Dangerous to ignore it

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Supply chain collaboration has long been talked about as the next big thing, yet more often that not it remains a boardroom discussion rather than an operational reality. But as companies begin to plateau after the recession, could now be the time for collaboration to take off? Lucy Tesseras reports.

Collaboration has long been a buzz word in supply chain, but rarely is it acted upon as much as it is talked about. There are obvious exceptions to that rule, particularly in the FMCG and chemicals sector, but by and large, historically it has been an idea rather than an action as many perceive the risks to outweigh the benefits.

However, the aerospace industry is putting its money where its mouth is after investing £1.3 million in a pioneering shared services project run by the North West Aerospace Alliance in partnership with Unipart.
The aim is to get alliance members working together to improve competitiveness by pooling their purchasing power and securing better deals on tangible items such as utilities, stationery and transport, as well as strategic services such as quality and environmental expertise.

The first element of the programme is the transport service which Merc Engineering of Barrowford and ELE Technologies of Colne signed up to initially, followed swiftly by Genser Aerospace of Manchester, Preston-based professional consultancy Aegis Services and Leicester-based Hardinge Machine Tool, among others.

The transport service involves a deal with TNT to reduce the cost for members, initially for UK parcels and pallet movements.

Martin Harrison, finance director at ELE Technologies, says: “The shared services project has given us leverage and cost savings that we could never achieve on our own.”

The alliance is the largest aerospace cluster organisation in Europe, representing a region which contributes more than £6 billion to the UK economy, amounting to one third of the UK aerospace turnover.

The second phase of the project, which will focus on driving down costs on consumables such as non-technical engineering workshop supplies and personal protective equipment, was launched on 30th September.
Collaboration can happen at any stage of the supply chain process, which the skills exchange deal signed by PepsiCo France and temperature-controlled logistics specialist STEF-TFE has highlighted.

The agreement will see the two companies sharing supply chain human resources under a logistics contract which binds the two groups until 2013.

The two companies will share transferable best practice and will initially collaborate in three main areas: safety and well-being at work, training and “the culture of belonging” in which the two companies will meet for team bonding days.

Vincent Prolongeau, general manager of PepsiCo France, says: “This partnership between a manufacturer and a logistics operator is unique and exciting. It proves that partnerships, beyond their economical justification, also involve people from two companies.”

It is hoped the project will boost individual performance and motivation, helping to improve the overall performance of both companies.

One of the most talked about collaborative operations of recent years, and possibly one of the most successful and pioneering, is that of Kimberly-Clark and   Kellogg’s in the UK, which was initially operated by TDG when it began in 2006 and is now run by Norbert Dentressangle, along with pallet pooler LPR.

The nature of both businesses is low value but high cube, so supply chain costs are a significant proportion of the overall cost a problem which was more than apparent to Peter Surtees, European supply chain director at Kimberly-Clark who began searching for ways to mitigate this cost.

He says: “Instead of making three full-load deliveries a week, we started looking at doing five a week with half a truck load and finding someone else to fill the other half, so it could still be delivered on the same day at the same time.

“It has enabled us to move to shorter lead times and reduce the average delivery size while keeping transport costs down and raising the volume of Kimberly-Clark. It has also helped us reduce distribution costs. While for the customer it has meant they can order more frequently, therefore their orders are smaller and they can reduce the amount of stock they hold.”

The joint operation has consistently achieved a seven per cent cut in transport costs, and it is taking an estimated 270,000 miles off the roads each year, which equates to 30,000 gallons of diesel and 380 tonnes of carbon dioxide.

In addition to the operation with Kellogg’s in the UK, Kimberly-Clark has an ongoing relationship with Unilever in the Netherlands where Kuehne + Nagel operates a collaborative distribution centre in Raamsdonksveer for the two companies. Plus, it is now working on initiatives in France and other parts of mainland Europe, which are due to be revealed imminently.

Mick Wilson, director of high    cube business unit at Norbert Dentressangle, says: “The more companies can collaborate and the less they operate in silos the more sustainable they become and there are more options for cost savings. Energy and fuel costs are only going one way so more utilisation of vehicles and reduction of product miles improves sustainability and costs.”

Norbert Dentressangle is in the process of talking to prospective customers to extend its collaborative business, which is likely to go through in the next month to six weeks. “We haven’t won the business yet,” says Wilson, “but they like the concept.”

Brian Bolam, president and founder of OmPrompt and chairman of ELUPEG, the organisation which focuses on developing logistics collaboration, says people have now got collaboration firmly on the board agenda.

“The recession moved things back a bit as companies went into survival mode, but we are back to the ‘new normal’ and there is a different set of criteria. Collaboration is moving on now, companies have a more proactive view… I’ve noticed a move from lots of talking to more doing.”

Bolam reckons collaboration can take 25-30 per cent of the cost out of the supply chain in some cases, plus it can boost sustainability which is now a pre-requisite, particularly from a consumer perspective.

He is keen to point out that it is about cost mitigation, rather than cost reduction though, as costs are rising everywhere.

