For an older generation, ”collaboration” has a sinister sound. But in the modern, dispersed and globalised supply chain, collaboration, up and down the chain, or even with apparent competitors, may be desirable or even essential. At the latest ”Supply Chain Standard” Roundtable, supported by Atos Origin Consulting, we discussed this interesting and contradictory field.
Editor and roundtable chairman Nick Allen started by asking Graham Wilkie of DSGi whether, given that many surveys highlight the need to work more closely with suppliers to achieve results, we are really reaching the hoped-for levels of connectivity and collaboration?
Wilkie said that in his business – consumer electronics – the general trend is for shorter product life cycles. The value of goods on a like for like basis has gone down 30 per cent in recent years and the supply chain in general is lengthening as it reaches out to ”low cost countries” in the Far East or Eastern Europe. ”Supply chains are more complex and while the desirability of products is growing, the margins are not great in consumer electronics, especially for retailers given the on-line competition.
”So inevitably, to work successfully we have to get closer to some suppliers. This can be by sharing directions and strategies, although inevitably these are to some extent events-driven, so it can be difficult to get a long-term strategy bedded in. We can share forecasts – a lot of people have been doing that for a long time, but we are working hard at doing this at a higher level of sophistication: we may not be certain on volumes but we can talk about the terms of business [across multiple lines over a period of time].
”That is the first stage: it is a tough journey and hasn”t necessarily yielded all its fruits yet. But there is a second stage, with Tier one suppliers, where we could create a degree of commitment on turnover and also about sharing new products as they arrive at market”.
Forms of complexity
For Diageo, Lee Snook said his role was wholesale rather than retail distribution ”which creates an opposite form of complexity. The type of collaboration I am interested in addresses, for example, our £140 million [€176 million] a year European logistics spend, where we are asking partners to leverage our spend, to achieve the lowest prices. It may be about finding complementary partners who have unused space in their trucks, or about approaching companies like Unilever to see if we can jointly get a better price for our logistics needs”.
Britvic, said Rob Richards, is still predominantly a UK business. ”We are in the centre of a chain – we are looking at Supplier Relationship Management to see how it could help us collaborate with perhaps 20 key suppliers. We are on the receiving end of demands from major retailers who bring their own pressures and challenges around taking cost out of their supply chains, but at the same time we are driven towards collaboration by our own agenda on corporate social responsibility, the environment and well-being. I think the driver over the next 3-5 years will be the environment and the impact of moving food around the country”. John Upperton of Vax agreed: ”Food is a common denominator – everyone understands “food miles”.”
Richards continued ”For most foods there are seasonality issues – eg the peaks before Christmas. The infrastructure needed to support peaks takes costs higher. So we actively seek people with seasonalities or routes to market that will complement ours – we are just beginning to think about this, but we are sure the environment will be a big driver” [of collaboration].
Clearly, said Allen, there are plenty of possibilities for collaboration in, for example, reducing road mileage. But what, he asked, are the key characteristics of a successful collaborative partner?
”As a regulator”, said Alex Fiddes of VOSA, ”we see that collaboration is going to happen. But we have to ask: are you risking the supply chain? Are you losing control; are you introducing a new degree of risk?”
”There”s always a balance to be struck”, suggested Richards. ”It”s service versus cost. Who, for example, gets first refusal if the goods or the service is short. We”re aware of this conceptually, but we haven”t worked it through yet. With existing partners, we are talking about how we could work with other of their customers, but we want to come first – don”t we all?”
Fiddes said ”I have to ask who wins? Is it the supply chain or the finance/accounts people. We”re investing millions in looking at high risk road operations, especially by non-UK vehicles where there is an atrocious level of compliance. One accident on the M25 can cost the country millions. So we have to look at how these off-shore goods are arriving”.
In the other direction, said Snook, ”We export to Central Europe and we haven”t partnered – we do it all through 3Pls. It comes down to “Who”s going to win if there are four or five different loads and destinations on a truck”. If they are high value goods, there can be big penalties. It”s a financial argument, which is exactly why we are into shared user [through 3PLs]. We want to be flexible about working with customers on quantities, delivery dates, but we are looking for supply chain partners who will come back to us and say “if you do this, then we haven”t got a complementary load and these are the cost implications”.”
Were there, asked Allen, areas for collaboration beyond transport – new product development, for example? Wilkie said that ”Typically in electronics, the process is driven by the manufacturers of the goods. We do some limited product development collaboration in private label lines, where we have the scale to be able to specify the product.
