It's widely believed today that collaboration among supply chain members will lead to competitive advantage for all. But what exactly is collaboration and what enables it to take place? What are the obstacles that must be overcome? Is achieving supply chain collaboration really worth the effort? And how much collaboration is actually taking place today?

To address these issues, we interviewed 20 supply chain executives from leading companies across a range of industries. (The sidebar on Page 58 lists the participating companies.) These interviews were conducted individually and in focus groups.

The study found that certain enablers (see Exhibit 1) must be in place for a company to achieve supply chain collaboration. These enablers can help the organization overcome the impediments (Exhibit 2) that inevitably surround an initiative like collaboration. If the enablers are in place and impediments are removed, supply chain member can realize some powerful competitive benefits. (These are enumerated in Exhibit 3.) In relating the enablers, impediments, and benefits, we hope that this article will help companies as they strive to build their own collaborative supply chains.

The findings contained a few interesting surprises. For example, we were surprised to learn how many of the enablers identified were related to people and personal interaction as opposed to technology and infrastructure. On the impediment side, it was not surprising to hear mentions of inadequate communication, the time and cost involved, and partner "betrayals." But we were surprised to learn that tax laws and conventional accounting practices also can hinder a collaborative effort.

The same pattern held with the benefits identified. The participants told us that supply chain collaboration can lead to reduced costs, increased sales and returns, better customer service, and an overall competitive edge—all of which might be expected. But one interesting and unexpected benefit mentioned was the positive impact of collaboration on the supply chain partner's public image.

These enablers, impediments, and benefits are elaborated below—in many instances, in the words of the study participants themselves.

To set a baseline for the research, we sought to gain an understanding of how the study participants defined collaboration. The consensus view was that collaboration means that all companies in the supply chain are actively working together as one toward common objectives. (One individual, in fact, likened collaboration to all of the supply chain partners being under common ownership.)

Participants felt strongly that collaboration was characterized by sharing—the sharing of information, knowledge, risk, and profits. Sharing entails understanding how other companies operate and make decisions. It is considered to be much more than cooperation. As one focus group member observed, in the past a successful negotiation was considered about as far as a cooperative relationship could go. With collaboration, he continued, the relationship goes much deeper than the written contract.

We inquired into the origins of supply chain collaboration to get a sense of the participants' grasp of the concept's evolution. Several accurately noted that supply chain collaboration was introduced by Japanese automobile companies as part of a philosophy of creating harmony in business relationships. One executive offered an example of this business philosophy at work: "Toyota fundamentally believes that if they show you how they do things, you will get better. Then you will push them to get better, and it just keeps going back and forth." There was general consensus that this was how collaboration should work.

The participants used two metaphors to describe supply chain collaboration: a marriage and a crew race. Both of these incorporate the ideas of working together and sharing—but with a long-term perspective.

Whereas cooperation and negotiations are like dating, one focus group member said, collaboration more closely resembles a marriage. "It takes a lot of work to build a relationship and keep it going and keep it active and keep it vibrant," he observed. "Once the commitment is made, you don't throw it away after a couple of years."

Another member said that collaboration brought to mind a crew race: "We're going to get to the finish line if we somehow figure out a way to row together."

Because of the level of commitment necessary, true collaborative relationships are anything but widespread. Yet when asked what percentage of supply chains were collaborating in some fashion, the executives in our study gave estimates ranging from 10 to 30 percent. The general opinion was that collaborate initiatives were fragmented—and much of what was considered collaboration was really something else. "A four-year-old may cooperate with you so he won't get paddled," said one executive making the point. "But that is not collaboration."

One of the challenges is deciding with whom to collaborate. The general feeling was that it was not possible to collaborate with everyone. So where do you focus your resources? You look for the key suppliers or customers—that is, those that represent a large portion of your business. "If someone's only doing $1,000 a year in business with you, do you really want to spend the time and effort required in collaborating with them?" one participant asked. Several others said they focused on suppliers or customers that provided at least 70 percent of their business.

