Focus on Six Capabilities to Master Supply Chain Customer Collaboration for Value Creation

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1 Focus on Six Capabilities to Master Supply Chain Customer Collaboration for Value Creation FOUNDATIONAL Refreshed: 5 September 2018 Published: 9 May 2017 ID: G Analyst(s): Beth Coppinger, Chris Poole, Simon Bailey Achieving supply chain collaboration with customers is a complex journey. Supply chain leaders responsible for customer service can use this research to understand the six capabilities of the customer collaboration maturity model and how to advance through them to drive joint value creation. FOUNDATIONAL DOCUMENT This research is reviewed periodically for accuracy. Last reviewed on 5 September Key Challenges Many companies see value in supply chain collaboration with customers but often don't know how to get started, particularly with changes to internal processes and investment in resources. Companies already engaged in collaborative relationships often lack a strategy and framework for developing capabilities that will drive improvements and unlock business value. Without a framework, supply chain leaders struggle to coordinate strategic partnerships across ecosystems and continue to add value. Recommendations Supply chain leaders focused on improving customer service and fulfillment should: Optimize your internal supply chain collaboration processes as a first step. Ensure you have integrated and aligned processes such as sales and operations planning (S&OP) and order to cash (O2C) that support excellent delivery of product and service, and secure transactional relationships.

2 Use the collaboration maturity model to identify areas for improvement across six capabilities and drive joint value creation opportunities between the supply chain and your customer's supply chain. Start by obtaining stakeholder support across enterprises and building trust. Segment your customers and understand their capabilities and willingness to collaborate in building strategic partnerships. Use this in concert with the maturity model to develop customer-specific collaboration strategies. Introduction Supply chain's role in driving value for customers, beyond transactional customer service, is on the rise. Digital solutions are bringing greater transparency of information within and across supply chains, as well as automation and efficiency to transactional processes. Transparency and transactional efficiency are enabling companies to collaborate more effectively both internally and externally to deliver improvements in the flow of information, products and cash. The speed and challenges of tomorrow's businesses will not be addressed by any one company alone. Collaboration within your organization, with your customers and suppliers, and across your ecosystem is integral to sustainability. Excellence in customer collaboration is a complex journey that requires the engagement of the entire supply chain and close alignment with the commercial teams. Leaders in collaboration with customers have prepared by building collaborative practices from the inside out. Effective collaboration with customers can release efficiencies and drive value that cannot be achieved by any one company working alone. This value is realized by improvements in service, cost, cash, speed to market, innovation and sustainability. In highly mature organizations, there is a trend away from a linear supply chain and one-to-one partnerships, toward a network of multilateral collaborative partnerships (also known as ecosystems) focused on delivering solutions to the customer's customer. Developing the ability to collaborate effectively and move toward higher levels of collaboration maturity is a journey that aligns with Gartner research on overall supply chain maturity (see "Gartner's Demand-Driven Model for Supply Chain Maturity"). This research offers a five-stage collaboration maturity model to help supply chain leaders develop more advanced capabilities that enable joint value creation with customers (see Figure 1). Progressing through these stages follows the mastery of collaboration capabilities from an internal to an external focus. Page 2 of 12 Gartner, Inc. G

3 Figure 1. The Customer Collaboration Maturity Model Source: Gartner (May 2017) Analysis Use the Maturity Model to Drive Improvement Gartner has identified six key capabilities to master for excellence in customer collaboration scope, strategy, processes, metrics, organization and technology and mapped them across the five stages of maturity (see Figure 2). Use the capabilities in the table to guide your maturity journey. Gartner, Inc. G Page 3 of 12

4 Figure 2. The Six Capabilities of Customer Collaboration Maturity Source: Gartner (May 2017) Page 4 of 12 Gartner, Inc. G

