Uncover the advantages of supply chain collaboration, including its positive impact on sustainability, cost-reduction, and talent turnover.
A recent article on the new COVID landscape in China, published by the Johns Hopkins Center for Health Security, posits that “China in 2023 could look a lot like the U.S. in 2020” and that “the U.S. will probably see supply shocks and issues because much of our economy is dependent upon supply chains that extend into China”.
An article detailing how the Russia-Ukraine conflict is impacting supply chains predicts the conflict is “likely to have a continued inflationary impact on the costs of raw materials, energy, logistics, and digital services” and force “companies across the globe to explore alternative sources—not just to find cheaper materials but also for surety of supply”.
However, as an article by McKinsey & Company on risk, resilience, and rebalancing in global value chains states, disruptions have occurred and will occur with regularity. “Averaging across industries, companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll”.
Many organizations are now rightly prioritizing supply chain resilience. Resilience can be achieved by a number of tactics and strategies, one of which is supply chain collaboration.
In this definitive guide to supply chain collaboration, we examine the benefits of highly engaged relationships with suppliers and outline how you can increase collaborative efforts with your suppliers to improve supply chain performance and reduce risks.
Keiretsu, as defined in a Harvard Business Review case study on Japanese automaker Toyota’s relationship with suppliers, is “the traditional system in which buyers formed close, collaborative associations with suppliers”. However, the Harvard Business Review argues that a modern version of keiretsu has emerged, now “a tool that helps [companies] innovate faster while radically cutting costs”.
Supply chain collaboration is the Western equivalent of keiretsu: A collective effort of coordinating internal and external communications—that is, between internal teams in the buying organization and external suppliers—with the aim of optimizing flow throughout the supply chain to meet demand and ensure complete delivery on schedule.
As such, effective collaboration along the supply chain impacts each functional part of the supply chain: purchasing, manufacturing, inventory management, demand planning, warehousing, transportation, and customer service.
However, a paper on understanding the meaning of collaboration in the supply chain highlights that collaboration is “a very broad and encompassing term and when it is put in the context of the supply chain it needs yet further clarification”, and if collaboration is “to be sustainable then there are a number of strategic elements, which must be present [including] resources and commitment, intra‐organizational support, the corporate focus, demonstrating the business case, and the role of technology”.
Circling back to the true meaning of supply chain collaboration, it goes beyond streamlining communications. Successful supply chain collaboration is characterized by a willingness to be open and transparent with supply partners. It means establishing real-time visibility into information and processes so that issues can be identified and resolved before they can overly strain the supply chain.
It enables you and your supply chain partners to gain the insights and flexibility necessary to overcome any supply chain disruptions: pandemics, wars, extreme weather, depleting resources—anything. As the article on the Russia-Ukraine conflict summarizes: “Creating strategic relationships and joining alliances will also be essential to ensuring capacities, should further hurdles emerge”.
Unsurprisingly, the intent to collaborate, either internally between teams or externally with supply chain partners, is not enough. For supply chain collaboration to achieve its intended goals and targets—AKA its purpose—it has to be more; it must be a seamless, error-free, and nearly instantaneous experience.
A McKinsey & Company article on overcoming barriers to multitier supplier collaboration mentions that the “vision of a truly integrated supply chain has proved difficult to realize” and that “OEMs and suppliers seeking to increase data sharing and collaboration across their supply networks have faced three principal hurdles”, namely: technology, trust between supply chain partners, and undeveloped standards for the exchange of complex data (i.e. the operating model).
We discuss how to develop trust and frameworks for establishing more collaborative supplier relationships in our related article: Nine Ways to Nurture Highly Collaborative Supplier Relationships.
Let’s look at how the technology/software provided by supply chain collaboration companies such as Clover can help create what are known as virtual supply chains. As mentioned in Marquette University’s paper on understanding the meaning of collaboration in the supply chain, “the use of information technology to share data between buyers and suppliers is, in effect, creating a virtual supply chain. Virtual supply chains are information-based rather than inventory-based.”
Through virtual supply chains and streamlined ongoing communication, supply chain collaboration software can help companies to a) create new and improved standards to share and obtain complex data and b) create supply chain resilience.
However, much like supply chains, not all supply chain collaboration software is the same. When evaluating a supply chain collaboration platform, it’s essential to ensure the following core features are present:
A cloud-based system (instead of one that has to be installed on computers or other devices) removes barriers for suppliers and allows companies to share data and exchange information from a single platform. This virtually—pun intended—eliminates inefficiencies regarding data management and supplier collaboration.
