I was recently reminded of the game ‘Where’s Waldo’ when thinking of the complexity of global supply chains. As a child, many an afternoon was spent poring over the double-page spread illustration trying to find Waldo, who was hidden in the complexity. ‘Where’s Waldo’ today has evolved to an online game with many other targets for readers to find, as well as several different levels of the game, so even playing ‘Where’s Waldo’ today is not only more challenging, but also requires innovative thinking and technical competency.
Similarly, global B2B supply chains today are a lot more involved than the vertical manufacturing and logistics operations of yesteryear. And the role of supply chain manager has evolved far beyond simply cutting costs. Supply chain managers are now on the front lines of the rapidly evolving digital networked economy, and they are instrumental in helping create immediate value for the company and its customers.
Consequently, they are more dependent on their network of trading partners, who are effectively an extension of the organization itself. This has made collaboration and visibility more critical, yet all the more complex. To maximize their own potential, therefore, businesses need to know how to make the most of that network.
In a recent study conducted by The Economist Intelligence Unit on how companies collaborate with their trading partners three findings jumped out:
- 93% of the respondents stated that they derived value from collaboration
- Yet only 39% have institutionalized collaboration with trading partners
- And, the #1 selection criteria when looking for potential partners is their technology capability
The study finds that businesses are indeed collaborating, but they are investing more in people than enabling technology. And while organizations recognize the importance of collaboration and technology, there wasn’t much evidence that they are pursuing innovation in the way they collaborate.
So if supply chain collaboration drives such significant benefits, why haven’t companies truly embraced collaboration with their trading partners? Some of the findings in the study indicate that:
- Collaboration poses its own risks, with respondents identifying reputational damage as the gravest risk. For a more detailed overview of the four types of risks and how to manage these, view this video by Deloitte risk expert, Henry Ristuccia
- Companies are often uncomfortable sharing information with trading partners and it is important to note that both information and technology play crucial roles in trading partner collaboration
- Collaborating with trading partners is not viewed as a focal point for innovation
Companies can, however, mitigate the risks inherent to working with third parties by adopting innovative approaches to collaboration. Caterpillar, the industrial equipment manufacturer, is seen as an expert in this field. In the wake of the economic downturn, Caterpillar expected demand to grow rapidly. However, it also predicted that some of its key suppliers would struggle to find the working capital required to ramp up production to meet that demand as it grew. The company therefore introduced a number of measures to reduce the capital required by its suppliers, especially the small and medium businesses among them. It standardized its payment terms and offered suppliers the chance to receive early payment in exchange for discounts, and helped suppliers access a supply chain finance initiative by the US government. These measures were designed to help Caterpillar’s suppliers pursue their own objectives—namely sell more products—in a way that clearly boosted its own cause.
Information sharing provides great value to all parties by extending situational awareness. It also goes a long way to engender trust between trading partners, and trust is essential for valuable collaboration. In fact, many forward-thinking organizations are beginning to understand that trading partners possess knowledge about technology, processes, or market trends and insights they can no longer ignore. Instead of simply viewing suppliers as order-takers, progressive companies are taking new steps to tap into their expertise. While this type of collaboration often allows companies to do things better, it also allows them to do different things and be more innovative.
As consumers, we use personal networks like Facebook, Twitter and Amazon.com that help us learn, share and shop with more ease. Business networks provide an equally easy way for companies to link and coordinate a virtual ‘extraprise’ of partners into a shared community executing improved and coordinated processes in a more informed way than in the past.
Without the right commitment to solutions and skills, it is simply not possible to extend collaboration to a broad base of trading partners. The winning formula for supply chain collaboration is clearly a combination of agile business processes, technology that provides for connectivity and insights, and proactive engagement of your supply base. Investing in collaboration and running businesses more effectively today, can only help companies prepare more successfully for tomorrow.
Leah Knight is Sr. Director of Product Marketing at Ariba, an SAP Company.