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Accenture

Now and in the future, inter-enterprise collaboration may be the single best way toincrease business performance.

In late 2003, Accenture published a cross-industry paper, “Connecting with the Bottom Line: A Global Study of Supply Chain Leadership and Its Contribution to the High-Performance Business.” Among the report’s conclusions were two particularly salient findings. First, a direct, statistically viable connection was made between supply excellence and increased market capitalization levels. In effect, the report demonstrated that supply chain improvements pay. Second, the team of Accenture, INSEAD and Stanford researchers reported that, as companies migrate from internal-only to extended supply chains, collaboration will be one of the most strategic capabilities. Because supply chains are becoming too complex for any one entity to manage effectively, tomorrow’s winners will be the companies that conduct the orchestra – not those that play all the instruments.

In virtually every business community, collaboration is a hot topic. Even in a strict supply chain context, it has any number of important connotations:

• With collaborative forecasting and inventory management, companies share supply-and-demand data with suppliers to create joint forecasts and tightly link sales and production.
• Collaborative distribution capabilities enable innovative retailers to combine cross-docking and advanced warehouse management to radically raise logistical efficiency.
• Fulfillment-focused collaboration with suppliers and external business partners often makes it possible to improve availability without harming turns or inflating inventories.
• Processes and tools that abet design collaboration enable companies to quickly and cost-effectively co-design and develop components and assemblies.

Today’s business realities – unpredictable consumer demand, shorter product life cycles, mass-market competition and increasingly global suppliers and channels – aren’t likely to change soon. This means that the need for collaborative relationships won’t be declining either. But is the basic nature of collaborative relationships likely to change? And if so, how will tomorrow’s collaborations be leveraged to increase profitability and competitive advantage? Will the barriers to collaboration be different or more formidable? And what forms of collaboration-based information will hold the most sway across companies and industries?

To answer these questions, Accenture partnered with Logistics Today magazine on a collaboration-focused survey of executives in supply chain decision-making positions. The investigation was cross-industry, emphasizing manufacturing, high tech and transportation. Nearly 70 percent of the survey’s respondents come from companies with $1 billion or more in revenue. And approximately 32 percent of respondents come from organizations with revenue exceeding $10 billion per year. A broad array of job titles and logistics functions also were covered, led by logistics/transportation manager (22 percent) and supply chain manager (11 percent).

Key Findings

“Collaboration” (the term, not the activity) is often overused, which has the potential to make collaboration seem less potent than it really is. The reality, however, is that collaboration is key to helping companies achieve high performance. Executives queried through numerous surveys – including this study – list collaboration as one of their key strategic priorities.

Another problem is that the term “collaboration” is exceptionally general. It has copious connotations, forms and potential categorizations. It also means different things in different contexts, say, between organizations and departments within organizations, or among varying functions. For example, collaborative relationships in supply chain management might be defined as “transactional,” “tactical information sharing” or “strategic” (see Figure 1). Lastly, collaboration is not a clear-cut process supported by a specific set of tools and behaviors.

For the purposes of this survey, collaboration can be taken to mean cooperative supply chain relationships – formal or informal – between companies and their suppliers, business partners or customers, developed to enhance the overall business performance of both sides.

Because they typically are contract- and service-based, alliances with third-party logistics providers would be outside of the survey’s scope and definition.

Within the above scope, survey-based conclusions and related insights from Accenture and Logistics Today include the following:

• Collaboration levels have increased dramatically in the past three years. Very few companies have seen a decrease in collaborative activity, or even remained constant. Moreover, survey respondents are less likely than in previous years to regard “unclear value propositions” as a major barrier to increased collaboration. Put another way, collaboration’s benefits are becoming more apparent and more accepted.
• Cost reduction is still the primary driver of collaborative undertakings. However, strategic and revenue-focused missions are becoming more important. For example, nearly one quarter of respondents replied “increased sales and top-line growth” when asked, “What is the largest benefit your company achieves or expects to achieve by collaborating with your trading partners?”
• Strategic forms of collaboration are increasingly seen as differentiating sources of future value. For example, information about strategic plans, product development, pricing and promotion/marketing effectiveness are currently shared by more than 30 percent of this survey’s respondents.
• Tactical forms of collaboration (e.g., sharing production planning, inventory and demand information) have been a significant focus in the past, and will continue to be a driver of value. These were the most commonly cited current collaboration areas, as well as the activities for which survey respondents expect to see the greatest increase over the next three years.
• Supplier collaboration has gained momentum as an achievable business capability. In fact, executive respondents identified closer relationships with their suppliers as one of the most significant benefits of a collaborative relationship (see Figure 2).

• On a regular basis, collaboration improvements are now included in holistic supply chain transformation programs.

