For years, the belief that the seamless, transparent, and real-time flow of communication can improve the results of supply-chain collaboration has been the holy grail of business: frequently aspired to, but seldom achieved. Yet the benefits are indeed possible, and in some cases have even been realized. If successful collaborations were to become more common, they could have an impact that ripples throughout the world economy.
A model developed by the Council of Supply Chain Management Professionals for grocery packaged goods determined that collaboration between a retailer and the top two or three brands in each of 25 categories could yield a 4% increase in the grocer’s EBIT. Far too often, however, such efforts fail.
The problem in many cases is that the relationship between buyer and seller is antagonistic, or at least conducted at arm’s length, rather than being one of collaboration. Each party has its own transaction, process, and uncertainty costs, frequently leading to higher-than-necessary inventory levels, differing product codes, and conflicting administrative arrangements. There’s often a lack of trust, marked by a reluctance to work as partners or share sensitive information. Business secrets and confidential information are still very much a part of commerce today. Moreover, business partnerships change over time, and in a volatile economy with high levels of uncertainty and risk, those changes can come about abruptly.
The pattern of a big retailer or manufacturer beating up its suppliers over pricing is a familiar one. Rather than thinking in terms of a win-win opportunity, the buyer sees it as a zero-sum game, where it’s only possible for one party to get ahead at another’s expense. Yet achieving cost reductions or profit improvements at the expense of supply-chain partners is often illusory, because shifting costs upstream or down doesn’t usually change the cost to the end user.
The business objectives and priorities of buyers and sellers in a supply chain are frequently out of alignment, and sometimes even in direct conflict. Their respective organizational designs and company cultures, as well as the power dynamics of their relationships, are different. Unless top managers on both sides are clearly committed to driving a collaborative effort, the message that’s sent to front-line personnel is one of indifference. And unless both sides make the appropriate level of resources available to help the collaboration succeed, it will fail.
Despite those challenges, the need to improve the functioning of supply-chain relationships has never been greater. Expanding global markets and the growing network of facilities around the world that support them are making collaboration imperative. In a highly competitive world, supply-chain participants need to see one another as partners in a mutual effort get the right product to the right customer at the right time. Otherwise, both lose.
Successful collaborations focus on mutual opportunities and partner strengths that flow from consistent delivery of specific values that are eco-system ready. They might include a high level of customer service, product quality, timely delivery, and management of returns. In all cases, collaboration should rest on a foundation of strengths — not the hope of overcoming weaknesses — as well as an appropriate infrastructure to support it.
For a collaborative effort to succeed, it should be made clear from the outset that benefits are to be shared, even if indirectly. (For example, compensation affecting other parts of the relationship.) However those rewards are shared, the strategic interests served by the collaboration should be common to all participants, who should be prepared to dedicate resources to the effort, along with a willingness to overcome differences in culture, organization, and terminology.
Good intentions are essential, but it takes more than that to make the effort work. It requires a technical infrastructure that is eco-system ready, to make possible the frictionless sharing of valuable information in real time. It involves connecting data between buyer and seller to make possible end-to-end visibility. It means breaking down silos, using the same metrics and performance-management systems, and engaging relevant personnel from both partners. It requires standardizing routine business processes. And it involves setting realistic goals, sharing a viable roadmap, and having the patience to realize its objectives.
Overcoming the obstacles to successful collaboration, and committing the resources to make them succeed, can be difficult. In fact, most supply-chain collaborations have failed for lack of commitment, resources, trust, or willingness to change. But commercial success in the global economy is also difficult. To achieve it, partners must change the way that supply-chain relationships work, as well as the adversarial culture that has defined them for so many years. It’s no longer an option; it’s now a requirement.
Naveen Poonian is president of iBASEt, a provider of MRO and quality software systems to manufacturers.
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