Supply Chain Collaboration

Stephen DeAngelis

March 16, 2011

During a discussion with Supply Chain Digest editor Dan Gilmore, David Johnston of JDA Software and Atul Pandey of Infosys Technologies, asserted that supply chain visibility and collaboration “are critical drivers of … profitable growth.” [“Are Supply Chain Visibility and Collaboration the Key Drivers of Today’s Profitable Growth?” 24 January 2011] One reads a lot about the importance of collaboration in making supply chains more efficient and effective. But what does “collaboration” really entail? I’m sure that there are numerous levels of collaboration and that no single level of collaboration fits all circumstances. Supply Chain analyst Adrian Gonzalez asserts, “Collaboration is arguably one of the most overused words in supply chain management.” [“Unraveling the True Meaning of Supply Chain Collaboration,” Logistics Viewpoints, 31 January 2011]. He continues:

“While there are some success stories out there, there are many more false starts and failures. This got me thinking: WHY collaborate, with WHO, and HOW? Is the driving force to establish a collaborative relationship truly a shared goal, like improving on-shelf availability, or is it more selfish in nature such as…

“…to improve sales and/or profits of your company?
“…to take market share away from your competitors?
“…to reduce your company’s supply chain costs?
“…to eliminate or reduce investments in physical assets?
“…to transfer costs and risks to other parties in your supply chain?
“…to create a more flexible and responsive supply chain?

“And how can manufacturers and retailers organize themselves around a shared goal when they also have many conflicting objectives?”

Those are great questions. My first reaction to them is that collaboration is not an either/or situation (i.e., it is not about “shared” or “selfish” goals but both). That is why I believe that there are appropriate levels of cooperation rather than a one-size fits all version. To highlight some of the conflicts between manufacturers and retailers, Gonzalez included the following graphic in his post.

Retailer-Manufacturer-ConflictingGoals

Gonzalez offers no answers; rather, he raises more questions. He continues:

“Can you really collaborate if everyone wants the benefits but none of the risks, costs, and assets? WHO to collaborate with and HOW are also interesting questions to ponder. When you take into account the potential benefits of a prospective collaborative relationship, and how easy or difficult it will be to set up and manage, which type of partner provides the best opportunity for success? Collaborating with a customer? A supplier? A competitor? A company outside your industry? A 3PL? And which model works best, and in which cases?

  • “One-to-One within Industry: Direct relationship between your company and one other company in your industry (customer, supplier, etc).
  • “One-to-One outside Industry: Direct relationship between your company and one other company outside your industry.
  • “Many-to-One within Industry: Relationship between your company and several other peers to serve a single, common customer (likely facilitated by a third party).
  • “Many-to-Many within Industry: Relationship between your company and several other peers to serve multiple common customers (likely facilitated by a third party).
  • “Many-to-Many outside Industry: Ad-hoc or structured relationships between your company and a network of other companies from different industries facilitated by a third party.

“So many questions, so few answers (at least for today).”

Analyst Sachin Shetty reports that “organizations are getting very serious about collaborative relationships with their suppliers and are investing a great deal of their time & resources in strengthening the relevant processes.” [“Getting Serious about Supply chain collaboration,” Supply Chain Management, 14 February 2011]. He reminds us that “supply chain collaboration is nothing new in the world of competitive supply chains.” So what’s all the fuss about and why are companies only getting serious about collaboration now? Shetty believes it is because collaboration is no longer confined to “mature and large suppliers … who can afford … to be connected with EDI.” He continues:

“Organizations have realized that even smaller suppliers are important to be ahead in this competitive landscape, as disruptions from their end could potentially disrupt the entire supply chain. Also the sky rocketing supply chain costs could be pushed back somewhat by setting up automated online collaboration, communication & data exchange processes, with small & Large suppliers, which reduces the overhead of resources to manage these manual processes. Transactional data/document exchanges like Purchase Orders & Shipping notifications were implemented using EDI by many organizations. Now the same basic document exchange functionalities are being extended to smaller suppliers who do not need EDI to exchange documents but can do the same on the Web browser interface.”

