Collaborative Partnerships - Supply-Chain.Org

Real World Collaboration: 

Back 2 Business 

April 22, 2002 

Presented By: 

Vince Colabello & John Trush

Global Integration 

Globalization of the supply chain will continue as companies seek improved 

sourcing options and new market opportunities 

Sourcing Opportunity 

!Source in local markets 

!Meet local content regulations 

!Consolidate and leverage global scale 

!Develop diversified sources of supply 

Market Opportunity 

!Build global brands 

!Enter emerging markets 

!Meet growth goals with 

foreign expansion 

2 

© 2002 PricewaterhouseCoopers, all rights reserved

Many Organizations Have Embraced Supply 

Chain Management With Focused 

Improvement Efforts To Sustain Success 

! Building the equity of products in the marketplace 

! Developing alliances with key customers 

! Managing a synchronized low cost supply chain 

! Collaborating with all Supply Chain Partners 

H 

Market 

Driven 

Leadership 

Market 

Driven 

Leadership 

Supply 

Customer 

Chain 

Development 

Management 

Customer 

Development 



Management 

Market 

Share 

Growth 

Market 

Driven 

Leadership 

Customer 

Development 



Management 

L 

L 

Profitability 

H 

3 


Supply Chain Management 

Why Should I Consider B2B Collaboration 

Know the 

Customer 

Total 

Quality 

Management 

Make To 

Demand 

Quick 

Response 

Continuous 

Improvement 

Demand 

Communication 

Key 

Performance 

Indicators 

Reduces Costs and Cycle Times . . . 

Improves Product Quality . . . 

Improves Customer Service . . . 

Promotes Continuous Improvement . . . 

. . . Increases Competitive Advantages 

. . . Increases Strategic Options 

4 


Where Are We Today 

! Regional / Local Improvement Programs 

! Spend Analysis: 

– By category of goods or service 

– By supplier 

! Relationship Assessment and Initiation: 

– Conventional / Arm’s Length 

– Collaborative 

– Strategic / Alliance 

5 


Shift to Strategic Plans for Global 

Integration and Collaboration 

! Growth Enablers/Competitive Advantage 

– Customer Service 

– Reduced Cycle Time 

– Quality 

! New Operating Model 

– Based on new competencies 

– Meet future customer demands 

– Full integration in business 

– Produce/link to demand 

! Change Management Model 

– New measurement system based on value 

– Skills development plan 

– Project Management 

Collaboration, 

Private Trading 

Networks To 

Sustain Savings 

And Value 

6 


So What’s New 

“Strategic” Sourcing Process 

Charter Partnership 

Team 

Design Partnership 

Program 

Consider 

Global Sourcing 

Options 

Define Sourcing Strategy & 

Supply Process 

Determine Critical 

Components/Materials/Services 

Install Appropriate Key 

Performance Indicators 

Consider 

New Product 

Development 

Design & Implement 

Manufacturing 

Strategy 

Excess Capability 

Are Current Supplier 

Capabilities & Performance 

Adequate 

Inadequate Capability 

Consolidate/Eliminate 

Suppliers 

Adequate Capability 

Select Strategic Partners 

Initiate Qualification of of 

New Suppliers 

Jointly Establish Targets for 

Improvements 

Develop & Implement Action 

Plans 

Yes 

No 

Continue 

Relationship 

Monitor Progress 

Can New Capabilities 

Support Requirements 

No 

Yes 

7 


Collaborative Partnerships 

The Collaborative Vision 

! Recognize the importance of long-term relationships with select partners for the mutual 

success 

! Understand each other’s processes, needs and capabilities 

! Commit to the continuous improvement of product development, manufacturing, 

distribution, quality, service and communications 

! Provide products that consistently meet or exceed mutually agreed-upon requirements 

