Customer & supplier collaboration
Below is a high-level summary of this discussion, followed by a transcript of the full discussion. Contributions have been anonymised (except with permission) and edited to adhere to our 'Chatham House Rule' policy.
Go to:
Key points
Supply disruption isn’t going away any time soon. 75% of organisations surveyed by Gartner said they anticipate no change or even a drop in accessibility to raw materials over the next five years. Despite this, only 41% of organisations include suppliers in their S&OP process.
CPFR (collaborative planning, forecasting and replenishment) is a partnership, an investment in money, time and resources and a commitment from both parties to share data regularly and with minimal lag time, covering the entire planning horizon. It also means developing a joint business plan and a joint scorecard addressing the strategic objectives of both customer and supplier, reflected in the KPIs governing the process. Crucially, it should detail prioritisation decisions when supply is constrained rather than leaving the supplier to decide how to fill orders.
How to build a supplier CPFR framework?
- Start with supplier segmentation: even the biggest, most complex organisations should have no more than ten strategic suppliers, usually more like five. Segmentation would typically be done by the procurement team but this should also include the planning team because it will not just be determined on traditional aspects such as spend, revenue and complexity to replace but also willingness to collaborate, potential competitive advantage from collaboration etc.
- Conduct a process audit with each strategic supplier to understand the ‘as is’ state. Ideally, this should be a full value stream mapping exercise including what data is being shared and what the lag time is
- Articulate and document a formal collaboration agreement which should be as binding as the contract, signed by both parties. The scope of the collaboration agreement might cover specific sites or markets
- Start developing joint business plans aligned with strategic corporate objectives such as inventory optimisation, better working capital, faster time to market etc., all governed by a joint scorecard
- Formalise a quarterly or bi-annual CPFR review to assess what’s working / not working and how to reinforce the collaboration
How to integrate the supplier CPFR process into core planning processes?
Typically, a weekly supplier CPFR meeting should cover a 0-12 week horizon tracking short-term changes and discussing how to prioritise orders if capacity is constrained. This should happen before your weekly S&OE meeting as an input into your process
Monthly CPFR meetings should mirror the S&OP process, covering the 3-24 month horizon discussing rough cut capacity planning from a materials perspective, end-to-end risks and opportunities and any updates on joint value creation projects. This should happen between the demand review and the supply review steps of S&OP so that the latest unconstrained demand picture is available, leading to the supply view with the latest check on the material availability picture
Supplier CPFR should also be fed into the scenarios being presented within S&OP and S&OE meetings with financial implications estimated. For example, if supplier capacity is going to be constrained for the next few months, it may help generate scenarios and options that might include investing with the supplier to improve capacity or qualifying another material that has better availability or looking for a back up supplier
How can supplier CPFR be built to last?
It’s vital to understand how the CPFR process will benefit the supplier to create a ‘win-win’. This could be better demand visibility, better asset utilisation or common benefits like cost reduction initiatives, MoQ refinement or replenishment frequency or channel inventory optimisation to start prioritising safety stocks at both ends
Companies talked a lot about customer centricity but now supplier centricity is just as important to ensure that you remain a customer of choice when times are tough
Customer Collaborative Planning
Customer collaboration used to be something that Top 25 companies talked about; it was a cherry on the cake and something to be aspired to. That’s not sustainable any more. Customer expectations are increasing, there is more market volatility, business models are changing so creating internal volatility and there are lots of supply chain constraints to balance so those that have implemented CPFR have seen a lot of benefits. However, according to a Gartner survey, 41% of respondents said they found it difficult to collaborate with customers and CSCOs cited it as one of their top three external challenges
CPFR is difficult because most businesses are conditioned to optimise internally. Customer collaboration requires a different mentality and change the paradigm of metrics towards collaboration with suppliers and customers:
- First step is to segment customers: of course, revenue and profit is an important criterion but the risk of the pilot not working may be too big. It may be better to segment based on willingness to collaborate, those customers with better collaboration capabilities perhaps because they have already done so with another supplier. It’s also important to ensure that the pilot partner also stands to benefit from collaboration
- Secondly, structure a pilot project: typically, start with a short-term, transactional focus perhaps on customer order management or new product introduction. A second step is to extend the time horizon so that if, for example, the pilot is on customer order management, start looking at how to manage next year’s Christmas peak, not just the upcoming one. Thirdly, align internal processes and look for current snags or painpoints which hinder collaboration and engage other stakeholders to find solutions. Finally, develop a joint scorecard because the way that supplier and customer measure service or tolerances internally may not be the same. The idea is to start on a manageable aspect to prove the value and build on that to expand to more strategic areas that impact inventory reduction, forecast accuracy, improvements and cost reduction.
