With resources becoming more and more scarce and costs increasing dramatically for consumers and retailers alike, the promotion of collaboration throughout the supply chain and improved management practices are needed.
That is the opinion of The Boston Consulting Group. Who believe that collaborations between suppliers and retailers are all too rare, particularly as establishing a connection across the various parts of the supply chain can help all involved save money in the long run and therefore boost the bottom line.
The supply chain contributes between nine and 17 per cent of the cost in the end-to-end value-chain in grocery and FMCG.
With the su[pply chain having such a significant impact, collaboration between retailers and suppliers should be a “no brainer”. Working together helps to reduce inventory throughout the supply chain and lessens impact on the environment, as well as cutting costs across the board by up to three per cent.
While this may seem like a small saving, when the level of supply chain activity around the world is taken into account, the benefits are huge. Even though recent research has indicated that 80 per cent of retailers and suppliers believe collaboration has improved in recent years, there is still a long way to go.
The practice is still not widespread, and the benefits achieved are often incremental rather than transformational. Many experts agree that the lack of collaboration in general is a “huge lost opportunity”.
A collaborative model is clearly more functional than businesses looking out for their own needs. Communicating with other firms in the same industry can help companies meet the needs of their customers.
The ability to be both collaborative and profitable looks set to take centre stage in 2013 as two areas of social networking move quickly into the supply chain space. Over the next 12 months, many experts predict collaborative problem solving will play a significant role within supply chain management.
Online partner communities will create a virtual space where teams from various facets of the supply chain can “get together” to solve issues that are impacting operations. Virtual repositories could also be created to document processes and decisions for future reference and organisational learning, which means that collaboration can help those involved in the supply chain solve problems and build a back catalogue of useful information, which can reduce future problems and issues.
Improving sensing of demand and sentiment analysis will move upstream from marketing to the supply chain, which will help create an earlier awareness of the latest and most current trends, which will help companies improve their preparations and responsiveness to incidents that may have a major impact on their operations.
Supply chains that embrace these collaborative tools in the coming 12 months will have an advantage over those that fail to move with the times. Those that make use of the social element will be better placed to attract, hire and retain the best staff, which will in turn lead to further management improvements.
Despite the clear and many benefits to collaboration and many firms saying the practice has increased, it is far from universal and this is mainly down to both internal and external obstacles, which can impact the possibility of collaboration. Cross-purposes, misaligned goals and incentives can all cause problems.
“Without senior sponsorship and information sharing, collaboration initiatives are unlikely to succeed – especially since it can take years to build solid relationships and because short-term priorities on both sides change continually.”
Of course, there is also an issue around mistrust between suppliers and retailers that often exists, which inevitably has an impact on how well the two sectors work together.
Successful relationships require a lot more investment in terms of time and other resources than some companies are prepared to invest. Senior managers from the supply and retail side must align their goals from the beginning, to create a mutually beneficial relationship.
Collaborative relationships must also be multi-year commitments, rather than short-term deals, if they are to survive the inevitable ups and downs that will occur.
Ultimately, effective collaboration is very challenging even during the best of circumstances. Of course, current conditions are not ideal, which means businesses looking to work with other firms within the industry need to work even harder than normal to achieve what they set out to do when beginning the deal.
Before moving forward, managers must make sure they evaluate their organisation’s readiness to cooperate, commit the long-term resources that are needed and and make the necessary trade-offs. The payoff on the bottom line will be well worth the investment.