Surtees believes collaboration is about culture and relationships rather than numbers. “It’s easy to prove the financial case,” he says, “but it’s harder to have trust and the ability to work with other companies and understand what needs to be achieved and how to do it.”

He likens collaboration with non-competitors and its potential pitfalls to a long-term relationship. “It’s a bit like getting married,” he says. “The risk is divorce. It’s a customer facing operation and the customer is benefiting so if you want to stop that relationship you have to go about it carefully? You either end up increasing the cost or you have to take something off the customer which they’re now relying on. If set up correctly that shouldn’t happen though.”

In order for a project to work there has to be absolute visibility. Companies can’t just implement a collaborative approach and expect it to solve all their problems if there are underlying issues that need to be resolved first.

Bolam says: “Companies need to be efficient before considering collaboration. They need to squeeze all the pips out first and then they will be in a good position to collaborate… You must have a control tower view if you can’t see what’s going on in your business how can you expect anyone else to.”

A fundamental requirement of collaboration is sharing information, and while companies don’t necessarily have to be linked on the same system, any system that makes it hard to integrate partners into information systems or networks could cause an obstruction to true collaboration.

Rob Gibney, UK country manager, Imtech ICT Logistics Software, says: “While open systems are the key technical issue for sharing information within a collaborative approach, for many suppliers or partners, the capital outlay for an information system can be prohibitive and therefore a tremendous hurdle for collaboration. This is particularly true when it comes to the transport sector where margins are low.

He reckons a software-as-a-service platform for logistics IT systems can solve this problem. “A SaaS platform gives operators in a low margin sector affordable access to systems, and it becomes operational rather than a capital expenditure. This benefit, together with a SaaS system’s ability to be installed rapidly weeks rather than months makes it particularly suitable for transport networks, allowing new members to integrate easily and at a low cost. Furthermore, all the network members benefit from the same support, upgrades and infrastructure, which are provided by the SaaS supplier.”

Ideal technology
Jacquie Boast, chief operating officer EMEA at Kewill, agrees that SaaS is the ideal technology for achieving collaboration, as “multiple organisations can access the central hub of information via a web-portal. Whichever system you chose it is imperative that it’s capable of integrating with multiple systems, and centrally accessible for everyone uploading and downloading documentation across multiple organisations.”

It is this sharing of information that often prohibits companies from investigating collaboration further as many see it as a potential risk, particularly when it comes to collaborating with competitors.

Wilson says: “It can be difficult for competitors to collaborate, but what we can say is you don’t compete until the product arrives on the shelf how it gets there is less important. Is there any real harm in sharing logistics?”

John Kenny, healthcare business development at DHL, uses hospital deliveries as an example. “All deliveries go to the back of a hospital. Surgeons don’t care who delivers what they need, some don’t even know who has delivered it it’s the product they are interested in. Who delivers the products doesn’t affect their buying decision.

“But many refuse to work with those they consider the enemy… It’s about getting the risk and reward balance right.”

In fact, Bolam suggests that the most logical person to collaborate with is a competitor as they will be delivering the same type of product to the same place at the same time.

He says ELUPEG can operate as a neutral third party so all confidential information is neutralised before it can be seen by a competitor.

When embarking on a collaborative initiative, Bolam advises companies to assume it is just like any other project. Companies must look at the total ROI, risk management and potential efficiency gains and then make a sensible business decision based on fact rather than hearsay.

NFT’s technical director Charles Stephens reckons that, from a retailer’s perspective, the main risks are probably more of a worry than an actual threat.

“Retailers would perceive a risk of loss of control, a loss of service levels to store and the possibility of inadvertently giving a disproportionate benefit to a potential collaborator. It seems quite natural to fear giving a competitor the ‘upper hand’ but the overall aim should be to promote benefits for all involved,” he says.

NFT has worked with a number of retailers to develop more efficient operations, which involve the collaboration of various manufacturers who supply into them.

The logistics service provider approached Sainsbury’s in early 2001 with a proposal to collect and consolidate suppliers’ products through one of three transhipment hubs strategically located around the UK.

“This enabled a reduction to inbound regional distribution centre deliveries by optimising vehicle fill on each load, as well as using the same vehicles to collect suppliers’ product en route following an RDC delivery,” he says.

The project began in early 2002 and a fully open-book model of a three-hub primary network called National Perishable Primary Network began operation in June 2002.

“This has not only generated cost savings even despite inflation but the carbon footprint has also been reduced. This is monitored and improved by NFT on an ongoing basis.”

Alex MacPherson, solutions consulting manager of Manhattan Associates, points out that for many retailers supply chain is where they can gain competitive advantage. He suggests tools such as Manhattan’s Associates’ Distributed Order Management and Extended Enterprise Management software can help facilitate effective supply chain collaboration.

“If [a retailer’s]supply chains are synchronised through effective collaboration, they can respond quickest to demand or they can keep their shelves filled more than the next store, which helps win more customers. Additionally, if they can react to customer demands, be flexible to special requests and have the agility in the supply chain to ensure customer satisfaction, they will keep customers coming back.”

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