A rich source of savings lies in the largely unexploited practice of horizontal collaboration – going beyond the enterprise. By Nick Allen
Supply chains are essentially built on “vertical” collaboration. That is where buyers and suppliers within the chain work together, vertically, to bring often significant advantages to those within it. The flow of information from buyers on demand, consumer preferences and future promotions helps suppliers make critical decisions on production, design and investment – allowing a supplier to be more competitive with pricing. Pack and carton designs, order quantities, and sequencing can all be aligned to partner needs if collaboration is openly cultivated and developed between interdependent organisations.
Creating cost cutting opportunities through vertical collaboration is relatively easy, if you know how, but what of the other form of collaboration – “horizontal” collaboration? Finding opportunities for co-operation with companies outside the chain, through horizontal collaboration, is a little more difficult. However, opportunities abound and probably offer some of the richest sources for future cost savings.
Jonathan Gibson, head of logistics at consultancy Crimson & Co, says: “Typically, collaboration is about looking up and down the supply chain, strengthening the information and planning links between supplier and customer,” he says. “So long as there is a ‘fair’ sharing of the benefits, this both saves on-going operating cost, and develops the relationship to the point that the substantial one-off cost and disruption of changing supplier is avoided.”
However, he points out that the opportunity often overlooked is between companies in the same sector. “Very few companies directly compete on supply chain performance, and the opportunity to take cost out by introducing industry standards in areas such as packaging, safety and staff training are often ignored,” he says.
Gibson uses as an example the benefits realised by the chemical industry a number of years ago when it settled on a few standard pallet specifications.
“Efficiencies like this could easily be replicated elsewhere,” he says. “As could the purchasing and safety benefit to oil and gas companies where they have been able to adopt common global or at least regional, standards for road tankers and driver training.”
He believe that the advantages to industries of greater co-operation is not just in the initial cost and waste of individually specified equipment, but also in areas such as reducing in-transit damage, scale benefits of cross industry training, and quicker integration of staff who have moved from elsewhere in the same industry into the workforce.
Prof Alan Waller, vice president for supply chain at Solving Efeso, is a leading exponent of horizontal collaboration in transport and logistics. As chairman of the European Logistics Users Providers & Enablers Group (ELUPEG), he believes the recession has helped drive greater collaboration on transport, but says there is still much further to go.
“Ten years ago, when we founded ELUPEG, people thought collaboration was bizarre and unworkable. They thought it wouldn’t work. Collaboration on transport is still not everyday practice, but it is increasingly common and those companies that have embraced it have made tremendous advances,” he says.
According to a World Economic Forum report, 24 per cent of freight vehicles in Europe are carrying air, and the rest are only filled to 57 per cent capacity. The overall capacity utilisation of freight vehicles in Europe is just 43 per cent. So there is huge potential to make savings in CO2 emissions and fuel costs by greater collaboration on transport.
“Collaboration is being undertaken more seriously by those organisations that have more mature supply chains,” says Waller. “In other words, those companies that have taken the internal costs out and are now looking outside the enterprise for further savings – it adds a whole new dimension in savings.”
But this requires new skills. He believes a good collaborator is one that “thinks outside the box, that tends to go the extra mile, that networks… someone that moves around the circuit talking to other people, forming relationships with other companies – even competitors.”
But Waller stresses: “It’s not a straightforward process, you have to find the right partner and the right opportunity.”
He puts the top barriers to collaboration as: “I can’t find a partner. I don’t know what the savings are – it’s uncertain. It’s quite difficult to do. And it’s not my job.” But there are plenty of initiatives underway to help collaboration.
One such concept is Vision 2020, an initiative for establishing key freight highways across Europe punctuated with secure truck stops, transfer points to other modes of transport as well as consolidation and deconsolidation points. Another is Collaboration Concepts for Co-modality (CO3) which is an EU funded project to aid cross-modal capacity-sharing partnerships. ELUPEG is supporting both initiatives and will be issuing an update at an event in Amsterdam on 31st January.
Dr Mick Jackson, chief executive of Skills for Logistics believes collaboration will require an increasingly developed skills set.
