How to master cross-enterprise collaboration. (Advantage).
Over the past two decades, the strategic focus of supply Chain management has shifted from an adversarial Mindset toward a collaborative mindset. The essence of Cross-enterprise supply chain collaboration is to share information, jointly develop strategic plans, and synchronize operations. The expectation is that competitive superiority will result from precise resource allocation that generates economies of scale, reduces duplication and redundant operations, and gains consumer loyalty through customized service.
While the potential of collaboration is appealing, true success stories are scarce. The popular literature reports numerous collaborative failures and documents the challenges related to bringing pilots and beta tests to scale. Moreover, some business arrangements described as sustainable cross-enterprise collaborations are actually examples of conventional contracting and outsourcing. As business leaders strive to understand and ultimately execute collaborative supply chain strategies, they need to sort out answers to four basic questions:
1. What is the appeal and perceived benefit of cross-enterprise collaboration?
2. How does cross-enterprise collaboration differ from contracting or outsourcing?
3. Who in the supply chain is best positioned to facilitate implementation and sustained operation of cross-enterprise collaboration?
4. What framework exists to guide establishment and ongoing management of cross-enterprise collaborative arrangements?
In addressing these questions, this article first takes a trip back in time to revisit why firms are attracted to the potential benefits of cross-enterprise collaboration. Next, we describe different types of supply chain relationships to illustrate alternative cross-enterprise collaboration models, including their respective governance structures. The discussion then turns to the adequacy of traditional command-and-control organizations to manage and sustain cross-enterprise collaboration. The fact is that few companies are organized properly to implement and manage collaborative relationships. The final section presents a framework developed at the Broad School of Management at Michigan State University to help guide business leaders in establishing and managing cross-enterprise collaboration.
The Collaborative Evolution
Cross-enterprise collaboration is an organizational model that seeks the benefits of vertical integration without the burden of financial ownership. Early business models, primarily out of necessity, emphasized ownership control. Ventures such as Ford Motor Co., The Great Atlantic and Pacific Tea Co., and United States Steel grew to industry domination through vertical integration. Over time, the benefits of specialization coupled with the growing scope and complexity of an emerging business economy served to restrict the practical limits of ownership. Firms increasingly purchased materials, products, and key services from outside or independent businesses. The model of rugged individualism gave way to a highly interdependent business structure characterized by specialization. It became clear that no firm could be self-sufficient in such a complex economic system.
In the early stages of economic specialization, the marketplace was the sole mechanism for matching demand with supply. The spirit of free enterprise fueled competition as the most effective way to allocate resources. To ensure fairness, antitrust laws subsequently were legislated and enforced. This historical era was characterized by legally constrained competition that allowed little room for collaboration.
In the late 20th century, however, a new and challenging perspective emerged. The free-market nations of the world became attracted to the potential benefits of business collaboration--the concept of working together for mutual gain. While the logic and potential of cross-enterprise collaboration was easy for business executives to embrace, the operational mechanisms needed to achieve the desired results were not well understood. Fueled by the rapid emergence of information technology, the collaborative spirit was institutionalized and gained widespread credibility. The common belief was that cross-enterprise collaboration would naturally result from the increasing availability and use of technology to share information--a near-fatal assumption that, to this day, continues to cloud collaboration.
So, if the potential of cross-enterprise collaboration has been widely acknowledged for several decades, why has actual implementation been minimal? The answers can be traced to a failure to institutionalize the implementation processes, specifically the failure to:
* Establish the business case and a sustainable value proposition supporting cross-enterprise collaboration.
* Establish policies and guidelines to guide development, implementation, and sustained operation of cross-enterprise collaborative arrangements.
* Develop and implement long-term reward- and risk-sharing agreements. These agreements must be capable of withstanding pressure to achieve short-term operating results that might negatively impact the collaborating partners.
* Modify internal command-and-control organizational structures and performance measures to facilitate cross-enterprise collaboration.