Just as determining the who of the relationship is important, so is the what. Not everything is of equal importance. One participant summed it up this way: "There are some very key components, key commodities, key subsystems, and until you define what those are, you don't know what to collaborate on."

Another factor to consider is whether or not the key supplier or customer is even willing to participate in the collaborative experience. The best practice that emerged from the focus groups is to pick key suppliers or customers, get them on board, iron out any problems, and move on to the next set of suppliers and customers. The general opinion is that once collaboration begins with these key supply chain members, it eventually becomes routine and the focus can turn to new relationships. As one executive said, "You only do eight or 10 this year, but then they're up and running. That means fewer resources are needed to manage that relationship going forward, so you can embark on the next eight, then the next eight."

In some cases, a company might find that the best way to build a collaborative relationship is to start anew. At least one participant had great success with this approach. "We started from scratch," this individual explained. "So the people were hired with the objective in mind that this was a collaborative effort, everybody was going to work together as a team, there were no preferred parking places or anything like that. This is how things were from the beginning. And this was a big operation, but we didn't have to retrain anybody."

Developing and maintaining a supply chain relationship, particularly under stress, requires considerable time and effort. But there are certain enablers that can facilitate the task. Two of the cornerstone enablers are common interest and commitment. One focus group member put it this way: "Just as in a personal relationship, the other party's got to be as interested and as committed as you are. You need somebody who has that commitment and staying power to keep working through the details to truly make the difference."

Openness is another core enabler to a truly collaborative relationship. "You have to be very open about what you know and what you have done in the past," one participant observed. "This is not standard industry mode of operation." Of course, there are risks associated with being open. As one supply chain executive pointed out, when you lay your cards on the table, you become vulnerable to someone using them against you.

Successful relationships are fostered when partners help each other—another key enabler to successful collaboration. A number of companies have benefited by asking their suppliers to help design a process or product. One participant observed, "If you ask them in and you show them your process and invite them to become a partner in that process in making it leaner and quicker, you can make significant breakthroughs." Said another: "We are absolutely dependent on our suppliers for new designs. There has to be a lot of cooperation on product design and that implies a number of things. It implies sharing of new technology; it implies security and not sharing it with the competition." The savings from this particular relationship, by the way, were described as "huge."

The executives spoke more often of offering help rather than asking for it. One executive described working for a Baldrige Award winner in a former job. "Once they decided that a company was going to be their A supplier," this executive related, "not only would they go in there and help them with Six Sigma techniques and remanufacturing, but they would also funnel the demand from all of their divisions to that supplier to make sure that the supplier had enough volume to provide the lowest cost."

Another executive described how a well-known Japanese manufacturer helps its suppliers: "They will come into your facility and work with you to solve the problem. They believe that you are their supplier for life and they stand up to that. If you get kicked out of their supply chain, it's because you deserved to be kicked out. They are not punitive in any nature. It's total collaboration."

In short, the most progressive companies ask, "How can we make a supplier better so that it can make us better?"

Clear expectations are required in any lasting relationship. Several of the executives emphasized that companies needed to know what they expected from their supply chain partners and what was expected of them. For example, they described how standards need to be made visible, how responsibilities and ownership must be clearly defined, and how processes must be clear and performance rewarded. Expectations also are helped when each party is consistent. As one participant said, "You build for the consistent relationship with consistent messages throughout the organization, from the chairman right on down." Or as another said, you need to do what you say you'll do "religiously."

Leadership is essential to building these relationships. Of this critical enabler, one focus group participant commented, "Each company has got to have a leader or a champion who's got a personal stake in it, who wants to work beyond the details and make something happen. The easiest thing to do is to say, 'This is going to take too much time. I've got more pressing bottom-line things to worry about.' If you don't have that champion who will move things forward, nothing is going to happen." Another panelist added that you need a champion with staying power—someone who's going to be around long enough to see the collaboration through.