5 Stage 1: Efficient Transactions Creating the ability to collaborate externally with customers begins with developing the ability to collaborate internally within your organization. In Stage 1, collaboration is limited to reactive, transactional interactions with customers related to orders and deliveries with a focus on cost improvement. There is no clearly articulated service strategy, and the experience of the customer is largely based on one-to-one interactions with a service representative, often only to resolve issues. Customer collaboration is largely owned by the commercial teams who make deals regarding the sales of products without an understanding of the ability to supply or the impact on service. The customer service and logistics teams are the only groups in the supply chain organization that have a regular cadence of interactions with customers, but they have limited internal collaboration across functions. This results in knowledge gaps and a lack of coordination. Processes are not well-defined. The use of technology is limited, with many manual activities and hand-offs, leading to errors and delays in processing and delivery of orders. The use of metrics and definitions are inconsistent, and focus primarily on costs and a measure of order completion. Key initiatives to reach the next level: Develop and document an understanding of customer needs and executional requirements by documenting service failures along with customer preferences. Create and monitor metrics that reflect the ability to ship orders complete and on time. Build functional excellence in servicing the customer. Document and standardize processes for order to delivery. Implement systems that automate the flow of information in the order-to-cash process. Stage 2: Transactional Collaboration In Stage 2, companies need to develop the ability to collaborate internally. The goal is to reach a shared understanding of customer expectations and transactional requirements by function, which supports a proactive approach. Each function should document customer approaches, key contacts and preferences. This lays the groundwork to start collaborating across internal functions managing the customer usually across customer service, transportation, warehousing, customer finance and sales. Each function at this stage still works primarily independently or in loose coordination to improve transactional processes. Implement transactional systems of record (SORs) and ERP, and begin working on connectivity to other enterprise systems such as the transportation management system, the warehouse management system and planning. Start using multienterprise collaboration tools in the form of electronic data interchange (EDI) for trading orders and invoices. The focus on cost and efficiency remains, but functional-level metrics should be implemented that measure fill rate, on-time shipment and cash collection (usually days sales outstanding). However, these metrics are still not joined up across processes, and do not reflect customer definitions. Basic trade terms, where they exist, focus on driving adherence to payment terms and minimum order quantities (MOQs). There is a one-size-fits-all approach to servicing all of the customer Gartner, Inc. G Page 5 of 12

6 demands, which can be costly and result in failures due to a lack of supply chain flexibility, responsiveness, resources and focus. Key initiatives to reach the next level: Develop and expand internal collaboration skills. Encourage collaboration across functions to deliver excellence in key end-to-end business processes such as O2C and S&OP. Support the move to process excellence with metrics and scorecards that reflect process health; for example, on time, in full (OTIF) and forecast accuracy. Create a shared knowledge of customer requirements and drive for transactional excellence. Implement tools/systems to drive automation and visibility across the end-to-end supply chain. Use these tools to strive for zero-touch orders and other transactional efficiencies. Implement a cost-to-serve capability. Build trust across the business in the supply chain's ability to consistently and reliably meet customer transactional requirements. Stage 3: Transitional Collaboration In Stage 3, internal collaborative practices are well-developed. Collaboration across functions drives excellence in the execution of end-to-end business processes, such as S&OP and O2C, resulting in improved efficiencies and cash flow. Form customer-focused supply chain teams (which may have different functional reporting relationships) to drive improved understanding and resolution to customer-specific service needs. Integrate and align the activities across the supply chain and commercial teams to focus on delivering reliable, consistent service to customers, while balancing costs and cash flow. Increase knowledge of customer requirements across the organization, and push for the focus on excellence in customer service as a corporate priority. In support of the cross-functional integration and approach, deploy more comprehensive metrics that reflect the health of end-to-end business processes (versus the functional metrics in Stage 2). Embed accountability for driving improvements in customer service metrics across supply chain and sales teams. Share scorecards reflecting service performance across the business to support broad-scale ownership. Take aligned cross-functional actions to address gaps in service. Pay as much attention to customer service metrics (OTIF) as financial metrics in S&OP. Include customer satisfaction metrics, usually obtained from voice-of-the-customer surveys, as part of service scorecards. Here again, gaps are addressed through aligned actions of cross-functional teams. Excellence in reliable execution establishes supply chain credibility as a partner that can consistently meet customer needs. This forms the foundation for building trust internally with the commercial team and externally with customers. Developing this trust is crucial to expanding customer partnerships. It is this trust with customers that opens the door for deeper collaboration and the co-development of strategies that enable the creation of value beyond order management. Trust is an element of a cyclical process to create commercial value for both you and your customers. Figure 2 depicts the iterative process of building trust and commercial value. The process begins with the agreement and support of top supply chain leadership in your company Page 6 of 12 Gartner, Inc. G

7 and your customer's organization to partner on opportunities to drive improvements in service, cost and cash. Resources are assigned from both organizations to develop an understanding of customer pain points and needs, and then they work together to identify potential solutions. These solutions are then tested, implemented and monitored to track delivery of the projected value (for example, improvements in cost, speed, cash flow or service). Projects require joint governance from both supplier and customer, as well as ongoing stakeholder support. Figure 3. Focus on Commercial Value and Build Trust Source: Gartner (May 2017) In Stage 3, these initial collaboration opportunities are tested via pilots. Areas for pilots usually begin with some mix of the following: Sharing customer inventory levels for vendor-managed inventory (VMI) to improve service and reduce inventory (see "The Resurgence of VMI How CP Manufacturers Improve Availability While Reducing Costs and Inventory"). Sharing forecasting information to collaboratively plan, forecast and replenish products (CPFR) to improve service, cost and inventory (see "How to Improve Customer Service in Today's Volatile Marketplace by Establishing Collaborative Planning"). Value-stream mapping of end-to-end product flows (from factory to end-use point) to improve speed and reduce inventory. Gartner, Inc. G Page 7 of 12

