We formalise our supply chain relationships via agreements we forge with our partners, who are our vendors, 3rd party service providers, & customers. We manage our supply chain operations to ensure we perform to the agreed expectations of our partners.
Most supply chains have existing infrastructure in place when we negotiate with our partners. Our manufacturing & logistics facilities are set up and running. Our fleets of delivery vehicles are available and ready. Our telecommunication & information systems are in place and operating.
We adapt our supply chains to terms & conditions of the contracts we have with our vendors & service providers, or to the commitments we made with our customers. We plan, organise, direct, and control our systems & resources and enlist & work with people to establish standards & achieve objectives to ensure we meet our ends of the deals.
It is a norm in many of our organisations to accommodate to what we agreed to with our partners. We accommodate buying large volumes of inbound materials and receiving them into whatever limited storage space we have available because we want to qualify for vendors’ discounts. We accommodate to individual customers’ preferences in delivery schedules & quantities, never mind if we make repeated deliveries in less-than-truckload (LTL) quantities which result in higher freight costs.
A large beverage supplier offered a multinational retailer an additional 10% discount if the latter buys more than three (3) times its regular monthly ordering quantity before the end of the calendar year. The retailer agrees to the deal and immediately leases out all the storage space it could find to accommodate the additional volume the beverage supplier delivers. The retailer’s logistics expenses soar but the savings from the beverage supplier’s discounts more than make up for the costs.
But as much as the benefits seem to beat the costs, other trade-offs from the deal become manifest. The multinational retailer distributes the excess merchandise bought from the beverage supplier to all its stores nationwide. Three (3) months later, the stores return many of the beverage products, either due to damages or because some had overshot their shelf lives. The retailer tells the beverage supplier it is returning the damaged or expired merchandise. The beverage supplier refuses to accept the said merchandise all at once such that the retailer is forced to extend its warehouse leases to store the cannot-be-sold merchandise. The retailer tells the beverage supplier it won’t be buying its regular supply of beverage products until the former is able to return all the unsaleable merchandise. For three (3) months, the beverage supplier’s products are nowhere to be seen at any of the retailer’s stores.
This cycle between the retailer and its suppliers has occurred every year. Retailer buys plenty; ‘saves’ from sizable price discounts; incurs larger storage & transportation expenses; its stores return excess merchandise; retailer & suppliers get into conflict regarding returns. For whatever the retailer and the retailer gained from savings and additional sales respectively, both parties lose in not meeting the demands of consumers. Over the long run, competition from rival retailers and other beverage suppliers seize more market share from both enterprises.
When we agree to new deals with our partners, we often put the cart before the horse in managing our supply chains. We adjust our plans and operations to accommodate to whatever we agreed to. Partners, on the other hand, also accommodate their operations to meet what we expect from them. They also adjust their production and logistics activities to suit whatever we insist.
Accommodation is not bad, but it exacts a price especially if it requires us to change our operations significantly and frequently. How much is it worth when we change production schedules abruptly, arm-twist our vendors to deliver materials earlier, or deliver LTL quantities often? It may look like that the benefits outweigh the costs but are we sure we got all the costs covered?
We should not accommodate when we make deals with our partners. We should instead, collaborate, that is, we and our partners should work to adapt our systems & structures jointly, cooperatively, and rationally.
Collaboration can only be a huge success in the supply chain field when we and our partners not only cooperate but also when we deliberately tailor our systems & structures together.
Tailoring our and our partners’ systems & structures requires not only management but engineering expertise. Supply chains are complicated, and we and our partners can’t just outright keep accommodating to whatever deals we both agree to. We need to engineer our supply chains to customise them to the fast-changing business environments we work in.
Ellery's Essays 
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