Why Building Collaborative Supply Chains is Important

How can supply chains jointly build market share and optimize margins if they don’t have access to the same information? Supply chains finally have the sophisticated digital resources they need to collaborate effectively.

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Over the past several years, supply chain partners have been forced to revisit fundamental assumptions about some of the most significant trends in their sector. At a time when interdependence is a core feature of supply chains around the world, companies are confronting the fact that this can create major liabilities. From the ripple effects caused by localized inefficiencies to visibility problems. It’s increasingly difficult for supply chain partners to handle the complex logistics necessary to manage collaborative trading.

None of these obstacles change the fact that collaboration will remain integral for today’s supply chains, especially when it comes to the production of sophisticated products like cars and laptops. While many companies in the supply chain sector are focusing on regionalization to reduce the risks associated with deep tiering which refers to large networks of manufacturers creating individual products, trans-global manufacturing will always be vital to maintain supply chain efficiency and productivity. This is why the effective management of collaborative supply chains will be a central priority in the years to come.

How can supply chains jointly build market share and optimize margins if they don’t have access to the same information? Supply chains finally have the sophisticated digital resources they need to collaborate effectively, and this will help them build healthier long-term relationships. Such as through mutually beneficial rebate programs. Let’s take a closer look at what collaborative supply chains should look like.

Highly interconnected supply chains are here to stay

The perils of interconnected supply chains have never been more apparent. From the global supply chain snarls caused by labor shortages and shifting demand during the COVID-19 pandemic to the large-scale disruptions that resulted from Russia’s invasion of Ukraine, companies have discovered that the efficiencies of intricate and complex global supply chains can be offset by a wide range of risks.

According to a McKinsey survey, 93% say they “plan to take steps to make their supply chains more resilient, including building in redundancy across suppliers, nearshoring, reducing the number of unique parts, and regionalizing their supply chains.” Another survey found that 90% of supply chains “expect to pursue some degree of regionalization during the next three years.” Measures such as nearshoring and regionalization can insulate supply chains from global shocks, but this strategy isn’t risk-free. It can also lead to costly inefficiencies and decrease revenue at a time when balance sheets are under pressure.

There are clear signs that global supply chains are normalizing. Ocean freight costs have collapsed over the past year. While this is partially a result of decreasing demand for goods, it’s also due to the resolution of logistical problems such as order backlogs. Supply chains will continue to regionalize in the years to come and there’s no replacement for the efficiency of interconnected global supply chains in the modern economy.

How supply chain collaboration can build resilience

The focus on resilience is one of the main reasons companies are looking to regionalize in the near future, but there are other ways to build resilience into your supply chain. For global supply chains to work, partners need reliable logistics, end-to-end visibility and financial tools such as rebate programs to make their relationships more profitable and less risky.

While many supply chain leaders say they’re pursuing these goals, they’re coming up short. Despite the fact that leaders cite end-to-end visibility as the top factor in creating a successful supply chain, just 6% say they have the ability to secure this visibility. It’s no wonder that supply chain leaders place such a premium on visibility. A single flawed or compromised component from a fourth-tier supplier could hold up an entire assembly line. To avoid disruptions like this, supply chain partners need access to a single source of data, a centralized digital platform for communication and collaboration and agreements that facilitate cooperation on shared objectives. 

A collaborative rebate program can improve visibility by giving supply chain partners mutual financial goals and incentives to track progress toward those goals. But the mere existence of such a program isn’t enough, manufacturers and distributors have to make sure that the development and implementation of rebates is collaborative. This is the only way to avoid the loss of visibility that leads to errors, disagreements and product delays.

The future of supply chain collaboration

Manufacturers create rebate programs to entice distributors to support their brand and grow market share. Distributors accept these programs with a promise to help manufacturers accomplish these goals while realizing additional earnings on their performance. The setup of rebate programs is often done separately by each individual partner, which means companies are organizing data and calculating earnings in different ways.

When supply chain partners negotiate a rebate agreement, they have to ensure that the terms help both parties address their main concerns and meet concrete targets. An effective rebate program could increase manufacturing volume while helping distributors pursue specific market segments. These programs should also be flexible enough to account for changing economic and market conditions. They should always offer full transparency with regard to pricing, earnings and performance information and all other rebate data. Collaborative rebate programs will be much easier to implement and track, they’ll make dispute resolution more streamlined, and they’ll bring supply chain partners into closer alignment.

Over the next few years, the most successful supply chain leaders will be the ones who recognize that the gains in efficiency and revenue offered by trans-global and interconnected supply chains outweigh the risks. They’ll also understand that mitigating these risks and fully leveraging their partner relationships will require a renewed commitment to collaboration.