8 Synchronizing order-to-delivery processes, including master data, to decrease order lead times. Evaluating transportation and warehouse networks to identify improvements in cost, speed and sustainability via front haul, backhaul, customer pickup or co-shipping opportunities (see "Multienterprise Collaboration: Tips for Collaboration in Transportation"). Creating new products or services (co-innovation). Sharing customer downstream data (such as point of sale [POS] in retail) to improve execution of promotions and new item introductions. These opportunities are not exploited with every customer. The one-size-fits-all approach, prevalent in Stages 1 and 2, changes to a segmented service approach that considers differences in customer size, capabilities, willingness to partner, cost to serve and the degree of alignment with long-term business goals. Implement customer service segmentation with the goals of protecting value with low-volume accounts and creating value with high-volume, top-value accounts (see "Consumer Products Companies Drive Value Through Customer Service Segmentation"). Technology solutions move beyond ERPs to include internal collaboration tools, such as CRM, as well as internal visibility tools that give end-to-end views of supply and demand, and order-todelivery status across the supply chain. Leaders leverage this improved visibility and knowledge of the customer by applying advanced analytics and machine learning to identify and quickly resolve customer-specific service issues. Information from VMI and joint-demand-planning processes are integrated into internal planning processes and systems, driving improvement in overall forecast accuracy and ability to supply. In addition, automation tools are deployed within the order-to-cash process to drive greater efficiencies in transactional order processing. Efficiencies gained are reinvested in people, process and technology for driving new customer collaboration projects and thus increased value creation. Key initiatives to reach the next level: Develop strategic supply chain relationships with key customers, and identify stakeholders for collaboration initiatives. Focus on building and expanding trust in the partnership. Align on metrics definitions and methodologies for measuring service performance and joint value creation. Create the capability to measure, report and improve based on the agreed definitions. Expand pilot initiatives and create a "toolbox" of services and solutions for collaborating with customers. Create specific supply chain roles, commonly known as customer logistics managers. Have them partner with the commercial team and the customer to manage the customer supply chain integration and value creation opportunities across the end-to-end value stream (see "Supply Chain Brief: Lead With Customer Logistics to Gain Competitive Advantage"). Page 8 of 12 Gartner, Inc. G

9 Stage 4: Bilateral Collaboration By Stage 4, successful collaboration pilots have expanded to full-scale projects (and, in some cases, are now standard ways of working). Companies have menus of customer-specific offerings for value creation. External collaboration becomes a recognized source of competitive advantage and is a corporate priority. Customer collaboration is integrated into the fabric of go-to-market and commercial strategies and becomes part of the overall commercial goals with customers. As the collaboration partnerships grow, knowledge of the differing needs of key customers emerges. To address these needs, supply chain must develop new capabilities. The supply chain strategy moves from a one-size-fits-all approach to multiple, customer-specific supply chain strategies that deliver specific customer outcomes and solutions (see "For Supply Chain Executives: How Segmentation Supports New Growth and Efficiencies"). This is a significant strategy shift. The supply chain moves from being a provider of products and services, to a provider of solutions that address customer-specific needs. Collaboration expands beyond the one-to-one supplier-customer partnerships to include key suppliers, and the synchronized value chain extends from supplier through to customer. Performance measurement must transition from being focused on internal performance to focus on the performance of the end-to-end value chain. Implement a new set of metrics and scorecards that reflect improvements in the end-to-end value chain. These scorecards capture: Metrics based on customer priorities and definitions. Joint value creation benefits in terms of improvements in service, cost, cash, sustainability and speed. Individual collaboration project timelines and deliverables. The scorecards are used as part of regular customer service strategy reviews both internally across the supply chain and commercial teams as well as externally with key customers (see "Toolkit: Consumer Products Supply Chain Collaboration Scorecard"). Managing multiple collaborative customer relationships across multiple customer logistics managers and cross-functional customer teams can be challenging. Top supply chain organizations implement a customer operations review (COR) where senior leaders from supply chain and sales meet monthly. They review the execution of customer-specific strategies and the status of collaboration projects with top accounts, and take actions to address any gaps or issues. The output of these meetings is a direct input into S&OP, the individual customer meetings, and the supply chain strategy development of capabilities to meet future customer needs. For details of the operational aspects for managing the COR, see "Establish a Customer Operations Review Meeting to Drive Value and Cross-Functional Alignment." New technology solutions are added that build on the foundation with multienterprise visibility, collaborative relationships and practices supported by a carefully selected system of differentiation (SOD) and system of innovation (SOI). Currently, there is no one system that can connect across the end-to-end supply chain across multiple enterprises. The next evolution of multienterprise systems will not only require the interconnection and interoperability of data and processes, but also of Gartner, Inc. G Page 9 of 12

