Supply Chain Collaboaration: Achieving Strategic Alignment

In today's competitive arena, cohesive supply chain teams compete against other supply chains. Such network-level competition is driving firms towards strategic partnerships with suppliers and partners. These partnerships aim at strengthening supply chain performance . To achieve this, strategic partners should develop one or more capabilities viz., agility, flexibility, reliability and efficiency across the chain and hence should focus on improving the right combination of (cost structures, asset utilization, quality,  service). Hence, strategic collaboration among supply chain partners is crucial.

Strategic collaboration among supply chain partners means strategic partnerships that should make the entire chain behave as a single system. Which means all partners in the collaboration should work together towards achieving the same set of objectives or goals (i.e.,developing right supply chain capabilities). However, business objectives and expectations of each partner in the chain may vary and hence strategic focus areas differ. In the absence of  strategic alignment collaborations are bound to fail. Therefore supply chain partners in the strategic alliance should work towards mutually-agreed objectives (or shared objective) where strategic alignment is possible.  Joint strategic planning process should evolve mutually agreed objectives contemplating the strategic objectives and expectations of all partners with a focus on inclusive growth and supply chain performance.  

Balanced scorecard approach can be leveraged to develop common objective(s) that align with business strategies of each supply chain collaboration partner. According to Balanced Scorecard (BSC) theory every commercial entity works towards customer and/or financial goals in pursuit of their business. . Each partner in the supply chain alliance, therefore views their partnership to maximize their own share-holder or customer value. However, enhancing shareholder or customer value variables like price, delivery and availability depends on improving cost structures(C), reliability(R), asset utilization (U), inbound or outbound speed (S) of (inventory, and production and logistics resources) of that partner in the chain. Variables like quality (Q), functionality {rapid feature innovation (RFI), rapid product innovation (RPI)) and brand image (B) are product related. Therefore, strategic focus elements in financial and customer perspectives can be reduced to four functions viz., Product, Materials, Production, and Logistics. Participating partners should be listed from upstream to downstream in the strategic focus matrix as shown below.

Strategic Focus Matrix

Supply Chain Network

Strategic Focus Areas (SFAs)

Product

Inventory

Production

Logistics

RFI

Q

RPI

B

C

R

U

S

C

R

U

S

C

R

U

S

Tier i     Supplier(s)

x

Tier i +1  Supplier(s)

x

My Organization (Business Strategy)

x

x

x

x

Channel Level n-1

x

Channel Level n

SCM Goals (Focus Areas) =

x

x

x

Strategic focus element(s) of the company and each partner along collaborative chain should be identified and marked (x) in respective cells as shown above in the strategic focus matrix. This help determine strategic focus areas  that are aligned with partners. Collaboration opportunities restrict to areas of alignment with collaboration partner(s). Supplier or channel collaboration opportunity is said to exist in any specific focus area under Material/Production/Logistics when at least two partners align. But product collaboration in quality or innovation is possible when all relevant partners in atleast two consecutive stages on supply side align. On demand side, collaboration opportunity exists in inventory and logistics areas if at least one distribution/channel partner's focus area(s) align.

Supplier Collaboration: A Strategic Imperative

Shorter lead times, shrinking product lifecycles, global outsourcing and increasing complex customer demands are making manufacturers more dependent on their suppliers to keep the costs down and to optimize quality and responsiveness. Supplier-facing business practices like supplier consolidation, strategic sourcing, collaboration, contract and performance management-enabled by Supplier Relationship Management (SRM)-reduce the overall spend, promote product development, minimize the risk of non-compliance and streamline the supply chain operations.

In addition to the growth in top line, it is the bottom line results that the stakeholders are interested in. Ultimately, that is the focal point of every company competing in today's tough economy. You can improve the bottom line in two ways: Increase revenues or decrease costs. In today's sluggish economy, revenue growth is the most challenging. Fortunately, the cost reduction side of the equation is more promising because by reducing the costs associated with the purchase of goods and services, an organization can boost profitability without generating more sales. Such bottom line performance pleases the shareholders and keep the organization competitive in the market.

Transformation of suppliers as key strategic partners of the business enterprise has become a mandate to gain cost and competitive advantage. As per the current estimates, sourcing accounts anywhere between 70-80% of the total opportunity for procurements savings within an enterprise. This requires a balancing between cost reduction against issues of quality, risk and innovation. Supplier Relationship Management (SRM) practices/solutions help strike this balance using a systematic approach for formulating and optimizing a global sourcing strategy, and help evaluate the capacity of supplier to deliver high-quality goods that may have specific corporate needs.

Five Phase Supply Chain Collaboration Evolution Process

Collaboration is to create value. Often, creating value requires significant change. A transformational change is usually driven by new constraint(s) or the need to achieve next level of performance.  John Kotter (1990) in his book “A force for change: How Leadership Differs from Management” advocates eight phase model for successful change. 1. Establish a sense of urgency, 2. Create a coalition, 3.  Develop a clear vision, 4.  Share the vision, 5. Empower people to clear obstacles, 6. Secure Short term wins, 7. Consolidate and Keep moving, and 8. Anchor the Change. Kotter’s model focuses on organizational change showing similarity to supply chain change through strategic collaboration. First three stages of Kotter  model describe how a change initiative begins at the top and with three separate actions by the leaders: (1) establish a sense of urgency; (2) create the guiding coalition; and (3) develop a clear vision.

 

As referred in Kotter’s model, supply chain transformational change initiatives also evolve by establishing a sense of urgency, creating the coalition and developing a shared objective among supply chain members. However, no successful transformational change occurs without proper leadership. “Or they must have been very lucky”, Kotter explains. Collaboration efforts often fail because right partners are not chosen priorly. Thus establishing supply chain leadership followed by selection of right partners should precede the three stages of Kotter’s model.