Supply Chain Collaboration and Partnerships

Chad W. Autry, Ph.D. Associate Professor of Logistics The University of Tennessee autry@utk.edu

Todays Discussion Topics:

Supply Chain Network Relationships

Developing Collaborative Relationships

Managing Collaborative Relationships

Common Causes of Failure

How Supply Chain Management contributes to organizational value

Equity & Cash Flow Improve Earnings Increase Revenue Reduce Costs Better Utilize Assets

A well managed, collaborative supply chain can create up to a 70% increase in EPS
Source: Think Like Your Customer: Business Value Hierarchy, McGraw-Hill, 2005

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Supply Chain Network Relationships

What constitutes a Supply Chain Connection?

Supply Chain Connection (~Relationship): The linkage between two firms, business units, or functions operating within the same supply chain system. Often evaluated in terms of closeness ~ tie strength.
Arms Length Cooperative Collaborative -- Equity

A Continuum of Relationships
Enterprise Extension
Exclusive partner base Mutual dependency Shared goals/objectives Close interaction over long term

Contracting/Outsourcing
Low number of relationships Joint problem solving Aligned objectives Motivate desired behavior through info sharing

Increasing Impact
Increasing Effort

Channel Structures
High number of relationships Price dominated Little interaction, short duration Motivate desired behavior through reward & punishment

Increasing Formality

Relationship Connectors between Business Units or Functions

INFORMATION EXCHANGE: Expectations of open sharing of quality data useful to both org. CONTRACTUAL BONDS: Detailed and binding agreements specifying obligations and roles of both organizations (or equivalent trust) ORGANIZATION or FUNCTIONAL UNIT A RELATIONSHIP-SPECIFIC ADAPTATIONS: Investments in process/product/procedure specific to needs or capabilities of the partner org. COOPERATIVE NORMS: Expectations the organizations hold about behaviors when working jointly to achieve agreed-upon goals ORGANIZATION or FUNCTIONAL UNIT B

OPERATIONAL INTEGRATION: The degree to which systems, procedures, routines connect seamlessly across the organizational interface

Relational Connectivity Model

Information Exchange Available Alternatives Market Dynamism Exchange Importance Exchange Complexity Contractual Bonds

Partner Satisfaction

R-S Adaptations

Cooperative Norms Operational Integration

Partner-Partner Performance Evaluation

Relationship Approaches
Traditional Approach
Adversarial Distrust is common Power from withholding

information
Individualistic Internally focused Stochastic and internal

Collaborative Approach Cooperative Trust is key Power from sharing information Team-oriented Externally focused Value chain measurement

measurement

Collaboration can improve profits and leverage assets

Increased Sales Improved Profitability Enables improved service levels and on-shelf availability across the board Shippers and carriers with CTM capabilities become "go-to" parties for major retailer events Opportunities exist to minimize/eliminate costs associated with miscommunications across the extended supply chain, e.g.: Expediting/last minute shipping Poor truck utilization Freight bill and shipment administration Collaboration facilitates better use of transportation and warehousing assets for all participants, e.g.: Continuous moves, Shared warehousing, Fewer fixed assets The ability for participants to take a system-wide view of supply and demand minimizes unnecessary inventory Better communication between partners creates the opportunity to reduce DSO

Reduced Costs

Collaboration Opportunity

Improved Transportation Asset Utilization

Improved Balance Sheet Performance

Inventory Reduction

Improved DSO

Developing Collaborative Relationships

STRATEGIC

PROCESS

OPERATIONAL

Establish Initial Expectations

Need Awareness

Establish Search Criteria

Establish Secondary Expectations

Search

Establish Selection Criteria

Determine Expected Effectiveness

Selection/ Decision

Determine Joint Operating Standards

Evaluate Perceived Effectiveness

Implementation/ Administration

Evaluate Operating Standards

Assessment Sustain Modify Terminate

External SC Collaboration Examples

Transaction Area Collaborators Description Periodic process between a shipper and a carrier to arrange for transportation capacity -- may include the use of a transportation marketplace Proactive control of inbound goods flow and management of transportation by the receiver Shipper Carrier

Capacity Procurement

Receiver Inbound Management

Shipper
Carrier Receiver

Integrated Movements

Shipper Carrier Shipper

Aggregating truckload freight across multiple locations or divisions of a company or across multiple shippers

Transportation Marketplace

Carrier

Ability to solicit capacity from other select/core carriers

Collaborative Transportation Management (CTM)

CTM brings together participants to drive inefficiencies out of the transport planning and execution process by focusing on interaction and collaboration with shippers, carriers and receivers

Strategic
Consortium Collaboration Multiple Shippers, Carriers Third party facilitation Information Hub Relationship management

ROA Impact
Operational

Tactical

Partnership Collaboration Shipper, Consignee, and Carrier Shared forecast Committed capacity Visibility Trading Partner Collaboration Shared forecast by lane of traffic Automated transactions

Traditional Vendor Transactional No visibility

Opportunity to reduce transportation cost and add value through improved service increases as multiple shipper networks are integrated, carriers are connected, and communication and execution capabilities are enhanced