As with a marriage, however, much more effort is needed to keep the collaborative relationship alive than to start it. For example, the partners need to learn to work together, to compromise, and to adjust to one another. This does not come naturally. "There's no legal entity that constitutes a supply chain," one executive underscored. "There's no president or CEO of the supply chain who can basically dictate what happens. It all depends upon cooperation and collaboration among all of the parties." Companies in the supply chain must be able to make individual compromises to achieve the greater good of the whole.

Inevitably, things go wrong in any relationship—even the strongest ones. When this happens, though, companies need to avoid the temptation to punish the partner. The right approach, the study participants agreed, is to talk openly about the problem and work through it together.

Trust is another core enabler to a sustained collaborative relationship. Importantly, trust needs to go beyond the individual. It must extend throughout the organization and be present in dealings at every management level and functional area—be it purchasing, logistics, engineering, sales, marketing, or so on.

Though the related concept of sharing may be difficult to accept for many companies, that, too, is a key enabler to any true supply chain relationship. Simply stated, a good job should be rewarded. One panelist described a cost-avoidance initiative where suppliers were asked to save a certain percentage for the customer. The suppliers were allowed to keep anything in excess of that percentage. Documented performance measures and scorecards also were necessary to identify which supply chain partners were performing well and to gain management buy-in for the collaboration initiatives.

Advanced technology is essential to the success of collaborative relationships. Panelists cited the following kinds of benefits that can flow from this enabler.

• Technology integrates a worldwide enterprise with its supply chain. A company cannot build global collaborative relationships without a technology infrastructure.
• Technology links the multiple tiers of a supply chain. It allows a company to communicate with its suppliers at all levels.
• Technology speeds up information flows. Problems can be identified quickly and solutions developed proactively, rather than late and reactively.
• Technology can help break down barriers between companies. In the hands of third-party logistics providers, for example, technology can be leveraged to capitalize on opportunities that would escape any one company individually.
• Technology can convert the large amounts of data flowing in a supply chain into useful collaborative information.

The panelists agreed, however, that technology in and of itself was not enough. The human contribution is essential. If you don't intelligently analyze the data yielded by the technology and turn it into good information, that technology has brought you very little.

Finally, and not surprisingly, longevity of the relationship was also viewed as an enabler. Recounting his own experience, one participant noted, "What made the relationship successful was its longevity and the trust that built up between the companies. They never let us down, and we never let them down."

In comparing a collaborative relationship with a marriage, the executives cited a number of things that could cause either to fail. Prominent among these were being an adversarial partner, having unrealistic expectations, failing to communicate, and, of course, betraying the partner.

A lot of these impediments stem from past behaviors and attitudes ingrained in the old functional silo mode of operation—the but-we've-always-done-it-that-way syndrome. Others relate to the rules and regulations associated with traditional practices.

Some of the practices associated with supply chain management do tend to run counter to conventional business practices. Accountants are responsible for determining the value of dealing with other firms and protecting against costs being passed on to the company by the partners. But the narrow focus of such practices can become an impediment to supply chain collaboration. Accounting practices need to evolve to measure cross-company values and provide the measurement tools necessary to guide collaborative efforts to share these gains. Tax departments, reacting to tax laws, may dictate how products flow in the supply chain, limiting the opportunities to develop collaborative relationships. Tax laws dictate the need for a clear "price paid" and "price sold" to determine profitability. Yet these practices can obscure the synergistic, and often indirect, cost savings that are primary drivers of supply chain collaboration. Such an orientation discourages any gain-sharing efforts that cannot be directly measured in the price paid and sold.

Another barrier to effective collaboration is the inability to see "the big picture"—an outgrowth of the silo mentality. The executives noted that many managers still have a limited view of the entire supply chain. They focus on their own functional areas, failing to recognize how collaboration with others both inside and outside of the organization will improve overall performance.

Another impediment to collaboration is the practice of annual negotiations. Traditionally, negotiations have tended to be adversarial. One executive described a typical session this way: "We would go to suppliers or carriers and beat them as low as we could. Then we would go back to management and report that we got two cents a pound out of them. That's not the way of the future." The new collaborative model, he added, finds supply chain partners working together to take costs out of the chain for everyone.