”But a prerequisite for engaging with a partner, logistics or otherwise, is that they will do what they say they will do. If you have a marketing plan with a date when the product is to be on sale, then you need the quantities you envisaged on that date. You have to choose your partners carefully – not someone who will drive off the side of the M25 with your name on the vehicle!”
Of course, there are probably penalty clauses in the contract to cover that eventuality, but how far, asked Allen, do contracts matter? Surely, if you have to dig out the contract, the relationship is effectively over?
”Generally”, said Tim Leftley of British Sugar, ”the clauses in our contracts aren”t those we would want to use. It comes down to relationships on all teams – but then the people who aren”t around the table are often the 3PLs or other partners: they are lacking from the solution. It may not be your company that delivers; there is some other person who sits in the middle of the web with potentially more control and knowledge.
”Collaboration needs huge levels of trust, at a high level, recognition of areas of mutual interest, and honesty”.
Slicing up the gains
But if you find those areas of mutual benefit, how do you slice up the gains? Lee Snook admitted ”We”ve been finding that piece really difficult to analyse – we may need to have someone in our business from a 3PL background, to tell us, for example, if we give them scale that they can use to win other contracts, what is the benefit of that to them, and how much should we be claiming back?”
Another question – when does collaboration mean merely compliance? Snooks cited a Continental, retailer. ”They want a third of a truck for Ireland, a third from France, a third from Spain. We want a full truck to wherever it”s chosen to cross dock. We are one of the “top ten” suppliers they are working with to take billions out of supply chain costs: you would think they would want to take mileage out?”
Upperton had similar experience with a large UK retailer. ”We”ve been working a year and a half on transport consolidation, yet they keep asking for smaller, more frequent deliveries. It”s stockholding versus stem mileage – two really conflicting desires”.
Richards view was that ”In terms of collaboration there is a long way to go when it comes to thinking about competition. We are required to do more and more in [retailer] branded vehicles – but should a retailer really be bothered about whether the truck is non-branded, or even in another firm”s livery?”
Wilkie concurred. ”Being told that “We are going to operate this way” isn”t what we”d call collaboration. Collaborations or strategic partnerships just aren”t suitable for all suppliers, so there must be some sort of tiering. If you are going to have collaboration there has to be trust, and open books, on both sides”.
”Highly unlikely”, observed Nigel Issa of Atos Origin Consulting. ”But it”s even more significant to get everyone sitting at the same table, getting clarity of vision, and then working out how you get seamless operational management – which has to be delivered by all partners whatever the colour of their T-shirts.
”But then the question arises – how do you keep the relationship competitive, and not too cosy?”
Wilkie suggested ”In a true collaborative relationship, you have to find the relationship at a number of levels – ideally, the CEOs are linked in; failing that, find links at as many levels as possible. Otherwise, what sounds like strategic collaboration doesn”t feel like that at the grass roots, and that”s when the contract gets pulled out of the drawer.
”There need to be rules that aren”t about beating the other guys up, but about creating broad agreement over what you are trying to create. The partners should sit down every month, reviewing what they are trying to achieve and how they have done. Also, you need to be continually refreshing it; bringing it to life again”. Richards agreed, ”If the vision is up-front, there is a far better chance of success. If the vision isn”t there you have a fundamental problem”.
Upperton added ”The question is whether both parties can get something out of a partnership that they can”t get alone. And the things you can get change over time. Objectives change: you have to ask whether there is still a point in the relationship”.
Richards agreed that ”Partnerships have to keep reflecting the external environment. They fail when they get too cosy and stop driving savings”.
But, suggested Issa, there are sectors where collaboration may never be right – those businesses (book retailing was one, he suggested) where the supply chain actually is the source of competitive advantage [a bookshop survives on its ability to source a single volume efficiently – although readers who studied the interview with Guy Meisl in last month”s issue may wonder whether this analysis is still necessarily true!]. But most areas can outsource logistics, and if it can be outsourced, some degree of collaboration should be possible.
Is it possible, though, that the discussion was starting from the wrong end. Issa mentioned a project his firm has worked on with Caterpilar, trying to combine local business unit purchasing with global supply base segment management, which requires ”incredibly complex” internal collaboration across functions and borders.
Where, asked Richards, do procurement directors sit? Do they see themselves, as part of an operational management team with a long view, or do they take a quarter by quarter view of price-down and cash savings. Where indeed? Perhaps we should convene a Roundtable of procurement directors to find out?
Head of Supply Chain Development, Diageo
”We export to Europe through 3Pls. But who”s going to win if there are 4 or 5 different loads and destinations on a truck?”