The first step to collaboration comes through information sharing. Across nearly all industries, companies play a guessing game (called forecasting) to estimate the products and quantities that their customers will demand across different markets. Even if a company gets it just right it still needs large inventory buffers to cope with demand variability, thus dramatically reducing its capital efficiency. It is imperative to compress lead times to meet demand rapidly and lessen these negative effects - this can negate the production-cost benefits of today’s off-shoring vogue in China. The butterf

In the past when companies pondered corporate strategy, operations had been peripheral to the discussion. Operations were considered a technical matter with one way of doing things and therefore not, strategic. Strategy is about products, markets, and competitive advantage with divergent possibilities.

Operations were seen as a series of puzzles with single best solutions. The realization that optimization of parts did not optimize the whole led to new focus - operational management went up a level from looking at individual tasks to looking at whole processes. During the 1960s, Japanese manufactures obtained competitive advantage by optimizing operational efficiency, which meant lower prices, flexible production capabilities and a reduction in lead times. Operational considerations became a key theme in strategic discussions.

During the 1990s, companies like Dell took this further. The computer market was changing faster than any other market had done in history. Dell began managing operations by synchronizing functional activity into a single corporate heartbeat. An order instantly drove procurement, which drove production and then distribution. The result was a further drop in lead times, inventory requirements, and operating costs along with flexibility. Operational efficiency was Dell’s sole source of competitive advantage and it reaped enormous market share gains.

Collaboration – The Next Step

The historical trend is clear. The impact that one activity has on the next means they cannot be optimized in isolation. The result is that operations have become the key corporate strategic consideration. Yet the nature of competitive advantage is to elapse as competitors replicate it, which places a continual onus on companies to find new differentials. This begs the question - what next?

The answer lies in another step up in the way we view corporate operations. We need to look beyond the borders of the firm in our search for operational efficiency. Optimized company operations can only be achieved through alignment and coordination with the agents up and down stream. Collaboration with suppliers and customers is the essential vehicle of the 21st century for achieving competitive advantage from operations.

The benefits of Collaboration

1. Sharing demand signals

The first step to collaboration comes through information sharing. Across nearly all industries, companies play a guessing game (called forecasting) to estimate the products and quantities that their customers will demand across different markets. Even if a company gets it just right it still needs large inventory buffers to cope with demand variability, thus dramatically reducing its capital efficiency. It is imperative to compress lead times to meet demand rapidly and lessen these negative effects - this can negate the production-cost benefits of today’s off-shoring vogue in China. The butterf

During the 1990s, companies like Dell took this further. The computer market was changing faster than any other market had done in history. Dell began managing operations by synchronizing functional activity into a single corporate heartbeat. An order instantly drove procurement, which drove production and then distribution. The result was a further drop in lead times, inventory requirements, and operating costs along with flexibility. Operational efficiency was Dell’s sole source of competitive advantage and it reaped enormous market share gains.

Collaboration – The Next Step

The historical trend is clear. The impact that one activity has on the next means they cannot be optimized in isolation. The result is that operations have become the key corporate strategic consideration. Yet the nature of competitive advantage is to elapse as competitors replicate it, which places a continual onus on companies to find new differentials. This begs the question - what next?

The answer lies in another step up in the way we view corporate operations. We need to look beyond the borders of the firm in our search for operational efficiency. Optimized company operations can only be achieved through alignment and coordination with the agents up and down stream. Collaboration with suppliers and customers is the essential vehicle of the 21st century for achieving competitive advantage from operations.

The benefits of Collaboration

1. Sharing demand signals

The first step to collaboration comes through information sharing. Across nearly all industries, companies play a guessing game (called forecasting) to estimate the products and quantities that their customers will demand across different markets. Even if a company gets it just right it still needs large inventory buffers to cope with demand variability, thus dramatically reducing its capital efficiency. It is imperative to compress lead times to meet demand rapidly and lessen these negative effects - this can negate the production-cost benefits of today’s off-shoring vogue in China. The butterf

Collaboration – The Next Step

The historical trend is clear. The impact that one activity has on the next means they cannot be optimized in isolation. The result is that operations have become the key corporate strategic consideration. Yet the nature of competitive advantage is to elapse as competitors replicate it, which places a continual onus on companies to find new differentials. This begs the question - what next?

