Supply chain collaboration: why the problem isn't where everyone thinks it is

When we start talking about collaboration, people often think the problem lies with marketing, sales, and supply. But in reality, I argue that the problem cannot be there.

What you will find in this guide:

• What supply chain collaboration is and what it is actually for
• The three existing types and the order in which they should be addressed
• The differences between S&OE, S&OP, and IBP
• The measured benefits, and why 8 out of 10 initiatives fail to capture them
• Where the process breaks down: the level of aggregation and unused sell-out data
• Who should have the final say on the final number
• What software must do to support all of this

What is supply chain collaboration?

It means that all areas within the same product flow plan and execute using the same data and a single plan. It is not a monthly meeting: it is a process.

One of the most cited definitions in the literature describes it as follows:

"A partnership process in which two or more autonomous companies work closely together to plan and execute supply chain operations toward common goals and mutual benefits." Cao and Zhang, Journal of Operations Management, 2011

In the day-to-day operations of the companies I work with, this means four specific things:

• The same numbers. Sales, marketing, planning, procurement, operations, and finance all look at a single source.
• The same discussion. Everyone debates the same projection, not different files.
• A single figure. The process ends with a number that all departments will stand behind.
• With finance involved. Because the decisions made there commit working capital.

The goal of collaboration is not internal

Collaboration has one goal: to align the company internally, but in order to impact the external customer.

Why? Because if your external customer doesn't have that product when they want to buy it, well, you're losing service level. That is where you have to think about what we are impacting with the internal process we are carrying out.

But that internal collaboration process influences something that is currently paramount for an organization: working capital. So, what we call the finance department also enters into the collaboration process.

Why it matters: what is lost when you don't collaborate

When there is no collaboration, each department optimizes for itself and the business pays the price. This is what I see happening over and over:

None of these losses show up in a single department's metrics. They show up in working capital, which is why collaboration is no longer just an operational issue, but a leadership priority.

Types of supply chain collaboration

There are three. Companies usually have one figured out, but not the other two.

My recommendation is not to skip the order. A company that cannot get sales and planning to look at the same numbers will struggle to sustain a collaborative process with its customers.

The methodologies: S&OE, S&OP, and IBP are not the same

They are not synonyms. They differ in time horizon, granularity, and the departments involved, and confusing them is one of the most common mistakes.

S&OE (Sales and Operations Execution). Let's clarify: this is the tactical scenario, what is happening to us day-to-day, in the short term, over the current month or the next 3 months. This is where we work with the sales team at a slightly lower level of granularity, which could be at the product level, or at the product, channel, and location level.

S&OP (Sales and Operations Planning). This is a strategic scenario, and S&OP is not measured in 3-month increments: it looks at 18 to 24-month horizons, because this is what determines how many distribution centers I will need, whether another plant will be required, or if more staff will be needed.

It is a completely different scenario that can no longer be viewed at such a low level as SKU, channel, product, or SKU, channel, and customer. It cannot be viewed at that level because long-term forecasts have a higher probability of being inaccurate or unreliable. The S&OP model must be viewed in aggregate, and often it is not even viewed in quantities, but in monetary value: to know how much I am going to sell over the next 24 months for that product in X, Y, or Z location.

IBP (Integrated Business Planning). What this groups together is that, yes, I have marketing, sales, and supply chain and operations in that S&OP. But with IBP, we start talking about finance. And why? Because all of this also impacts the financial side. If I am going to buy more, what will I need? Working capital. And who does working capital affect? Our friend in finance.

It is key to start differentiating: which methodology am I going to use, and what is the methodology for? Why? So that we don't confuse concepts.

Learn more: differences between IBP and S&OP.

The cost of money is also part of the process

Working capital is the money we need to operate. And that money has a cost that most people don't include in the planning process.

