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Partnerships to Improve Supply Chains

July 15, 1999 | Charles J. Corbett , Joseph D. Blackburn , Prof. Luk N. Van Wassenhove | Strategy

The more open exchange of information (e.g., sharing cost and demand data) and coordinated decision making typical of a long-term supply-chain partnership can reduce the inefficiencies inherent in less collaborative relationships, such as excess inventories and slow response. Different from strategic alliances or project-based partnerships, supply-chain partnerships are characterized by levels of investment that further improve the joint supply chain to mutual advantage.

The authors describe two joint supply-chain improvement projects, one of which led to logistics benefits and helped reverse a traditionally adversarial relationship that, in turn, translated into commercial benefits. The second project held the potential to quickly deliver logistics benefits, yet did not yield the expected commercial value.

Understanding the distinction between logistics and commercial success is critical, though often disregarded when assessing supply-chain partnerships, according to the authors. Logistics success is the degree of overall supply-chain improvement, regardless of how costs and benefits are allocated. Commercial success depends on how much more profitable trading with the partner becomes -- whether by getting a share of the logistics improvements or by obtaining better trading terms. The authors note that sacrificing some short-term logistics success may be worth achieving commercial benefits at a later stage.

In contrasting the two projects, the authors identified key steps to take when beginning joint supply-chain improvement projects. They recommend a simple framework that consists of pragmatic steps often neglected in practice:

Step 1. Establish mutually agreed on processes and objectives in advance.

Step 2. Prepare thoroughly. Important factors are team selection, benefit-sharing agreements, analysis of opportunities, supply-chain mapping, setting of performance standards, and allocation of required resources.

Step 3. Integrate the project within the respective organizations -- particularly within the purchasing group of the affiliated business. Especially in matrix organizations, benefits also must accrue to the departments that provide resources within both organizations.

This tentative road map of a practical process allows firms not closely affiliated to improve supply-chain logistics and approach true partnership stature.

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