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Supply Chain

Collaborating for Competitive Edge: Harnessing the Potential of Supply Chain Collaboration

Julien Broucke
January 23, 2023
min read
Supply Chain Partners Collaborating Together to Optimize Performance and Efficiency

Supply chain collaboration is getting the different entities to align on how best to get things done.

Great supply chain collaboration does not stop at your direct customers and suppliers but at the second and even third level partners in the chain. The automotive industry is well known for using terminologies such as tier 1 to tier 3 manufacturers.

Working together in supply chain operations aim to achieve shared objectives and create mutual benefits. This can include coordinating with internal departments and external partners to sustain an optimized flow through the supply chain in order to efficiently meet demand and ensure on-time, in-full delivery. It also involves establishing real-time shared visibility and processes with supply chain partners to facilitate the identification and resolution of issues.

In today's business environment, supply chain resilience has become a priority for enterprises. This is because supply chains are becoming increasingly complex and interconnected, making them more prone to severe impacts from disruptions such as minor incidents like shipping or weather delays, to more serious interruptions like those from a pandemic, cyber-attacks or natural disasters.

By collaborating with suppliers, a manufacturer can ensure that they have a steady supply of materials, even during unexpected disruptions. Additionally, by collaborating with its customers, that manufacturer can better anticipate demand and adjust production accordingly, which helps to avoid overproduction and stock-outs. How much collaboration can be done and its benefits will be highly impacting by the relative bargaining power and value / volume at stake. A small supplier working with a large manufacturer or vice versa will not see the relationship the same way.

Collaboration is typically easier with local customers and suppliers. Lack of or poor collaboration can cause a bullwhip effect, a phenomenon where small changes in demand downstream can be amplified as they move up the supply chain, leading to increased variability and inefficiencies.

In the coming years, as cash becomes more expensive, holding large amounts of stock to hide inefficiencies and lack of visibility will not be a viable option anymore. Collaboration is key if we want to achieve resilience and agility without high levels of working capital. By collaborating with suppliers and customers, businesses can improve communication, optimize production and inventory, and reduce waste, ultimately leading to a more resilient and efficient supply chain.

There are several different types of supply chain collaboration, some of the most common include:

  1. Horizontal collaboration: This type of collaboration involves companies at the same level or stage in the supply chain working together to achieve a common objective. For example, multiple manufacturers in the same industry may choose to share the delivery infrastructure of their raw materials to reduce costs, or for reverse logistics handling returns.
  2. Vertical collaboration: Here, companies from different levels or stages in the supply chain work together to serve relatively similar end customers. For example, a buyer forming a long-term relationship with one or several suppliers of their product and/or components.
  3. Operational collaboration: This type of collaboration focuses on the day-to-day operations of the supply chain, such as suppliers checking in with a buying organization for example.
  4. Innovation collaboration: In this type of collaboration, supply chain partners work together to create new products, processes, or services. It is inspired by the Open Innovation approach, supply chain networks can facilitate innovation platforms where n-tier supplier chain actors and partners beyond the supply chain network can collaborate, co-create, and co-innovate.

Collaboration in the supply chain is not only for large companies. 

So as a comparatively smaller company company you could think of:

  • Ask for information: Request relevant information such as forecasts, production schedules, and inventory levels. Be the firms that order when they are less busy for example. 
  • Leverage technology: Use technology such as cloud-based software or platforms to improve communication. Direct integration might be tricky if you're really small. But once done, you'll get data effortlessly.
  • Partner with other small organizations: Collaborate with other small organizations that share similar suppliers. By working together, you can negotiate better terms, share information and resources and achieve more than you could alone.
  • And you can also be the small partner that will soon bring more business and build a proper partnership.

Tech-driven collaboration in Supply Chain Management is a superpower.

The power of data-driven collaboration in supply chain management is undeniable. With the right tools and technology, companies can share real-time data, insights and analytics to optimize supply chain performance. Supply chain collaboration software enables real-time data sharing, providing all parties involved with the most up-to-date information to make informed decisions.

Once systems that do generate data are interconnected, information can flow instantaneously without any manual work. The key is to share the right data, at the right granularity and frequency in order to provide insights for each parties.

One of the key benefits of data-driven collaboration is the ability to improve visibility and traceability throughout the supply chain. With real-time data, companies can identify and track issues as they arise, allowing them to take proactive measures to address them. Especially a few steps up or down the supply chain. This can lead to improved delivery times, increased efficiency, and a reduction in costs.

