Costs and Collaboration

4/10/13 Collaboration in the Supply Chain: Getting Things Done Beyond the Four Walls - Article from Supply Chain Management Review

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From the March-April 2013 issue

Inventory Optimization: Evolving from Fad to Necessity

There is broad agreement that inventory should be optimized to properly match demand. Yet achieving this continues to prove difficult for many companies. The insight and best practices offered here will help you understand the importance of sound inventory practices and put your inventory optimization initiative on a success track.

The Case for Managing MRO Inventory

Taking a Broader View of Supply Chain Resilience

How to Communicate with Your Board of Directors

A Practitioner’s Guide to Demand Planning

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The series is titled “Supply Chain Management: Beyond the

Basics” and a new installment w ill appear each w eek on our

w ebsite. It picks up w here our original series of articles f rom

Tennessee—the “Basics of Supply Chain Management” — lef t of f . Among the topics w e’ll be covering in this latest

series are successf ul collaboration, supply chain risk

management, strategic sourcing, supply chain f inance, and

more.

Collaboration in the Supply Chain: Getting Things Done Beyond the Four W alls Part 3 of our series on “Supply Chain Management: Beyond the Basics” examines the challenges and potential benefits associated with supply chain collaboration. Professor Chad Autry of the University of Tennessee explains why and when collaboration makes sense. He also points out the warning signs to watch for that signal a supply chain partnership may be in trouble.

By Dr. Chad W. Autry, Associate

Professor of Logistics The University of

Tennessee

May 03, 2011

Collaboration among supply chain

partners is certainly a hot topic, but many

supply chain managers remain unsure of

what the concept of collaboration really

entails. To some companies,

collaboration simply means an exchange

of ideas and information among partners

– usually directed toward a specific

opportunity or problem – where members

of the collaborating companies get

together to share best practices, address

concerns, and generate solutions.

For example, one pet products

manufacturer stages monthly meetings

with its key transportation providers in

order to discuss rates and fuel market

concerns, talk about capacity issues, and

share demand data and projections for a

few critical SKUs for broad-level planning

purposes. We can refer to this type of loose collaborative relationship as a

“conventional” or weak collaboration, and it carries with it only moderate levels of

potential risk and reward for the partners involved.

However, for other companies, collaboration may mean something greater and/or

different. Companies that have migrated further down the evolutionary chain of

collaboration tend to view it more in terms of a long-term strategic venture, intended to

allow partners to synthesize planning; decision-making; and execution on an open-

ended, open-subject basis— keeping each other’s desired outcomes in mind

throughout. In this latter type of arrangement, which we can refer to as a “vested” or

strong collaboration, the key is that both sides have generally put some “skin in the

game” – the risks and rewards of the collaborative venture are both real and shared.

Examples of strong collaborations would include synchronizing a manufacturer’s

product development and marketing functions with its partner’s packaging and

distribution capabilities; joint forecasting and inventory planning among multiple

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whether it’s at rest in a warehouse or in the supply chain pipeline — is a critical factor in business success today. Join us for this special webcast as inventory

expert, Paul Huppertz, Partner at The Progress Group, highlights steps companies can take to improve their inventory performance and reap the benefits.

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From the Institute for Supply Management

ISM’s December 2012 Semiannual Economic Forecast Posts Positive Numbers

While there were few surprises contained in ISM’s December 2012 Semiannual Economic Forecast, the overall findings suggest growth in the United States will continue in 2013

ISM semiannual report expects more continued economic growth for rest of 2012

Institute for Supply Management’s NMI hits highest level since January 2011

ISM November non-manufacturing report shows growth for 24th straight month

ISM October non-manufacturing report is nearly identical to September, still growing

View more from ISM

members of partner organizations to optimize total supply chain inventory; and co-

creating long-term supply chain network models with upstream suppliers and

downstream customers so as to minimize annual transportation costs for the entire

system. Additionally, the Vested Outsourcing research conducted by the University of

Tennessee provides another excellent illustration of the power of strong collaboration. In

a Vested Outsourcing relationship, companies and their third-party providers work

together very closely, keeping each other’s key process requirements and best

outcome interests in constant focus.