- Thirdly, scale the pilot to cover multiple customers: taking the pilot as the starting point, consider how the process design can be adapted to work with multiple customers and become embedded in planning processes. Data flow and master data translation is almost certainly a required step. Also, quantify the workload and capabilities required to scale customer collaboration because it’s different to those of internally-focused planners. Align the inventory strategy because this is more difficult to align than forecasting but brings greater benefits. Consider which technologies should underpin this scaled-up collaboration and ensure there is a continuous improvement process with reviews at least every six months to guard against regression.
Sign up for monthly updates & session outputs
Tell us which sessions you'd be interested in joining
Transcript (edited & anonymised)
…
Maybe if I just start by asking both of you, where do you think you would be on a Gartner maturity scale of one to five in terms of either your customer or supplier collaboration and CPF at the moment there? P, I'll ask you first.
P
Yes. I'm just laughing because it's my biggest challenge, to be honest. I come from a competitor who's quite mature from the spirits business. Making the move and noticing that I might have to do the same thing I did back at XXX is an interesting one! Yeah, maybe it's a bit outdated what I used to do there, so it's interesting to keep up.
JP Doggett
Okay. So, as far as XXX goes, you're at the beginning of that journey, or close to the beginning stages, it's fair to say?
P
I'll put my regional hat on because I’m the supply chain director for France, Italy and Greece and it's seriously at a low level there. Yeah, but it's in the strategy to implement it, so there's no way around it. It has to happen in the next two years. Like in the UK. Obviously in the UK it's more mature.
JP Doggett
Got you. M, it might be similar for you at XXX because, if I remember correctly, you're responsible for Central Europe and Russia markets?
M
Yeah, I'm responsible for this, but I guess it's fair to say that I can comment on EMEA in a way because I used to work for Italy before, so I know very well the situation in West Europe. West would be like continental Europe plus UK and Ireland. The situation is pretty much the same when it comes to supplier collaboration or integration, whatever you want to call it. And the situation is really bad. The level of maturity in my mind, regardless of Gartner, for me is level one, meaning that we really need to build that almost from scratch. It goes on two levels: data integration, but most importantly real integration with suppliers. As far as I see, except in very few cases, there is no real sense of partnership with these suppliers, which is crazy because the volumes that we have are very big, as you can imagine.
By the way, P, I’m responsible for planning, logistics, customer service and everything that is related to supply for XXX.
P
OK, thanks. Yes, at XXX, I've got S&OP teams and customer services.
M
Logistics, I guess we are in a very similar position. I used to work for Italy before as head of European Logistics and then I moved to this regional role one year ago and yeah, basically, we are not integrated with the suppliers. This means, of course, that every kind of disruption we see the day before and this is a problem on the customer side, I have to say that there are customer countries that are way ahead of the agenda in terms of integration and real collaboration. In Russia, the two biggest customers that we have are fully integrated. In the UK and other big players in Europe are integrated and we share forecasts, we share data, we share inventory position. But, on the supplier, I guess that's the real problem that you have at the moment. The one point that for me, of course would be really interesting to understand is the data integration because I have the feeling that the suppliers are not so open to share data and to facilitate this possible integration that we might want to pursue. This is something that I can see as a possible threat for any evolution for the future.
JP Doggett
That what you see as well, P…reluctance to share data?
