Supply Chain Collaboration — Explained + Examples

What is Supply Chain Collaboration?

Supply chain collaboration is a strategy where it involves many companies working together to mitigate the risk of disruptions that can decrease the productivity of the supply chains. 

In supply chain collaboration, businesses may collaborate in different stages or even in every stage of the supply chain process to accomplish their common goals. 

Supply chain collaboration also has two types: horizontal and vertical collaborations. These types are the two ways how companies collaborate which we will further explain in this article.

The main purpose of this collaboration between businesses is that it enables them to identify and address the risks much faster by working together. 

As these companies identify the bottlenecks, they can ensure smoother delivery of products, enabling them to streamline their supply chains successfully. 

Collaboration naturally offers many opportunities. In my role as a procurement manager at Friesland Campina and Ahold Delhaize, I’ve contributed in various ways and initiated various forms of supply chain collaboration. 

Below, I’ll elaborate on the potential forms of horizontal and vertical collaboration, including some concrete examples

Examples of Supply Chain Collaboration 

1. Coca-Cola and McDonald’s: A Legendary Partnership

The Coca-Cola and McDonald’s partnership, dating back to 1955, is one of the most successful supply chain collaborations. Coca-Cola is McDonald’s largest supplier, while McDonald’s is Coca-Cola’s biggest restaurant customer.

Their collaboration fueled both brands’ global growth, with McDonald’s even using Coca-Cola’s offices to expand internationally. Coca-Cola influenced McDonald’s iconic Extra Value Meal in 1993 and helped develop its smoothie line.

Unlike other restaurants, McDonald’s receives Coke syrup in stainless steel tanks, ensuring a fresher taste. The partnership is so vital that McDonald’s has its own division within Coca-Cola, and no other restaurant can receive a better deal on syrup, reinforcing the power of strategic supply chain relationships.

2. Toyota and Lotus: A Winning Collaboration

Toyota has been supplying engines for Lotus sports cars for years, strengthening their supply chain partnership. In 2010, Toyota began providing custom powertrain solutions, and the two have since explored joint development of a mid-engine sports car.

By outsourcing to Toyota, Lotus reduces costs, meets strict emission laws, and enhances reliability while maintaining its signature lightweight design. Toyota’s quality and durability ensure a premium driving experience.

This collaboration blends supply chain and product partnerships, proving that great products often emerge from strategic alliances.

3. Tesla and SpaceX: Innovation Through Collaboration

Tesla and SpaceX, both led by Elon Musk, share a unique supply chain partnership. While SpaceX manufactures most components in-house, it sources battery components and vehicle parts from Tesla to develop Starship and other projects.

Tesla’s battery and electric motor expertise has also aided SpaceX in designing a propulsion system for Hyperloop, showcasing how cross-industry collaboration fuels innovation.

This partnership highlights how leveraging each other’s strengths accelerates advancements in both the automotive and aerospace industries. Oh, and Musk even launched a Tesla into space in 2018—just for fun!

4. L’Oréal’s communication and trust approach

L’Oréal follows a communication and trust approach to encourage collaborative innovation. By openly communicating to its partners its goals and long-term commitments, it has been able to establish an effective development process.

L’Oréal’s annual exhibition offers suppliers a rundown of the consumer trends that it will work on and then asks them to develop packaging solutions that suit these trends. Thus, the exhibition allows L’Oréal to create a trust-based forum for suppliers to present their ideas and products in development.

5. P&G’s value-sharing model

The number one reason why suppliers and buyers take part in collaborative projects is due to shared value. Thus, why procurement professionals consider it the most important dimension of their collaboration efforts.

P&G used a wide range of commercial models to partner with suppliers across the entire research & development chain. Its value-sharing model involves shared fun pools for the co-development of products and licensing agreements for commercialization.

The flexibility to employ different approaches allowed it to tap into supplier innovation without the necessity of overinvestment in the development of deep partnerships with every potential collaborator.

6. Toyota’s defined target approach

Toyota is a prominent example of supplier collaboration through its clearly defined targets and supplier performance metrics. These are built into contracts that hold suppliers responsible for continuous improvement in cost, quality, and delivery performance.

Toyota governs supplier relationships through a steering committee to define the scope and objectives of the collaboration. It also reviews the progress of the collaboration and takes action to resolve issues that may arise.

Types of Supply Chain Collaboration

In today’s interconnected and dynamic business landscape, effective collaboration is essential for optimizing supply chain management.

Collaborative practices foster better communication, coordination, and synergy among various stakeholders, leading to improved efficiency, reduced costs, and enhanced customer satisfaction.

Supply chain collaboration refers to the strategic partnership between two or more supply chain entities (suppliers, manufacturers, distributors, retailers, and logistics providers) to improve efficiency, reduce costs, and enhance customer satisfaction. There are several types of collaboration, categorized based on the level of integration, information sharing, and joint decision-making.

Collaboration in supply chain management offers several key benefits:

• Enhanced operational efficiency and cost reduction
• Improved customer service and satisfaction
• Better demand forecasting and inventory management
• Reduced lead times and faster order fulfillment
• Increased supply chain resilience and risk mitigation
• Enhanced innovation and new product development
• Improved sustainability and environmental performance

Supply chain collaboration can take many forms, varying in scope, trust required, and information exchange. Each type offers unique advantages in optimizing costs, improving service levels, and driving innovation. Below is an explanation of horizontal and vertical supply chain collaboration

What is Horizontal Supply Chain Collaboration?

