Consolidation and Death: Where is Supply Chain Collaboration?

A decade ago the idea of collaboration was emerging as a breakthrough approach to efficiency beyond the factory.  The B2B air in the internet bubble came from notions like "Collaborative Commerce" coined by Gartner which implied that electronic connectivity would miraculously spur cooperation between businesses.  We thought it might be a bit more complicated, as the chart below shows. 

What we have since seen is that cooperation takes alot more than just setting up EDI, reverse auctions, or visualization.  It takes trust, which apparently is still in short supply.

Consider the following:

AMR is putting together an event at our spring conference in Scottsdale that will bring manufacturers together with retailers for a "knowledge cafe" to get supply chain folks from both sides to meet, greet, and learn to help each other.  Despite the efforts of one of our most influential analysts, Lora Cecere, and recruiting by information service giant IRI, we're finding retailers reluctant to come fearing they'll give more than they get.

On Tuesday an innocuous article in the Financial Times included the quote "Consolidation among suppliers will accelerate significantly" from the head of purchasing at BMW.  Others in the article included Continental, Siemens, and Daimler all of whom are cutting supplier bases by up to 50%.  The rest of the article is pretty much summarized in the title "Germany's large industrials wield axe to supply chains".  Is this the legacy of e-procurement? 

Just yesterday I spent five hours with Yossi Sheffi and some of the bright minds at MIT's Center for Transportation and Logistics wrestling supply network strategy questions with one of the world's most respected manufacturers (name withheld).  One key takeaway for me was the hard reality that retailers' readiness to jointly work with suppliers for mutual gain is limited both by willingness and competence.  We can build it, but will they come?

The question to supply chain strategists is this: when will we stop fighting over the pie and learn to make it bigger?  Sadly, it seems the gospel of our economic life remains competition rather than cooperation.  Everyone knows that huge gains can be made in efficiency if true and complete information were available up and down the supply chain.  Yet, we don't do it. 

The chart above was drawn nine years ago in anticipation of breakthrough productivity gains across the economy driven by bilateral relationships (meaning win-win) between trading partners.  2010 is almost upon us and we seem to still be on the flat part of the curve.  If there is to be a breakthrough it will take some leadership from sourcing people willing to pay more for something better rather than less for the same old thing.  Until we see that, consolidation and death will dominate the news.

Reminder - Supply Chain Top 25 voting is now underway.  Voters can still register at http://www.amrresearch.com/SupplyChainTop25/default.aspx

Comments

[Phil Fersht]

Kevin - you've hit the nail right on the head. Ultimately, we need to have our business leaders start innovating, as opposed to waiting for the next vacuous growth bubble to miraculously re-appear. When someone designed that chart a decade back, we'd just come through a period of innovation where the Internet was forcing businesses to explore new business models - or face death by failure to change. So what happened to put the kibosh on businesses revolutionizing their supply/demand models? Something tells me it's been the recent years of easy credit, easy growth, a sense of entitlement and a lack of fear to change their business models.

Innovation means a new way of doing something. It means incremental, radical and revolutionary changes in thinking, products, processes, or organizations. Innovation leading to increased productivity is the fundamental source of increasing wealth in an economy.

You can invest all your want in the most sophisticated B2B collaboration technology, but if you can't successfully change your business model and throw a bit of caution to the wind, your business will likely shrink or fail in this environment.

We've reached the point where you have to ask what it takes for business leaders to wake up and realize they need to tie their businesses more closely to their customers and suppliers.

Now is the time for businesses to take the plunge and make some radical changes to source new innovative avenues for revenue growth. Executives hiding under their desks waiting for the current fog to lift may no longer have that desk very soon... but how can you force new thinking and innovative ideas, if fear doesn't work?

PF

[Rita Fer]

I believe a change management strategy is necessary to support and help the organisation to accept the change. Trust between the partners should be addressed and defined here.

I am doing a series of articles on "In-house challenges" where I have taken up trust and change management strategy.

[Alan Johnson]

Kevin,

Prosperous times rarely result in radical changes to business models, and the supply chain is no exception. Companies have been willing to take risks, or as you put it "give more than they get back", where they aren't directly related to product/supply issues. Current economic conditions are already forcing CEOs to make some tough decisions to drive greater collaboration with their suppliers/retailers up and down the chain. If their current supply chain operators are failing to come up with the solutions, they are going to have to decide whether to look at consolidation strategies, or seek alternative judgement on what to do. Supply chain executives need to step up and get with collaborative initatives, or risk being put out to pasture,

Alan Johnson

[Ravi Ranjan]

We can build it, but will they come - my thoughts exactly. While EDI helps with transactional efficiency, we're yet to see suppliers and retailers sit around a table and work out real quid-quo-pro partnerships which drive new growth into their ecosystems. In many ways, EDI created an excuse for them to do very little - simply get some electronic integration working, and leave it at that. My hope is that current business conditions are forcing the smarter businesses to work out more collaborative partnerships to help each other survive, as opposed to squeezing the life out of each other. At the end of the day, suppliers and retailers are codependent on each other, and it's time for them to get closer together, not build walls of distrust between themselves.

[Kevin O'Marah]

What is ironic is that businesses tend to do pretty well collaborating with their arch-rivals, even while they seem unable to do so with suppliers. Collaboration, as defined by the dictionary, tends to mean "working with the enemy" as in "collaborating with the Nazis" in Vichy France. Big biz knows how to collude over prices, regulatory resistance, and other oligipolistic necessities. Why is it so difficult to give the supplier a break? Maybe as Rita says its a matter of change management. My suspicion is that we are coming close to a break in philosophy which may shift economic principles once and for all away from a purely competitive approach to a predominantly cooperative approach. Talk about change management! We have a ways to go.

[Rosemary Coates]

Over the past year, I have seen two of my clients ask for price cuts and other concessions from 3PLs and then offer nothing in return. It would have been easy enough for them to offer to provide a quarterly forecast, faster payments, referrals, etc.

It feels like companies are moving backward into arms-length transactions instead of forward into collaboration. That is not the right direction.

Brian Dietmeyer, an expert in business negotiations, says, “Never concede, always trade for something.” He’s right. 3PLs and other outsource service providers should be asking for trades such as faster payment terms, more electronic exchange of information, etc., not conceding just because their customer has asked.

Rosemary Coates
Blue Silk Consulting