Making Supply Chain and Logistics Collaboration Work

Collaboration. Supply chain. The two concepts should only appear together in the same sentence if companies are prepared to fundamentally change their way of thinking.

Trusting the right partners, and selecting the right process for collaboration, is as critical as taking the needed time to define the right strategy at the right time.

Just as the supply chain is a complex web of pieces and parts, collaboration is equally complex.

In the world of logistics, collaboration is often defined as the strategic next step for optimizing the supply chain. While collaboration can significantly reduce costs, increase supply chain efficiency and improve customer service, it can easily fail if not implemented with the right motives.

Trends in the marketplace today include various levels of collaboration between companies. Each of these levels in turn has varying degrees of complexity and may or may not require a logistics partner to help unlock the synergies. Collaboration today is done frequently at a tactical level but it is becoming more strategic as green initiatives and globalization become more prevalent.

At Penske Logistics in Europe, collaboration is about more than just the decision to partner. It includes determining the elements for establishing how best to collaborate, selecting the right partner and choosing the tools necessary for collaboration to work optimally.

Elements for establishing supply chain and logistics collaboration

Aligning collaboration partners is a component necessary for success. This is dependent upon the company’s goals and can be based on financial objectives, risk assessment or value for the end customer.

It is vital for company leaders to allow collaboration to serve as a strategic goal, while structuring that alignment through all levels of the organization, from the C-suite to the warehouse.

Once alignment is achieved, both the company and the logistics provider must define and agree upon what level of collaboration should serve as the starting point. It’s not necessary for every process in the chain to be collaborative; a company must determine which processes will most benefit from collaboration and provide a value-enhanced process.

As the global landscape continues to change, it leads to new opportunities for collaboration. There are strategic concerns, such as exchange rate fluctuations, government restrictions and the managing of offshore facilities. There are also tactical concerns: transportation services tariff standards, planning across continents and time zones and Inco terms.

While challenges in business processes, language, and cultures can be overcome, these aspects must be considered prior to implementing global collaborative processes that have a global span.

A reliable partner with experience handling supply chains across multiple continents is essential.

Selecting and working with a supply chain and logistics partner

Selecting the right partner is instrumental in the success of collaboration. The partner must be the right fit with your company. The working relationship with that partner should be strong, the company goals should correspond, and most importantly, a cultural match should exist.

The framework of a collaborative relationship should establish a clear understanding of where in the process each partner’s responsibilities begin, and where it ends. The partner and the organization should work jointly to design the new working relationship.

Each party should have incentives for achieving success and be clear in what success looks like: a win-win for both. Many companies are focused on two contract areas that can work directly against establishing collaborative processes: transactional pricing and the expectation of short-term results.

Transactional pricing is deep-rooted in many companies as the buying strategy of choice to continuously enable negotiation on lower rates, whereas collaboration is about reductions driven throughout the supply chain, and not necessarily only in the rate-based area of the partner.

Short-term results are also a constant expectation in many companies, and more so in the current economic climate.

Collaborative processes can be put in place to enhance short-term results but collaboration should primarily be focused on long-term improvements, providing a company with a sustainable supply chain that will improve their competitive edge.

Here are a few more tips for driving successful collaboration:

• Choosing a remuneration model that provides risk/rewards for both partners is desirable.
• Communication must be open, honest and frequent. It’s not just data sharing that’s necessary, it’s more strategic in nature, and namely how the company makes supply chain decisions and sets operating procedures.
• A change management plan is needed to ensure a smooth transition.

People, process and technology

There are three main tools necessary for collaboration: people, process and technology. None of the tools alone make collaboration successful; it’s the use of all three and the know-how to tie them together that makes the difference. Process tools include key metrics that have targets for input, process and output measurements. Taking the primary measurements for cost and service, and then driving down to the underlying measurements of processes and inputs that drive those key performance indicators leads to a clear understanding of how well the process is working.

The metrics should be reviewed on regular basis, improvement plans should be put into place and lean tools need to be incorporated as needed, to continuously ensure that the targets are achieved and exceeded.

Technology tools must be in place to enable efficient data sharing. It’s essential for data transparency to exist between the companies. Information sharing is key to collaboration success, as without it, each company cannot effectively manage their piece of the process. The determination in how the data is transferred, when the data is transferred, and what data is necessary, are all areas of focus when designing the framework for collaboration.

Effective people relationship skills are often ignored, yet critical for successful collaboration. An investment in a strong collaboration team in both organizations should not be underestimated.

Being able to effectively manage technology communication tools, knowing the audience and when to use which method are equally important. Additionally, having strong problem solving skills, emotional intelligence and being creative are all imperative to a strong collaboration team.

Overall success of collaboration begins with trust. All of the above elements work towards establishing and reinforcing trust between the parties involved. As mentioned earlier, achieving cultural fit and shared goals are imperative when selecting a supply chain partner for a successful collaboration.

The true element of a successful collaboration is when the parties focus upon strategic future efforts to improve the supply chain, as opposed to only focusing on the operational aspects of the current collaboration. Each partner views the other as an extension of his or her own organization.

Supply chain collaboration is essential for companies to sustain efficient and effective supply chain management processes in the global marketplace. Collaboration is hard work and the work shouldn’t be underestimated, but the payback can be substantial towards strategic growth and longevity. With top management support, a focus on long term strategic fit and selection of the right partners, collaboration can make a marked difference to a company’s supply chain.

By Marla Piccolomini

Piccolomini is a logistics engineering director for Penske Logistics, and is based in The Netherlands. Need a supply chain partner in Europe or elsewhere around the world? Please contact us.