It is not surprising that managerial commitment to stay the course during collaborative implementation tests and pilots has proven less than steadfast. There are a number of reasons for this. For one, the body of knowledge guiding collaboration has been sketchy. In addition, the potential to build cross-enterprise cooperation has been tainted by the fact that many companies have waved the collaborative banner while launching aggressive supplier cost-cutting initiatives. While they were talking cross-enterprise collaboration, their actions were, in fact, adversarial. Some literally spent years implementing what were positioned as collaborative relationships with suppliers only to revert to aggressive price pressure as soon as economic conditions worsened or their short-term profit projections failed to meet expectations.
What Is Cross-Enterprise Collaboration?
The tendency to characterize all interorganizational arrangements as collaborative inhibits understanding of the basic concept of cross-enterprise collaboration. The fact is that most cooperative engagements between commercial organizations do not represent cross-enterprise collaboration. Contracting, functional outsourcing, and process outsourcing are common relational arrangements among independent organizations. Further, the success of these important business relationships requires continuous managerial oversight. Such oversight, however, does not constitute cross-enterprise collaboration. Perhaps the best way to understand cross-enterprise collaboration is to first examine these more common business practices that do not depend on collaboration.
Buying and selling is the most common form of cross-enterprise interaction. The exchange mechanism is a transaction price driven by the structure, procedures, and traditions of a marketplace. Beyond compliance to the law and specified terms of trade, there is no expectation of a continuing relationship nor specific acknowledgement of dependency on the part of either the buyer or the seller. Even firms that conduct business with one another over an extended time period understand that each specific transaction is unique and may be the last. Buying and selling is consummated in what is commonly called a marketing channel.
The acknowledgement of a dependency between two business organizations signals the emergence of a supply chain relationship. In other words, when firms acknowledge dependency and expect to maintain an ongoing business arrangement with a customer or supplier, relational dynamics are introduced. But many executives fail to differentiate between the behavioral expectations inherent in different types of supply chain arrangements.
The most common forms of cross-enterprise relationships are contracting and outsourcing. Contracting with a customer or supplier introduces a time dimension to traditional buying and selling of a product or material. Contracts constrain the transactional market by framing price, service, and supply expectations and commitments over a specified and extended time. With functional outsourcing, the focus shifts from buying and selling a product or material to performing a specific service or activity. Typical outsourced activities range from contract manufacturing to logistics activities such as transportation and warehousing.
The introduction of the service-performance aspect of outsourcing often results in an incorrect tendency to equate outsourcing and cross-enterprise collaboration in terms of managerial oversight. Because outsourcing requires continuous managerial oversight, the assumption is made that the relationship is collaborative. While firms that outsource need to develop and maintain acceptable relationships with their service providers, the service being carried out is typically specified in terms of performance expectations and cost. Make no mistake about the authority and governance structure: Functional outsourcing is managerially determined and is governed by command-and-control principles. The authority and incentive for a supplier to perform is clearly a contractual delegation made by the outsourcing firm.
The tendency of business managers to identify and manage processes that integrate multiple functions has resulted in the growth of process outsourcing. Under this approach, a firm might enter into a contract with a service provider to perform all aspects of a process, such as manufacturing, customer order-to-delivery, or return goods administration. The challenge of modifying business practices to integrate this external process outsourcing (as contrasted to outsourcing an individual function) is formidable--even with the information technology now available. Firms that specialize in providing multifunctional supply chain services increasingly are being referred to as integrated service suppliers. While the operating complexity of process outsourcing is far more complicated than functional outsourcing, the basic governance model remains command and control.
In short, the most popular forms of supply chain relationships--contracting and functional and process outsourcing--do not qualify as cross-enterprise collaboration. These are command-and-control-based relationships that have value propositions grounded in pay for performance. The operational focus in such arrangements is performance compliance and cost.
