Managing Downstream Supplier Relationships
During peak demand times manufacturers of consumer products know they have to get it right or else. Many simply miss the opportunity for a significant sales uplift, while others deliver product late, resulting in extensive write-offs and mark-downs.
The ability to match demand and supply across the dimensions of time and consumer preference is increasingly critical. With new product introduction at an all time high and shelf space creeping along at 3% to 5% growth, retailers have very little patience for manufacturers who can't meet their needs. Upstream collaboration between manufacturers and retailers is not enough; what is critical now is aligning the speed of downstream information with the velocity of the business.
From Wal-Mart's early days of Retail Link, to online trading capabilities of the 1990s, to building a common product-speak in UCCNet and Transora to GS-1, significant investments are being made in manufacturer-supplier alignment. For many, these investments have yielded good results and have significantly improved relationships. Yet, the frequency of shelf shortfalls indicates that there is still room for improvement.
Collaboration in the 21st century must be a tightly coupled relationship, not only between retailer and manufacturer, but also between manufacturers and all downstream suppliers and stake holders; including logistics, raw material, sub-contractors, packaging and quality / validation services and yes, even legal and finance. With so many potential points of failure, driving the right product to the right place, at the right time and at the right cost requires laser focus on these downstream components.
Digging deeper, we see four key issues and trends:
- A root cause for missed delivery dates is the inability of a raw-material suppliers or fill-to-kit sub-contactors to have real-time visibility into a manufacturer's constantly changing demand plan in order to adjust a commit-to-promise. Similarly, packaging suppliers must align production, delivery and, in some cases, design and art to support a manufacturer that has tight schedules, while at the same time needs to reduce non-finished goods inventory, warehouse space and cost. Supplier visualization solutions coupled with supplier management integrated into demand planning can provide the requisite closed-loop system needed to transition to a just-in-time (JIT) environment. No manufacturer wants two million Christmas product wraps being delivered on December 26, while the finished goods have been ready since the 19th to hit the shelves on the 21st. Right product, right place; wrong time.
- How many times have you heard, "it's being loaded," "it's already in transit" or "it's at the dock and you'll get it on time" -- only to miss the date, with the all the associated business ramifications? Why is there such sensitivity to monitoring the shipment of finished goods without similar emphasis on tighter visibility into supplier transit status? Today's transportation solutions, with strong linkage to shipper systems can provide downstream visibility and the ability to take the appropriate remedial action. More so, linking real-time transportation variances into product schedules can be an early warning system for identifying significant delivery issues. Knowing that a shipment will be arriving one day late allows the master scheduler to realign the production run, including the potential need to add a second or third shift. It provides the critical data needed to manage both delivery and costs while maximizing plant effectiveness and efficiency.
- Does supplier material meet quality standards and can you suppliers prove it? 2007 saw quality scandals in the pet food and toy industries that resulted in catastrophic public relations and financial impact. Many trade organizations are now creating policy and validation programs. As the middle person in the supply chain, are you ensuring that your suppliers are meeting quality rules and their reporting solutions are being validated? Remember this: As the supplier, you hold the liability. Accordingly, manufacturers must mandate that their suppliers have enabling systems and processes in place that meet both customer and regulatory mandates.
- Many orders are missed for reasons outside of product readiness: letters of credit are in error, quality assurance liability bonds have not been signed off by legal, and one delay after another causes raw material or contract manufactured products to sit and wait. Support organizations are not in the critical path until they are the bottleneck. And, when the root cause is identified everyone in the organization is befuddled how it happened. Key take-a-way: The right process is as critical as the right price.
Looking at these four key pain points together, it becomes apparent that retailer-to-manufacturer collaboration gets attention and continues to move in the right direction, while downstream collaboration is has been neglected. The downstream network is significantly more complex, with as many as 30 to 50 suppliers contributing to a single product before it gets to the customer. Integrating supply chain execution with financial management, manufacturing and quality processes enables a manufacturer to consistently meet demanding customer delivery requirements at the right cost. Solving the dilemma requires a solution that supports best practices for supplier visibility and collaboration.
Phil Friedman is vice president, Consumer and Life Sciences, QAD, Inc. QAD is a provider of enterprise applications for global manufacturing companies. Manufacturers of automotive, consumer products, electronics, food and beverage, industrial and life science products use QAD applications at approximately 6,100 licensed sites in more than 90 countries and in as many as 27 languages. www.qad.com.