! Resolve conflicts at the lowest levels of operation with the quickest impact 

! Operate as a cohesive team with a focus on achieving “win-win” resolutions 

8 



The partnership process shifts the way we view our specific relationships 

Arms Length Relationship 

! Price Emphasis 

! Many Alternatives 

! Functional Silos 

! Short-Term Buying 

! High Levels of Safety Stock 

! Expediting Due to Problems 

! Historical Information 

! Short Shipments 

! Inefficient Use of Capacity 

Collaborative Partnership 

! Lowest Total Systems Cost 

! Few “Alliance” Participants 

! Cross-Functional Teams 

! Long-Term Commitments 

! Compressed Cycle Times & Reduced 

Inventories 

! Anticipating Future Capabilities 

! “Real-Time” Information 

! Reliability and Customer Service Focus 

! Run Strategy & Synchronization 

9 



Open sharing of information is critical to the partnership process 

Traditional Structure 

Partnership Structure 

Accounting 

Accounting 

Accounting 

Accounting 

Information 

Systems 

Sales Buying Information 

Systems 

Information 

Systems 

Information 

Systems 

Operations 

Operations 

Operations 

Operations 

Sales 

Buying 

Supplier Customer Supplier Customer 

The expansion of direct links is necessary to improve communication. 

10 



It is important to understand the current and historic relationship to 

accurately assess and develop Collaborative Partnerships. 

! Financial stability of participants 

! Percentage of business (who relies on whom to be successful) 

! Unique technologies/expertise 

! Contract conditions/commitments 

! Ability to manage competitive pressures and changing market conditions 

! Capacity constraints (who has extra or needs more) 

! History with supplier (willingness to cooperate in the past) 

! Company culture 

! Expansion/consolidation plans 

Each relationship is evaluated individually. 

11 



When developing partnerships, it is necessary to decide which suppliers 

will make the best partners. 

The Supplier Relationship Continuum 

Arms Length 

Collaborative 

Strategic 

Class III 

50 - 60% 

Class II 

35 - 40% 

Class I 

5 - 10% 

12 


Model of Price/Cost 

Development vs. Relationship 

Characteristics Supplier Advantage Customer Advantage 

RELATIONSHIP 

Arms Length Collaborative Strategic 

Supplier Price Regular Inflationary Decreases Decreasing Further Decreases 

Increases 

Supplier Costs Stable Stable Decreasing Decrease 

(Within Range) (Within Range) (By Design) 

Supplier Margin Increasing Decreasing Relatively Stable Stable 

Relationship Adversarial Adversarial Cooperative Integrated 

Cost Structure Unknown Challenged But Focused on Specific Transparent 

Largely Unknown 

Cost Drivers 

Pricing Mechanism Competitive Threat Competitive Threat Cost Principal Targeted – Expect 

15% to 40% 

Improvements 

The goal is to select the appropriate Collaboration Partners. 

13 


Strategic Supplier Partnerships 

Factors that would influence a company to enter a strategic partnership: 

! Critical material or service - strategic importance to the business 

! Creates a competitive advantage 

! Leading edge technology 

! Willingness to jointly develop 

! High dollar/volume items 

! Potential for significant rewards 

! Strategic defense 

! New product introduction 

! Expanded resource base 

! Market volatility - availability of materials 

A partnership needs to be flexible to meet business shifts, new 

requirements and other changes. 

14 



What do Most Suppliers Want 

! “Just tell me what you really want to the best of your knowledge” 

– Short-term 

– Long-term 

– Specify variation and certainty of projections 

! More business volume 

! The “right of first refusal” for new products 

! Longer-term commitments 

! A well-defined formal relationship 

Each supplier has specific individual needs. 

15 



Regardless of the approach selected,Collaborative Partners will have many 

shared benefits 

! Improved capacity utilization 

! Increased process reliability 

! Reduced inventories 

! Reduced cycle times 

! Increased flexibility 

! Increased customer service 

! Shared innovation/technology 

! Reduced total system costs 

Implementation of identified opportunities will create new strategic options. 

16 



“Best” suppliers can clearly distinguish themselves from other 

suppliers by using Collaboration as a: 

! Growth Enabler 

– Selection of strategic customers (that meet your criteria) 

– Focus on long term success through growth 

– Institutionalize linkages with key customer organizations 

– Realize global opportunities to partner (NAFTA, ECU, etc.) 

