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Supply chain collaboration is definitely new to many newcomers in the supply chain industry. It may be an overused term in the supply chain but still confuses a lot of people. 

In this article, we will discuss what supply chain collaboration is. We will tell you the benefits you can gain in supply chain collaboration. Additionally, we will show you the steps and give you examples of a successful supply chain collaboration. 

After taking the time to read this article, you will have a deeper understanding of what supply chain collaboration is all about. Thus, allowing you to know if your decision is right when the time comes you are going to collaborate in the supply chain. 

DefiningSupply Chain Collaboration

The complexity of today’s supply chain makes it more prone to severe impacts from disruptions, just like what happened at the start of the pandemic. 

Due to this, many organizations have put supply chain resilience as a top priority. Thus, many are looking for ways to handle disruptive events without breaking the processes in the supply chain. In order to manage this feat, many organizations must get better at collaboration. 

Supply chain collaboration is the practice of collaborating with internal and external partners to help optimize the flow in the supply chain in order to meet the demand and ensure on-time delivery. 

Supply chain collaboration allows real-time shared visibility and processes within supply chain partners to aid in the identification and resolution of issues. It encompasses the full scope of supply chain functions which includes forecasting, purchase order processes, and quality management.

To simplify, organizations work together to satisfy and meet shared supply chain responsibilities. Below are the two common types of supply chain collaboration:

  • Vertical Collaboration

This type of supply chain collaboration is a strategy that allows two or more businesses in different stages of the supply chain to share responsibilities.

  • Horizontal Collaboration 

Horizontal collaboration is a strategy that brings together two or more businesses at the same level in the supply chain to streamline costs and share the burden regarding demand. 

Nowadays, companies prioritize collaboration with their suppliers to support their distribution process to deal with the growing complexity and list of supply chain disruptions and risks. 

Benefitsof Supply Chain Collaboration

1. A way to identify talented individuals

Many companies see supply chain collaboration as a way to identify top talents in the supply chain. According to the Global Supply Chain Institute, the most unique of all business requirements is supply chain talent management. 

Thus, knowing, recruiting, and retaining talented individuals in the supply chain is the farthest-reaching goal of collaborative efforts. Collaborations can help companies to access top supply chain talent. 

2. Decreases long-term cost

The benefits of collaboration are long-term and practical. The longer you collaborate, the more you can see each other’s strengths and weaknesses. Thus, mutual collaboration allows you to be both better at playing with your strengths. 

When both of you are familiar with each other’s processes and operations specifics you can easily and quickly close costly gaps in the supply chain. 

3. Product quality and safety

Collaborating with a supply chain partner enables you to have a deeper perspective of the issues facing product quality and safety in the supply chain industry 

By working together, you can eliminate problems regarding quality and safety more quickly rather than each party trying to work alone and address their own problems in the supply chain. 

4. Enhanced ethical standards

Collaboration is key for you to drive change in the supply chain. Collaborating with your trusted supplier allows you to aim toward supply chain transparency and promote higher ethical standards. 

Ultimate Supplier Plotting Checklist 2023

Stepsto a Successful Collaboration

1. Collaborate in your area of strength

Companies often use collaboration as a way to fill the gaps in their capability. However, the most successful collaborations are built on strengths and not on weaknesses, 

For example, a manufacturer wanting to collaborate with a major retailer to improve its own forecasting approach will have nothing to gain from accessing the retailer’s point-of-sale data unless it has the capacity to make use of that data. 

2. Turning lose-win to win-win situations

Some collaboration creates value for both parties but the benefit only falls more to one partner than to another. Rather than not collaborating at all, smart companies can make collaboration work by agreeing on a more sophisticated benefit-sharing model. 

This sophisticated benefit-sharing model can come in any form such as discounts or price increases to fairly share increased margins or cost reductions or they can negotiate compensation in other parts of the collaboration. 

3. Select partners based on their capability

The biggest potential partner might not be the best one for you. Many companies collaborate with their largest suppliers or customers as they assume they can give them the best value. 

However, this idea turns out to be untrue. Collaboration may be effective for a small partner as it may invest more time and effort in the program than a large one that has dozens of similar initiatives already on its back. 

4. Invest in the right things

One of the top reasons why collaboration does not work is the lack of resources. Companies usually underestimate the requirements necessary to make collaboration work. 

In order to have successful collaboration, companies must devote extra resources to their collaborations, particularly in the early stages of the relationship. 

It must begin with the top executives of the organization defining the vision for collaborative efforts and allocating resources to support it. 

5. Collaborate for the long term

What will complete a successful collaboration is stamina. It may take a lot of time and effort to overcome the initial problems and make the collaboration work. However, both parties must need to realize that collaboration must be built in an appropriate long-term perspective into their goals and expectations. 

Thus, both parties must understand each other’s long-term objectives and know initiatives they can work together in the coming years. This kind of mindset helps companies to break the short-term project mentality that limits the true benefit of collaboration. 

Examples of Collaborative Effortsby Huge Companies

1. 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 ask 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. 

2. 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. 

3. 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 rise. 

Frequentlyasked questions

+ What is supply chain collaboration?

It is the practice of collaborating with internal and external partners to help optimize the flow in the supply chain in order to meet the demand and ensure on-time delivery.

+ Why is it important?

It is important as it is one of the ways to find top talents in the supply chain.

+ Why do many companies prioritize collaboration?

This is to support their distribution process to deal with the growing complexity and list of supply chain disruptions and risks, especially nowadays. 

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