Wednesday 20th Sep 2017 - Logistics & Supply Chain

Supplier network collaboration

The theme at this Round Table debate (for participants, see panel) was the transition from linear supply chains to or towards supply networks, with all that that could mean in terms of changes in command and control, culture, systems and reward-sharing, and what that might mean in terms of collaborative activity. There seems to be a general agreement that the linear supply chain model is too simplistic for the modern, global world, and that networks, however defined, are or soon will be ‘manageable’ with advances in IT and communications: but how do we move from here to there?

Boyes-Schiller characterised the supply chains of the 60s through to the 90s as ‘very linear, composed of nodes around the individual enterprise. Then [in the 90s] a lot of these nodes got outsourced’. Internally or externally, though, people were still seeking to make improvements in their own particular node, which tended to mean that efficiencies (or more acutely inefficiencies), were just shifted up or down the supply chain.

She suggested that there are characteristics of a ‘good’ supply chain; also of a ‘good’ supply network, but that these aren’t necessarily congruent, although they both lead to the fundamental collaboration problem: ‘how much can I give or transfer without jeopardising my own profitability?’

Boyes-Schiller acknowledged that, whether we are considering supply chains or supply networks, Agility, Adaptability and Alignment are key – the ability quickly to transform supply in the face of circumstances, to change the way that processes work and to ensure that every partner is facing the same way.

But, she suggested, supply networks are different: they are non-linear, so efficiencies and gains aren’t simply pushed up and down the chain. Linear supply chains, or players within them, often claim to share information, knowledge and gains – in a network, this is imperative. ‘Sharing processes and information is about real end-to-end visibility. The question is, how much of a process can you disclose before you put yourself at risk?’

Wyndham Albery made the point that ‘if you want long term partnerships, then everyone has to be a winner. All the partners have to win, have to want to win, have to want to work better to win’. ‘Optimisation’ is actually dangerous, he suggested – optimising to a point in time or to a particular strategy sets limits and ceilings, that may not be valid for more than a couple of months. ‘We need to create processes and systems that allow you to go beyond, to push the envelope, the whole time. For me, “optimization” is a dirty word’.

Peter Duggan confirmed this view experientially. Relationships were key. His business (mobile phones) is high fashion, short shelf life. He characterised the relationship with Exel as ‘They like working with us, and we with them, but neither of us know exactly where we are going!’

Activity based costing
But building that relationship isn’t simple, Duggan suggested. ‘We need to find ways that suppliers can work with, and can obtain acceptable margins [in this case, that is centred round activity based costing (ABC) rather than ‘open book’ accounting] but at the same time we have to be centred on our customers’.

Mike Pleass of Exel suggested that organisations such as Rosetta.net offered the opportunity for taking out costs that would benefit everyone. Duggan saw the question more in terms of ‘synergies in networking – finding bits that work, and bits that don’t’.

Jerry Tonge raised the problem: ‘how easy is it to deal with a manufacturer, say, that has its own aspirations to retail? There is a real fear, a lack of trust in “Chinese Walls”. You can ether take the positive approach that what you are trying to do is good and you can sort it all out in the legal/contract forum: or you can take a cynical approach which will inevitably exclude you from any collaborative opportunities that may exist’.

Tonge also touched on the ‘psychological barriers’ to network collaboration. ‘The issue of clients requiring their logos on trucks is complete nonsense – why not have white trucks for everyone. When you take away the psychological barriers, it is remarkable what you can do’.

Meanwhile, he suggested, ‘disintermediation’ just means that someone else gets to eat your lunch. ‘You have to agree, very early on, on a bloody good contract that protects all the parties’.

Boyes-Schiller suggested that a distinctive feature of acknowledged leaders like Toyota or Cisco was that ‘They share a tremendous amount [of knowledge and of benefit]. If you remove the cost “stick”, people will go the extra mile’.

Marco van Duijnhoven advised that ‘when you outsource, don’t throw your brains out of the window’, although he acknowledged that the situation in logistics, where know-how and on-the-ground ability are vital, is different from in say manufacturing, where the bought in price of a component may be an overwhelming priority.

From the chair, Nick Allen suggested the importance of marketing in being able to ‘protect the brand’ wherever the brand was ultimately sourced, which caused Steve Downton to comment on research into how Marks & Spencer has gone from ‘hero to zero’. He pointed out that (perhaps contrary to popular belief) M&S were renowned for changing suppliers. ‘Those who do well long term are those that have become better and better in dealing with existing suppliers’. He took Nissan and their seat supplier as an example – the margin Nissan allowed included an R&D element; as a result, Nissan’s seats are a significant selling point. Tonge claimed that M&S ‘used to be very loyal to suppliers, but they lost sight of their own vision and since they had never communicated this to suppliers in the past, they didn’t have a basis for dialogue’; Albery suggested that this problem worsened once the firm was dependent on manufacturers in say Thailand, with shippers, distribution centres, etc. all round the world, all with their own short-term goals. ‘How can you make that “network” work?’

It’s about being honest
For Duggan, the answer is about being ‘open and honest’ – not always easy when, as he noted, one of his major contractors [Exel] also services suppliers to his main competitors. His company recently had to do ‘something dramatic’ that would hit certain suppliers’ profits for 6-9 months, but, he claimed, ‘we have mutually found a way of working together on that’.