Level of Collaboration and Time

Internal Collaboration: Demand and Supply Integration

Output

Alignment Responsibility Commitment Management Business Review

Performance review Issue review Alignment to business plan Approved plan decisions/actions agreed Input into next planning cycle Communication Actions to close GAP vs. PLAN

Supply Review

Strategy/Business Plan/Performance Integrated Reconciliation Financial Appraisal Demand Review

Output
New Demand plan Sales & marketing Plan agreed Volume, price, revenue Implications (including resource and spend) Changes Resources Assumptions Opportunities Issues

Product Review

Output
Alternative supply plans Inventory plans or lead time developments Supply/Demand issues to resolve Feedback to Demand or Product Management on constraints Proposed Supply Plan

Output
New Product plan; Roadmap Projects: prioritized Changes Resources Assumptions Opportunities Issues

Source: Modified from Oliver Wight

Collaboration allows us to reach consensus on a single operating plan

Demand and Supply Integration

Process led by senior management Routine (monthly?) evaluation and revision of time-phased

projections of demand, supply, new products, and strategic projects and the resulting financial plans required to support them Decision-making process that realigns the tactical plans for all business functions in all geographies in support of the companys business goals and targets Objective: reach consensus on a single operating plan, to which executives and management teams hold themselves accountable. Plan allocates the critical resources of people, equipment, inventory, materials, time and money to most effectively satisfy customers in a profitable way Becomes the primary process by which the business is run!

Source: Oliver Wight

Selection Process
Identify Needs Customer service Channel network Maintenance Labor issues Investment alternatives Operating costs Capacity constraints Product/process technologies Market access (including global markets) Import/export activities Functional expertise Internal organization Vendor base Production/assembly service Information systems Transportation

Identify Required Services Specialized services

Identify Specific Objectives

Improve financial performance

Determine Selection criteria Size of firm Financial performance and stability Efficiency of operations Capacity Experience/past performance record Expertise of personnel Quality of organization Compatibility of corporate cultures Level of technology/ sophistication Responsiveness to problems and special needs Consistency of performance output Evaluate Candidates Select Partner and manage relationship

Improve-utilization/ economies of scale

Reduce investment Improve productivity Improve customer service

Warehousing

Improve system flexibility

Gain distinctive competencies Improve work environment Improve control over operations

Improve JIT Capabilities

Improve information systems

Selecting a Partner
Recognize Management Reservations
1. Less customer contact 2. Partner wont respond to customers needs 3. Loss of control 4. My needs will become secondary as partner grows 5. Service could be offered to competitors 6. Vendors could become competitors 7. Loss of distinct competencies 8. Hesitancy to share information?
Identify Needs

Address Barriers
1. Getting top management and sales force buy-in 2. Doubts that control will improve 3. Belief that service could deteriorate 4. Resistance to change 5. Its an admission of subpar performance 6. Traditional organizational philosophies 7. Costs will increase

Identify Required Services

Identify Specific Objectives

Determine Selection Criteria

Evaluate Candidates and Select Partner

Managing Collaborative Relationships

The top 5 reasons relationships fail are not due to a bad partner but due to bad a bad relationship management process
Buyers multi-supplier environment Poor cultural fit Poor performance Other Not mutually beneficial Poor communication Poor governance Misaligned interest over time Unclear expectations 0
Source: Outsourcing Center Survey, Outsourcing Center

3 5 8 11 11 11 13 15 23 5 10 15 20 25

Contractual Issues
Attorneys develop the contract, not the

business
The agreement is vague and inflexible to

change
Poor metrics and/or baseline
No specific escape clause - reasons, costs, and

timelines

- The Activity Trap Example The partner is paid for every transaction whether its needed or not
Selling partner typical reaction under a Transaction-Based Model
We charge you to store and count your product monthly the more you have the more we make! We charge rush fees to expedite your products to market! Your suppliers caused us to rework your product into new packaging. We have to charge you more money to rework!

Buying Partner I forecast over I forecast under I manage my suppliers poorly

Inventory working capital is killing me

I specified the wrong shipping requirements

We dont own your inventorywe just provide services to you. Actually, we like when you have too much because we charge to hold it!
We ship as we are told. You didnt tell us about the special label.

For Collaborative Relationships Cooperation is Win-Win

In non-zero-sum games, a gain by one player does not necessarily correspond with a loss by another Win-win game theory emphasizes the importance of cooperation, sharing and overall group success in contrast to domination and personal gain All players are treated as equally important and valuable When both parties cooperate they both win! When they dont , they end up with less or both lose! Cooperate Command

Cooperate

Win-Win

Lose MuchWin Much

Command

Win MuchLose Much

Lose-Lose

Is Win-Win the Real Deal?

Common Causes for Failure

Expecting perfect performance from Day One

Unclear objectives
Over promising capabilities Underestimating IT requirements Relying on inaccurate information, usually due to time constraints Insufficient resources focused on implementation Poor metrics Poor multi-level connection/communication

To Succeed ---

SHIFT

Risk Responsibilities Information Goals

SHARE

IGNORE

Ownership Turf

THANK YOU! QUESTIONS?

http://bus.utk.edu/supplychain/