Supply Chain Collaboration: Now or Never

Supply chain collaboration is an essential requirement today. Companies that collaborate effectively across the supply chain have enjoyed dramatic reductions in inventories and costs, together with improvements in speed, service levels, and customer satisfaction.

Supplier collaboration has always been about maintaining a delicate balance between demand and supply. The primary focus of the supplier relationship is ensuring the right materials are available at the right time and location. However, many sourcing managers with a narrow focus on delivery are missing out one of the greatest advantages of building collaborative supplier partnerships: an opportunity to drive synergies that are otherwise perceived as impossible within the limits of the business. 

From Collaboration to Innovation

Collaboration between companies – joint initiatives that go beyond their normal course of day-to-day business, with the aim of delivering significant improvement over the long term. 

Sixty-five percent of procurement practitioners say procurement at their company is becoming more collaborative with suppliers, according to The Future of Procurement, Making Collaboration Pay Off, by Oxford Economics.

The pace of change in business has increased exponentially, and businesses must be able to respond to new market demands with agility and innovation. In this climate, companies are relying on suppliers more than ever before. And companies are not collaborating with suppliers merely as providers of materials and goods, but as strategic partners that can help create products that are competitive differentiators. 

The game-changer is when you drive those synergies with thousands, not hundreds of suppliers. Look at the Apple App Store and Google Play Store as a prime example of collaboration. Without the apps, a smartphone is just another ordinary phone! 

If companies cannot make collaborations work, they will not only fail to achieve the potential benefits that supply chain collaboration can provide, but they will also risk destroying future possibilities, both inside their own organizations and with their trading partners. 

In one instance, two companies established a joint benefits pool and agreed to use a percentage of the savings to fund future cost-reduction efforts and a sales-improvement program. 

Supplier Collaboration Reduces the Bullwhip Effect 

The bullwhip effect in supply chain refers to a situation in which small changes in demand at the retail end of the supply chain become bigger when moving up the supply chain from the retail end to the manufacturing end.

Due to not having full information on the demand shift, the wholesaler will increase its orders from the manufacturer by an even larger extent, and the manufacturer, being even more removed will change its production by a still larger amount. This can lead to excessive investment in inventory, lost revenue, declines in customer service, and delayed schedules. 

Investing in the Infrastructure and People 

Lack of dedicated resources is one of the reasons for the failure of collaboration efforts. Companies frequently underestimate the resources required to make collaborations work, assuming that they can leave it up to staff in various functions to do what is required in addition to their other responsibilities.  

To prevent these problems, best-practice companies devote extra resources to their collaborations, particularly in the initial stages of a new relationship.

Benefits of Supply Chain Collaboration 

“Knowledge is power,” as they say, and in the case of supply chain collaboration, sharing of information leads to enhanced knowledge across the chain that allows you to achieve:  

• Lower inventory levels and higher inventory turns 
• Lower transportation and warehousing costs 
• Lower out-of-stock levels 
• Shorter lead times 
• Visibility into customer demand and supplier performance 
• Earlier and quicker decision-making 
• Incremental revenue growth 
• Mitigate potential supply disruptions and the potential risks become opportunities to gain advantage over competitors.

Joint Performance-Management System 

An effective performance-management system helps a company to ensure that any long-term project is on track and delivering the results it should. In supply chain collaboration efforts, both participants should use the same performance-management system. By building common metrics and targets and jointly monitoring progress – companies avoid the misaligned incentives that damage so many collaboration efforts. 

Collaborate for the Long Term 

The final vital ingredient of a successful collaboration is stamina. It may take time and effort to overcome the initial hurdles and make a new collaboration work. Review and planning should focus on the long term. 

When companies take a long-term perspective, their collaborative efforts can become a virtuous circle: a greater understanding of each other’s capabilities, knowledge, and costs will often reveal new potential sources of value, while the experience of working closely together means that later initiatives will take less time and be easier to execute than early ones.