resource scheduling and planning in receiving, QC and backstock management.
  • Supplier performance management – Improved collaboration with supplier partners will provide the opportunity to develop service levels using performance indicators that will drive continuous improvements into the process, and partnerships, for everyone.  Key areas to start the performance management program are product quality, order quality and delivery quality.  Developing a set of service levels and standards in these areas will not only strengthen the partnership through the execution of clearly understood and accepted standards, they will also provide the basis of a robust continuous improvement program that will provide benefits to all partners in the relationship.  Utilize the service levels and performance indicators to develop scorecards to rate and evaluate your partners on an equal basis to help you identify areas of strengths and improvements.

 

There is one additional requirement to take into account, and that is ‘How do you measure the ROI?’  In fact, this is at least as important, if not more important, than defining the potential benefits.  As part of your exercise to evaluate and determine the benefits, make sure that you also evaluate and define how, and when, you can measure the ROI.

 

Now for the audience participation portion of this program……

 

How do you justify your initiatives?

 

Have you been challenged to deliver hard benefits when submitting initiatives for approval?

 

Would you please provide examples and types of hard benefits you have identified in collaboration and communication to help the community justify their initiatives? 

Just recently I’ve come to a realization that was quite surprising for me, benefits definition and ROI definitions are not common practice for some organizations.  I must admit that this was a revelation for me and I was a little jealous!  This will come as repetition for some of you, and I apologize if it is, but please bear with me because I would greatly appreciate your feedback and suggestions regarding this topic.  I think this is an extremely important topic, especially in these economic business climates.

 

I think that everyone can agree that there are many benefits that can be achieved through improvements in collaboration and communication with your suppliers and partners within your extended supply chain.  This can be another discussion topic in itself; the expanding definition of the extended supply chain and partner relationships!  In fact I saw in a recent study that said that only 7.5 percent of key suppliers and 6.3 percent of key customers are highly involved in collaborative forecasting and planning process!  This indicates that the opportunities for improvements through collaboration and improved communications in the extended supply chain are still in their infancy.  The challenge, however, is to identify and segregate the benefits that are ‘hard’ (can be measured for instance through cost savings) and ‘soft’ (more general types of benefits that are difficult to attach a financial savings).

 

Some people may find these categories as uncharted territory but in this economy and business environment you are probably finding that initiatives will be approved more readily when hard benefits are identified and delivered by the initiative.  You will also find that if you focus on defining hard benefit ROI for your initiatives it will greatly enhance your reputation!

 

To help to clarify the difference between types of benefits here are some examples –

  • Hard Benefit ROI - Improved collaboration will support efficient shipment consolidation across suppliers and thereby reduce the LTL shipments by 30% which will reduce the overall transportation costs by 5%.
  • Soft Benefit ROI – Improved collaboration will increase the flow of information and simplify shipment tracking.

 

As you can see, the first example is a hard savings, it defines clear reductions in types of shipments that will translate directly into reduced transportation costs.  This benefit is clear, concise and measureable.  In addition to cost savings, hard benefits also include increases in revenue and would require the same clear, concise and measurable standards.  The second example is a soft benefit, it defines general improvements and these improvements are not easily measurable, or attached to a reduction in costs. 

 

So, when your CFO is evaluating initiatives, the ones with clear, concise and measurable benefits will be much more likely to be approved.  The challenge we must address is determination of the hard benefits with the objective of defining benefits that will recover the cost of developing the project in a timely manner.  I suggest that you should target your hard benefits ROI to recover the cost of development within a 6 month to one year time period.  This will achieve two objectives; enhance your reputation with the finance organization and CFO, provide a funding base to support your collaboration and communications strategic initiatives.

 

I hope this discussion helps you in justification of your initiatives.  This practice can surely improve your reputation with the CFO because once you’ve started to focus your discussion on hard financial benefits, and then more importantly deliver those benefits your CFO will quickly come to trust your calculations and the approval process will become easier.

 

Now for the audience participation portion of this program……

 

How do you justify your initiatives?

 

Have you been challenged to deliver hard benefits when submitting initiatives for approval?

 

Would you please provide examples and types of hard benefits you have identified in collaboration and communication to help the community justify their initiatives? 

In my last article I introduced the collaboration and communication opportunities and development promoted by the 3PL industry.  As a recap, my question was - Can the 3PL industry act as a catalyst to increase the collaboration and communication capabilities of their clients by providing a secure ‘clearing house’ for historical market information (business intelligence capabilities), events management capabilities to support management by exception business process automation, and client forecast historical information along with broad market forecast and trending analysis?

