The COVID-19 pandemic tore through supply chains like a chainsaw in 2020, highlighting just how co-dependent each company in the chain is on its suppliers and customers as well as how fragile today’s supply chains are. One of the major lessons that companies have taken from the past year is that robust supply chain partnerships are a competitive advantage.
COVID isn’t the only trend reshaping supply chains—pricing volatility, fast-changing end-customer needs and tastes, reconfiguration of global value chains through localisation of production, the pressure to reduce carbon emissions, and relentless price and efficiency stress are all challenges that are best addressed through collaboration.
Yet, as McKinsey notes, collaboration isn’t easy. A lack of buy-in for collaboration from leadership or middle management, cultural differences between companies (for instance, resellers and manufacturers), a lack of trust, and conflicting incentives can all stymie cooperation. Here are some tips from supply chain experts about addressing these bottlenecks:
- Find partners that share your goals and vision
One key to success is partnering most closely with companies that share your goals, culture and vision. Writing for software company, Flexis, Brian Hoey says: “The ideal partner is one whose goals and strengths are most compatible with your own. Obviously, trust is critical here—your current working relationship with a given company will tell you a lot about how they’d be as supply chain partners.”
McKinsey suggests applying three tests:
- Is there enough potential value in collaborating with this partner to merit the effort?
- Do both partners have sufficiently common strategic interests to support the collaboration?
- Does the partner have the right infrastructure and processes in place to provide a basis for the collaboration?
- Start with a small selection of strategic partners
Inventory management solutions firm, Clear Spider, suggests forming deep relationships with only a small selection of strategic vendors and customers. Most companies will not be able to build and sustain especially close ties with all of their partners. “You only have so much time to put in, it’s better to put it into quality than quantity. With fewer suppliers, you can build trust and stronger ties,” says the blog post.
“This is the best way to develop relationships. You can also quickly weed out suppliers who are not working towards common goals, do not give you visibility into their processes, and are not dependable. Together you can work to reduce costs, increase efficiency, and create innovative products or processes.”
- Ensure transparency around sharing of risks and investment
A post from Gartner’s Michael Massetti on Supply Chain Game Changer emphasises the importance of transparency and clear agreements about how risks, rewards and investments will be shared. “An open, honest engagement will provide the clarity both parties need to deal with risks when they occur without jeopardising the partnership,” he writes.
He says that the partnership may not necessarily be equal in terms of the investments made or the benefits reaped. Nonetheless, success depends on the partners understanding the commitment they are making in terms of human and financial resources as well as on them supporting the vision, strategy, and plans.
- Put in place the right systems and data
The ways in which application programming interfaces, modern ERP platforms and the cloud facilitate cross-company collaboration is a boon for supply chain partnerships. In the words of Clear Spider: “In order to make the relationship with your suppliers collaborative, you need to provide access to your supply chain and inventory data.
“Collaborative cloud-based supply chain or inventory systems are able to do this through user roles. This allows your partners to view real-time data, which will help them work with you to develop effective business strategies. In addition, real-time data will give both your company and your partners the ability to accurately plan for the future by having the most up-to-date data at your disposal.”
- Remember that senior sponsorship and grassroots support are both essential
The right IT systems might facilitate the flow of information between supply chain partnerships, but it’s people that make the relationship work. Brian Hoey advises companies to find the right people from across the business to drive the vision, and then give them the tools they need to succeed, whether that is technology, human resources, or political support from someone higher up in the business.
- Get aligned on metrics for success
Measuring performance helps to ensure that the parties in a relationship are accountable and that the partnership is delivering the expected results. McKinsey says the participants should ideally share common performance-management systems, common metrics and targets to avoid the misaligned incentives that damage so many collaboration efforts.
Working for a long-term payback
Deeper supply chain relationships are not a quick and simple feat to pull off. According to Brian Hoey, by some estimates between 50% and 80% of all supply chain partnerships ultimately fail. Long-term thinking and a commitment to making the right investments are key to success. The payback can be significant, however, positioning companies to thrive under pressure.