It seems like every article I read about supply chain collaboration starts with the same premise: Members of the supply chain acknowledge that collaboration is increasingly crucial to ongoing growth and prosperity, but few are actually putting the strategy into practice.
I disagree with this assessment. I see evidence of collaboration among supply chain trading partners every day. These scenarios, I admit, very rarely embody what would be considered “strategic collaboration,” characterized by mutually beneficial relationships in which all parties involved understand and play to the strengths of one another with the goal of increasing the value added to both/all parties. However, even though a collaborative effort does not reach this level of sophistication, it still has merit. I believe collaboration can take many forms—each characterized by varying degrees of collaborative maturity, of partner commitment and of mutually beneficial outcome. Understanding the various forms collaboration can take, and the human element intrinsic in each type, can help companies learn from their missteps and build on their successes.
The following are seven of the most common forms of collaboration that I identified throughout my nearly 25 years of experience in building, managing and supporting a diverse array of supply chains worldwide. They are presented in no particular order and do not follow any regular progression. Each of these types of collaboration is associated with certain behaviors that are fundamental to the level of collaborative maturity. I present these with the intention of sparking discussion and debate over how we can practically enhance and improve collaborative practices to the benefit of all supply chain partners involved.
Seven Approaches to Supply Chain Collaboration
- Accidental: Accidentally engaging with a partner whose culture and appetite for collaboration matches yours is the business version of love at first sight. Provided the value proposition is relevant, this may be a historical milestone for your business. For example, one of our suppliers came to me five years ago looking for help in supporting one of their largest accounts in the Shenzhen area. At that point, we hadn’t had any real collaboration. This request enabled us to develop contracts, processes and set the stage for a collaborative, mutually beneficial relationship. Lesson learned? Don’t take established business relationships for granted and pay attention to every opportunity.
- Erratic: When frequent exchanges and sufficient time are not devoted to collaboration, the long-term value can’t be seen beyond the short-term issues. Collaboration at this level can identify great ideas and opportunities for improvement, but may lack the time commitment needed to realize their true value. The risk is losing track of the other party’s strategic interests and not realizing they changed before it’s too late. I found over the years that collaboration is like a potluck dinner—everybody contributes something to the party, and the overall success is directly related to the quality of your contribution.
- Reactive: Reacting to information requests, but not seeing the bigger picture of the value that ongoing collaborative practices may hold can result in a false sense of security. You may feel as though you are performing to expectations, but often you may find yourself losing the customer to the competition. Being reactive is not good enough in supply chain management. One needs to always be on the front foot—overperform to expectations, take the extra step to better cover a potential shortage risk and answer the questions that were not asked.
- Complacent: When you stop looking for incremental improvements in the working relationship, you miss opportunities and fail to identify risks. These common behaviors also often lead to lost customers and decreased supply chain competitiveness. Remember, it is much more expensive to win a new customer than to retain an existing one. Customer retention is imperative at this point. Let paranoia be your best friend. If you think everything is running smoothly, think again.
- Tactical: Partners may share tactical information on a regular basis through established electronic data interchange (EDI) and business-to-business (B2B) processes, but the horizon for collaborative planning is limited. This is perfectly acceptable when all parties realized the limits of their partnership and defined their involvement in the relationship with regard to the return on investment (ROI) they receive. It is important to validate mutual expectations regularly and adapt accordingly.
- Forced/Unbalanced: In the mid-1980s, when computer companies were still manufacturing their own products, I remember a leading French computer manufacturer who posted a gigantic sign in the purchasing department that read: “Good Morning, Partner.” This appeared to deliver the promise that a balanced partnership was in the offing. Rather, at the first meeting, I was given 24 hours to confirm a 20 percent cost reduction, extended payment terms and … oh yes, free freight! Collaboration is not a unilateral declaration; rather it’s the acceptance that the interests of both sides are equally important. Examples of forced cooperation can include imposing inefficient processes on the other party, utilizing non-standard B2B protocols or an excessive cost transparency requirement. These kinds of actions can drive one of the parties to disinvest, disengage or die. There needs to be a frequent validation of the benefit for everyone involved. This, clearly, is not really a form of collaboration, but I include it to make a point—if this scenario sounds familiar, you are not in a collaborative relationship.
- Strategic: The Holy Grail of collaboration. This includes sharing long-term visions, plans, collaborating on new systems, products, etc. Strategic collaboration always starts with leaders on both sides being smart enough to recognize that, in the give-and-take relationship, giving is what matters most. At the same time, this is also about understanding and respecting the other party’s limits and constraints as being your own. A classic example is on-time delivery to a customer request. If an unreasonable market demand were part of day-to-day reality, in a strategic collaborative mode, the supplier would be part of an advanced/extended sales and operations planning (S&OP) process, receiving the very latest demand patterns and market trends, and in return, sharing the existing possibilities and limitations. It does not weaken commitments made, it just makes the energy spent much more efficient. The real stress test for strategic collaboration is not sharing profit, but sharing losses when things go wrong.
In a world where supply chains are stretched across many players and geographies, no supply chain can afford to have a weak link. Achieving the highest level of collaborative maturity takes time and commitment. But, when players share both the risks and rewards of the supply chain through efficient end-to-end collaboration, total cost is reduced, responsiveness improved and risk mitigated—a win for all players involved.