Customer collaboration has become cornerstone to success in today’s supply chain driven world. We are all part of a supply chain, and so we must look for ways to thrive within our supply chains. Undoubtedly, those who collaborate with their supply chain partners will succeed whereas the rest will struggle. One simple yet impactful way to collaborate is with orders.
This concept is sometimes called consumption based ordering, sometimes VMI (vendor managed inventory), sometimes auto replenishment and the list goes on of possible names for order collaboration. The point is that it is a process where the supplier places orders for the customer based upon a mutually agreed upon process, data sharing strategy and metrics. The customer provides the appropriate data to the supplier to be able to develop orders aligned with the metrics.
Case Study:
During my tenure at PaperPak, we achieved the following successes with our #1 customer:
- Recognized by #1 customer as “supplier of the year”
- Increased sales
- Became “part of the customers’ organization”
- Doubled inventory turns
- Improved customer service to 98%+
- Reduced lead times and improved costs
These results occurred while supporting customers on VMI through several business condition changes:
- Merger/acquisition
- Turnaround & cash crisis
- Private equity buyout
- Several software, process, people and insource/outsource changes
As one would expect, there were trials and tribulations, yet we achieved great success overall. The keys to success in this example were the 3 P’s: 1) People; 2) Process; 3) Partnership.
#1) People: The right people are your #1 asset. First, senior leadership makes or breaks any vendor-managed inventory program. Senior leadership must provide commitment and support, have a high level understanding of the value that can be achieved through a VMI program and be able to explain the whys. Understanding and being able to explain the whys behind a VMI program are key so that implementers’ individual goals are tied to the big picture and tools and support are provided. For example, since PaperPak had senior leadership support, the customer and bottom-line impacts were understood and valued, which resulted in the appropriate resources and funding allocations.
Second, the right VMI planner is critical. After putting the wrong person in the role, we quickly discovered the importance of finding the right person with the right skillsets for the VMI planner position. Our service levels suffered until we found a person with an analytical skillset. Ideally, the VMI planner will be analytical, enjoy the optimization game, be self-confident as he/she is “in the middle” of several competing priorities, customer focused, and be excellent at not only details but also the big picture.
Lastly, there are other people integral to VMI success – Customer service, Planning, Sales, and Information Technology. To achieve success, it takes a team.
#2) Partnerships: In essence, refer back to point #1 – the right people. In this case, we expand the concept to think about the right partnerships with customers and suppliers. My definition of how to achieve a successful partnership is simple – think ‘win-win’. To create a successful VMI program, it requires a close partnership with your customer. The ingredients for a successful partnership are trust, the ability to find and create win-win ideas, and a collaborative view on forecasts, goal setting, and metrics. The same holds true for your suppliers. View your customers and your suppliers as an extension of your company and supply chain. With a partnership, you should be able to turn 1 + 1 into 5; meaning, your returns will be exponential over what you would achieve on your own.
#3) Process: To ensure flawless execution and customer service, process is king. Rigorously following the traditional plan, do, check, act model can yield significant results. It has been shown that although most people spend the majority of their time on the “do” of plan do, check, act, the successful implementers spend a very small portion of time (10%) on “doing”. Instead, the optimum numbers are the following: plan (70%), do (10%), check (15%), and act (5%). As this implies, follow-up/audit is also essential for success. Without continual review and improvement/adjustments, the process lags.
Think about how you can implement customer collaboration strategies. If you are interested in freeing up cash, maximizing profit, growing sales and elevating your business performance, customer collaboration is a no-brainer. No capital investment with amazing results – not only bottom line results but also happier customers and engaged employees. Pick up the phone to your key customer to explore the possibilities.