10 different networks. For companies to gain visibility and control over end-to-end processes, this generation of systems must span multiple tiers of enterprises and many types of businesses connected via networks and intelligent workflows. Key initiatives to reach the next level: Expand the knowledge of customers to include the needs of the customer's customer (the endcustomer, consumer or patient). Expand collaboration partnerships across the value chain from supplier's supplier to customer's customer. Collaborate to deliver novel solutions and innovations to address the needs of both your direct customer and your customer's customer. Expand the use of CRM tools and multienterprise visibility capabilities to facilitate real-time communication between a network of supply chain partners. Leverage intelligent machines to perform some decision making. Stage 5: Multilateral Collaboration As the knowledge of the customer's supply chain deepens, so does the knowledge of the customer's customer the end-consumer or patient. The scope of the collaborative relationship changes to provide unique solutions, products and services for the end user. The most advanced companies orchestrate across parallel providers in multilateral collaboration relationships within an ecosystem. An ecosystem is a network of interlinked companies, such as suppliers and distributors. They interact with each other, primarily complementing or supplying key components to benefit customers of their products or services. The supply chain collaboration partnerships expand to include the supplier's suppliers, universities, government agencies and, in some cases, (former) direct competitors. Top performing organizations use ecosystems to co-create solutions and take advantage of distributed capabilities. One of the best-known examples is Apple, which moved from a strategy of supplying PCs to a strategy of supplying a computer in your pocket (the iphone). Multiple providers are orchestrated across supply chains in a synchronized way to deliver components, screens, apps, connectivity, packaging and service that meets or exceeds consumer expectations. More and more businesses are working collaboratively with customers, suppliers and partners to co-design new features, processes, products and even business models. In co-design, the different company subject matter experts form teams that work directly with customers and partners to actually describe, specify and possibly even build a new way of doing things, an enhanced product that fits a new customer need, or a streamlined business process that eliminates customer frustration and company expense. The supply chain collaboration strategy must expand to embrace all partners in the ecosystem. The complexity of managing across multiple organizations, with differing cultures, should not be underestimated. The digital revolution is enabling greater visibility of demand, supply and orders. Analytics and machine learning are enabling collaboration in new and exciting ways. However, this is not yet seamless across enterprises. Some partnerships are long term, while other partnerships Page 10 of 12 Gartner, Inc. G

11 may only last for the term of a specific project. Partnership selection, and the ability to quickly onboard and offboard new partners are key. Clear rules of engagement and alignment on expected outcomes must be agreed upfront across all parties. Ecosystem orchestration requires another new set of metrics to reflect the end-to-end nature of the relationships. In Stages 1 to 3, the metrics reflect the health of the internal supply chain; in Stage 4, the metrics expand to reflect the health of the internal and external supply chain; and in Stage 5, the metrics reflect the health of the ecosystem supply chain. In Stage 5, for example, availability at final point of use, network inventory, network costs and network lead times become the measures of success. In addition, metrics indicating the final customer value experience become a key indicator of success for the network of collaborative partners. The increased focus on customer experience is becoming central to many companies' go-to-market commercial strategies. Measuring customer experience goes beyond voice of the customer (see "Beyond the Perfect Order: Measuring the Customer Experience of Your Supply Chain"). Key initiatives: Maintain an ongoing focus on developing and building trust with the various partners in the ecosystem. Implement governance structures to facilitate sharing of one source of information on metrics, program progress and actions required to address gaps. Understand the ever-changing needs of your customers and their customers. Put mechanisms in place to translate and orchestrate these requirements throughout the extended ecosystem supply chain. Stay abreast of rapidly changing technologies and solutions that facilitate visibility across multiple enterprises, and leverage these new capabilities to create a seamless flow of information and knowledge. Gartner Recommended Reading Some documents may not be available as part of your current Gartner subscription. "Five Dimensions Lead to Successful Supply Chain Performance Management and Metrics" "Supply Chain Brief: Define the Five Stages of Supply Chain Visibility Maturity" "How to Integrate the Order-to-Cash Process Across Functions to Improve Service and Cash Flow" Gartner, Inc. G Page 11 of 12

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