 

In this discussion I will expand on that and focus on the potential of the 3PL industry to develop these capabilities and extend the meaning and value provided by a forward thinking 3PL partner.  I believe that the 3PL partner should focus on the value they provide to their partners through a combination of technology capabilities, operational execution capabilities and the extension and promotion of the partner community they support.

 

2 Views of the 3PL Partnership –

  1. The 3PL client view of the partnership and this view focuses on the value and industry capabilities that are provided by their 3PL partner
  2. The 3PL provider view of the partnership and this view focuses on the customer value, industry capabilities, cost containment, customer retention and business development

 

I know that I have glossed over many different viewpoints and values and focus areas in my simple statements above.  My objective in these statements however is to show that on some key areas the views and focus cross over and these views, while limited, also relate to the collaboration, communication, and community development concepts that I will be discussing.  The concept I will be discussing is the 3PL provider supporting a take-off on the cloud and providing ‘Services as a Service’ and comparisons to the values of the cloud concepts and capabilities and how these concepts can be utilized to improve the value of the partnerships for both the provider and customers of the 3PL.

 

I will start with an overview discussing how the 3PL can be compared to the cloud.  The 3PL provider brings to the table well defined interfaces, loose coupling, proper decomposition, common semantics, etc in order to standardize and simplify the integration of new customers.  You can see that these are the same base concepts on which cloud services are based.  To these concepts I would also like to add some software package concepts that I believe are also relevant.  These concepts are the abilities of the 3PL provider to leverage industry capabilities across all customers and the customers’ abilities to leverage industry capabilities without going through the development processes.  This discussion takes the view that the 3PL provides a solution that combines operations, efficient execution, technologies, and partner relationships that provide the intellectual property to develop and deliver efficient and cost effective capabilities. 

 

The traditional view of both the 3PL providers and their customers has been to provide the services in the lowest cost model, in other words they view these services as commodities and the cost improvements are the critical factor.  I propose this is an inefficient model for both the providers and their customers.  When your only value is cost based, there is no loyalty or partnerships developed.  The challenge is that there is no incentive to stay with the 3PL provider when the customer finds a lower cost option. A more sustainable, value added and in the long run cost effective model is the SCM software vendor model that develops a sense of community and partnership to provide additional value over the pure execution capabilities. 

 

In this model the 3PL provider invests in customer engagement management to create a mutually beneficial community of partners that share knowledge and gain additional value through community development of the network.  The benefits of this model are many;

  • Facilitate and develop knowledge exchange opportunities within the community to take advantage of the experiences of the partners within the community.
  • Provides insights and guidance into leading industry trends.  In addition, the power of the community can also provide direction to develop and promote industry trends.
  • Implementation of a Customer Advisory Board to guide and prioritize services and capabilities for the community.
  • An annual conference to share experiences, develop and strengthen relationships within the community.
  • The value add provided by the community encourages the long term relationships between the partners and the community providing value over and above the simple cost model.

 

The leaders in the 3PL industry are moving already in this direction!

 

Now for the audience participation portion of this program……

 

If you are a customer, or potential customer, of a 3PL, what are your key performance indicators you use to measure value?

 

If you are a 3PL provider, what is the focus of your value proposition? 

Can the 3PL industry act as a catalyst to increase the collaboration and communication capabilities of their clients by providing a secure ‘clearing house’ for historical market information (business intelligence capabilities), events management capabilities to support management by exception business process automation, and client forecast historical information along with broad market forecast and trending analysis?

 

This certainly was a mouthful and so you should take a moment to contemplate the individual points I mention.  The concept framework would provide early trending, market shifts, costing analysis/forecasting/savings that would be based on the broad markets that are represented by the 3PL clients.  This broad market information would help to identify and define new industry ‘best guidelines’ that can be most beneficial and provide the greatest value to their clients and partners!  The 3PL could then take the next step and institutionalize these ‘best guidelines’ practices and capabilities into their service offerings to provide additional value-add services for the clients and partners.  This supports the trend towards the imbedded 3PL (4PL) service model and in essence this would enhance the relationship of the 3PL with their clients and partners.  To provide a different perspective to this, I suggest that this can be viewed as a type of cloud model, a Supply Chain as a Service (SCaaS)!  The advantage and value added capabilities provided to the 3PL clients allow them to take advantage of hot industry trends by outsourcing their supply chain management to a partner that is focused on providing the best possible service and value add capabilities.