The Growing Importance of Collaboration

As shown in Figure 3, nearly 70 percent of survey respondents perceive collaborative relationships as “very important.” Even more salient, however, is that respondents’ collaboration levels have increased dramatically in the past three years. Very few companies (less than 5 percent) have seen a decrease in collaborative activity, or even remained constant.

How Collaboration Is Changing

As noted earlier, there are any number of fronts upon which companies can instigate collaborative relationships: product design and development; demand forecasting; promotion, sell-through and POS information sharing; vendor inventory management and replenishment; just-in-time manufacturing replenishment; product endof- life timing; profit optimization analysis; and numerous others. Figure 4 depicts the life cycle stages and activities that are increasingly affected by collaboration.

Given this proliferation, it should not be surprising that a wide variety of information is being shared among trading partners. As shown in Figure 5, production plans, inventories and shipping information are being shared with trading partners at nearly 60 percent of responding companies.

The top two categories – “production plans, inventory and shipping information” and “true demand data” – tell us that most collaborative activity continues to focus on transactional information (likely through the use of VMI and EDI). However, a strong showing in the remaining three categories points to stronger strategic collaboration with multiple trading partners in the near future. This prediction is reinforced by research data showing that about one out of six respondents expect “strategic plans about products and pricing” to represent the greatest increase in collaboration over the next three years.

Collaboration’s Benefits and Barriers

Cost reduction and operational effectiveness continue to be the primary drivers of collaborative undertakings in supply chain management. This doesn’t mean that respondents are unaware of the strategic and revenue-enhancing benefits that collaboration offers. A better interpretation is that the efficiency and cost-reduction opportunities stemming from collaboration are often so strong that they cannot help but be the preeminent drivers. According to independent research conducted by AMR, Accenture and the Voluntary Interindustry Commerce Standards Association (VICS), superior collaborations can help manufacturers:

• Reduce inventory levels by an average of 30 percent;
• Cut transportation costs by an average of 10 percent;
• Lower warehousing costs by an average of 13 percent;
• Shorten lead times by an average of 50 percent; and
• Improve customer service by an average of 10 percent.

The joint AMR/Accenture/VICS study also noted that collaborative relationships help retailers:

• Raise store-shelf-stock rates by 5 to 8 percent;
• Reduce inventories by an average of 10 percent; and
• Cut logistics costs by 3 to 4 percent.

At the same time, however, our survey respondents do recognize a wide variety of collaborative benefits and opportunities that are not specifically cost-related. For example, as shown in Figure 6, nearly one-quarter of respondents cited “increased sales and top-line growth” as the largest benefit gleaned from collaboration. In addition, the sum of the benefits that were cited actually speak more frequently to strategic and revenue-enhancing capabilities than they do to cost reduction.

As shown in Figure 7, our survey respondents perceive collaboration around production planning as having the greatest value for their business. Clearly, upstream and downstream – as well as tactical and strategic – relationships are on respondents’ radar screens.

Not surprisingly, technology and data hurdles are cited overwhelmingly as the most formidable barrier to enhanced collaboration between companies and their suppliers and retailers. This is to be expected, given that machine-to-machine execution increasingly is the foundation of inter-enterprise collaboration. Consider the top three information types that survey respondents say they are sharing with trading partners: “production plans, inventories and shipping information”; “demand data (including POS and forecast information)”; and “product design information.” These are all predicated on digitally transferable data.

Looking Ahead

Survey results and their interpretations by Accenture and Logistics Today all point to a similar conclusion. Now and in the future, interenterprise collaboration may be the single best way to increase business performance. Although every partnership, collaboration or alliance will be differen t – with unique goals, components and metrics – a few general guidelines can be followed to achieve collaboration:

• Fit the relationships to your strategy. Define the link between overall strategy and collaboration opportunities, identify the purpose of each collaboration effort and be prepared to react quickly to changes in strategy or environment.
• Identify the best partners. Use a range of competitive and market sources to develop the intelligence to spot and evaluate potential partners.
• Optimize your relationship portfolio. Develop systems for timely reporting to enable faster, better-informed decision making about the collaboration. Know how to identify new opportunities based on activity in your current portfolio. Make sensible trade-offs between internal efforts and alliances.
• Maximize day-to-day performance. Use performance measures that reflect the organization’s overall business objectives so that the people involved in the collaboration will be able to communicate the “why” and “what” of every alliance they form and to share experiences across alliances.
• Manage the relationship. Plan to maintain continuous personal contact with key people at partner organization(s). Success on this front makes it possible to develop new opportunities from existing relationships.
• Capitalize on your collaboration’s assets. Capture and adopt best practices. Build on the knowledge gained in alliances by sharing information and leveraging collaboration-created assets across the parent company.

Note: Results and interpretations of the collaboration survey performed by Accenture and Logistics Today were originally published in the December 2004 issue of Logistics Today (“How To Win Friends And Influence Supply Chain Leaders” by John B. Matchette and M. Andy Seikel).