So to the base question: What constitutes cross-enterprise collaboration? Cross-enterprise collaboration emerges when two or more firms voluntarily agree to integrate human, financial, or technical resources in an effort to create a new, more efficient, effective, or relevant business model. The fact of the matter is that any relationship-whether it involves procurement, selling, or functional or process outsourcing-can be structured as cross-enterprise collaboration with the appropriate governance mechanism. Through cross-enterprise collaboration, participating firms voluntarily create joint policies and integrate operational processes to eliminate duplication and nonproductive redundancy while seeking maximum productivity. In effect, they create what's often referred to as an extended enterprise. With cross-enterprise collaboration, unlike contracting and outsourcing, talent, information, knowledge, and financial resources are committed at risk to the joint initiative. In a very real sense, the firms collaborating agree in principle and practice to the voluntary commitment and integration of resources in pursuit of jointly defined goals. Notably, few companies understand this collaborative business approach.
Cross-enterprise collaboration requires a basic modification in the business process that locks participating firms into a long-term, joint-operating structure. The extended enterprise clearly requires senior-management commitment to create and formalize the collaborative process. The governance structure of cross-enterprise collaboration shifts from a single firm's command-and-control organization to a framework of mutually prescribed, rule-based operating agreements. Typically, one organization provides leadership while other participants voluntarily cooperate. The mutually created rules of governance must reflect the joint and committed interests of all participating organizations. Again, contracting or outsourcing relationships can shift to cross-enterprise collaboration whenever the participants transition the governance structure from command and control to rules-based collaboration. The challenge here is to develop and implement collaborative principles seldom learned in business schools.
The most common and easily implemented form of collaboration is operational information sharing. In this sense, cross-enterprise collaboration, contracting, and outsourcing all begin with information sharing. All relationships depend upon sharing information in an effort to improve connectivity and joint performance. The purpose of information sharing is to facilitate operational connectivity by providing data critical to performing an activity. For example, advanced shipment notifications (ASNs) or carrier delivery appointments represent basic information exchanges that facilitate operational synchronization.
The next two levels in collaboration are tactical and strategic integration. Tactical collaboration involves the joint modification of traditional processes to enhance the way in which essential functions are performed. Examples might be a cooperative effort to create a cross-dock sortation system or prepare store-ready pallets. Another example might be an agreement to implement vendor-managed inventory or continuous replenishment. Achieving tactical integration is difficult; in fact, our research suggests that less than 20 percent of firms have been successful in this regard. Such voluntary arrangements are typically formulated following industry-guided initiatives such as collaborative planning, forecasting, and replenishment (CPFR).
Strategic integration is the most complex and elusive form of cross-enterprise collaboration. This level of engagement is rare, and examples are limited. However, strategic integration is the model that drives the extended-enterprise dream. Only a limited number of firms have been willing to surgically restructure their organizations to facilitate true strategic-level, cross-enterprise collaboration. This restructuring entails focusing resources on core competencies while sharing the risks and rewards associated with successfully executing all other value-adding parts of the process.
IBM offers one example of a company that has enjoyed some success in strategic integration. Operating in a very complex supply chain, the company has been able to focus the efforts of each partner and enhance the performance of the extended enterprise. From a relational perspective, IBM uses enterprise extension as the means to achieve enhanced supply chain performance. While specific supply chain activities may be out-sourced (for example, card assembly and manufacturing and transportation), IBM still monitors and coordinates component manufacturing and movement through its planning systems. Unlike a traditional contract manufacturing relationship in which a manufacturer provides the contractor with a periodic set of requirements, supply chain operations such as manufacturing, assembly, kitting, and testing take place in a series of stages both inside and outside of IBM. This requires that planning be integrated across all members of the extended enterprise.
Other examples of strategic integration are emerging in the automotive-assembly, advanced-logistics-services, and mass-merchandising sectors. Such extended enterprises, by the very nature of their strategic positioning, are highly proprietary and competitive. For this reason, many participating organizations elect to adopt a legal structure by creating a joint venture or effecting a merger instead of a collaborative framework. The sidebar below illustrates how General Motors created a joint venture with CNF called Vector SCM to isolate and manage cross-enterprise integration opportunities.