! Competitive Advantage 

– Understand the new operating model 

– Put competencies in place 

– Recognized as the supplier of choice 

– The “Right of First Refusal” on future products 

! Change Management Model for Flexibility 

– New measurement system based on value 

– Continuous process to identify and implement opportunities 

– Skills development plan 

Focused action is needed to capitalize on this window of opportunity 

17 


For One Company, the Anticipated 

Benefits of Collaboration Include: 

! Developing a common approach to identifying and documenting reliability and 

synchronization. 

! Eliminating process inefficiencies that lead to increased costs to either xxxx or their 

suppliers. 

! Identifying opportunities for suppliers to reduce costs and free up additional capacity. 

! Identifying opportunities for xxxx to reduce combined supply inventory and improve 

cash management. 

! Developing a process for jointly improving capability and sharing benefits. 

! Optimizing specification requirements to reflect supplier capabilities. 

! Involving supplier at the early stages of new product development. 

! Accelerating response and correction of problems and issues. 

! Increasing yield and reducing downtime due to shared information and data. 

18 


Supplier Stakeholders Impact Survey 

Impacts Questionnaire 

1. Are you a member of any E-Hubs 

– If you are not involved with any E-Hubs, what are your reasons for not participating 

– If yes, how many and to what extent 

– To what level are you involved in content management, catalogues, transaction 

processing 

2. What is the cost to you for participating in an E-Hub 

– Initial hook up 

– Ongoing (basis) 

3. Is your level of business through E-Hubs significant 

– Number of customers 

– % of Sales 

19 




4. Do you anticipate that Collaboration through E-Hubs and Supplier Relationship 

Management ( SRM ) will increase or decrease 

5. To what extent is the use of e-Commerce part of your business strategy, 

business plan and budget 

6. What is the level of effort/readiness needed to support e Commerce in your 

organization 

– Technology 

– Process 

– Skill sets 

7. What factors will most influence the expansion rate of E-Hubs in your industry 

20 




8. How/what should Customers developing E-Hubs do to benefit suppliers 

– Longer term commitments 

– Defined formal relationship 

– Cost elimination agreements 

– Faster more accurate payments 

– Value added Services 

– Increased volume with Current customer base 

– Participation in New products 

– Other 

9. What are the advantages of being a member 

10. What are the major disadvantages to a supplier 

11. How can these disadvantages best be minimized or eliminated 

21 



! Surveyed a cross section of suppliers about Collaboration and participation in 

an E-Hub: 

– Level of understanding 

– Perceived value 

– Readiness for collaboration 

! We contacted 50+ companies and received responses as follows: 

– 7 companies that supply direct materials 

– 7 companies that supply services 

– 3 companies that supply indirect materials 

– 3 companies that supplied multiple material types and are consolidated above 

22 


Supplier Stakeholder Impact Survey 

Impacts Survey 

! All the suppliers' had a reasonable understanding of the benefits and challenges of 

Collaboration with a Customer through an E-Hub and the majority of the response were 

positive and optimistic. As anticipated there were a variety of opinions regarding the 

perceived value and benefits to the suppliers, ranging from negative to extremely 

positive. The suppliers expressed varying levels of readiness. 

! The responses from suppliers were similar to responses that we have received when 

surveying suppliers of exchanges and suppliers with buying consortiums. There was a 

consistent theme within the following three categories: 

– Direct Materials 

– Services 

– Indirect Materials 

23 




Direct material suppliers 

! The response in this category was mixed. With the exception Chemicals and High 

Tech suppliers, these suppliers did not perceive significant benefits and were only 

moderately receptive to Collaborative E-Hubs. 

– Not currently involved with significant Collaboration 

– Not major focus in their Business plans 

– Would reluctantly participate only if required by their customers 

– Did not appreciate the value of collaborative planning 

– Preferred EDI and point to point communications 

– Perceived significant increases in the pressure on profits and margin reductions 

– Not actively preparing for changes to adopt Technology, Process or Skill sets 

24 




Services 

! These companies were involved in providing services such as consulting, staffing, 

travel, and technical support. While there was some variation in their responses, as a 

group, these suppliers were positive about Collaboration and in most cases in the early 

implementation phase but actively planning and moving to significant expansion in their 

B2B business activities. 

