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Supplier Collaboration Takes on a Whole New Form - In the Cloud
Heidi Benko, GT Nexus
Cloud networks are enabling more collaborative business relationships. With that, new opportunities for business growth are emerging. Processes around supplier collaboration and management, including forecasts, orders, invoices, packing, ASNs, settlement and trade financing - generally not the most provocative topics - suddenly garner attention when moved to the cloud.
Cloud technology has reduced the barrier to entry for trading partners worldwide. The result: brands and retailers are able to connect and collaborate with their partners to fulfill their needs.
In the past, barriers such as geographic distances, time zone differences, different languages, and lack of sufficient communication limited the scope of global business. Companies conducted business with partners they knew and in countries they were familiar with. Today, the cloud plays a major role in opening new doors. Companies that embrace the cloud supply chain model are able to connect and transact with the right partners in new ways that benefit buyers, suppliers and the end-customer in the long run. The leading companies of tomorrow are finding ways to bring together multiple partners into one place, conduct transactions in an automated and secure environment, and maintain visibility into the movement of money, product and data as it moves throughout the extended supply chain. In these instances, all parties are looking at the same version of data. Picture a LinkedIn or Facebook for communicating with all supply chain partners - from raw materials and 3PLs through financing. Everyone has direct visibility into the latest updates. Everyone can collaborate openly on the network. And data can be flipped from purchase order into invoices, ASNs and other documents to eliminate re-keying.
Empowering the Extended Supply Chain
Supply chains contain complex one-to-many scenarios. Various trading partner combinations have replaced traditional one-to-one relationships that were relied on in the past. The outlook on relationships has changed. Value is driven in the supply chain through efficiency, agility and collaboration. The relationships that impact our business are the services, technologies and people that enable us to locate the right trade partners, collaborate and maintain visibility into transactions with our partners, and make smarter supply chain decisions to impact business.
Here are a few examples of opportunities that arise when this level of trading partner collaboration occurs.
Cost of capital arbitrage: British retailer and Turkish vendor
A British retailer working with a Turkish vendor in a cloud network environment is presented with an opportunity to improve its gross margin by leveraging the cost of capital difference between retailer and its vendor. Capital costs tend to make up 10-20% of a consumer product vendor's cost of goods. In developing countries this percentage jumps to over 30%. Vendors must finance raw materials, equipment and plant, payrolls, and their account receivables. Ironically, the supply chain member with the highest cost of capital tends to be the party often required to prepay for raw materials while offering his customers extended payment terms. In the long run, these unnecessary additional costs either make their way into the retailer's cost of goods or the vendor goes out of business and his customer must incur the expense of replacing him. The opportunity to lower the aggregate supply chain costs is large. For example, a British retailer with a 2% annual cost of short-term capital working with a Turkish vendor with a 10% cost of short-term capital has the potential to transfer the lower cost of capital to the vendor, thereby reducing its costs. Assuming in this example that 20% of the vendor's cost was capital related, the vendor's cost would be reduced by 16%. For the retailer, that 16% savings now avoids the vendor's mark-up and import duties. Assuming both were 15%, the aggregate supply chain saves approximately 22-23%.
Operational arbitrage: Direct shipments
Why add unnecessary expense to the cost of every container imported when cloud technology provides the controls to ship from factory directly to the customer? How does cloud make it happen?
- Cloud allows retailers to communicate packing, ASN & labeling requirements electronically and automate the processes
- It provides visibility into what is going on at the factory and enables the buyer to know when it can make changes without impacting the supplier. Can I change the ship-to location? Has the supplier packed and printed labels?
Time, handling, additional freight costs, and storage are just a few of the cost elements reduced when shipping direct. Understanding it is not always feasible; the accelerating pace of retail consolidation creates a parallel opportunity to increase direct shipments. In an industry with high consumer preference swings or perishable products, such as fashion, cycle time reduction is similarly valuable to reduce out-of-stock on products trending above forecast while reducing the supply chain backlog of less popular products that will likely be discounted. The reduction of operational expense and financial cost-of-carry/inventory support is tangible; and common sense extends the hard-dollar return to achieve other goals such as reducing a product's carbon footprint by eliminating the fuel required to get it to the consumer.
Growth arbitrage for licensor and margin arbitrage for licensee: Moving to a distributor model
Global brands license distribution rights to local partners that are tasked with expanding brand distribution and servicing clients in local markets. The challenge here, as pointed out above, is that local partners rarely command the same financial resources as the brand owner, meaning they are potentially financially limited in the pace they can build local market share. The licensee is also limited in ability and focus on protecting the brand from challenges regarding social compliance and environmental issues. Cloud supply chain platforms eliminate many inherent inefficiencies of the license model, while expanding brand owners' compliance controls. The most sophisticated platforms go further and leverage combined purchasing volumes of a brand's licensees. Brands also use cloud networks to convert their licensees to distributors. This strategy increases a brand's revenue, reduces the capital requirements of the licensee to facilitate rapid regional growth, assures the brand's stringent compliance requirements are enforced, and applies the lowest cost of capital to the underlying goal of expanding market share and brand equity. A single platform to manage all of the relationships and automate all of the processes ensures efficiency and accuracy throughout the supply chain.
Cloud Brings Everything Together
A true supply chain control tower exists when sourcing, logistics and trade finance processes are automated in one place. Buyers, suppliers and service providers are connected and online services are available. An executive in Houston can quickly identify a zipper manufacturer in China or select a financial institution anywhere that is best equipped to provide for its strategy. This multi-enterprise hub becomes a network of networks - consisting of brands, retailers, factories, vendors, financial institutions, logistics service providers and agents. When all of these parties are connected on one network the world becomes a smaller place - with capabilities that cannot be obtained even using many of the online portals being offered today. Visibility and control of transactions becomes easier in the cloud. Transactions become more strategic, trade partners become more valuable, and all parties involved benefit. Suppliers become a true extension of the business.
Heidi Benko is Vice President of Product Management for GT Nexus, a cloud-based supply chain platform used by 25,000 businesses worldwide. For more than 15 years, Ms. Benko has worked with many of the world’s leading brands and retailers to streamline their financial supply chains and automate procure-to-pay processes.