With omnichannel messaging, you’re able to pull all interactions into a single conversation thread without switching systems or having to search through emails, chats, text messages, etc. Omnichannel messaging puts context front-and-center and significantly cuts down on time spent searching in multiple places for relevant information.
Loop in anyone at any time into any conversation with a supply chain collaboration software that supports multi-party conversations. With it, you can drive real-time engagement and eliminate any forwarding or summarizing on your part. Multi-party conversations allow anyone on your team to collaborate directly with suppliers—while still allowing you to know what’s being discussed at any given moment.
Whichever supply chain collaboration software you select needs to offer automated workflows to simplify how you coordinate your people and systems to achieve desired business outcomes. Workflows should also be highly customizable to adapt to your specific processes and playbooks.
Stale data leads to poor—and costly—business decisions. A supply chain collaboration software must give everyone access to the most up-to-date information to allow you, your team, and your suppliers to plan and execute with the highest degree of accuracy and acumen.
Artificial intelligence (AI) can distill conversations into short at-a-glance summarizes that give you instant context and valuable insights. AI conversation summaries can also be shared with others to quickly orient and align them to whichever specific issue, again providing valuable time-savings.
A quick note on AI: Here, we highlight summarization both because it’s an example of a powerful application of generative AI tech, but also because of its relevance as a use case in an SCP. Within the context of the relationship between two companies, the ability to quickly catch up on events is a game-changing ability, especially when dozens or even hundreds of individual interactions take place between teams at each organization. AI tools are fundamentally changing the way we build and use software as we write this guide.
The right supply chain collaboration software can help companies and suppliers streamline the sharing of information and knowledge at every touchpoint in the supply chain.
However, software is not enough and cannot do the bulk of the work.
Without the right mindset—which encompasses a culture of collaboration, processes that facilitate collaboration, and policies that espouse collaboration—improved interactions between buying organizations and suppliers simply can’t happen.
This IndustryWeek article on how to create value by collaborating inside and outside the organization summarizes it perfectly:
Again, before collaborating with suppliers, CPOs must first collaborate within the organization. This alone may be new territory for some. But creating value requires tearing down the walls of the procurement organization to gain an enterprisewide view of the supplier relationship. Two factors are at work here. First, the procurement organization cannot be expected to shift overnight away from its traditional focus on cost-cutting, and outside perspectives will aid in that shift. Second, strategic value is created across the entire enterprise—and indeed the entire value chain—so it is vital to take an enterprisewide view on how to create that value and which opportunities to pursue with suppliers.
To facilitate the transition to a collaboration-first mindset within your organization, leaders and/or champions must introduce the right frameworks and frame-of-mind into the organization. An easy way to create ‘scaffolding’ for a collaboration-first organization is to share with all stakeholders the undeniable benefits of enhanced communications between internal teams and suppliers.
From a purely stock and goods point-of-view—which is a point-of-view focused on cost reduction—the benefits generated by improved supplier collaboration include:
Improved communication between supply chain partners can also reduce what’s known as the bullwhip effect (you may also know it as the whiplash or whipsaw effect). The bullwhip effect is named for the motion of a bullwhip, where relatively small ripples at the start of the motion expand into larger and larger ripples. As the Wall Street Journal explains in an article on the bullwhip effect, it's a phenomenon that “occurs when companies significantly cut or add inventories. Economists call it a bullwhip because even small increases in demand can cause a big snap in the need for parts and materials further down the supply chain”.
The “ripples” in a supply chain bullwhip are varied. An MIT Sloan Review article on the bullwhip effect in supply chains names a few of them: “excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules”.
As McKinsey & Company summarizes in a study on overcoming barriers to multitier supplier collaboration, “companies know that closer collaboration with their suppliers is a powerful way to drive improvement across all these dimensions [:] supplier cost, quality, innovation, and delivery performance [which] remain critical to business success”.
A bit earlier in this guide, we touched on the cost-savings benefits derived from improved relationships with suppliers and the impact that supplier collaboration has on stock turnover, supply levels, and transportation/storage costs.
The benefits of an optimal supply chain collaboration certainly don’t end—or even begin—there.
In no particular order, let’s look at the impact of supply chain collaboration on supply chain talent management, product safety and quality, and sustainability.