“You can collaborate with your customers and with your suppliers – for example, a vehicle returning to a depot having delivered to a store could pick up from a supplier. The next level up is to collaborate between supply chains on routes and counterbalancing flows. A further level of sophistication is where you start looking for collaborative opportunities with the competition – co-opetition. But you need the skills set at the supply chain management level, and the industry has not been training people in these skills, which are essentially communication skills,” he says.
Collaboration within automotive supply chains is not uncommon. However, Paul Brooks, director at Unipart Logistics and international VP for growth and development for CILT, sees the potential for 3pls to play a far more central role in global automotive supply chains.
“Today the marque owner is an assembler rather than a manufacturer. With the exception of power train and bodyshell everything is bought in,” he says. “As a result, the supply base is ‘tiered’ – T1 suppliers delivering ready to fit systems or assemblies, themselves receiving sub-assemblies from T2s, who in turn are supplied by ever more remote ranks of component suppliers. The assembler has a close relationship with its T1s; may have a relationship with the T2s; and as for the component suppliers, they are “a far away country of which we know little”.
Brooks believes that that model has worked fairly well, but says the cracks are beginning to show. Firstly, recent natural disasters have shown the potential for massive disruption to production from the failure of little considered lower-tier suppliers in far-away countries. Second, he says, the number of components in a modern vehicle is rising inexorably – typically 40,000 or more – and many of these parts are not being supplied through the established tiers.
“The result is that OEMs [Original Equipment Manufacturers] have an increasing proportion of their supply base that is not under close control, while from the supplier’s perspective, they are typically caught in a relationship characterised by a buyer-focus on cost rather than partnership,” he says.
“It is simply not practical for the OEMs to have a close relationship with every supplier. So what are suppliers to do? One option is to try to build a relationship with a T1 assembler, however, that may be a case of out of the frying pan into the fire,” he says.
Virtual Tier 1
But, Brooks asks:?“Why shouldn’t component manufacturers become T1 or T2 suppliers themselves?” Not individually, he says, but “in collaboration with other manufacturers and using the supply chain, assembly and organisational competences of a logistics service provider to deliver complete assemblies to the OEMs – creating a ‘virtual T1’.
According to Brooks, there could be considerable benefits for both OEMs and suppliers. “There should be a significant reduction in cost and risk, a better integration of production and delivery schedules, individual component manufacturers would gain a better understanding of production, and in turn this should lead to the development of better products,” he says.
In procurement, collaboration across entire sectors on the way supplier data is managed can bring significant productivity gains and cost savings. So says Annette Gevaert, director of rail and transport at Achilles, which operates Link-up – the supplier pre-qualification scheme in the UK Rail industry that encourages all rail buyers and suppliers to adopt a standard approach to supplier qualification. Link-up also offers networking opportunities; allowing buyers and suppliers to share best practice and work better together.
The rail industry has had a sharp focus on making efficiencies and working more collaboratively for almost two years. Government called for a 30 per cent improvement in efficiency levels shortly after the publication of Sir Roy McNulty’s review in 2011.
At almost the same time, Link-up’s governance was made accessible to the whole industry and its workings changed to a more collaborative format, requiring the key industry influencers to discuss and redefine supplier qualification.
Gevaert says: “We have already seen Government, Network Rail and Transport for London take significant steps towards generating efficiencies. Link-up provides a single common registration, qualification and audit process for suppliers, shared by the UK rail industry. More than 2,500 procurement and compliance specialists from 116 buying organisations already have access to Link-up and its 3,500 registered suppliers. Through the scheme, we are seeing buyers and suppliers make a real difference through working more collaboratively to save time and money in the procurement process.”
Although Link-up has been established for many years, having its origins in the state-run British Rail, the scheme is “in the midst of a transformation that will deliver significant savings in direct as well as indirect costs for the industry,” she says.
The pre-qualification process is being redefined so that it is quicker and easier for suppliers to enter data and for buyers to view and extract vital information. This is expected to generate further time and cost savings when the new platform, Link-up Engage, goes live in March/April this year.