– E-Business is a priority focus in their Business plan 

– Actively involved in promoting e-business with customers and suppliers 

– Anticipate major benefits 

– Most common concerns are: 

» Having to work through technology requirements 

» Less personal relationships 

» In early states of planning for changes in technology, process and skill sets 

25 




Indirect Materials 

! As a group these suppliers were the leading companies in adopting and implementing 

B2B and are the most advanced in Collaboration/SRM understanding and readiness. 

They had already experienced proven results, which were a significant contributor to 

their revenue. 

– Leaders in e-Procurement 

– Significant portion of their business is currently conducted via e-procurement 

– Currently obtaining major benefits such as increased sales 

– Most common concern was that an E-Hub would not provide the same quality of 

information as their current systems. 

26 




Summary of Supplier Benefits 

! Based on prior Supplier surveys the top five desires of Suppliers are: 

1. An increase in the amount of business 

2. A better knowledge and understanding of the certainty and variability of the 

information provided by customers 

3. The right of first refusal of new business 

4. Long term commitments (except in the case of volatile commodities) 

5. Defined formal partnerships 

27 



Impacts Survey Summary 

No. Of 

Companies 

Category 

Benefit 

to Supplier 

Readiness 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

Direct 

Direct 

Direct 

Direct 

Direct 

Direct 

Direct 

Indirect 

Indirect 

Indirect 

Service 

Service 

Service 

Service 

Service 

Service 

Service 

H 

M 

M 

M 

L 

L 

L 

H 

H 

H 

H 

H 

H 

H 

M 

M 

M 

H 

M 

M 

L 

L 

L 

L 

H 

H 

H 

H 

M 

H 

M 

M 

H 

L 

Conclusion: Suppliers perceive value through Collaboration, however, supplier 

readiness assessments and education process will be required 

28 


The Collaborative Landscape 

e-Fulfillment 

Collaborative supply 

chain/production planning 

Retail 

Customer Care 

(demand data, customer data visibility) 

e-Procurement 

(on-line supply catalogue, on-line selection, 

e-auction/marketplace) 

B2B 

Procurement 

Manufacturing 

Company 

Internal 

Infrastructure 

Marketing 

Sales 

B2C 

On-line order management 

(real-time ATP, e-shipment notification, order tracking) 

Logistics 

Customer Service 

Collaborative Product 

Commerce 

(Collaborative design, product data management) 

Distribution 

e-Logistics 

(Collaborative planning, supply chain management, 

capacity and cost optimization) 

Vendor (co-) managed 

inventory 

29 


Horizontal Services 

Collaboration Models 

e-Hub Trade Exchanges Marketplace 

Indirect 

Suppliers 

Companies 

Company A 

eMarket 

Intermediary 

Company 

A 

Company 

B 

Company 

A 

Company 

C 

Company A 

Company 

B 

Company 

C 

Direct 

Suppliers 

Model Type 

Company 

Centric 

Industry 

Vertical Indirect 

Industry Vertical 

Direct and 

Indirect 

Vertical 

Exchange 

Meta-Market 

Characteristics 

All suppliers (or 

customers) to 

Company A are 

linked with 

Company A and, 

where applicable, 

each other 

Groups of buyers 

with common 

interests align to 

gain leverage 

Community 

forms around 

common exchange 

of direct and 

indirect goods 

“Platform” built for 

eBusiness within a 

vertical market 

enhancing processes 

across the value chain 

Multiple companies 

integrate processing 

leveraging buying, 

selling, and crossindustry 

horizontal 

services 

30 


The Three Dimensions of Collaborative 

Evolution 

Integration 

Browser-to-browser ERP-to-ERP APS-to-APS 

Buyer 

Richness 

Market 

Seller 

!Supplier and Buyer ERPs not linked 

!No information visibility 

!Supply chain efficiencies minimal 

Indirect Materials Procurement 

Buyer 

Market 

Seller 

!Many supply chain efficiencies 

!Some information visibility 

Indirect Materials + Value Added 

Services (Logistics, Credit/Finance, 

Insurance etc.) 