Depending on how your company sees a particular opportunity or threat, collaboration

can therefore be approached as either a tactical or strategic-level initiative and would

commensurately yield short or long-term, and small- or large-scale, benefits.

Strong Collaboration

In talking with companies who are sponsors of UT’s Demand and Supply Integration

Forums and during company-specific projects, I have heard managers say they are

interested in strengthening their collaboration arrangements with certain key partners in

order to more fully leverage their best relationships. Strong collaboration may be

productive in the right settings in some collaborative partnerships, but it is perhaps less

advantageous to pursue in other partner/product scenarios. In order to better

understand which collaboration arrangement is right for a given setting, it is important to

understand the potential benefits of strong collaborations, and weigh those benefits

against the potential risks of entering into such an alliance with a partner whose

interests may/may not be perfectly aligned with your own. Additionally, you should be

aware of the key factors that enable or inhibit productive, collaborative arrangements so

that steps can be taken to leverage or mitigate their effects.

To weigh the collaboration decision effectively, we must first gain some sense of what a

strong collaboration arrangement entails. Much research has begun to explore this

issue, and luckily there is some consensus. Most investigators agree that the close,

highly productive collaborative arrangements we denote as strong or “vested” have at

least three characteristics in common: 1) deep, intensive communication among the

partners, 2) open and free information sharing, and 3) some form of joint planning,

including mutually shared goals and dually aligned incentives with which to reach them.

Open communication, information sharing, and joint planning represent the lifeblood of

any strong collaboration arrangement, and a venture would almost certainly fail without

them. These measures are supported by alignment of incentives across the partnering

organizations, which ensures that the developed plans are adhered to and that the

resulting work actually gets done. Additionally, variations of strong interfirm

collaboration may include several other aspects that are believed to generate

additional positive outcomes for the partners. Depending on the specific setting, these

may include processes that enable joint problem solving; knowledge-creation routines

or “think tanks”; decision-making heuristics designed to align the partners’ approaches

to opportunity development or risk management; and resource-sharing mechanisms

that allow each company to take best advantage of the other’s talent, assets, and

ideas.

Each of these may look different from context to context, and may be more or less

relevant depending on the situation, but variations of these themes frequently occur in

many strong collaboration arrangements. On the flip side, as collaborations among

companies increase in strength, their benefits are to some degree balanced out by

certain risks – sharing of proprietary customer or supplier information with partners or

divulging trade secrets each present unique dangers, for example – and so companies

are wise to consider such tradeoffs before entering into any form of collaborative

agreement. In addition, some firms may be wary of involving outsiders in key decisions

where both the motivations and underlying agendas for undertaking certain strategic

supply chain actions are less than fully transparent.

Enablers and Inhibitors of Effective Supply Chain Collaboration

Despite the best efforts of supply chain managers, only some collaborative ventures

among companies end up working out for the participants’ mutual benefit. During a

recent interview with a well-known paper products manufacturer, one manager asked

us what the differences are between collaboration opportunities that work and others

that seem destined to fail from the outset. Knowing little or nothing about a particular

situation, it would be hard to say with precision what the critical success factors would

4/10/13 Collaboration in the Supply Chain: Getting Things Done Beyond the Four Walls - Article from Supply Chain Management Review

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be in any given setting, but we can make some generalizations as to typical enablers

and barriers to collaboration success. I will conclude by addressing three primary

factors in each category that are supported by the current research.

In terms of factors that have been demonstrated as enabling strong interfirm

collaboration efforts, it is imperative that we understand that above all (and despite

what some believe), collaborative ventures are primarily dependent on personalities,

knowledge, and skills of the people from the involved companies. Accordingly, the

collaborative venture must involve persons with leadership skills and must be

characterized by trust among the members of the participating companies.