If we project a certain sales volume in S&OP, the finance team must be aligned to have the resources to purchase the raw materials or products I will need. That is where the company's financial muscle comes in, and it boils down to three questions:

1. If we need a million dollars, how much is available in cash flow to cover it?
2. Or do I have to go out and look for it at a bank?
3. At what interest rate? Because that rate must be embedded in the process.

I also have to see that that product has a cost that I am assuming. Many don't even take that cost into account; many don't even realize that we are going to the financial sector to ask for that money.

So this is a process, and as we often call it, a systemic process. Everyone has a part in that process, and everyone must understand the end goal of the process so that, in the end, true collaboration actually happens.

Benefits: what a company gains from collaborating well

According to McKinsey, a mature IBP practitioner achieves 1 to 2 percentage points more in EBIT than companies without a well-functioning process.

The rest of the figures from the same analysis:

Source: McKinsey, May 2022.

Sell-in and sell-out: the side almost no one uses

Sell-in is the internal data we have. Sell-out is the real data of what is actually happening: the data our customers provide to us.

In my experience, I have seen that this side is often not even used. Why? Well, because customers provide that data in different formats, and ultimately, making sense of that data in Excel is so complex that they can't do it.

And that is a shame, because sell-out answers questions that sell-in cannot:

• What is the inventory I have at my customers' locations? That information is in the sell-out.
• How have my products been moving?
• In which locations? Some customers provide it by location, and some provide it by distribution center.

So, how do they need to understand that information to ultimately be able to make decisions?

Cross-functional data integration

It means all departments see the same data and speak the same language. No independent Excel files or siloed information.

That is where the complete collaboration process comes together, and there are four steps in order:

1. Unify the data. A single source, not separate files for each department.
2. Project sell-in, which is my internal data.
3. Cross-reference it with sell-out, to understand if what I am projecting aligns with the inventory my client may have.
4. Carry out a strategic replenishment of the entire process.

What obstacles might prevent effective collaboration?

The main one is the level of aggregation. Each department wants the forecast at a different level, and that is where the departments hit a wall.

This is what we call the level where I need to collaborate, and the two positions are as follows:

• Supply chain says: I am going to collaborate at the SKU level; I need a forecast at the SKU level.
• Sales says: I am not interested in a forecast at the SKU level, because what I care about is knowing how much I need to project for each client. I need forecasts at the level of SKU and each of my clients.

That is where the system starts to break down. On one hand, some are looking at what matters to that specific area, but on the other, others need different information, and that is where things stop aligning.

This is super important: when we are going to carry out a collaboration process, we have to be aligned. Planning needs to see the same scenario that the sales or marketing team is collaborating on, which in this case is SKU-customer. Why? Because that way, we also make life easier for the sales team.

First collaborate with sales, and then reconcile

Sales provides data at the level that is easy for them, and the technology scales it up to the level that planning needs. That is the reconciled forecast.

We must start with two facts about the sales team:

• Collaboration is difficult for them. The collaboration process is always a drain on the sales team because it is extra work they have to do. Sales is focused on selling, not on internal collaboration.
• But their information is the most valuable. The sales team has insight into both the customer and the business in general, and they need to collaborate to ensure that what they are selling is something we can actually deliver.

So the idea is to make it easy for them, ask for the information they need for commercial decisions, and adapt to that as much as possible.

The goal is for the process to be aligned. That all areas feel confident and find it easy to collaborate so that, obviously, information can flow.

Who should decide what the final figure is?

The planning or supply chain department defines it. And why? Because the planning department at this point is much more rational than aspirational.

I am in sales, and as sales teams, we are super aspirational:

What you do, obviously, is tell them: "Hey, planning team, I’m going to sell a million dollars, so produce enough for me to hit that million."

However, the market shifts, things change, and often our aspirations don't align with reality.

That’s why I say this is where the objective side comes in—the side that needs data to analyze, which is demand planning. And the question you have to ask is: "Why do you say you're going to sell a million dollars? Help me understand the reasoning so we can see if you're actually going to sell a million dollars."

