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A meaningful payoff from supply chain collaboration

Dec. 29, 2004
Inquiries and Insights on Supply Chain Collaboration By John Matchette and Andy SeikelIn late 2003, Accenture published a cross-industry paper titled

Inquiries and Insights
on Supply Chain Collaboration

By John Matchette and Andy Seikel

In late 2003, Accenture published a cross-industry paper titled “Connecting with the Bottom Line: A Global Study of Supply Chain Leadership and Its Contribution to the High-Performance Business” that was based on research conducted with INSEAD and Stanford University. Among the report’s conclusions were two particularly salient findings. First, a direct, statistically viable connection was made between supply excellence and increased market-capitalization levels. In effect, the report demonstrated that supply chain improvements pay. Second, the team of Accenture, INSEAD and Stanford researchers reported that as companies migrate from internal-only to extended supply chains, collaboration will become one of the most strategic capabilities. Because supply chains are becoming too complex for any one entity to manage effectively, tomorrow’s winners will be the companies that conduct the orchestra—not those that play all the instruments.

In virtually every business community, collaboration is a hot topic. Even in a strict supply chain context, it has any number of important connotations:

  • With collaborative forecasting and inventory management, companies share supply and demand data with suppliers to create joint forecasts and tightly link sales and production.
  • Collaborative distribution capabilities enable innovative retailers to combine cross-docking and advanced warehouse management to radically raise logistical efficiency.
  • Fulfillment-focused collaboration with suppliers and external business partners often makes it possible to improve availability without harming turns or inflating inventories.
  • Processes and tools that abet design collaboration enable more parties to effectively co-design and develop components and assemblies.

Today’s business realities—unpredictable consumer demand, shorter product life cycles, mass market competition, and increasing global suppliers and channels—aren’t likely to change soon. This means that the need for collaborative relationships won’t be declining either. But is the basic nature of collaborative relationships likely to change? And if so, how will tomorrow’s collaborations be leveraged to increase profitability and competitive advantage? Will the barriers to collaboration be different or more formidable? And what forms of collaboration-based information will hold the most sway across companies and industries?

To answer these questions, Accenture partnered with Logistics Todayon a collaboration-focused survey of executives in supply chain decision-making positions. The investigation was cross-industry, emphasizing manufacturing, high-tech and transportation (Figure 1). Nearly 70 percent of the survey’s respondents come from companies with $1 billion or more in revenue. And approximately 32 percent of respondents come from organizations with revenue exceeding $10 billion per year. As shown in Figure 2, an equally broad array of job titles and logistics functions was covered.

Executive Summary and Key Findings

“Collaboration” (the term, not the activity) is often overused, which has the potential to make collaboration seem less potent than it really is. The reality, however, is that collaboration is a cornerstone of high-performance businesses. Executives queried through numerous surveys—including this one—list collaboration as one of their key strategic priorities.

Another problem is that collaboration is exceptionally general: It has copious connotations, forms and potential categorizations. It also means different things in different contexts, say between organizations and departments within organizations, or among varying functions. For example, collaborative relationships in supply chain management may correctly be delineated as “transactional,” “tactical information sharing” or “strategic” (Figure 3). Lastly, collaboration is not a clear-cut process supported by a specific set of tools and behaviors. Speaking of collaborative planning and replenishment, for example, AMR’s John Fontanella recently noted that it is not a rigid methodology meant to standardize planning and replenishment processes across an entire industry. Instead, he explained, such collaborations are mutually accepted sets of processes that companies use to strengthen strategic ties with suppliers and customers. The bottom line is that collaboration is both vague and essential.

For the purposes of this survey, collaboration can be taken to mean “cooperative, supply chain relationships—formal or informal—between manufacturing companies and their suppliers, business partners or customers, developed to enhance the overall business performance of both sides.” Because they typically are contract- and service-based, alliances with third-party logistics providers would be outside of the survey’s scope and definition.

Within the above scope, survey-based conclusions and related insights contributed by Accenture and Logistics Today include the following:

  • Collaboration levels have increased dramatically in the past three years. Very few companies have seen a decrease in collaborative activity, or even remained constant.
  • Cost reduction is still the primary driver of collaborative undertakings. However, strategic and revenue-focused missions are becoming more important. For example, nearly one quarter of respondents replied “increased sales and top-line growth” when asked, “What is the largest benefit your company achieves or expects to achieve by collaborating with your trading partners?”
  • Strategic forms of collaboration are increasingly seen as differentiating sources of future value. For example, information about strategic plans, product development, pricing, and promotion/marketing effectiveness currently are being shared by more than 30 percent of this survey’s respondents.
  • Tactical forms of collaboration (e.g., sharing production planning, inventory and demand information) have been a significant focus in the past, and will continue to be a driver of value. These were the most commonly cited “current collaboration” areas, as well as the activities for which survey respondents expect to see the greatest increase over the next three years.
  • Supplier collaboration has gained momentum as an achievable business capability.
  • On a regular basis, collaboration improvements are now included in holistic supply chain transformation programs.

