Collaboration

Distribution is the art of delivering goods according to the agreed customer service levels against minimal costs. High customer service levels become increasingly important. Consequently, if a company wants to achieve an increased customer service, then it needs to collaborate closely with its suppliers and customers and exchange relevant information (buzz words: collaboration, extended supply chain or supply chain integration). According to increasing level of integration we distinguish the following four types of collaboration:

1. Standardisation

Standardisation is the first step in supply chain integration. In this step you discuss the standardisation of packaging and transportation with the most important suppliers and customers.

An example is the use of roller containers throughout the entire flower supply chain. The same containers are used by growers, the flower auction and the buyers. Currently, we see that the various flower auctions are talking with each other about standardising containers and carriers as well.

2. Communication

Communication is the second step in supply chain integration. In this step you start exchanging electronic information with the most important suppliers, carriers and customers, e.g. sales orders, purchase orders or advance shipment notifications. Often used techniques for electronically exchanging information are EDI and Internet.

An example is the advance shipment notification for incoming trucks. This prevents us from having to identify the incoming products and enter data in our system. Furthermore, it enables us to assign sales orders to goods that are still in an inbound truck (rolling stock). Upon receipt the goods are directly cross-docked to an outbound truck for delivery. This reduces inventory levels as well as lead times.

3. Visibility

Visibility is the third step in supply chain integration. In this step you start exchanging electronic information more intimately with the most important suppliers, carriers and customers, as well as the internal departments Purchasing, Sales, Marketing and Production. An information backbone connects the various business systems in the supply chain.

For instance, if we can see the inventory levels of our supplier, then we can promise the goods to our customers with a realistic lead time for delivery (available to promise). Also our suppliers can increase their stock availability because they can anticipate our production schedule, our marketing plan as well as the forecast quantities of our customers.

4. Synchronisation

Synchronisation is the fourth and final step in supply chain integration. In this step we use the visibility to centralise the decision making in the supply chain. A well-known example is vendor managed inventory. Here only one party, i.e. the supplier, is responsible for the inventory levels.

Another example is the centralisation of transportation planning. This could for instance happen when a shipper has outsourced its logistics at a 3PL. Based on the information provided by the shipper, the 3PL decides when to ship and from which warehouse in order to achieve the pre-specified service levels.

Software

If we want to synchronise the goods and information flows, then we need smart logistical information systems. These systems should be able to achieve high customer service levels (stock availability, lead time reduction, improved delivery reliability) and reduce costs (inventory reduction, transportation cost savings). Before we can implement these new systems, we need to develop new logistical concepts since conventional logistics have not been designed for handling thin flows.

We do see a number of vendors which offer software that is able to effectively synchronise the supply chain (see e.g. the survey software for supply chain captains). Although these standard systems are still under development, many logistical operations do profit from these developments and short ROI's are the result.