P
No, I don't know, because we're not even at that stage yet. What I noticed, compared to competitors, we have very little dealings with our suppliers. It's as if I'm exaggerating, but it's nearly like on the spot pricing, nearly. And it's due to historical reluctance of XXX to go into long term partnerships with suppliers, thinking that is the right way and being very aggressive on pricing. At the same time, I see competitors partnering up more. Sharing more data. Almost integrating them in the end to end and this is certainly not the case for us and the problem is in the next three or four years that will be crucial for success. We can already see it where suppliers are naturally using their raw materials towards competitors instead of us because basically the competitors have invested in the relationship and we haven't because we're all fighting for the same raw materials.
Yeah, for us we need to the first step of really partnering up and then can we integrate fully so we're way behind. On customer, it's better. For example, like Tesco, it's going really well, we're trying to integrate as much as we can with the big retailers…we're really investing in that relationship but on the supplier side it's ground zero at the moment.
JP Doggett
Your suppliers perhaps haven't felt the love when times are normal and now when you really want them to go above and beyond for you, they don't feel invested in that relationship. Is that similar scenario for you M?
M
Yeah, it's pretty much the same. I have to say here there is the awareness and we understand how important the journey is. It's still not that clear how to get there but we know that we need to, at least for the top ones. I don't know how many rows and packs you manage P. For us it's really huge the number of rows and packs but of course there are some key commodities, as you said. This kind of stuff where we have to have better visibility also when it comes to getting the strategies right. About how to be covered in case of disruptions, it's something that we should agree with them. Otherwise it's hard to share a bit of the pain of extra inventory. Extra coverage for instance now we are approaching the winter in Europe and we all know how thoughts this can be so it would be really important to make sure that they commit to what they can do.
JP Doggett
Perhaps it's a good time to introduce the Gartner model of best practice at this point because I think the key point they said of why you want to be doing this is to make sure that prioritization decisions are clear when supplies are constrained. As you're both saying. It's got to be that it's you that is making those prioritization decisions on which orders to fill and not the supplier so that you just get to find out about it the day before or on the day. That's the first point and then the first step they say, which we're also talking about already is supplier segmentation. I think the interesting part of that is that a traditional segmentation might be done by the procurement team and that would be determined by spend and revenue and complexity to replace that supplier. Gartner was saying that the supply chain team, the planning team needs to be involved and you also need to think about willingness to collaborate, which is what you're both talking about, but there isn't that willingness at the moment.
Do you recognize that as being the correct first step that you need to take to go on this journey?
P
For me, definitely yes. At the moment, I’m really working on procurement. We don't have a very powerful procurement department, which I thought was strange. We're trying to fix that first to give them more power and then I see the benefit completely. I think it's turning now because of the circumstances. It would have been probably easier if we would have come to that conclusion earlier. I know everyone now is convinced because we've had a couple of incidents like with supplier visibility and suppliers making decisions for us. We know it's crucial because it's led to, I think, about $800,000 of lost sales at the moment.. In the spares business you have $800,000 quite quickly, but it's quite a bit of money to lose, just from a supplier collaboration point of view.
M
Also for me, it makes total sense. You have to start with really understanding who you should take before, as a first step, and then you cannot do everything at the same time. So you go for prioritization must be done by procurement and planning. Of course, altogether it's something that we have to say in XX, it's working better, so at least we speak the same language. Of course, procurement is clear that they have to focus more on that negotiation part and planning is responsible for all the rest. By the way, this applies for me also for the customer collaboration, it's the same: segmentation is always the first step.
JP Doggett
Yes, that's why I was saying it was kind of two sides of the same coin because they basically said the same thing on the customer side. That segmentation is the first step. Scaling that pilot over multiple customers.
M
Yeah, apparently we are in the same boat, right. It's hard to get the best out of. It would be amazing to have someone that maybe is a bit more advanced on that. The one thing that maybe it could be interesting is to understand the level of control that you guys have in XXX when it comes to rows and pack. My question is, are you treating rows and pack, from a planning standpoint, at the same level of importance as finished goods when it comes to inventory check, coverage check…?