The Growing Importance of Collaboration

As shown in Figure 4, nearly 70 percent of survey respondents perceive collaborative relationships as “very important.” Even more salient, however, is that companies are “walking the walk”—consistent with their stated priorities, respondents’ collaboration levels have increased dramatically in the past three years. As shown in Figure 5, very few companies have seen a decrease in collaborative activity, or even remained constant.

How Collaboration Is Changing

As noted earlier, there are any number of fronts upon which companies can instigate collaborative relationships: product design and development; demand forecasting; promotion, sell-through and POS info sharing; vendor inventory management and replenishment; JIT manufacturing replenishment; product end-of-life timing; profit optimization analysis; and numerous others. Figure 6 depicts the life cycle stages and activities that are increasingly affected by collaboration.
Given this proliferation, it should not be surprising that a wide variety of information is being shared among trading partners. As shown in Figure 7, production plans, inventories and shipping information are being shared with trading partners at more than 70 percent of responding companies.
The top two categories—“planning, inventory and shipping information” and “true demand data”—tell us that most collaborative activity continues to focus on transactional information (likely through the use of VMI and EDI). However, a strong showing in the remaining three categories (30 percent to 40 percent of respondents) points to stronger strategic collaboration with multiple trading partners in the near future. This prediction is reinforced by the data shown in Figure 8, which notes that roughly one out of six respondents expect “strategic plans about products and pricing” to represent the greatest increase in collaboration over the next three years.

Collaboration’s Benefits and Barriers

As shown in Figures 9 and 10, “cost reduction” and “operational effectiveness” continue to be the primary drivers of collaborative undertakings in supply chain management. This doesn’t mean that respondents are unaware of the strategic and revenue-enhancing benefits that collaboration offers. A better interpretation is that the efficiency and cost-reduction opportunities stemming from collaboration are often so strong that they cannot help but be the preeminent drivers. According to independent research conducted by AMR, Accenture and the Voluntary Interindustry Commerce Standards Association (VICS), superior collaborations can help manufacturers:

  • Reduce inventory levels by an average of 30 percent.
  • Cut transportation costs by an average of 10 percent.
  • Lower warehousing costs by an average of 13 percent.
  • Shorten lead times by an average of 50 percent.
  • Improve customer service by an average of 10 percent.

The joint AMR/Accenture/VICS study also noted that collaborative relationships help retailers:

  • Raise store-shelf stock rates by 5 percent to 8 percent.
  • Reduce inventories by an average of 10 percent.
  • Cut logistics costs by 3 percent to 4 percent.
At the same time, however, our survey respondents do recognize a wide variety of collaborative benefits and opportunities that are not specifically cost-related. For example, as shown in Figure 9, one quarter of respondents cited “increased sales and top-line growth” as the largest benefit gleaned from collaboration. In addition, the sumof the benefits that were cited actually speak more frequently to strategic and revenue enhancing capabilities than they do to cost reduction.
As shown in Figures 11 and 12, our survey respondents perceive collaboration around production planning as having the greatest value for their business. The figures also imply that upstream and downstream—as well as tactical and strategic—relationships are on respondents’ radar screens.
Not surprisingly, technology and data hurdles are cited overwhelmingly as the most formidable barrier to enhanced collaboration between companies and their suppliers and retailers (Figure 13). This is to be expected, given that machine-to-machine execution increasingly is the foundation of inter-enterprise collaboration. Consider the top three information types that survey respondents say they are sharing with trading partners: “production plans, inventories and shipping information”; “demand data (including POS and forecast information)”; and “product design information”—they are all predicated on digitally transferable data (Figure 7).

Looking Ahead

Survey results and their interpretations by Accenture and Logistics Today all point to a similar conclusion: Now and in the future, inter-enterprise collaboration may be the single best way to increase business performance. Although every partnership, collaboration or alliance will be different—with unique goals, components and metrics—a few general guidelines can be followed to achieve collaboration:

  • Fit the relationships to your strategy. Define the link between overall strategy and collaboration opportunities, identify the purpose of each collaboration effort and be prepared to react quickly to changes in strategy or environment.
  • Identify the best partners. Use a range of competitive and market sources to develop the intelligence to spot and evaluate potential partners.
  • Optimize your relationship portfolio. Develop systems for timely reporting to enable faster, better-informed decision making about the collaboration. Know how to identify new opportunities based on activity in your current portfolio. Make sensible trade-offs between internal efforts and alliances.
  • Maximize day-to-day performance. Use performance measures that reflect the organization's overall business objectives so that the people involved in the collaboration will be able to communicate the "why" and "what" of every alliance they form and to share experiences across alliances.
  • Manage the relationship. Plan to communicate and maintain continuous personal contact with key people at partner organization(s). Success on this front makes it possible to develop new opportunities from existing relationships.
  • Capitalize on your collaboration’s assets. Capture and adopt best practices. Build on the knowledge gained in alliances by sharing information and leveraging collaboration-created assets across the parent company.

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John Matchette and Andy Seikel are Chicago-based partners in the Accenture Supply Chain Management practice. John can be reached at [email protected], and Andy can be reached at [email protected].

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