Some time ago, we talked to three telco providers about how they expect the market for mobile phones to grow in the near future. They said it would grow between 30% and 36%. At that point in time, the three providers each had roughly 30% of the market with the remaining 10% split between smaller competitors. Furthermore, each of them said they hoped to win 50% of the market growth by taking market share and, as a result, planned their orders of mobile phones of specific brands accordingly.
We then spoke to one of the mobile phone brand owners that supplies the telco providers, and they said they expected the market to grow by only 25%. In addition, they predicted that one of the upcoming competitors to the “Big 3” would capture 30% of the market growth and become a fourth dominant player in the next year.
What happened? The demand/supply disequilibrium brought shortages on one hand, and allocation fights and overstocking of handsets by the Big 3. If they had just been in closer collaboration with their suppliers early enough, they would have had a much better understanding of the future and could have put counterstrategies in place. They did not and, as a result, they lost market share and wasted working capital.
The reality is that suppliers serve multiple OEMs. This is why they often have a better understanding of the market development within your industry than you do. So, why don’t you start sharing your expected demand with your trading partners during your strategic planning cycles and obtain their view?
Quite often, the customer’s answer is: Why would the supplier share this information? Our response is: Why wouldn’t they? In our experience, most customers have never asked the question; they just assumed this to be the case. We believe that, in the vast majority of cases, once they start talking to their suppliers, they will find a willingness to agree on a joint collaboration strategy and will realize early benefits from their trading partners becoming more open and transparent.
There are examples where, in the very first meeting, improvements have been identified by, for example, reducing safety buffers that have been built up to account for the same disruptions that happened in the past. With the COVID-19 situation, it is more essential than ever that trading partners come together to manage the crisis and help to plan the “new normal” when the recovery begins.
Why exclude small suppliers from collaboration?
Most companies are in close collaboration with a handful of their key suppliers, maybe with the 20% covering about 80% of their spend volume, but what about the rest? Are you aware of the safety buffers held in your inbound networks to cover for shortfalls in the remaining 80% of your trading partners? What buffers are held in terms of safety stock in your own books or in extra capacity at your suppliers? Who has a clear understanding of the risk if these supplies fall short?
Poor visibility hampers planning.
Modern collaboration technology allows suppliers to share stock levels and even capacity and production plans in an automated way on a daily basis with their customers. This greater transparency can be an essential input for the customers’ regular planning process, especially as they might want to automate more of the demand and supply planning efforts. This is even more important when they run full and regular risk simulations.
How can you collaborate properly without real-time communication?
All customers share demand with their suppliers and CMOs. Based on our experience, very few customers receive order confirmations and even less receive shipping notices.
As a result, there’s limited visibility, and important information is not on hand when needed, which is especially crucial in industries with many order changes. Customers need to be confident their supplier is aware of the third (for example) change in an order that had a component version change. Shipping notices are mandatory for long-lead-time items and, in the short-term, to efficiently manage receipt of goods.
Why do you run planning and execution via multiple channels?
You are probably already sharing component forecasts with some of your suppliers by opening reports in your planning system and providing the supplier with the ability to view forecasts. In addition, orders/schedules might go out via email or electronic data exchange; some will receive commitments back; some receive advanced ship notices or log into planning applications or their third-party logistics provider’s tracking system. All of this is piecemeal and, as we’ve noted before, there is no mechanism for having processes that extend beyond the customer’s enterprise, where either party can act on real-time information and have instantaneous communication. How can real value-driven decisions be made without collaborating across a business network?
And so, it comes full circle: A single network that enables the connection of all stakeholders, makes all information available to the end user in a consistent way, and flows seamlessly into the ERP of the customer and the supplier. So, once again, the ERP becomes the single source of truth.
Join our Webinar, “Extending Business Processes Beyond the Enterprise with SAP Ariba Supply Chain Collaboration,” to find out how supply chain collaboration solutions from SAP provide a vehicle for connecting all of your trading partners allowing you to run all procurement and supply chain collaboration processes through one platform.