The answer lies in another step up in the way we view corporate operations. We need to look beyond the borders of the firm in our search for operational efficiency. Optimized company operations can only be achieved through alignment and coordination with the agents up and down stream. Collaboration with suppliers and customers is the essential vehicle of the 21st century for achieving competitive advantage from operations.

The benefits of Collaboration

1. Sharing demand signals

The first step to collaboration comes through information sharing. Across nearly all industries, companies play a guessing game (called forecasting) to estimate the products and quantities that their customers will demand across different markets. Even if a company gets it just right it still needs large inventory buffers to cope with demand variability, thus dramatically reducing its capital efficiency. It is imperative to compress lead times to meet demand rapidly and lessen these negative effects - this can negate the production-cost benefits of today’s off-shoring vogue in China. The butterf

The answer lies in another step up in the way we view corporate operations. We need to look beyond the borders of the firm in our search for operational efficiency. Optimized company operations can only be achieved through alignment and coordination with the agents up and down stream. Collaboration with suppliers and customers is the essential vehicle of the 21st century for achieving competitive advantage from operations.

The benefits of Collaboration

1. Sharing demand signals

The first step to collaboration comes through information sharing. Across nearly all industries, companies play a guessing game (called forecasting) to estimate the products and quantities that their customers will demand across different markets. Even if a company gets it just right it still needs large inventory buffers to cope with demand variability, thus dramatically reducing its capital efficiency. It is imperative to compress lead times to meet demand rapidly and lessen these negative effects - this can negate the production-cost benefits of today’s off-shoring vogue in China. The butterf

The first step to collaboration comes through information sharing. Across nearly all industries, companies play a guessing game (called forecasting) to estimate the products and quantities that their customers will demand across different markets. Even if a company gets it just right it still needs large inventory buffers to cope with demand variability, thus dramatically reducing its capital efficiency. It is imperative to compress lead times to meet demand rapidly and lessen these negative effects - this can negate the production-cost benefits of today’s off-shoring vogue in China. The butterfly’s wing effect on forecasting and ordering means the end demand signal gets wildly distorted as it echoes up the supply chain being reinterpreted and exaggerated at each turn. Inaccuracies are amplified at each stage, leaving suppliers facing high-stake production gambles.

The answer is simple - relaying end user demand signals and likely future order quantities to suppliers up the chain. This is the single biggest benefit of collaboration and it comes at virtually no cost reducing much of the variability from the forecasting calculation. A supplier’s response will be a much closer fit to market demand if information about likely order quantities is shared. Typically, inventory levels can be reduced by two thirds, service levels sky-rocket while lost revenues evaporate, and supply costs are cut by a quarter when demand information sharing is implemented correctly.

2. Efficiency through alignment

The next step is operational coordination. Working capital naturally collects at the borders of the firm. Finished Goods nearly always account for much more inventory than Work in Process, mainly because of the typical inadequacy in coordination between supply chain entities. Accounts receivable tend to be swelled by disputes and billing problems, which would be ironed out instantly if they were internal issues. Most companies currently allow working capital to accumulate at the point where their processes meet those of their customers and suppliers, which provides a great opportunity for freed cash flow and increased capital efficiency.

Costs can also be reduced dramatically through simple operational coordination between suppliers and customers. Systems, processes, and organizations can be joined up much more effectively to eliminate unnecessary duplication and increase the through-put and flexibility of both supplier and customer organizations.

The interfaces of goods delivery/goods-receipt, invoicing/invoice-processing and collection/payment all exhibit the same misalignment and duplication. The painstaking effort spent on internal efficiency is negated by a clumsy operational weld between suppliers and customers. Functions get managed to performance metrics, which encourage activity that runs, counter to the efficiency of the organization, let alone the total supply mechanism. Firms should optimise their impact on their key customers’ total cost of supply. Configuring and mana