Duggan sees his role in airline terminology ‘We are a supply chain control tower – we share the vision, we have control, and that leads to good partnerships’. This suggested to Downton an analogy to the English ‘Ashes’ triumph – a high level ‘England’ brand, specific ‘brands’ such as Flintoff, but Vaughan, the captain in charge, who ‘delivered’, not necessarily receiving the branding. But perhaps, a supply network will in future carry its own brand, rather than that of a dominant player?

Arguably, linear supply chains, so apparently simple, have encouraged a ‘data overload’, to use Wyndham Albery’s phrase. Developments such as RFID could exacerbate this further and as he noted, ‘despite spending billions, most firms have enough trouble running their own internal supply chains’ without the challenge of coordinating external networks.

But, suggested Sue Jones ‘they haven’t realised that it is possible today to do things in real time. Or if they have, they haven’t accepted the internal and external problems of real time. Who ‘owns’ the data, the information? They need to be thinking very differently, long before the contract stage’.

Disputes over data ownership
If collaboration is the key, then disputes over data ownership and contract recourse really don’t help. Tonge pointed to the many NHS contracts around in which, he claimed, a pool of firms collaborate, or compete, or subcontract to each other as appropriate. Jones admitted ‘We’ve all done “I can’t share….” but we need to turn that on its head, to ask “what can I share?”.’

That needs buy-in at the most senior level, but it was generally agreed, it is hard to implement further downstream. It is, as Tonge noted, ‘hard enough to get departments to collaborate internally, let alone with outsiders’.

Boyes-Schiller suggested that there may be the beginning of a shift from what she termed ‘managerial capitalism’, towards ‘distributive’ capitalism, not perhaps now but over the next twenty years or so. This, amongst other things, would mean everyone getting ‘a piece of the profit’, but equally, every party giving deep support to delivering what the customer really wants. She conceded that this could sound a bit ‘West Coast’ but insisted that this was exactly what such non-Californian icons as Toyota were doing right now.

That raised the question of culture. Boyes-Schiller suggested, (and no-one disagreed) that it is mostly Japanese firms that have been going in this direction. The ‘Western enlightenment’ may have given us first dibs at the industrial revolution, but it has also, she suggested created an individualistic or ‘me’ view of the world, rather than the perspective of ‘us’.

Chris Morgan suggested other features of ‘Western capitalism’ that might inhibit supply chain network collaboration. ‘Gain-share works when you share knowledge, not just data. But one of the most difficult things to reconcile is the issue of ownership, and this is an issue in all collaborations. For big institutional shareholders, for example, collaboration is potentially dangerous – it appears to erode their own competitive position’.

For a move towards ‘federated networks or federations’, as Boyes-Schiller had defined it, Morgan saw several issues: monopolies, where collaboration might be seen to destroy ‘proper’ capitalism, and attract severe penalties; at the global level issues of culture across countries and continents (although he suggested that these might actually be easier to resolve than similar issues within countries or indeed within individual organisations. Work recently in South America, he said, had revealed an intensely competitive culture that was seriously resistant to supply chain collaboration even though these could be shown to promise substantial benefits.

Tonge stressed that the shift required is ‘to wok out how big the cake is, or could be, first, and then decide how to divide it. If you really are creating new value, then it’s easier to allow others to share that value’.

Albery suggested that computer systems and architecture could have a major role in enabling network collaboration. His view was one of distributed computing thoughout the network using agent technology, with each ‘node’ having a strategy and each agent (heuristic software representing an individual or a company) having options for negotiation (in the old style – ie combative) or collaboration, but ‘the computer has no emotions. It is working for the good of the supply network’. To do this in real time, which he claimed is too complex for unaided humans, requires a system which has an algorithm that ‘learns’ from outcomes. ‘Collaboration is real time, all the time’.

Again, the ‘optimisation’ word was mentioned. Albery said ‘What’s optimised for today will be out of date tomorrow. Most systems don’t “learn” from exceptional situations or human interactions. We need heuristic or genetic learning that can, with human moderation, decide “what can I take from what is happening? What can I, should I, incorporate very quickly from what is happening today?”. Learn from the exceptions – but, learn how to ignore the exception if it is unlikely to be repeated’.

So, in Albery’s view, systems don’t supersede humans – they should constantly be messaging ‘I want someone [a real person] to review this’. The key thing is to ensure that the human moderator not only affirms or changes the decision, but records the reasons.

Which all sounds very utopian. But all the panel, concurred with Duggan when he commented (in the particular case of customer returns, although the insight is general) ‘You can spend all your life creating the perfect algorithm, and you still won’t get there. It’s not about the system, it’s about the culture and it’s about the people’.

The panellists:

Under the chairmanship of Logistics Europe Editor Nick Allen, our panellists were:

Sharon Boyes-Schiller
MD, Skyscape Solutions

Marco van Duijnhoven
GPS Service Operations Manager, Cisco
Systems International

Steve Downton
Director, Downton Consulting

Mike Pleass
Director, Global Customer Solutions, Exel

Peter Duggan
General Manager Supply Chain, O2 (UK)

Wyndham Albery
MD Europe, Quantum Retail

Jerry Tonge
Director, Retreve

Sue Jones
Implementation Director, Yantra

Dr Chris Morgan
Director, MSC Logistics & Supply Chain
Management, Cranfield School of
Management

 

 

 

Get Weekly Logistics & Supply Chain News
Get Weekly Logistics & Supply Chain News
Thank you for your subscription