Annual negotiations pose another drawback; namely, they cause one or more of the parties to hold something back. "Suppliers know that they've got to come to the table the following year," one executive observed. "Why would they want to put up everything now? What's left for a year from now?"

Negotiations also can be a drain on resources. "It seemed that we were spending three to four months every year on annual contracts and negotiations," one participant explained. "We were just so tired of all of the issues that we had to deal with every single year. And they took so much time." That company has since replaced annual negotiations with multi-year contracts and feels it has developed real partnerships with several key suppliers.

On that same subject, the time required to develop truly collaborative relationships was identified as a barrier to collaboration. It takes time to start and then maintain collaborative relationships. Furthermore, the time needed to establish these relationships often exceeds the time employees stay with a company. One executive described the following situation he once observed: "This company had four bosses in four years. Why would I bother to invest much effort in establishing a relationship with that company, because who knows what the message is going to be next year?" Another said, "In Silicon Valley, five years ago, the average longevity of an employee was 3½ years. Today, it is a year and a half. Now, what can you implement in a year?"

Perhaps the most serious impediment of all is when one partner betrays another. Betrayal can take any number of forms. It can be as flagrant as lying. It could entail stringing along a potential partner. One executive, for example, told how his company met with another to identify joint opportunities. At the end of the meeting, the leader of the other team stated upon leaving that they would think about the proposal for a year or two and get back to them.

Betrayal also can take the form of sharing concepts developed for a partner with a competitor to that partner. One participant described how a large customer asked a vendor to develop a patented technology, then insisted that the supplier give the technology to a competitor. The supplier would have to do so if it wanted to protect its other business with the customer.

Once a relationship is in place, the wrong behaviors and attitudes can cause it to break down. For example, one panelist related how a potential partner's inconsistent behavior from top to bottom derailed a relationship almost before it began. Another talked about the naysayers who block the relationships others are trying to build. "It's, 'Well we can't do that. We can't change loading hours. We can't change this practice.'" Another participant described how his relationship with a supplier's national account representative was very good. But at the operational level, people in his company were complaining about how poor the service actually was. One individual summed up the problem succinctly: "A lack of vision or commitment internally can kill a relationship very, very quickly."

Finally, poor communication may result in behaviors that break down collaboration efforts. A panelist related how failure to communicate a promotion seriously disrupted a supply chain. "Customers were screaming at us," he recalled. "It took us three months to recover and refresh the supply chain."

Once the enablers are in place and the obstacles addressed, a company positions itself to reap the benefits of collaboration. The study participants said that the biggest expected benefits were financial. They pointed to increased sales, lower costs from reduced inventory, fewer personnel, improved customer service, better delivery through reduced cycle times, and increased speed to market of new products. Participants also expected to see improvements within the organization, such as the breaking down of functional barriers and less "fire fighting."

Collaboration should allow a company to eliminate waste both internally and externally and to focus on its core competencies, the executives said. They also noted that collaboration positively affected the public image of the companies involved. When organizations work together, they are usually seen in a positive light—striving for the good of all, not just looking out for themselves. The bottom line of these benefits is expected to be improved returns, increased shareholder value, and, thus, a competitive advantage over other supply chains.

The study participants also expected certain nonfinancial benefits to flow from collaboration. For example, they noted that as companies collaborate, trust and interdependence becomes stronger. With the increased trust comes more sharing of information, ideas, and technology. This level of sharing encourages the supply chain partners to act increasingly as if they were one enterprise, working toward the goals of the whole, not the parts. And this, in turn, fuels the success of the collaborative effort.