Collaborative ventures also permit companies to assess risks associated with certain suppliers (e.g., financial, geographical, or transportation risks). Such assessments help make planning and forecasting efforts much more valuable and accurate. Shetty concludes:

“Customers are extending their planning processes beyond the inward looking planning applications to include extended supply chains, e.g. exchanging forecasts with suppliers and receiving their supply plans. This has a potential to have a huge positive impact on supply chain agility – response times, long term planning accuracy, improve compliance and reduce supply chain costs resulting in contributions to revenue and profitability. The fact that supply chain vendors have also ramped up their offerings in this space, by adding significant functionalities that could be used to fully exploit the potential of supply chain collaboration, has helped.”

Another supply chain analyst, Trevor Miles, agrees with Shetty that technology can help with the collaboration challenge; but, he insists, “The real barrier to collaboration is not technology, but trust.” [“Do you trust yourself to collaborate?” The 21st Century Supply Chain, 17 December 2010]. Miles writes:

“I believe very strongly in the value that collaboration can bring to massively outsourced supply chains such as we see in electronics and apparel. But what is collaboration and what value does it bring? All too often what we see as progress in collaboration is an exchange of data, perhaps on a more frequent basis, using EDI, when really collaboration is about working together to achieve a shared objective, but perhaps not a common goal. By that I mean each party is playing a part (their individual goal) in reaching the shared objective.”

As noted above, I agree with Miles that collaboration is not an either/or situation in which a company has to pursue either shared goals or selfish interests. I like his choice of phrasing: “collaboration is about working together to achieve a shared objective, but perhaps not a common goal.” Miles was inspired to write about collaboration after “watching two fascinating talks on TED titled ‘Deborah Gordon digs ants‘ and ‘Howard Rheingold on collaboration‘.” He describes what he learned:

“Ants do indeed exchange ‘data’ with each other, but somehow they are able to determine which task to perform that is in the best interest of the colony, changing their roles on an as-needed basis. People went from hunting rabbits through individual action to hunting mastodons through collective action. In other words, collaboration is a lot more than exchanging data using EDI. Or is it? A search of the internet brings up the following definition for ‘collaborate’:

col•lab•o•rate (k -l b -r t )

intr.v. col•lab•o•rat•ed, col•lab•o•rat•ing, col•lab•o•rates
1. To work together, especially in a joint intellectual effort.
2. To cooperate treasonably, as with an enemy occupation force in one’s country.

“I think this definition brings together the ying and yang of collaboration very neatly. On the one hand we see collaboration as something positive that will bring mutual value. On the other hand we view collaboration as working with the enemy to the detriment of our own group. What I find fascinating is that the same action can be perceived to fall in either category depending on the perceived objective and the level of trust one has of the party with which one is collaborating. The conclusion I came to is that the real barrier to collaboration is not technology, but trust.”

Trust, of course, is the foundation that undergirds the global economy. Banks trust that debtors will repay their loans. Suppliers trust that customers will pay for their products. Retailers trust that shoppers will pay their credit card bills. Miles notes that he was further convinced of the importance of trust in collaboration as he followed “a recent discussion titled ‘What’s happened to CPFR’ in the Institute of Business Forecasting (IBF) group on LinkedIn (membership required) that was started by a guest blog by Lora Cecere of the same title on IBF.” He continues:

“For those who may be unfamiliar with the term CPFR it is an abbreviation for Collaborative Planning, Forecasting, and Replenishment which starting in 1995 as a Wal-Mart initiative to improve the efficiency of planning and replenishment between retailers and suppliers. Clearly collaboration is at the very heart of this initiative.”

Since Miles realizes that many readers might not be members of the LinkedIn IBF group, he provides a few of the comments that were made during the online discussion:

“As one commenter in the LinkedIn group states:

‘I tried CPFR with one of my biggest customers. It was failed before it started to work. The customer’s only interest was to put all the risk/cost on my side. They even didn’t want to be [bound] by their own plan.’