P
No, it's one of the issues. XXX, who normally attends these calls has to chase weekly to completely redress that situation because there's been no focus on it for years and to be honest, there's a lot of money tied up, a lot of, I think over half can’t be used anymore. There has been no focus on it, there's been no digitalization on it, there's been very little visibility and we are changing towards a new system and we're outsourcing it basically.
M
Now I can tell you that this is one thing that I changed personally with my team and it worked in a way to gain more control over that because normally we think about production planning, we think about finished goods and they feel responsible and accountable only for the finished goods. What we changed in mindset is really, guys, you are responsible for the availability of the finished goods, which by the way includes also the availability of the rows and pack.. There is normally an MRP team in the factory. You have to make sure that team is working in the proper way and you have to be accountable for the rows and pack availability as much as you are accountable for finished goods. This seems like simple stuff, but in fact it's driving a lot of early notification of problems and from there you can actually act preventively.
This is something that for me, it's not a game changer, but for sure it's improving the control and the availability of the rows and pack over the supply chain.
P
We have an improvement program now going on in Glasgow to completely change that way of working. It's kind of a crash task force trying to change in three months because it's really important. So it's on the way.
JP Doggett
I just have a question for both of you. P, you mentioned visibility, so I guess in a way that's even a step before the collaboration, right? Because you kind of need to know even if there is no collaboration, if there's no communication, you want to know what's coming and what's not coming and when it's coming. Are you guys doing anything in terms of trying to improve supply side visibility?
P
Yeah, at the moment our biggest pain is transport and we are improving visibility on transport. We're implementing a tracking system because we had no idea between the point of production and the commercial warehouse what was happening. It might seem small, so it's freight suppliers, but obviously that was the biggest issue, impacting customers. We're doing that right now and then afterwards we need to go after all the other raw materials.
JP Doggett
Yeah. How about you XXX?
M
For us the problem is really the visibility on the supplier side in terms of their capability to fulfil our plan. That's the main gap. On the transportation, we do have raw material that we are buying from the US. But it's not critical at the moment. I mean we have good coverage. Most of the suppliers are in Europe so the lead time is not a big deal. The real problem is really how much stock you are holding for me? So can you respect my production plan? Do you have problems with your suppliers? Because that's the other big point, that we are completely blind. Tier one is one thing, but tier two suppliers are really even more far from us…there; is the real commodity, right?
Sometimes it might be and might come from China, might come from places really far from us. Again there would be I don't know, it would take years to get this level of integration. Normally you should take care also of that part if you really want to know if your supply chain is resilient enough or not.
JP Doggett
Our time is up, I'm afraid, so thanks for joining. Hopefully, we've managed to cover at least some of the points on the questions that we outlined at the beginning. There are more areas to explore, but I'd be very happy to schedule follow ups, maybe deep diving into some of the areas in particular. I'll drop you a line shortly just to get your thoughts, and if you do have any other areas or aspects of this discussion you'd like to explore further, do let me know.
Sign up for monthly updates & session outputs
Tell us which sessions you'd be interested in joining
Top SC Planning Best Practices...Digested
Real lessons learned distilled from a series of practitioner exchanges on...
Digital Transformation of Supply Chain Planning
Digital transformation has been on corporate agendas for some time already but, borne of necessity, tangible progress accelerated significantly since 2020. A silver lining of the pandemic may be that the business case is clearer so the focus has shifted towards implementing and scaling digitalisation initiatives.
Supply Chain Design Modelling and Analytics
Supply chain network (re)design used to come around every few years or so, often based on quite a high level view of customer segments and associated costs. Now, competitiveness and even business continuity relies on the capability to dynamically adapt network flows based on a much more granular understanding of cost drivers.
Volatility, Agility & Resilience: Next-Level Planning
Volatility, Agility & Resilience: Next-Level Planning
Volatility, uncertainty, complexity and ambiguity was already an increasing factor before the pandemic but, now, it is clear that we need the next level of demand forecasting, sensing, planning and execution.