The executives participating in this study also gave specific examples of the benefits they had realized as a result of collaborative relationships in their supply chains. Many of these resulted in reduced costs or improved efficiency, for example:

• Going beyond simply providing product to the customer, one supplier worked with its own vendor to develop better ways of cutting a certain material used in the production process. This approach reduced waste and decreased product loss and damage. At the same time, it accelerated delivery cycle time. In short, everyone benefited.
• To eliminate processing steps, a chocolate supplier proposed shipping the chocolate liquor rather than the finished chocolate product. The advantages of this approach were impressive: The liquor had a richer flavor, it could be used immediately, and it was much cheaper to ship in liquid form. The manufacturer had no way of knowing this was possible prior to collaborating with the supplier.
• A supplier offered an incentive (reduced price) to obtain the manufacturer's business in a certain geographic location. The manufacturer got the product at a lower price, while the supplier was able to maximize its output at one particular location and ship the product a shorter distance.
• One manufacturer gives several of its suppliers an attractive incentive to cut costs associated with supplying their products. The deal: Any cost savings realized are split between the two parties.
• An electrical supplier wanted to help reduce warranty costs for a manufacturer. The supplier put people in the manufacturer's call center to identify better ways of investigating problems related to their products. By doing this, the supplier was able to get to the root cause of problems and correct them faster. The end result was reduced warranty claims.
• One manufacturer worked with suppliers on new technology and product designs. Thanks to this relationship, the manufacturer spends much less on research and development than competing supply chains do.
• An air carrier worked with a shipper to make packaging enhancements for the shipper's products. The result was more streamlined handling and lower freight costs—a "win/win."
• A manufacturer was having a problem with the quality of an expensive part. To identify the cause of the problem, the freight forwarder drove the route the product followed to the plant and found that poor roads were responsible. The forwarder suggested an alternate delivery route, which eliminated the damage and saved the manufacturer money.

In addition to the cost savings described above, the participants cited other benefits that can flow from supply chain collaboration. They offered these real-life examples:

• An importer had built a close relationship with an exporter in Hong Kong. During peak shipping season, other companies experienced many days of delay as their goods sat waiting to be exported. But because of the close relationship this particular importer had established with the exporter, its product was given priority and waited only a few days before export.
• A manufacturer used a tracking system to monitor product delivery to its plants. By sharing this system with suppliers, this manufacturer affords them the same level of visibility. Everyone has full access to shipping information and can take speedy remedial action should any problems arise.

As these examples illustrate, the advantages attainable from collaboration are numerous and compelling. The participants agreed that all of these benefits eventually affected the bottom line. Once companies understand this, they are ready to make the commitment to begin collaborating with key supply chain members. The road to collaboration is not an easy one. Yet as our study participants emphasized over and over again, it's well worth traveling.

The enablers and impediments identified through our research can serve as a guide to implementing supply chain collaboration. Simply stated, the enablers listed in Exhibit 1 should be emphasized, the impediments detailed in Exhibit 2 should be anticipated and addressed, and then the benefits of a successful collaboration (as shown in Exhibit 3) should be realized.

The first step toward supply chain collaboration is to look beyond any immediate costs or benefits to the long term. Companies also must remember that it is impossible to collaborate with everyone in their supply chain. They need to identify those partners who are willing and able to collaborate and who will create the biggest benefits. Then they should select key initiatives to begin with. These initiatives should be evaluated based upon their importance to the supply chain's competitive advantage, the degree to which enablers are in place, and the level and intensity of any impediments.

Finally, companies should recognize that most of the enablers and impediments we discovered in this study were people-related. Successful supply chain collaboration is a function of how well people work internally and with their supply chain partners. Although technology is a powerful enabler, it is not the key to supply chain collaboration. People are.

The opportunity in supply chain collaboration is great. In fact, the executives in our study were outspoken about how little true supply chain collaboration actually existed today. Given that the practice is not yet widespread, it can be a powerful source of competitive advantage if implemented now.

Authors' Note: We wish to thank Federal Express and Supply Chain Management Review (SCMR) for co-sponsoring the research. The authors are particularly indebted to Tricia W. Bratton of FedEx Corporation and Francis J. Quinn of SCMR for their guidance, insight, and encouragement.