2-A-3 Manage forecasted data with suppliers
1) Elements of early supplier involvement (ESI) The successful organization works as a team. The team functions most effectively when all members know the organizational game plan. Because supply management professionals are responsible for managing the "front end" of a business, and are the primary contacts with the organization's suppliers, it is supply management's responsibility to keep suppliers as up-to-date as possible with regard to future organizational needs. In this way, suppliers will be able to provide the maximum technological expertise and support for an organization's goals.
Early supplier involvement (ESI) is a practice that brings together one or more suppliers with the organization's product or service design team early in the product development process. The objective is to use the supplier's expertise and experience in developing a product or service specification that enables effective and efficient manufacture ability, assembly and/ or delivery. The following are areas in which early supplier involvement (ESI) can have a particularly beneficial effect on the supply management process:
A)Manufacturing process - Knowledge of both the supplier's and the customer's manufacturing procedures is important to the development of the most effective process to produce a product. Supply management professionals and suppliers working together can eliminate many cost redundancies. For example, an organization can buy a product that is partially completed and introduce it to its process at an earlier stage; or a supplier can take on some of the customer's operations if doing so would lead to lower costs and improved quality. The supply management organization has a greater opportunity to come up with cost efficiencies if it understands the supplier's processes. Significant time and money can be saved if the supplier is "on the team" early in the development of the manufacturing process. Suppliers can suggest the type of equipment that might be more compatible with their processes. This fosters a more strategic relationship with the supplier.
B)Capital acquisitions budget- Supply management can make the most significant contribution to the budget/ approval process if it is involved early with engineering, manufacturing or the internal customer that is developing a new product or service. This involvement is called early purchasing involvement (EPI). The supply management professional who . is aware of a need for a capital asset can develop a list of suppliers who can satisfy that need. This not only speeds up the development of a capital project proposal, but also shortens the later acquisition process. Forecasting a need for equipment or facilities will allow potential suppliers to allocate manufacturing or human resources time in advance of the need. This will also assist in shortening the acquisition for long leadtime items. Capital asset availability can provide a competitive advantage in new product or service introduction.
C)Product or service development/implementation -Suppliers can be of assistance in early product development by providing prototypes, models or preproduction samples for testing and/ or use in the customer's product development cycle. Suppliers can be equally helpful in the implementation of a new or changing service. Good communication and feedback between the customer and the supplier are .important if early product or service development efforts are to provide maximum value.
D)Cost- Suppliers can provide useful insight into the costs of manufacturing a product or providing a service and realistic assessments of what the product or service development will entail before the product or service is introduced into the market or procured by the supply management organization. Having cost projections on a new product or service from a supplier can keep an organization from making expensive errors in judgment, and enhance the decision-making ability of the buying organization.
E)Quality -Early involvement of suppliers in the development of specifications for products and processes will help to reduce the costs of quality of a product or service. Suppliers can help with the development of quality requirements that will serve the customer in the most effective manner. If suppliers are made aware of a customer's needs, they can prepare their organizations to satisfy those needs through human resource development and training, process development and capability studies, and equipment acquisition. Quality is the result of preplanning and preparation. Suppliers that have knowledge of quality requirements can eliminate problems that lead to rejections or rework at later stages.
F)Availability - Suppliers must have the capacity to serve a customer's needs. If a supplier is aware of forecasted needs, then it can inform the potential customer what support it can provide. Supply management professionals are responsible for working with their internal customers to provide forecasted data to the supplier base. This will help eliminate future supplier delivery problems.
G）Technology - Supplier expertise in the technology arena can be helpful to a design person and will increase the chances of producing a quality and cost-effective product early in the design-marketing cycle. Supplier technological understanding may influence final material selection and many other areas, especially when the designer does not have a broad knowledge of technological advances occurring in the marketplace. Supply management can assist in the transfer of information by bringing together an organization's technical staff with the supplier's technologically qualified personnel. However, such exchanges can take place only if the supplier believes there is a chance to develop future business. Early in the process, supply management and the internal design stakeholders' group should choose a group of suppliers with which they are willing to work. Supply management professionals must understand that suppliers share information on advances in technology and related intelligence on a selected basis.
H)Design - Suppliers can provide key elements to a product design, based on their experience in serving a particular market. Supply management professionals who have long-term relationships with suppliers can often have their designers seek the advice of suppliers, with the understanding that the supplier's technology and designs must be protected. Usually a nondisclosure agreement (NDA) is signed by both parties to ensure confidentiality. Also, it is important that the supplier have a reasonable opportunity to gain business from this activity.
I)Product co-development - Using suppliers in the co-development of a product or service provides for a sharing of development costs. This normally implies that there is a formal agreement regarding future business that may result from the development. This agreement can take many forms. For example, the organization can pay the supplier for the development costs, pay a royalty on each item sold or guarantee future business. Co-development spreads the risk to more than one organization. It implies that the rewards will be shared. Often this is the only way that a supplier will share proprietary technology.
J)Cycle time - Total cycle time can be reduced by the early development of relationships with suppliers. These relationships can assist with the elimination of redundancies in product development, manufacturing and distribution processes. These relationships can assist in the introduction of new or changing services. Once the product, process or service are in place, the cycle required to provide the ultimate customer with the desired product can be improved continuously.
2) Business forecasting models Business-cycle forecasting models rely upon leading indicators, which measure economic activity that changes before the business cycle changes and thus indicates its future direction. Some examples include the change in the number of building permits issued in a given period, the money supply (the amount of cash and bank deposits held by organizations and households), inventory level changes, changes in stock prices, the number of unemployment insurance claims, average hours worked per week and new orders.
