In the Age of the Virtual Enterprise, Collaboration is Key to Supply Chain Management

Sept. 10, 2007
With much of the supply chain outside the direct control of any single enterprise, the management philosophy has to be collaborative.

Enterprises are becoming more vertically-integrated, especially in the high-tech industry, which has experienced the most fragmentation. Fragmentation can lead to a variety of supply chain problems, including a slow flow of information which can lead to a shortage or surplus of inventory. Today, with much of the end-to-end supply chain outside the direct control of any single enterprise, the management philosophy of the supply chain has to be collaborative.

The basic principles that have successfully guided supply chain practitioners in the past are still valid. The basic problem hasn't changed, however the scope of the "system" and the problem domain has been extended to include global partners. Breaking down traditional business models and enabling change in a virtual enterprise is tremendous challenge, but the potential gains make it an inevitable task for those that wish to remain competitive in their chosen markets.

Collaboration Case Study: Improving Supply Chain Flows

While the spirit of collaboration is about working together on common objectives, the desire often starts with a selfish motive, since changing any status quo comes at a cost. Thus, the performance objective at the operational level is typically driven by the partner with greater leverage in the relationship, e.g. "If you want to do business with me, you need to do this at a minimum." And, minimum is what one can expect from partners if the benefits are truly one-sided. However, for collaboration to evolve beyond the operational stage, one must recognize that it also requires mutual sharing of risk and rewards.

The following is a brief summary of one company's experience in improving the flow of material, information and money in a distributed virtual enterprise.

Performance: The mutually-agreed business goals to quantify success were:

  • Reduce inventory-driven cost (Improve material flow): The primary goal was to dramatically reduce inventory levels.
  • Improve replenishment cycle time (Improve information flow): Reduce the time required to issue and approve purchase orders and generate replenishment plans.
  • Ensure reliability of supply (Improve money flow): Increase revenue by reducing lead-times and minimizing stock-outs caused by component shortages.

Process: The scope of activities shared between trading partners

  • Visibility to updated projected inventory levels as supply and demand events occur.
  • Fast demand and supply matching through automated generation of replenishment plans.
  • Web-based real-time negotiation of business objects impacting flow (e.g. Purchase Orders, Replenishment Plans, and Forecasts).
  • Event-triggered exception management and problem escalation.

Policies: The agreed-upon business rules:

  • Escalation policies: To determine how alerts and exceptions are managed.
  • Collaboration cycle: Sequence and frequency of supply and demand planning activities between partners.
  • Inventory targets: Amount of minimum and maximum inventory to be stored at each location.
  • Network management: Sourcing, replenishment, and allocation rules to govern the flow of inventory.

Enablers: Capabilities (both technology and non-technology-based) to complete the task

  • Private marketplace: Supporting multiple supply chains by enabling process and policy across multiple partners and product lines.
  • Single current version of the plan: Access to shared data and latest operational plans via a portal for the whole ecosystem.
  • Automation: Routine decisions automated through the use of software agents.
  • Simulation: Ability to perform what-if analysis and decision support prior to execution.

Companies can learn from the success of the implementation at this company by remembering some key points:

  1. Commitment to the spirit and culture of collaboration: This Company is a leader in supply chain management. Having implemented flow principles in the 1990s and reaped the benefits, it understood that although the supply chain structure had changed, a truly collaborative philosophy was central to achieving the same level of synchronization that existed in a vertically integrated structure.
  2. Commitment to supply chain leadership: The results tell the story -- $100's of millions in inventory reductions, order-to-commit cycle time reduced by 50%, buyer productivity gains of 30%, 200+ partners globally using collaboration to manage $24 billion in flow through. Such results would not have been possible if the company had not recognized the significant competitive advantage to be gained through supply chain performance and fully embraced its leadership role in the new supply chain structure.
  3. Supply chain management in a virtual supply chain requires new approaches and new tools: After six years experience in multiple global supply chains with unique and constantly changing requirements, the decision to adopt a service oriented architecture designed specifically for collaboration to compliment the companies existing enterprise-centric ERP and APS architectures has been validated.

Brian Nickerson is CEO of Sockeye Supply Chain and Paul Petersen is vice President of Operations. Sockeye Supply Chain's software helps companies improve the speed and efficiency of their multi-tier supply chain through inventory reduction, increased profitability and reduced risk. For more about Sockeye Supply Chain, visit

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