Whatever form the collaborative structure takes, managers need to have strategic clarity as they move beyond the traditional transaction market to develop extended relationships with customers, suppliers, or outsource service providers. An important part of this strategy is recognizing that true cross-enterprise collaboration is a voluntary union of operational or strategic capabilities agreed to by two or more firms. Such relationships must be managed by a collaborative governance structure--and not the command-and-control structure of traditional contracting and outsourcing arrangements.
The Right Governance Structure
Most contemporary business organizations are adequately structured to manage buying and selling. They also are comfortable entering into performance contracts and outsourcing specific functions. For these types of arrangements, command and control is a suitable governance structure.
The real challenge comes with managing horizontal processes that cut across functional boundaries and fall under the organizational purview of multiple operating managers. As an enterprise embraces process management, it becomes difficult and undesirable to maintain the crystal-clear lines of authority and responsibility typical of functional command and control. This conventional command-and-control structure simply does not facilitate the cross-functional flexibility required to satisfy process goals.
One structure often used to facilitate cross-functional integration is commonly referred to as a matrix organization. Under this approach, two senior managers share responsibility for an enterprise. One senior manager (business) focuses on financial and operational aspects, retaining responsibility for the profitability of specific business units that are often organized around product categories, geographical proximity, or class of business. The other senior manager (resource) is responsible for the deployment of human and physical assets to meet the requirements of organizational units. Individual business managers are assigned skilled personnel from resource pools on the basis of projected requirements. While the skilled personnel are directly responsible to the resource manager, they are assigned to the business manager. The business manager has direct authority for work design, temporary assignment of functional staff, and project control. The two managers typically share in the decision making with regard to promotion, salary increase, and other benefits for the skilled personnel. Upon the completion of a business assignment, skilled personnel are re-assigned by the resource manager.
Certain professions, such as consulting and advertising, have successfully used the matrix organization to integrate across functions. The matrix model, however, is more difficult to implement in manufacturing, distribution, and retail businesses. Companies in these sectors may have better success with an emerging organizational approach, similar to the matrix, referred to as a horizontal structure. The horizontal organization is designed to facilitate processes and not to perform specific work tasks. (1) It has three essential attributes: (1) a highly involved, self-directed work environment that empowers employees to generate maximum performance; (2) a focus on managing processes (rather than functions) that leads to higher productivity; and (3) a rapid sharing of accurate information that allows all facets of the organization to be integrated. Information technology is the enabler or the load-bearing structure of a horizontal enterprise.
Horizontal structures build on the belief that functionality need not be organizationally assigned to a special command-and-control structure to coordinate performance effectively. The strategic authority originates at headquarters, and a staff executive works to identify cross-organizational synergies. But it's the frontline managers who refine the strategy and apply it directly to day-to-day business operations. The responsibility for performing work, therefore, is organizationally positioned with users. The user, in this sense, is the organizational unit that performs specific work for the supply chain. Making those who perform the activities an integral part of the horizontal organization can increase relevancy and flexibility. In essence, empowerment results. Exhibit 1 illustrates a basic structure for a horizontal organization.
Organizational architectures that support cross-enterprise horizontal processes are complex. They entail a further "remodeling" or redesign of traditional and well-established organizational structures to enable effective integration of internal capabilities with those of outside organizations. True cross-enterprise collaboration requires a company to modify work processes to incorporate and fuse the capabilities and competencies of other independent businesses. Hence, specific work is performed by one of the involved firms for the benefit of all participating enterprises. Similar to a well-functioning orchestra, all parts of the multi-firm collaborative process are expected to operate in a fully integrated and coordinated manner without unwanted duplication.