With access to real-time data, companies can analyze trends, identify patterns, and make predictions about future demand. This can lead to improved forecasting, better capacity planning, and the ability to quickly adjust to changes in the market.

To reap the full benefit of supply chain visibility and collaboration, data contextualization is key. As an example, the same data cannot be interpreted the same way if its real time or a week old. Thus, it is important to consider sharing the data and their context as well as the business processes that impacted or are shaping this data set.

With the right technology, supply chain collaboration can be as easy with external entities such as partners, suppliers and customers as with internal teams.

Done right, it is a powerful tool for improving supply chain performance.

Examples of successful supply chain collaboration in various industries and practical tips

Case studies and best practices are an excellent way to learn about successful supply chain collaboration in various industries. These examples provide insight into the strategies and tactics that have been used by companies to achieve success in their supply chain collaborations. By studying these case studies, companies can gain a better understanding of the different approaches that can be used to establish and sustain a collaborative supply chain strategy.

  1. The first example is about a successful supply chain collaboration between Walmart and Procter & Gamble, a partnership of giants. Walmart and Procter & Gamble collaborated to improve the supply chain for P&G's Tide detergent by implementing RFID technology to track inventory in real-time. This collaboration resulted in the ability to improve inventory management, reduced out-of-stock situations, and increased sales for both companies. Indeed, data were already available but not in the hands of the right supply chain planners and executives. These data about inventory levels at each steps of the supply chain allowed operations managers in each companies to take better and faster decisions together, by using the same data.
  2. Another example of a successful supply chain partnership is between Dell and its suppliers. Dell implemented a supplier program to improve the performance of its suppliers. This program provided training, technical support, and other resources to suppliers to help them improve their capabilities (read delivery performance and pricing as well!). As a result, Dell was able to reduce costs, improve availabilities on their website. They also reduced delivery lead time as well as better availability of replacement parts for their well recognized aftersales support. Dell is big, this partnership is as much to work with their smaller suppliers so they don't go bust from little volatility in the demand from Dell as well as securing sourcing from big chip manufacturers for example.
  3. Another industry where supply chain collaboration is imperative is in the automotive industry to reduce costs and improve efficiency. For example, Toyota and its suppliers have implemented a system called "Just-In-Time" (JIT) for decades which allows suppliers to deliver parts to the assembly line just in time for production, thus reducing inventory costs, and increasing efficiency. This concept are obviously now common practices in many other industries like FMCG.

Not every companies are as big as the ones in the example above. Yet, to get started with a collaborative supply chain strategy, companies can follow these practical tips:

  1. Start with a clear goal: Define the specific objectives of the collaboration, be practical at first. Eg. get visibility of your demand in the next 3 months.
  2. Identify the right partners: Just pick one or two at first!
  3. Establish open communication: Establish regular communication channels with partners, and make sure to keep them informed about your needs and expectations. eg. Microsoft or any collaborative platform once a week.
  4. Share data and information: Agree what is important and what is not. Try sending only the difference between your exchange of information. Don't send "dumb" data and expect partners to interpret it.
  5. Foster a culture of trust: Build trust and mutual respect with partners to foster a collaborative environment, just as much that you would do with internal teams inside your company. Leadership support is a must.

This will not happen in one day, but it can happen faster than you think!

Challenges and risks linked to supply chain collaboration done wrong.

While supply chain collaboration can bring many benefits to companies, it can also present many risks when not done correctly. Some of the common challenges and risks linked to supply chain collaboration include:

  1. Misaligned goals: if partners are secretly having different aims, lots of the time will be wasted.
  2. Lack of trust: you may get data but tampered sets of data.
  3. Data security and confidentiality: without proper diligence from your partners, data can be leaked.
  4. Dependence on partners: obviously not happening immediately, but if you rely on someone at your suppliers to send you the right stock when you need it, you may become dependent and lose some internal know how over time.
  5. Complexity of collaboration: Supply chain collaboration can be complex, getting people to collaborate between functions within one firm is already difficult so across companies it is likely to be at least just as hard.
  6. Difficulty in measuring performance and success: Leaders may want to put a value on the collaboration while it may not be visible with hard KPIs yet maybe there is less firefighting.
  7. Difficulty in maintaining continuity: Collaboration can be difficult to maintain over time, it is about people collaborating so it needs constant focus or it will decay.

By being aware of these challenges and risks, appropriate actions can be taken. Companies can improve their chances of success in their supply chain collaborations and achieve greater resilience and agility in their supply chain strategies by using intelligent supply chain workflow solutions like Metronome.

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Julien Broucke
Co-founder & CEO, Process Metronome

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