This is where the sales team needs to be much more objective and say: "Look, I need to sell a million dollars, I want to sell a million dollars, but what am I actually doing in terms of marketing campaigns, incentives, or specific initiatives to get there?" It shouldn't be just an aspiration; it needs to be rational.

Sales used to call the shots

Sales used to say, "You have to produce a million dollars for me," and planning would just comply. That’s changing, because planning now has more data, decision-making power, and support.

When demand is this volatile, when sales aren't coming easily, or when competition is fierce, we have to be very rational. Why? Because we can't afford to tie up our working capital. Look at how it’s all linked:

1. Sales says they’re going to sell a million dollars.
2. A million dollars' worth of product is manufactured.
3. But only 700 thousand are sold..
4. There is $300,000 impacting working capital.
5. That affects the finance department.
6. And you have to go out and secure those resources to be able to resume operations.

So, alignment is key. And I always say: whoever is most rational in the process—which in this case will be planning, as they have the data—is the one who should have the final say.

The manager's role: informed and empowering

The manager needs to be involved in the collaboration process. I don't mean in the day-to-day operations, but rather by staying informed and empowering the team.

It happens often that most managers come from sales teams. When sales raises their hand and says they’re going to sell a million dollars, the manager’s order is often just, "Go make that million dollars."

But when that million dollars isn't sold, the same manager is often the one asking: "Hey, why didn't we hit the target? I don't have the cash to operate—whose fault is it?"

That happens because the manager isn't aligned and isn't objectively understanding what is actually going to happen. Aligning with the process isn't about making gut-level decisions; it's about making much more objective decisions by understanding the patterns of what is unfolding.

To give an example, the manager needs to understand what each area requires:

• Supply
• Planning
• Purchasing
• Sales
• Marketing
• Financial

So that with that vision and data, he can also align us and advise them. It’s not that he makes the decisions himself, and I say no, because that’s what he has teams for. But it’s about how he manages to align and empower them, so that information flows, he has the knowledge, and in the end we can impact the business.

It’s super important: he has to be empowering, empowered, and have information to lead well. I would say that is the most important thing.

Software and technology for supply chain collaboration

You can try to do all this in Excel. What it can’t handle is every department asking for a different level of detail, customer data arriving in a thousand formats, and projections changing every month.

These are the capabilities I would look for when evaluating a tool:

At Datup we built our S&OP and S&OE collaboration module around that: a centralized forecast, multi-scenario collaborative forecasting, and reconciled demand forecasts, connected to demand planning and inventory management. If you want to see what this looks like in real companies, check out our case studies.

I want to conclude with a warning, as this is the part most often ignored during the purchasing process.

My recommendation for managers

The tool or the process you're using won't always tell you what you want to hear. It just won't.

Often, as a CEO or a sales team, you might be looking at very optimistic projections. But in reality, when you look at the data through an advanced tool, the numbers don't add up and the results are trending downward. That’s when people start saying: "This tool is useless," or "Hey, this isn't working."

But that’s not the case at all. The tools are actually helping you understand what is really happening.

That is where strategy must come in: what are we going to do about these numbers, which are likely trending downward, to turn things around and hit the targets we need?Technology provides you with a baseline—the leverage you need to understand what steps to take to improve, but it will never show you what you want to see.

And this is happening to many people today:

• — Hey, why aren't the numbers in the tool going up?
• — Sir, because the trend is heading downward.
• — But no, that has to be going up because we need to sell more.
• — No: you need to sell more, but tell me what you are going to do to make that happen.

Don't ask the tool to lie to you; that’s not what you’re paying for.

If the tool tells you what you want to hear and demand drops when the time comes, you’ll obviously claim the tool isn't working. But no: the tool had already told you what was going to happen, but you didn't take action to prevent it.

The key is to truly understand the numbers. They shouldn't just confirm what we hope to see; they should show us reality so we can take specific actions—launching marketing campaigns, creating incentives, or shifting our focus.

Ultimately, don't expect the tool to tell you what you want to hear, because more often than not, that won't happen.