Because collaboration outside the four walls will necessarily involve extra effort and

resources, both sides will need an internal champion to maximize their returns on the

relationship. Additionally, it is crucial that the members of the collaborating firms trust

each other – perhaps not fully, but enough that the information critical to the venture can

be exchanged with full openness. Until full and free information exchange can occur, the

product of the collaboration will only be a shell of its full potential.

Furthermore, because much of modern collaboration among geographically separated

firms takes place in virtual space, a third key enabler is usually the implementation of an

adequate technological collaboration tool. It may not be necessary to adopt the most

sophisticated technology available for this purpose, and the exact functionality will of

course be context-dependent, but most every successful strong collaboration will

include an electronic workspace for the transmission and sharing of the key data, work,

and ideas. A number of other enablers have been cited as well and are variably

appropriate for consideration depending on the product/partner context.

Of course, in addition to the enablers, a number of factors have been shown to inhibit or

reduce the overall effectiveness of a strong interfirm collaboration arrangement. Again,

these are generally related to the human element of the collaborative venture. First, it

should be widely apparent that insufficient communication among the members of the

collaborating companies would spell trouble for the entire venture. Sometimes, the

collaborative effort starts off with the best of intentions, but, given that partners may be

non-local, members of the initiative might communicate less and less throughout the

venture’s life as more immediate and local issues become more pressing. In other

cases, there are outright betrayals of trust that occur either intentionally or inadvertently.

Obviously, such actions would spell doom for the relationship. One way to manage

these sorts of human issues would be to formalize the terms of the relationship upfront,

and then relax them as the relationship matures to a point where it can be governed by

trust. A third reason frequently cited as a cause for collaboration failure is simply

resistance to change in the individual organizations.

In spite of these issues, some companies are finding that a very productive way to

address complex supply chain issues is through the development of strong

collaborative arrangements with key partners. Though collaboration has been a supply

chain mantra for over a decade, many companies have yet to figure out how to do it

well. Exploring the possibilities presented here with your most important partners may

lead to a differential advantage for your supply chain in the foreseeable future.

Editorial Note:

This series is titled “Supply Chain Management: Beyond the Basics” and a new

installment will appear each week on our website. It picks up where our original series

of articles from Tennessee—the “Basics of Supply Chain Management” — left off.

Among the topics we’ll be covering in this latest series are successful collaboration,

supply chain risk management, strategic sourcing, supply chain finance, and more.

To be notified of all the latest Supply Chain Management Review editorial information

and updates, including this series “Supply Chain Management: Beyond the Basics”

make sure you are on our eNewsletter subscriber list.

About the Author

Dr. Chad W. Autry Associate Professor of Logistics The University of Tennessee Chad W. Autry, Ph.D. is an associate professor of logistics in the College of Business Adm inistration at the University of Tennessee, Knoxville. He holds a Ph.D. in Business Adm inistration, supply chain

4/10/13 Collaboration in the Supply Chain: Getting Things Done Beyond the Four Walls - Article from Supply Chain Management Review

www.scmr.com/article/collaboration_in_the_supply_chain_getting_things_done_beyond_the_four_walls 4/4

m anagem ent focus, from the University of Oklahom a. Autry has worked with m any organizations related to supply chain process im provem ent, including Boise Corp, IBM, Goodwill Industries, the Am erican Red Cross, the U.S. Air Force, and the U.S. Marine Corps. He is a m em ber of the Education Strategies Com m ittee of the Council of Supply Chain Managem ent Professionals; has assum ed active leadership roles with WERC, Production and Operations Managem ent Society, ISM, National Association of Purchasing Managers; and is a co-founder of the Supply Chain Managem ent and Industrial Distribution Sym posium . His has authored over 40 articles in academ ic and professional publications about logistics and supply chain relationship-based collaboration and network design.

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