3) Confidentiality issues The basis for early supplier involvement is trust between the parties. Part of this trust is built on the confidentiality of the information shared between the organizations. Confidential information may take a variety of forms, such as bids, supplier proposals, pricing, drawings, designs, strategies, wage and salary information, software programs or scientific formulas. The supply management professional should ensure that information about one supplier is never given to another supplier unless laws and regulations require that the information be made public - as in the case of public procurement.
The other internal participants in the procurement process may not be aware of the need for confidentiality. Therefore, it is supply management's responsibility to ensure that proper controls are established to protect information. One way to protect confidential information is to put it in writing and label it "Confidential." Another tool is the non-disclosure agreement (NDA) that clearly defines acceptable and unacceptable use of the information.
4) Parameters for disclosure When.an organization and a supplier are developing a new product or service, it is important to create an agreement in advance that specifies when and under what conditions the information developed (bids, supplier proposals, pricing, drawings, designs, strategies, software programs or scientific formulas) may be released to others.
A)Product development model - Many organizations are concerned with protecting their intellectual property. The safest way to avoid problems is to not allow access to trade secrets or other proprietary information. Intellectual property agreements can take many forms, ranging from complete ownership by the supply management organization to complete ownership by the supplier.
B)Production plan - It is common for organizations to share production plans with suppliers. The supplier should regard the production plan as confidential. It is appropriate to use a confidentiality or non-disclosure agreement that includes a section describing the supply management professional's commitment to the schedule. For example, an organization commits to 100 percent of the first four weeks of the schedule, plus or minus 10 percent for the second four weeks, and plus or minus 25 percent for the third four-week period.
5) legal implications When using non-disclosure agreements, "proprietary information" must be carefully defined. If it is too broad, the supplier or supply management professional may not want to sign the agreement, and it may be difficult to enforce. If it is too narrow, the supply management professional or supplier risks exposing and losing important data. Try to be specific. Consider software, customer lists, pricing information, target markets, business plans and other material not usually shared with competitors. The definition usually will state that publicly available or generic information is not proprietary. The supply management professional might want to include a dispute resolution clause, in the event problems arise about what data is proprietary.
The NDA should define how information may be used. How many copies of the documents can be made? Who gets to see and use the software? The contract should require the return of the data if the venture is not successful or the relationship ends.
A well-drafted, mutual NDA should prevent each party from disclosing the other party's confidential information to third parties. It should limit the use of the other party's confidential information to the authorized purposes that are set forth in the NDA. This latter provision is designed to ensure that neither party's confidential information will be used in a manner that was not anticipated by such party. An NDA will often provide that the recipient will treat the confidential information with the same level of care that it uses to protect its own confidential information. This language can be dangerous because the recipient may not be taking adequate steps to protect its own information. The agreement should obligate the recipient to use at least reasonable care to protect the other party's confidential information.
6) Supplier managed inventory (SMI) Supplier managed inventory is an inventory management system that holds a supplier responsible for ensuring that stock is maintained at appropriate levels in the supply management professional's facility and for replenishing items when these levels drop. (ISM Glossary, 2006.)
7) Collaborative Planning Forecasting and Replenishment (CPFR) CPFR is an initiative developed by the Voluntary Interindustry Commerce Standards (VICS) Association that allows collaborative processes across the supply chain.
Some of .the first applications involved a .final retailer sharing its consumer demand forecasts upstream in the supply chain to enable manufacturers of branded goods to produce and distribute their products to the retailer at lower costs.
CPFR originated in the United States in 1996, through an initial pilot that involved a large retailer (Wal-Mart) and one of its key suppliers (Sara Lee). After this initial pilot, VICS published a set of guidelines for organizations to follow.
The primary driver for the adoption of CPFR is the frequent misalignment in the forecasts developed by different organizations in the supply chain, leading to problems such as misallocated inventory, which leads to excess inventory leading to excessive holding costs or mark downs) or to stock outs (leading to loss of sales).
CPFR is in some ways, an extension of supplier managed inventory (SMI), with more collaboration between the supplier and retailer in the process of developing forecasts and managing exceptions. Figure 1 provides an overview of the process.
CPFR has primarily been applied between retailers and their suppliers, though the principles can be applied by any two adjacent organizations in the supply chain. Enterprises are starting to experience the limits of accruing business benefits out of supply chain management within their own boundaries. This is leading enterprises to extend their supply chains beyond their own boundaries to involve business and trading partners.
CPFR enables the joint deployment of best practices such as category management and supply chain planning and execution processes throughout the organization, including but not limited to the sales and supply management organizations.
CPFR has the capability to minimize stockouts which reduces supply chain costs while improving overall customer service.
Figure 1
Retail Event Collaboration Process Overview (VICS CPFR Model)
Source: Voluntary Interindustry Commerce Solutions (VICS)/Association Retail Event Collaboration Process Overview,VICSCPFR®, Model2004.CPFR is a Registered Trademark of VICS.
8) Product life cycle There are a number of ways suppliers can be actively involved during each stage of the life cycle of a product. The product life cycle consists of five stages or phases: pre-commercialization, introduction, growth, maturity and decline. During pre-commercialization, suppliers may contribute by developing component specifications, recommending parts, new technologies or processes or by co-developing products.
In the introduction phase, suppliers can proactively monitor quality and correct problems before they reach the customer organization, adjust production and delivery schedules based on actual demand and collaborate with supply management to make changes as necessary. During the growth phase, supply management may share forecast data with its suppliers to ensure continuity of supply. In the maturity phase, suppliers might manage inventory (supplier managed inventory) and in the decline stage the suppliers may offer lower-cost solutions or parts to substitute for the initial product.
9) Information exchange options Information shared between the supplier, supply organization and all parties involved may be exchanged using a number of formats including: face-to-face meetings, virtual meetings, conference calls, e-mail, web portals or other systems integrations using various technologies.