Supply Chain Management:

The Critical Role of Partnerships

By Karen Granger

Last month we discussed the Purpose segment of the 3-P Supply Chain Model, the elements of which include Purpose, Partnership and Process. In the 3-P model, Purpose defines the selection of partners, and the needs of the partners in the marketplace drive the processes used to integrate the supply chain. This month's column discusses partnerships as the means to achieve cost reductions, operational efficiencies and true customer satisfaction.


Partners
The old rules of yesterday have all but disappeared as today's industry leaders embrace the new realities of differentiating themselves from competitors. Many companies have streamlined operations by creating integrated in-house teams that coordinate day-to-day operations cross-functionally. These companies have experienced financial and competitive benefits from becoming lean, agile and focused. The next frontier lies in integrating the entire supply chain (e.g., partnering with raw material vendors, third-party logistics providers and customers — all participants along the supply chain).

There are many building blocks to the development of effective partnering. The whole process starts at the top with management's commitment to building alliances that support the strategic business plan. The driving force is meeting the needs of customers who want quality products at the right price at the right time. Management's motivation for carrying out this initiative is profitability.

The benefits to partnering are many, as companies such as Nike, Wal-Mart, Procter & Gamble and Microsoft have demonstrated over the past few years. Examples of successful partnering are all around us — just pick up a product catalog, and you will see what I mean. For example, I recently purchased a set of Pfaltzgraff dishes. I requested their product catalog and when it arrived I found several other companies' marketing products to complement those from Pfaltzgraff.

As a consumer, I appreciate what these companies have done. By product partnering and alignment, as well as cooperative marketing, they have added value and made it easy for me to get what I want at the right price at the right time — simply and seamlessly.

For organizations that have not made the transition to a fully integrated supply chain, however, the process can be a daunting task. This is primarily true because people really do not like change. But today's competitive environment requires that businesses change. How then can an organization successfully tackle this competitive opportunity and gain buy-in from its own users? One successful tactic starts with cross-functional team-building within the organization.


Building the Team
From the outset, key functions must be represented on the team. They include: customer service; logistics (incoming and outgoing transportation, warehousing, distribution); purchasing (sourcing, vendor evaluations, procurement); inventory and materials management; and manufacturing (production planning, scheduling, packaging). Reliant on your business, sales and marketing need to be represented, particularly in a promotions-based organization. And, when the issue relates to new product development, the research and development group needs representation on the team as well.

The challenge to team formulation is having the right people from the right functions with the right focus. Having too many people on a team slows down initiative and distracts from the real purpose of integrated supply chain management.

Once the team is formulated, the next steps in this building block are to identify tasks, determine team leadership and define each member's responsibilities. Finally, the team must establish specific goals and quantifiable performance measurements.

Sounds easy, doesn't it? The biggest challenge lies in overcoming organizational barriers that have taken years to build up and are very difficult to bring down. This is where good management sets expectations for the whole team. All decision-makers must consider what's best for the entire supply chain, even if a specific action is not optimal for a particular functional area. One way to motivate individuals to work towards team success is establishing direct links between team objectives (or goals) to performance and incentives (quantifiable performance measurements).


Outside the Four Walls to Extend the Team
Once the first building block is accomplished, the next objective lies in extending the enterprise to the external partners of the supply chain. Organizations collaborate to better serve the customers and increase profitability for all members of the supply chain, much like the Pfaltzgraff example cited above.

This is a marriage of like organizations, and you are in it for the long term. Pick your partners carefully, selecting firms that are the best in materials, products or services, and have true staying power. Then parallel your processes, consolidate where it makes sense to do so, work at getting the entire supply chain lean and agile, and focus on bringing your customers value-added products and services.


Communications — the Vital Link in the Chain
The successful integrated supply chain requires excellent information communications. Ideally, when the customer buys the product or service, all partners along the supply chain have a need to know, in real time. This information influences buying decisions, sales and marketing forecasts, inventory turns and control and, most importantly, the bottom line. Organizations that successfully create an information pipeline consistently enjoy increased profits and a competitive edge, regardless of how big or small the company.

To summarize, successful partnering requires these building blocks: management's commitment to the process; establishing an in-house cross-functional team empowered to make decisions that positively influence the whole enterprise; team performance measurements and rewards linked to supply chain goals; extending the enterprise outside the four walls through careful partnering; and linking the entire initiative through integrated information technology.

Next month, we will discuss the final element of the 3-P model: processes and operations.