“Where’s the trust in that statement! Another commenter on the LinkedIn group, whom I presume works for a retailer, states (with minor edits from me):

‘I don’t think CPFR can work… Retailers also don’t receive any info from the consumers of what and when they will be purchasing. I think [the] process [should] start [with] the ‘Voice of the Customer’. … (I want to find the product I am looking for on the shelve and buy and take it home if possible).’

“To bring it all together a 3rd commenter stated that:

‘… forecasting and planning process is used to set sales targets, rather than predicting demand…’

“Lora Cecere’s opening statements are also very direct.

‘Go to any supply chain conference, and you will hear it. Yes, the term collaboration is bandied about. It is over-used and often over-hyped in discussions largely without meaning. So, what does it mean? And, what happened to the supply chain collaboration initiatives of the 1990s? Let’s start with the definition. The greatest success in supply chain relationships is when true collaboration happens. What does it look like? It is a when a sustainable win/win value proposition. Six elements are required: resources, skills, joint vision, leadership, a plan, and aligned incentives. The problem is that the so-called ‘collaborative programs’ of the 1990s focused solely on process missing the mark on these six elements. The [tenets] of … CPFR were well-intended, but they fell short in building true collaborative relationships.’

“And yet the potential value is enormous in terms of both reduced inventory and in terms of supply chain agility, not to mention the cost of ‘policing’ the supply chain relationships.”

We’ve almost come full circle back to Gonzalez’ question, “Can you really collaborate if everyone wants the benefits but none of the risks, costs, and assets?” Miles believes you can overcome such challenges if you can develop trust. How do you develop trust? He believes that “social media concepts combined with cloud computing” are providing some insight into how trust can be increased. He continues:

“Too many of us technologist (yes, I am one too) start with the cool technology stuff, forgetting to start by articulating and getting buy-in to the business benefit. Put differently, in building trust that the collaboration is of both individual and mutual benefit, and that technology is not a barrier but an enabler. So I am optimistic that a combination of unique circumstances of both business drivers and available technology will lead to increased adoption of collaboration within the supply chain space, both within an organization across functional boundaries, and across organizational boundaries. …The business case is there. What we need to do is to provide tools that make the collaboration feel natural. I think that the very rapid adoption of social media concepts inside the workplace, such as Salesforce Chatter, indicates that the users are ready. To repeat, the conclusion I came to is that the real barrier to collaboration is not technology, but trust.”

Marisa Brown, director, APQC Knowledge Center, and Rob Spiegel, a knowledge specialist, report, “In almost every industry, supplier relationships can either make or break an organization’s ability to service customers responsibly and reliably while maintaining cost effectiveness and managing assets effectively.” [“Ten Steps to Designing an Effective Supplier Relationship Management Program,” Supply Chain Brain, 15 February 2011]. The article reports that “successful programs have four major components: methodology, collaboration and supply chain synchronization, technology processes, and measurement and rewards. Each of these best practices also has its own components that total 10 overall.” You can read the article to learn about all ten of components. Here I want to focus on the three components associated with “collaboration and supply chain synchronization.” They are:

    • “Strategic relationships require time, trust, mutual understanding, regular and consistent communications, and mutual commitment to establish a long-term relationship.

“Building an effective supplier relationship framework involves identifying and categorizing spend characteristics and then implementing initiatives across a rationalized supplier base.

“Working with suppliers to develop mutual capability and integrated strengths serves to continuously improve supply chain effectiveness and, ultimately, customer service.”

You should be convinced by now that good collaboration can’t be described in three bullets. Nevertheless, the three components of successful collaboration and supply chain synchronization do highlight that good collaboration takes hard work, constant attention, trust, mutual understanding, regular and consistent communications, and mutual commitment. It’s not easy, but most analysts seem to agree that rewards are worth the effort.