Managing the Downstream Supplier Relationships

With the holiday season coming to a close, manufacturers of semi-durable consumer products-including small retail toy batteries, small appliances, jewelry, etc.-must decide the precise amount of product needed in the pipeline to support retailers during the peak selling season. With the first week's sales number in at a 7 percent growth over the same sales per stores last year, the items on the shelves are going fast and manufacturers are scrambling to meet demand. And, with an eight week time frame of selling 25 to 35 percent of annual product, manufacturers know they must get it right or else.

For some, time has already run out. But while they will miss 10 to 15 percent of additional sales lift, others will experience a very profitable season. And a third group will have product delivered, but not in time and will wind up with extensive write-offs and mark-downs.

The ability to match demand and supply across the dimension of time and demanding consumer preference is becoming more critical than ever. With new product introduction at an all time high and shelf space creeping along at 3 to 5 percent growth, retailers have very little patience for manufacturers who can't meet their needs. Traditional upstream collaboration between manufacturers and retailers no longer fits the bill. What is critical is aligning the speed of downstream information with the velocity of the business.

From Wal*Mart's early days of Retail Link, to online trading capabilities of the 90s, to building a common product speak in UCCNet and Transora to GS-1, significant investments are being made in manufacturer-supplier alignment. For many, these investments have yielded good results and have significantly improved relationships. Yet we continue to hear that many shelf shortfalls still exist and there is still room for improvement.

Collaboration in the 21 st century must be a tightly coupled relationship, not only between retailer and manufacturer, but also between manufacturers and all downstream suppliers and stake holders; including logistics, raw material, sub-contractors, packaging and quality / validation services and yes, even legal and finance. Without focusing on these downstream components, there are too many potential points of failure to drive the right product, at the right time, at the right place and at the right cost.

Digging deeper we see four key issues and trends:

• One, the inability of a raw material or fill-to-kit sub contactors and suppliers to have real-time visibility into a manufacturer's constantly changing demand plan in order to adjust a commit-to-promise is a root cause for missed deliver dates. Similarly, packaging suppliers must align production, delivery and, in some cases, design and art to support a manufacturer that has tight schedules, while at the same time needs to reduce non-finished goods inventory as well as a desire to reduce warehouse space and cost. Supplier visualization solutions coupled with supplier management integrated into demand planning can provide the requisite closed-loop system that can more closely move to a just-in-time (JIT) environment. No manufacturer wants two million Christmas product wraps being delivers on December 26, while the finished goods have been ready since the 19 th to hit the shelves on the 21 st . Right product, wrong time, wrong place and it may be at the right price, but.

• Two, how many times has a manufacturer heard, "it's being loaded," "it's already in transit" or "it's at the dock and you'll get it on time" only to miss the date with the all the associated business ramifications. Why is their greater sensitivity to monitoring the shipment of finished goods versus getting similar or even tighter visibility into supplier transit status? Today's transportation solutions, with strong linkage to shipper systems can provide downstream visibility and the ability to take the appropriate remedial action. More so, linking real-time transportation variances into product schedules can be an early warning system for identifying significant delivery issues. Knowing that a shipment will be arriving one day late allows the master scheduler to realign the production run, including the option to potentially add a second or third shift. It provides the critical data needed to manage both delivery and costs while maximizing plant effectiveness and efficiency.

• Three, does supplier material meet quality standards and can you suppliers prove it? As we recently saw, China produced lead-in accessories that resulted in catastrophic PR and financial impact on a major toy company. Many trade organizations are now creating policy and validation programs. As the middle person in the supply chain, are you ensuring that your suppliers are meeting quality rules and their reporting solutions are being validated. The thing to remember is that as the supplier you hold the liability. Accordingly, manufacturers must mandate that their suppliers have enabling systems and processes in place that meet both customer and regulatory mandates.

• Four, letter of credits are in error, quality assurance liability bonds have not been signed off by legal. One delay after another causing raw material or contract manufactured products to sit and wait. These support organizations are not in the critical path until they are the bottleneck. What we know is that many orders are missed for reasons outside of product readiness and when the root cause is identified everyone in the organization is befuddled how it happened. Key take a way is that the right process is as critical as the right price.

As we pull the four key pain points together, it becomes apparent that retailer to manufacturer collaboration gets the right attention and has for many years been moving in the right direction, while downstream collaboration is has been neglected and is siginicantly more complex as it may take 30 to 50 suppliers to make a product that goes to one customer. Solving the dilemma requires a partnering with QAD that provides the best practices solution for supplier visibility and collaboration.

As such above integrating supply chain execution with financial management and manufacturing and quality processes enables a manufacturer to meet demanding customer delivery requirements and at the right cost.