Driving More Efficient Logistics Networks through Horizontal Collaboration

Editor’s Note: Dr. Maria Jesus Saenz is Professor of Supply Chain Management and PhD Program Director at the MIT-Zaragoza International Logistics Program, Zaragoza Logistics Center, Zaragoza, Spain. This is the first of a three-part feature.

As their operations come under more pressure to reduce costs and cut CO2 emissions, companies increasingly regard cooperation with enterprises from other supply chains as a source of competitive advantage.
Sharing transportation capacity when moving freight is an example of this type of cooperation, an option that benefits the environment and yields substantial network efficiencies. But collaborating in this way – particularly when it comes to finding compatible partners and exchanging sensitive commercial information – has proved too difficult for many companies.

The European Union (EU) aims to remove these obstacles with new research into horizontal collaboration in logistics. The Collaboration Concepts for Co-modality (CO3) project involves leading research centers in Europe, including the Zaragoza Logistics Center (ZLC), Zaragoza, Spain, a member of the MIT Global Scale Network, and an advisory board of companies such as P&G, Nike, Kimberly Clark, Unilever, HJ Heinz, Nestle, and DHL.

The work has already provided some valuable insights into the factors that underpin successful capacity-sharing partnerships. Although the research is centered on top companies in Europe, the results are relevant for shippers in any country. And if the EU succeeds in promoting horizontal collaboration, a restructuring of many global logistics networks could follow.

Efficiency Gaps

There is considerable incentive for giving companies in the EU the means to create joint distribution networks, and hence improve the efficiency of freight operations. Here is a sample of the statistics that make the case.

• In the league of EU industries, transportation is second only to the energy sector in terms of the volume of greenhouse gases it emits.
• Road traffic represents 71% of the greenhouse gas emissions generated by EU transportation.
• According to a World Economic Forum report, 24% of the freight vehicles in Europe are carrying air; the rest are filled to 57% capacity. The overall capacity utilization of freight vehicles in Europe is an unacceptable 43%.
• It is estimated that cargo flows imbalances account for only 30% of the capacity loss in freight transportation.
• The problem of low utilization rates is getting worse. The total cost is estimated as €160 billion in 2012, compared to €120 billion Euros in 2001.

Clearly, there is huge potential for closing these efficiency gaps through horizontal collaboration between industry players from different supply chains in the distribution of goods. Within this gap in mind, ZLC’s contribution to CO3 project is twofold. First, to identify the elements needed to build successful, long-term horizontal collaborative partnerships in freight transportation. And secondly, to pinpoint the mechanisms that encourage continuous improvement in these relationships.

Tomorrow: The Elements of Success

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