Horizontal processes may be extended across enterprises via electronic connectivity, visibility software, and integration of specific work assignments. The extended-enterprise, horizontal organization can be viewed as a composite of specified business functions that are motivated and directed by common interest and goals. Each department within the participating enterprises performs its specified work for the collaborative supply chain. The end state is the integrated management and performance of work without grouping functions into a formal organizational unit. Such virtual coordination facilitates achievement of the essential aspects of integrated process performance--the sharing of information, knowledge, and expertise to achieve maximum standardization and simplification. All work, regardless of when and where it is performed, is captured as part of the horizontal process. Sharing common information on resource capabilities and performance metrics while retaining local control can lead to a core competency potential for effective integration that far exceeds anything possible in command-and-control structures. Exhibit 2 portrays the horizontal process concept extended across more than one organization.
Implementing and Managing the Relationship
Management must understand that cross-enterprise collaboration constitutes relatively untested waters. Few firms have any track record at all when it comes to implementing and managing this practice. So, as with similar emerging business concepts, the potential of cross-enterprise collaboration is shrouded with risk. Logical models that seek to develop structure and strategy for collaboration via experimentation are risky. One model offers a three-step implementation process involving information sharing, coordinated execution, and optimized planning. Another suggests six levels of supply chain development. (2) In both cases, the authors acknowledge that what we call collaboration here is the end state in supply chain arrangements that have matured and stabilized. Such models may be useful for understanding the complexity associated with collaborative involvement. However, managers who are evaluating the potential benefits of sustainable cross-enterprise collaboration also must understand how their existing internal organization structure needs to complement supply chain flows and related processes. This is essential to sustaining the desired synergies.
Assuming that a firm clearly understands and wants to establish a cross-enterprise collaboration, what guidelines are available to help focus its efforts? The Supply Chain Integration Framework developed by Michigan State University identifies key managerial issues confronted in cross-enterprise collaboration. (3) The framework identifies processes, competencies, and capabilities that are characteristic of successful supply chain collaboration. The processes include leadership, planning and control, and integrated operations--all of which combine to create and deliver value in cross-enterprise collaboration. Each process requires one or more strategic competencies that are sufficient to drive competitive advantage for the extended initiative. Such competencies are supported by capabilities derived from complex bundles of skills and knowledge cultivated over time that enable a firm's assets to be selectively deployed. (4)
The leadership process must provide the vision and willingness to enable supply chain partners to creatively shift, share, and reward risk and responsibility. There are no shortcuts or substitutes for senior management leadership and commitment, especially in overcoming the long-standing internal barriers to collaboration. In the final analysis, success will depend on management's ability to effectively guide the resources commanded by two or more otherwise independent organizations so that all stakeholders in the relationship benefit. A planning and control process must coordinate information technology and metric systems to support cross-enterprise collaborative operations. Operating effectiveness depends on the measurement and exchange of timely and accurate information among customers, material and service suppliers, and internal functional areas. This involves leveraging technology to monitor, control, and facilitate overall supply chain performance. Finally, an integrated operations process facilitates order fulfillment and replenishment across the supply chain. Effective order fulfillment requires coordination both within a firm and among supply chain partners.
Exhibit 3 offers a framework to guide implementation and management of cross-enterprise collaboration. The competencies and capabilities required to achieve success in such a collaborative effort are detailed in the sidebar on page 21.
The Next Steps
The growing challenge to exploit industry leadership has encouraged multiple organizations to seek the benefits of collaboration. While the potential to collaborate is appealing, the reality is that most firms are--and should be--focused on achieving their individual operational goals. A major part of meeting operational expectations is the execution of sound marketing and operational strategies. Each engagement with a customer and a supplier needs to be managed with care. Most such relationships do not require cross-enterprise collaboration--they are main-line business arrangements that involve basic contracting or outsourcing. Yet an emerging opportunity exists for managers to initiate collaboration that extends beyond contracting and outsourcing. Cross-enterprise collaborations extend enterprise processes to combine the best efforts of two or more organizations. The value proposition of cross-enterprise collaboration is the potential to achieve an unprecedented level of operational efficiency, effectiveness, and relevancy.