As reported by SimplyBenefits, the cost of employee turnover varies—with the highest replacement costs found in specialized roles:
“An entry-level employee turnover cost is between 30% and 50% of their annual salary to replace. A mid-level employee turnover costs 150% and above of their annual salary to replace. A high-level or highly specialized employee costs approximately 400% of their annual salary to replace.”
Roles within procurement teams are typically either in the mid- or high-level category, meaning the replacement cost of an employee on your buying team is either 150% or 400% of their annual salary.
In short, reducing employee turnover pays off.
You might wonder how supply chain collaboration can help with employee turnover. For one, you can decrease turnover by managing your supply chain operations through a digital-first, cloud-based supply chain collaboration software. Giving employees access to the best available solutions—which includes software—helps them focus on the actual work rather than frustrations related to the work.
Secondly, collaboration software directly connects your team with suppliers, helping them build relationships and build even more meaning into their role. A recent Gallup Workplace survey found that companies with highly engaged employees increase their profitability by 23%. It’s also worth noting that the same study found that companies with low employee engagement saw an “18% [increase] in turnover for high-turnover organizations [and a] 43% [increase] in turnover for low-turnover organizations”.
Moreover, supply chain collaboration can also help reduce supplier turnover. Traditional buyer-supplier relationships are often transactional in nature and viewed only through the lens of cost-savings, i.e. which supplier provides a product at the lowest price.
By inviting suppliers to actively collaborate, buying organizations access valuable/innovative insights from suppliers and garner loyalty as well—meaning they’re less likely to lose significant suppliers to competitors who may offer higher incentives.
As reported in the Sedgwick brand protection U.S. product recall index, last year “the number of products recalled [in the United States] has officially reached a 20-year high”, with 1.22 billion units of product recalled at the start of Q3 in 2022.
Sedgwick predicts that “as the number of products recalled continues to increase, manufacturers [will] face evolving challenges related to regulatory activity, ongoing geopolitical issues, supply chain disruptions, and an uncertain economic future”.
Supply chain collaboration—that is, actively requesting input from your suppliers—can help reduce the likelihood of product recalls. Simply put, suppliers are often the ‘boots on the ground’ and can provide fresh perspectives and insights on manufacturing challenges. For example, suppliers can flag issues with raw materials or ensure Tier 2 and Tier 3 suppliers are in compliance with new safety regulations.
Collaborating with key suppliers is also, plainly put, efficient. As the old saying goes, two heads are better than one when it comes to navigating supply chain challenges.
IBM’s recently released Institute for Business Value (IBV) study found that
“sustainability is rising higher on corporate agendas, and CEOs recognize sustainability as a business imperative and growth driver [and] nearly half of [CEOs] rank sustainability as a top priority for their organizations—an increase of 37% from 2021. However, more than half (51%) also cite sustainability as among their greatest challenges in the next two to three years, with lack of data insights, unclear ROI, and technology barriers, as hurdles”.
Optimal supply chain collaboration leads to increased supply chain transparency, meaning better sustainable practices that encompass environmental and ethical standards. Supply chain transparency ‘pulls back the curtain’ on procurement and allows all partners (buying orgs and suppliers) to improve and optimize quality, innovation, and working standards.
“Consumers care about sustainability—and back it up with their wallets”. That’s one finding in a recent joint study from McKinsey & Company and NielsenIQ on sales growth for products labeled as environmentally and/or socially responsible. However, the study points out the many “social and planetary impacts that result from producing, transporting, and discarding these consumer products” and advises that “consumers and companies alike [should] understand and address these impacts to society and the planet as part of buying decisions and ESG-related actions”.
Supply chains continue to be vulnerable to the effects of the pandemic, the Russia-Ukraine conflict, and other “supply chain disruptions” as identified by McKinsey & Company.
One article on how the Russia-Ukraine conflict is impacting supply chains predicts that buying organizations will switch models from “Just-In-Time (JIT) inventory management to Just-In-Case (JIC) inventory management” and that “regionalization and in-country supply are also becoming more attractive options in terms of the safety, security, and the stability they afford”.
An article investigating the post COVID-19 future of the supply chain states that the change towards “more flexibility and multi-level sourcing” has already begun and that “we could soon see a purposeful shift to regional sourcing”.
The Harvard Business Review declares that “the expansion of far-flung global supply chains [...] is probably over” in one article on the risks of global supply chains.
As the Harvard Business Review writes in another article on making sustainability profitable, “in a world of scarcity, companies will need to consider their total return not just on assets but on resources”—and this can only be achieved by seamless, optimal, and software-supported supply chain collaboration.