 

I see this trend in outsourcing the Supply Chain as an area of growth that follows a logical progression of the 3PL industry and services.  The distinct value of this model is that it develops, and takes advantage of, a partner community that supports each other through collaboration.  Each partner within the community brings their ‘secret sauce’ for providing exemplary service in their individual areas of expertise and the partner collaborative relationships provide the framework for the partners within the community to take advantage of the capabilities provided by the community as a whole. 

This model allows the individual partner to focus on the capabilities that make them special, and then utilize the community relationships and flagship capabilities of the partners to support the additional services.  The 3PL would fit into this model as the broker that provides the collaborative framework in a secured environment.  The partners in this model would be vetted by the 3PL to assure the community at large of the capabilities along with the trusted partner status of each individual.  This simplifies and greatly extends the added capabilities to all partners in the community.  In order to be sustainable, this model requires swift action to correct and ‘punish’ partners that may abuse the relationship of the community, the community cannot succeed and thrive unless there are unequivocal steps and repercussions to address transgressions and expel offending partners from the community. 

 

This seems to me to be the logical trend and direction that the leaders in the 3PL market either have started to take and are positioning themselves for the future.  This blends the software, cloud, and services model for supply chain management together to provide a cohesive and valuable supply chain outsourcing model.

 

Now for the audience participation portion of this program……

 

Have you embraced the concept of a partner community where you openly share information among your partners within the community?

How do you currently support your supply chain management requirements?  Do you outsource to a 3PL or do you provide these capabilities internally? 

 

Do you see a benefit to outsource your supply chain management requirements to a 3PL?  Are you planning to evaluate 3PL providers in the near future?

 

Do you currently utilize cloud services to support business needs?  If you utilize cloud services, are your happy with the outcome?

I just saw a story stating that Walmart will provide POS product sales information by markets to their marketing partners for analysis of trends and new products.  This is a great example of the progress and growth of developing partner relationships and the increasing levels of trust between partners that this practice encourages.  While these changes may seem dramatic, and dangerous, to some, I think that this is a natural progression of the market and the realization that the supply chain as it extends from the point of material procurement to the customers consuming is dependent on a chain of partner relationships and interdependencies that succeed on the mutual benefits of all the partners in the chain.

 

This is also an example of the leadership and vision that Walmart brings to the industry to drive partnerships and collaboration forward.  It was not that long ago (maybe 20 years) when organizations refused to share any sales, forecasting and purchasing information with their vendors because of the ‘proprietary’ nature of the information.  The concept of information representing power and only sharing the minimal ‘appropriate’ information necessary to perform a task was the accepted practice.  Now the accepted, or ‘best practice’ is vendor managed inventory.  This provides increased flexibility and spreads the risk across the partners in a shared value proposition with the result of a reduced inventory requirement with a reduction in overstock conditions.

 

This latest development in sharing consumer sales information provides a bookend to the practice of vendor managed inventory and sharing this information and developing the intelligence will benefit the entire supply chain!  The glue that holds these pieces and partnership relationships together in the supply chain is provided by collaboration and communications framework and tools.  The value to the supply chain and the partnerships is provided by the efficient flow and event management that is supported and more importantly encouraged by the collaboration and communication tools.

The challenge, and a critical success factor to achieving value within and across the supply chain, requires a revision in the accepted practice of information collaboration.  The change will be from hoarding information and only providing access when the request is proven as necessary to perform a specific activity to quickly providing open access to information within your partner community with a new rule that abuse of the information will bring quick and painful retribution.  There is one caveat to this revision proposal and that is that there will always be certain financial and customer information that must be protected, the point is that rather than starting from the point of all information must be protected until proven, we should start from a point where only limited information must absolutely be protected and other information will be provided to the partner community until the point when it is abused.

 

I think that we are reaching a point where the level of discontinuous change and market fluctuations driven the acceptance of increased sharing and collaboration.  These changes in collaboration and further development of the partner community will be required to manage and respond to the discontinuous change that constantly buffets the supply chain through natural disasters, political upheaval, transportation cost and new manufacturing and consuming markets being developed.  These changes are already being embraced by the industry leaders and will quickly become a cost of doing business and baseline capability.  This is a very good example of the continuous improvement process that is constantly at work within the supply chain.  This is also why it is impossible for everyone to implement best practices, by their very nature if everyone is doing it, then it is the common practice and the industry leaders have already identified and implemented improvements!

 

Now for the audience participation portion of this program……

 

What is your experience with the benefits, risks and costs of information sharing and collaboration? 

 

What are your thoughts on the collaboration and communication requirements and benefits to the supply chain?

 

Have you embraced the concept of a partner community where you openly share information among your partners within the community?