Collaboration in the Supply Chain: Getting Things Done Beyond the Four Walls
The series is titled “Supply Chain Management: Beyond the Basics” and a new installment will appear each week on our website. It picks up where our original series of articles from Tennessee—the “Basics of Supply Chain Management” — left off. Among the topics we’ll be covering in this latest series are successful collaboration, supply chain risk management, strategic sourcing, supply chain finance, and more.
May 3, 2011
Collaboration among supply chain partners is certainly a hot topic, but many supply chain managers remain unsure of what the concept of collaboration really entails. To some companies, collaboration simply means an exchange of ideas and information among partners – usually directed toward a specific opportunity or problem – where members of the collaborating companies get together to share best practices, address concerns, and generate solutions.
For example, one pet products manufacturer stages monthly meetings with its key transportation providers in order to discuss rates and fuel market concerns, talk about capacity issues, and share demand data and projections for a few critical SKUs for broad-level planning purposes. We can refer to this type of loose collaborative relationship as a “conventional” or weak collaboration, and it carries with it only moderate levels of potential risk and reward for the partners involved.
However, for other companies, collaboration may mean something greater and/or different. Companies that have migrated further down the evolutionary chain of collaboration tend to view it more in terms of a long-term strategic venture, intended to allow partners to synthesize planning; decision-making; and execution on an open-ended, open-subject basis— keeping each other’s desired outcomes in mind throughout. In this latter type of arrangement, which we can refer to as a “vested” or strong collaboration, the key is that both sides have generally put some “skin in the game” – the risks and rewards of the collaborative venture are both real and shared.
Examples of strong collaborations would include synchronizing a manufacturer’s product development and marketing functions with its partner’s packaging and distribution capabilities; joint forecasting and inventory planning among multiple members of partner organizations to optimize total supply chain inventory; and co-creating long-term supply chain network models with upstream suppliers and downstream customers so as to minimize annual transportation costs for the entire system. Additionally, the Vested Outsourcing research conducted by the University of Tennessee provides another excellent illustration of the power of strong collaboration. In a Vested Outsourcing relationship, companies and their third-party providers work together very closely, keeping each other’s key process requirements and best outcome interests in constant focus.
Depending on how your company sees a particular opportunity or threat, collaboration can therefore be approached as either a tactical or strategic-level initiative and would commensurately yield short or long-term, and small- or large-scale, benefits.
In talking with companies who are sponsors of UT’s Demand and Supply Integration Forums and during company-specific projects, I have heard managers say they are interested in strengthening their collaboration arrangements with certain key partners in order to more fully leverage their best relationships. Strong collaboration may be productive in the right settings in some collaborative partnerships, but it is perhaps less advantageous to pursue in other partner/product scenarios. In order to better understand which collaboration arrangement is right for a given setting, it is important to understand the potential benefits of strong collaborations, and weigh those benefits against the potential risks of entering into such an alliance with a partner whose interests may/may not be perfectly aligned with your own. Additionally, you should be aware of the key factors that enable or inhibit productive, collaborative arrangements so that steps can be taken to leverage or mitigate their effects.
To weigh the collaboration decision effectively, we must first gain some sense of what a strong collaboration arrangement entails. Much research has begun to explore this issue, and luckily there is some consensus. Most investigators agree that the close, highly productive collaborative arrangements we denote as strong or “vested” have at least three characteristics in common: 1) deep, intensive communication among the partners, 2) open and free information sharing, and 3) some form of joint planning, including mutually shared goals and dually aligned incentives with which to reach them.
Open communication, information sharing, and joint planning represent the lifeblood of any strong collaboration arrangement, and a venture would almost certainly fail without them. These measures are supported by alignment of incentives across the partnering organizations, which ensures that the developed plans are adhered to and that the resulting work actually gets done. Additionally, variations of strong interfirm collaboration may include several other aspects that are believed to generate additional positive outcomes for the partners. Depending on the specific setting, these may include processes that enable joint problem solving; knowledge-creation routines or “think tanks”; decision-making heuristics designed to align the partners’ approaches to opportunity development or risk management; and resource-sharing mechanisms that allow each company to take best advantage of the other’s talent, assets, and ideas.
