Creating value together

October 20, 2014 1:08 pm
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The word “vertical” when discussing integrated supply chains sounds like a buzz word. Vertical sounds high, or turned on its side, long. Are we too focused on vertical when we look at improving the supply chain through collaboration?

Strictly co-ordinated supply chains have gained in importance in the agri-food business sector. This has been the trend for the last two decades, yet are we really seeing the synergies expected and are we now too fixed on the status quo of collaboration?

Participants in the 2010 CCM survey said that only 2 in 10 of their collaboration efforts delivered significant results. If companies can’t make collaborations work, they will not only fail to achieve the potential benefits that supply chain collaboration can provide, but they will also risk destroying the enthusiasm for further attempts.

Supply chain collaboration can be divided into ‘operative’ and ‘strategic’ components. While operative chain management is designed mainly to obtain parity with competing food chain networks, strategic chain management is aimed at creating an advantage over competitors.

The majority of firms in the food industry are using supply chain management in order to gain efficiency by reducing stocks, optimising logistics, and reducing waste through out of life. The importance of the consumer has provoked the logistic-oriented approach to add the concepts of ‘efficient consumer response’ and ‘collaborative planning, forecasting and replenishment’ addressing in part the demand.

We are yet to see many companies truly exploring strategic collaboration to shorten the supply chain, all current activity could be said to turn the current cogs faster.

Collaboration through joint value creation

“The relationship between partners is driven by the need for profitability and by strategies that are congruent within each company involved and within the relationship” (Shaw and Gibbs, 1995).

As a concept this sounds great, but do supply chains really understand the cost drivers and opportunities that may exist through the end to end value chain and how they could impact this? Recent global economic pressures created the need to look internally and focus on spend became king, meaning companies did not look outward and forgot about supply chain collaboration and value creation.

Supply chain collaboration does not always need to be mutually beneficial for it to be worth progressing, its needs to be beneficial to one and break even to the other. By working to these rules the value chain that you operate in grows in strength and ultimately you benefit.

Reducing costs in your customer’s production process increases their competitive advantage, this means they can either grow or have a more sustainable business model which now benefits the whole supply chain and increases the total value of the chain.

How many businesses truly sit down with the whole value chain to ask the question of ‘how could we change the way we work?’ You may know value add and non-value add processes in your own business, but do you know that of your customer or supplier and how you could work together to make an impact?

Successful collaborative ventures are not characterised by drawn-out discussion and protracted negotiation.  If the idea is intrinsically robust then it ought to be obvious to the prospective partners.  Hard analysis and fluent decision-making are required in these circumstances.

Another vital ingredient of a successful collaboration is stamina. It may take time and effort to overcome the initial hurdles and make a new collaboration work. Both parties need to recognise this and build an appropriately long-term perspective into their goals and expectations for the collaboration. This means including metrics that review performance beyond the first activity, as well as conducting some joint, long-term planning. This will mean that both partners can gain an understanding of one another’s longer-term objectives and identify a roadmap of initiatives which they can work on together over time. Such planning helps companies to break out of the short-term-project mentality that can limit the beneficial impact of collaborative efforts. Nevertheless, partners must also take care to ensure that they are doing everything they can to capture any available quick wins so that collaboration starts delivering value as rapidly as possible.