August 30, 2013
By Gary Girotti | Vice President, Transportation Practice
Over the last decade, there has been a significant push toward supply chain collaboration. Many companies have realized the benefits of sharing more information earlier in the planning and execution cycles, and have been working together with their direct trading partners (customers, suppliers, carriers, etc.) to create supply chain efficiencies and improve overall effectiveness. While this type of collaboration undoubtedly creates value, there is a bigger collaboration opportunity that exists within supply chain, and that is horizontal or peer-to-peer collaboration.
Horizontal collaboration takes the idea a step further, and looks for opportunities between peer companies to share resources, assets, and capacity. Transportation and logistics operations are two areas ripe with potential for this type of collaboration, and the benefits are surprisingly far reaching. If two or more shippers collaborate to improve load building to a mutual customer, for example, they could send smaller, more frequent shipments, which ultimately means lower inventory levels and better on-shelf availability.
There are obviously several implementation challenges, but the major hurdle is that most supply chains are designed to optimize full truckload orders. And, from both the supplier and customer perspective, so are incentives, promotions, processes, systems, and organizations. To fully realize the benefits of horizontal collaboration, buying and pricing behaviors must change (i.e. it goes beyond the supply chain organization).
Several industry groups are working to facilitate this type of system-wide transformation (like the initiative with the Consumer Goods Forum, Grocery Manufacturers Association and Food Marketing Institute), but companies can also explore horizontal collaboration on a more targeted basis. In fact, we’ve partnered with a large CPG company to tackle this very challenge. Leveraging the Freight Market Intelligence Consortium, we started by analyzing our client’s transportation network, overlaying it with other manufacturers to identify collaboration opportunities. As it turned out, there were a number of complementary networks, and we are now systematically approaching the other manufacturers, helping our client quantify the benefits of co-shipping to mutual customers. The outlook is promising.
For better or worse, the “new normal” of our global economy means that many of today’s supply chain challenges – portfolio complexity, shifting sales channels, and social responsibility, to name a few – won’t fix themselves. Horizontal collaboration may be just the ticket to taking supply chain performance to the next level.
Let’s keep the conversation going – drop me a note at ggirotti@chainalytics.com.