Buyer 

Seller 

Market 

!Machine-to-machine integration 

!Supply chain optimization 

!Complete information visibility 

Indirect Materials + Expanded 

Breadth of Value Added Services + 

Direct Materials Procurement 

!Scope limited to MRO goods 

!No direct materials or value-added services 

Reach 

Fragmented Company-Centric/Vertical 

Procurement Alliances 

!MRO goods and some value added services 

Industry Vertical 

Procurement Community 

!Complete suite of materials and services 

Pan-industry metamarket 

HR 

Benefits 

Logistics 

MRO 

Marketing 

Oil & Gas 

Auto 

Telecom 

High Tech 

!Single e-Hub or multiple anchor-led E-Markets 

within an industry sector 

!Consolidation of E-Markets within an industry 

sector into one procurement community 

!Meshing of several industry procurement 

communities to leverage cross-industry efficiencies 

31 


Supply Chain Optimization 

Optimizing an individual business or optimizing a network of businesses for 

competitive advantage 

Private Trading Networks (e-Hub) 

VALUE CHAIN OPTIMIZATION 

Procure 

Produce 

Products 

Manage 

Logistics 

Forecast 

Demand 

! Independently manages hundreds of supplier 

relationships 

! Builds upon its own market power and 

infrastructure 

! Customer and market access limited by front 

office organizational capacity 

! Optimizes its own supply chain 

! Procurement through automated processes 

E-Markets and Trade Exchanges 

NETWORK OPTIMIZATION 

Company 

A 

Company 

B 

Company 

D 

Company Company 

G E 

Company C 

F 

Company 

! Communities of similar businesses jointly 

manage suppliers 

! Leverage the market power and 

infrastructure of many 

! Accesses customers through established 

networks 

! Optimize a market supply chain vs. an 

individual supply chain 

! Automated end-to-end e-Procurement 

solutions (requisition to payment) 

32 


Key Questions Regarding Collaboration 

Strategy Development 

! Priorities 

– Which of my existing initiatives will be affected 

! Benefits 

– Will Collaboration really reduce process and material costs 

! Readiness 

– Is my organization ready to participate in Collaboration 

! Quantity 

– Will I have to use multiple E-Market/models Which ones 

! Timing 

– Is Collaboration really ready for prime time 

! Value 

– How do I extract value from an investment in Collaboration 

! Strategy 

– What do our customers expect Could we do something to get started 

33 


Key Technology Infrastructure Questions 

! Hardware 

– Which architectural platforms will I use 

! Middleware/Network 

– How will those platforms be integrated 

! Firewall/Connectivity 

– How will those platforms be connected to the E-Hub Other exchanges 

! Security/Authorization 

– How will I maintain security Who will validate and authorize 

! Database/Reporting 

– Where does my data reside, how do I access it, and how long do I keep it 

! Costs 

– ASP model: capital expenditure vs. subscription expenses 

! Adapters/Interfaces/Browsers 

– Will I integrate with ERP or legacy systems, or just use a browser 

34 


Summary 

Operationally 

Financially 

Technologically 

Impact 

Imperative 

B2B is not just about buying pencils and paper online 

It is about supply chain integration, cross-company collaboration and 

market efficiency 

B2B is not about big dot.com market caps 

It is about creating significant value through greater supply chain 

efficiency and optimization 

B2B Collaborative Hubs not built with simple “plug and 

play” technologies 

They are about Legacy System integration with complex, cutting 

edge technology 

B2B E-Business is not a passing fad 

It is part of a fundamental shift to an enterprise focused business 

model or a network focused business model 

Collaboration is fundamentally reshaping each industry 

Now is the time to develop your B2B strategy 

35 


Questions 

For additional information contact: 

Vince Colabello 

(404) 697-4504 

or 

John Trush 

(973) 236-5520 

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Collaborative Partnerships - Supply-Chain.Org

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