Each of these may look different from context to context, and may be more or less relevant depending on the situation, but variations of these themes frequently occur in many strong collaboration arrangements. On the flip side, as collaborations among companies increase in strength, their benefits are to some degree balanced out by certain risks – sharing of proprietary customer or supplier information with partners or divulging trade secrets each present unique dangers, for example – and so companies are wise to consider such tradeoffs before entering into any form of collaborative agreement. In addition, some firms may be wary of involving outsiders in key decisions where both the motivations and underlying agendas for undertaking certain strategic supply chain actions are less than fully transparent.
Enablers and Inhibitors of Effective Supply Chain Collaboration
Despite the best efforts of supply chain managers, only some collaborative ventures among companies end up working out for the participants’ mutual benefit. During a recent interview with a well-known paper products manufacturer, one manager asked us what the differences are between collaboration opportunities that work and others that seem destined to fail from the outset. Knowing little or nothing about a particular situation, it would be hard to say with precision what the critical success factors would be in any given setting, but we can make some generalizations as to typical enablers and barriers to collaboration success. I will conclude by addressing three primary factors in each category that are supported by the current research.
In terms of factors that have been demonstrated as enabling strong interfirm collaboration efforts, it is imperative that we understand that above all (and despite what some believe), collaborative ventures are primarily dependent on personalities, knowledge, and skills of the people from the involved companies. Accordingly, the collaborative venture must involve persons with leadership skills and must be characterized by trust among the members of the participating companies.
Because collaboration outside the four walls will necessarily involve extra effort and resources, both sides will need an internal champion to maximize their returns on the relationship. Additionally, it is crucial that the members of the collaborating firms trust each other – perhaps not fully, but enough that the information critical to the venture can be exchanged with full openness. Until full and free information exchange can occur, the product of the collaboration will only be a shell of its full potential.
Furthermore, because much of modern collaboration among geographically separated firms takes place in virtual space, a third key enabler is usually the implementation of an adequate technological collaboration tool. It may not be necessary to adopt the most sophisticated technology available for this purpose, and the exact functionality will of course be context-dependent, but most every successful strong collaboration will include an electronic workspace for the transmission and sharing of the key data, work, and ideas. A number of other enablers have been cited as well and are variably appropriate for consideration depending on the product/partner context.
Of course, in addition to the enablers, a number of factors have been shown to inhibit or reduce the overall effectiveness of a strong interfirm collaboration arrangement. Again, these are generally related to the human element of the collaborative venture. First, it should be widely apparent that insufficient communication among the members of the collaborating companies would spell trouble for the entire venture. Sometimes, the collaborative effort starts off with the best of intentions, but, given that partners may be non-local, members of the initiative might communicate less and less throughout the venture’s life as more immediate and local issues become more pressing. In other cases, there are outright betrayals of trust that occur either intentionally or inadvertently.
Obviously, such actions would spell doom for the relationship. One way to manage these sorts of human issues would be to formalize the terms of the relationship upfront, and then relax them as the relationship matures to a point where it can be governed by trust. A third reason frequently cited as a cause for collaboration failure is simply resistance to change in the individual organizations.
In spite of these issues, some companies are finding that a very productive way to address complex supply chain issues is through the development of strong collaborative arrangements with key partners. Though collaboration has been a supply chain mantra for over a decade, many companies have yet to figure out how to do it well. Exploring the possibilities presented here with your most important partners may lead to a differential advantage for your supply chain in the foreseeable future.
This series is titled “Supply Chain Management: Beyond the Basics” and a new installment will appear each week on our website. It picks up where our original series of articles from Tennessee—the “Basics of Supply Chain Management” — left off. Among the topics we’ll be covering in this latest series are successful collaboration, supply chain risk management, strategic sourcing, supply chain finance, and more.
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