Graham adds that the SCC relationship should always be centered on serving the consumer better. Through collaboration, the supplier and retailer can provide higher in-stock availability of fresh product which translates to greater customer value.
Rich Information
This past January’s Supply Chain Solutions column stressed the importance of information. To recap, accurate and timely data sharing between partners generates actionable information. This rich information can be used by trading partners to collaboratively plan, facilitate decision making, and coordinate these activities across the fresh produce supply chain.
MIT’s Beer Game: Experiential Learning and the Supply Chain
Sometimes a simple game can help people understand a concept better than a presentation or discussion. This is the premise behind the Massachusetts Institute of Technology’s four-part “Beer Game”—a role-playing simulation in which participants experience the challenges of managing a traditional supply chain—that is, one in which information sharing and collaboration do not exist and systemic thinking does not take place.
In the simulation, each participant represents an independent organization in a four-stage supply chain. The factory produces kegs of beer that move through distributors, wholesalers, and retailers for sale to final customers. Each participant’s goal is to purchase adequate inventory to ensure availability for downstream customers, while keeping internal inventory costs under control. Order and delivery lead times exist as in a normal supply chain. Sounds simple, right?
The game begins as a very stable supply chain with consistent demand patterns. Then a simple demand spike, combined with a lack of communication and poor downstream insight, sets off a chain reaction of ill-informed ordering. The bullwhip effect occurs as the participants typically overreact to perceived changes in demand rather than actual demand. The result is an unstable supply chain where inventory levels rise and stockouts occur simultaneously. Through the game, participants learn that insular, error-ridden decision making results from a lack of supply chain collaboration.
Rich and usable information results from tightly interwoven systems, smooth data transfers, and effective mining of the data. Online portals with detailed information about product availability, purchase order requests, and backorders are extremely helpful to retailers, according to a recent SCC research study by Kane Is Able, a Scranton, PA third-party logistics provider.
“The back-and-forth information sharing between retailers and suppliers is a key to success,” notes Alex Stark, Kane’s senior director of marketing. “If they can create visibility to each other’s operations, then there are opportunities for better flows. This leads to inventory reductions, chargeback reductions, and bottom line savings.”
The Kane study also highlighted room for information improvement. From the supplier perspective, retailers have an opportunity to improve the upstream flow of demand data and promotional plans. Also, the timeliness and accuracy of a retailer’s demand forecasts need to increase. For their part, retailers want better communication from trading partners. One only needs to play MIT’s “Beer Game” simulation to quickly recognize the importance of these expectations, as poor information sharing causes supply chain chaos.
Information problems may not be easily resolved; investment in connective systems may be required and trust must be built up before strategic information sharing will occur. Graham also notes that some information is considered strategic and may not be shared at all. Highly detailed consumer or store level information falls into this category.
“Consumer data is becoming very valuable and some companies are not willing to share all data—and rightfully so,” comments Graham. “The combined supplier-retailer supply chain can still be very effective with data that is rolled up to distribution points.”
Despite the challenges, the value of creating rich information is worth the effort. Supply chain collaboration combined with visibility of rich information creates measurable financial benefits. In the Kane study, one participant was able to take 10 days of inventory out of the network while another slashed retailer deductions by 75 percent.