Horizontal collaboration refers to the term that describes the joint effort of companies to work together at the same level of the supply chain. It involves businesses that offer similar products or services in different regions. Here are some examples of horizontal collaboration:

1. Shared Warehousing and Distribution Centers

In this example, competing companies work together to share warehousing and distribution facilities. These shared facilities help the involved companies to reduce their costs associated with storage and transportation. 

Additionally, this may involve the pooling of resources to operate jointly managed distribution centers or even utilizing each other’s facilities in different parts of a region. 

This is perhaps one of the most commonly used forms of collaboration. There are so many large players proficient in logistics distribution. 

Therefore, in my opinion, it’s very unwise for smaller suppliers to do this themselves. I would always advise looking for good logistics service providers or partners

2. Joint Transportation and Shipping

For this example of horizontal collaboration, competing businesses or companies collaborate on transportation and shipping to take advantage of economies of scale and decrease transportation costs. 

Joint transportation and shipping usually involve sharing trucking routes, consolidating shipments, and even jointly owning trucks or vessels.

3. Collaborative Inventory Management

In collaborative inventory management, companies coordinate their inventory management practices to manage stock levels and decrease the chances of stockouts. 

They carry this out by sharing information on inventory levels, demand forecasts, and product schedules that can help them better synchronize supply and demand. 

4. Coordinated Procurement

In this collaboration, competitors team up to negotiate bulk purchases of raw materials to achieve lower prices and better terms from suppliers. 

By joining their purchasing power, they can secure large discounts and ensure a stable supply of inputs at lower prices.

5. Joint marketing and Promotions

In joint marketing and promotions, businesses work together with their campaigns and promotions to expand their reach and attract more customers. 

Usually, companies do their work together through joint advertising efforts, co-branded promotions, or cross-promotions where products from different companies are bundled together. 

You can see this when you go to the supermarkets and there are bundled products from different companies that are on sale. 

6. Shared Reverse Logistics

Here, businesses collaborate on reverse logistics processes to decrease their costs and improve business efficiency. 

Businesses often share resources and infrastructure when working together for reverse logistics to streamline operations and minimize their waste. 

What is Vertical Supply Chain Collaboration?

Vertical collaboration refers to the collaboration of companies at different stages of the supply chain. It can take numerous forms that depend on the specific needs of the collaborating companies. Here are some of the examples of vertical collaboration:

1. Vendor Managed Inventory (VMI)

In Vendor Managed Inventory, suppliers are responsible for managing the inventory levels of products at the customer’s location. 

Usually, the supplier employs a range of inventory management techniques and tools to track the stock levels and predict when the customer will require replenishment. 

By managing the inventory levels in this way, the supplier helps to ensure that the customer can operate efficiently and effectively without worrying about stock shortages.

VMI, in my opinion, is one of the most intriguing options for vertical collaboration. This was implemented at several of the companies where I’ve worked. The challenge here was ensuring that the supplier had access to the right data. 

Once achieved, it presented a tremendous opportunity, with various examples showing that despite the overall inventory level being lower (resulting in a positive cash flow impact), availability improved. 

Add to this the fact that it required less effort on our part as we didn’t have to place orders, and you can see that this is an option that is highly beneficial for both the supplier and the customer.

2. Just-in-Time (JIT) Deliveries

For this, the supplier delivers materials only when they are needed for production. This allows companies to reduce their need for a large inventory which will help them minimize their storage costs. 

3. Collaborative Planning, Forecasting, and Replenishment (CPFR)

For CPFR, manufacturers and retailers work together to anticipate customer demand and create joint plans for production and distribution. 

They share data on customer demand, sales trends, and inventory levels to develop a comprehensive understanding of their customers’ needs and preferences. 

With this information, they develop joint plans for production and use advanced analytics and supply chain management tools to optimize their production schedules, minimize transportation costs, and ensure the timely delivery of products. 

This strategic partnership enables both parties to reduce costs, minimize waste, and enhance the overall efficiency of their supply chain.

4. Joint Quality Control and Improvement

Suppliers and customers working together can improve product quality. This can be achieved through joint quality audits to find and fix potential issues early. 

Sharing best practices allows both parties to learn and improve their processes, leading to a higher-quality end product. 

Additionally, collaborating on solutions to quality problems helps identify root causes and prevent future occurrences. 

This example of vertical collaboration throughout the supply chain ultimately benefits everyone with better quality products.

Key Differences Between Horizontal and Vertical Supply Chain Collaboration

Below is a table to help you easily differentiate between the two types of supply chain collaboration:

Conclusion

In conclusion, supply chain collaboration is important for businesses to mitigate the problems that can disrupt their supply chains. 

In this article, you learned that supply chain collaboration has two types: horizontal and vertical collaboration. 

In horizontal collaboration, companies work at the same level in the supply chain, sharing resources, expertise, and strengths to achieve common goals. 

On the other hand, vertical collaboration involves companies at different stages of the supply chain working together to enhance efficiency, transparency, and responsiveness.

These two types of supply chain collaboration can help address disruptions in the interconnected business landscape. 

By working together, businesses can effectively navigate challenges and create mutually beneficial partnerships throughout the supply chain ecosystem.

I have created a free-to-download, supplier questionnaire template. It includes a PDF file that contains the questions that you can ask your collaborators in the supply chain for you to work together effectively.