Building Supply Chain Collaboration

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world-class contracting. The Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore Supply Chain collaboration adding some additional support as well.

Building Supply Chain Collaboration

Part of designing a supply chain is developing the relationships up and down the chain.  There is little hope of strategic alignment without well-developed collaboration. Partnerships depend on:

• Auditable information and connectivity
• Formal agreements on proper behavior as a matter of self-interest ie contracts
• Incentive-based activity such as aligning organizational goals with collaborative objectives
• Process-based activities that build trust based on constant communications and feedback that open up to broader trust over time
• Leadership that has the authority to enforce/embrace relationships
• Each organization has a focus on the entire supply chain
• Network-wide visibility/transparency monitoring for the bullwhip effect and its impacts.
• Sharing of knowledge and not mere data.
• Transparency in sharing benefits and burdens of the relationships
• The amount of value-added and commitment type by each potential partner

The Illusion of Transparency is a particularly dangerous phenomenon in relationships which causes one, the other, or both parties to assume the other party has more information than they actually do. This creates a circumstance of distrust and can be exploited for wrongful gain in negotiations. The benefits of collaboration include but are not limited to:

• Lower costs
• Improved quality
• Better customer service
• Reduced inventories
• Rapid project results 
• Reduced cycle and lead times
• More effective relationships
• Enhanced commitment to one another

Actions govern intent in building relationships and share information. Actions send the signals the undergird trust, enforcement agreements, stabilize operations, and match collaborative goals.  Division managers must place the interests of the whole above the division by making major changes in how they operate.  Those major changes are guided by a few overarching tasks that management must undertake;

1. Designate relationship goals and assemble a plan of action to achieve them. 
2. Define the roles of every party avoiding redundancy.  Sequential interdependence should be avoided in favor of reciprocal interdependence. The exchange of information and efforts is mutual and bidirectional for each task resulting in greater rewards. 
3. Create policies or methods for resolving conflicts. Avoiding stiff contract negotiations is desirable for most companies who opt for relationship dialogue which is not too informal but has some guidelines. The guidelines must be sensitive to cultural differences. 
4. Managers must remain involved following the design of the relationships as without constant attention the design will part apart. 

Barriers to Collaboration

The following constraints are predictable obstacles to achieving successful collaborations.

• Sub-optimization: This originates when supply chains are not interconnected and results in individual chains optimizing measures not common to the overall collaboration.
• Individual incentives that conflict with organizational goals: This is an outcome of incentives not aligned with the activities of the chain which can become counterproductive. For example, channel stuffing results from sales incentives that create too much demand which is the opposite of the bullwhip effect which creates unexpected inventory levels. 
• Working with competitors: Treat the competition warily and at an arm's length. Collaboration among competitors is often wrought with distrust and ulterior motives. 
• Bottlenecks caused by weak partners: Capability and capacity drive this factor.  The weakest or slowest link in the chain will limit performance. Managers must identify that link/partner and work to improve performance. This may mean wise investment in process and technology or seeking another partner who has the capability or capacity. 
• Technology Barriers: Incompatible systems decrease the sharing of data, knowledge, and communications.  Managers must identify the incompatibility seeking to improve performance. This may mean wise investment in process and technology or seeking another partner who has the capability or capacity. 
• Power-based relationships: Nucleus firms tend to leverage their power in a supply chain. This can result in inequitable profits/losses in the chain resulting in rebellion within the chain. This resistance can result is power shifts and retaliation throughout the chain. 
• Underestimated Benefits: Firms in the chain can incorrectly view the collaboration as a business process re-engineering missing or rejecting the overall value of collaboration.
• Culture Conflicts: Most often people and firms in the supply chain will view their way as the best way of rejecting out of hand the collaborative way. This is an outcome of a lack of information or information not in the supply chain. Managers must assure that alignment is being achieved through information sharing.  Many other cultural issues persist and may be difficult to overcome. 

Communication Levels and Intensity

Collaboration is almost wholly dependent on communications with various intensities of which there are four levels.

1. Transactional with Information sharing: Medium-term contracts with single sourcing of information.
2. Shared processes and partnerships: Longer-term contracts that share design knowledge across the network. 
3. Linked competitive visions and strategic alliance: This is a virtual entity that works out even the highest level of strategy collaboratively. Very long term relationships. 
4. Backward Integration (mergers and acquisitions):  This is the deepest level of trust but not without issues.  These mergers and acquisitions take a long time to meld cultures and processes. Often there is resistance and labor churn as an outcome. 

Once the level of communication is established, the collaborative intensity must be formed based on cost, quality, reliability, precision, and flexibility. These all must be balanced for each participant and are strongly influenced by four factors.

• Strategic importance: This is the primary sourcing consideration. There are two genres of these products or services; premium or commoditized. Premium goods are of high strategic importance, internalized or closely held, and cost more. Often there are multiple sources as a backup. Whereas, commoditized goods are widely available having low strategic importance.
• Complexity:  These are often large scale goods or services that are highly detailed requiring strategic alliances to ensure quality levels and timing of delivery. 
• Number of Suppliers: This affects the availability of goods and services. The fewer suppliers the greater the need for strategic alliances. 
• Uncertainty: Risk. The higher the risk the greater the need for building relationships to ensure delivery, quality, and pricing. In many markets, there is high volatility in pricing or availability. Environmental conditions can cause an entire crop to be lost or precision to be affected in the case of chip manufacturing. For example, an earthquake, flood, or volcano can bring all chip manufacturing to a halt.    

As the factors combine such as uncertainty and the number of suppliers, then the need to collaborate increases exponentially. Sometimes firms choose not to heed these factors and act at an arm's length to achieve their strategic goals and objectives. Firms make decisions about trade-offs. For example, quality checks may not yield the level of value they cost. Additionally, there may be some damage to reputation that is irrevocable and unmeasurable. As a result, companies take a swag at the issue and roll estimated cost into the pricing.

Overall, supply chain collaboration is more of an art than a science.  Supply chain managers must learn the art of balancing all the elements affecting the performance of the supply chain.  The challenge is founding the fact that the factors and elements are all dynamic and in constant flux.

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.