Managers exploring the topside potential of cross-enterprise collaboration need guidance to help them avoid common risks. The competencies and capabilities documented in the Cross-Enterprise Collaboration Framework in Exhibit 3 establish a roadmap of well-established supply chain processes that transcend industries and even national boundaries, detailing how specific jobs and functions can best be performed across functional and organizational boundaries. The framework facilitates communication of the overall objectives of cross-enterprise collaboration and provides a guide to achieving management consensus and commitment to relevant change initiatives.
Creating process change using this framework is a two-step process. The first step aims at identifying and reaching managerial consensus on existing collaborative competency. For this step, a diverse group of managers should independently determine differences in perceived capability across management levels and within major functional areas. Participants should ideally represent a range of functions. A group with various backgrounds and knowledge can provide in-depth understanding of the firm's supply chain activities while bringing different, valuable perspectives to the table. Input should be sought from senior management, sales, marketing, logistics, production, procurement, finance, and third-party providers as well as from customers and suppliers.
Once the results are tabulated, managers should jointly review responses for each competence to isolate and quantify areas of perceptual agreement and disagreement. Managers then should share their rationale for specific responses and jointly debate the validity of perceived gaps identified from the range of responses. This exercise serves to resolve perceived differences in the assessment of collaborative supply chain capabilities in an effort to reach a consensus understanding of how well the firm is currently performing. It also provides a means to co-opt managers from across functional and organizational entities into a unified vision of cross-enterprise collaboration--thereby establishing a foundation for their commitment to pursue change.
The second step of the process is to compare consensus results to a benchmark average of high-achieving firms in comparable industries. Benchmarking translates the assessment into a competitive evaluation. The purpose is to identify gaps that might serve as the basis for change-management initiatives. A gap is defined as the difference between current capabilities and those perceived as a prerequisite to achieving the vision of cross-enterprise collaboration. Gap identification helps firms to focus on committing resources to support change initiatives as well as blueprints for improvement in critical areas. When conducted collaboratively with customers and suppliers, it also establishes a basis for extending relationships beyond surface cooperation and helps move toward true cross-enterprise collaboration.
(1) For early referrals to horizontal organizations, see: Thomas A. Stewart, "The Search for the Organization of Tomorrow," Fortune, 125:10, May 18, 1992, pp. 92-98; and John A. Byrne, "The Horizontal Corporation: It's About Managing Across, Not Up and Down," Business Week, Dec. 20, 1993, pp. 76-81.
(2) A.T. Kearney. Organizational Collaboration. Chicago, IL: A.T. Kearney, 2000.
(3) Bowersox, Donald J., David J. Closs, and Theodore P. Stank, 21st Century Logistics: Making Supply Chain Integration a Reality, Oak Brook, IL: The Council of Logistics Management, 1999.
(4) Day, George S. "The Capabilities of Market-Driven Organizations," Journal of Marketing, 58 (Oct. 1994), pp. 37-52; and Richard D. Rumelt, Dan Schendel, and David Teece, "Strategic Management and Economics," Strategic Management Journal, 12 (Winter 1991), pp. 5-30.
Cross-Enterprise Competencies And Capabilities
Competency: Relational Integration--developing and maintaining with participating organizations a mental framework for inter-enterprise dependency and collaboration principles. Capabilities:
* Role specificity--clarity on leadership process and establishment of shared vs. individual enterprise responsibility.
* Guidelines--development of rules, policies, and procedures to facilitate interenterprise collaboration, leverage, and conflict resolution.
* Information sharing--willingness to exchange key technical, financial, operational, and strategic information.
* Gain/risk sharing--framework and willingness to apportion fair share reward and penalty.
Planning and Control Process
Competency: Technology and Planning--maintaining information systems capable of supporting a wide variety of operational configurations needed to serve diverse market segments. Capabilities:
* Information management--commitment and capability to facilitate supply chain resource allocation through seamless transactions across the total order-to-delivery cycle.
* Internal communication--ability to exchange information across internal functional boundaries in a timely, responsive, and usable format.
* Connectivity--information exchange with external supply chain partners in a timely, responsive, and usable format.
* Collaborative forecasting and planning--capacity to develop shared visions and mutual commitment to jointly generated action plans.
Competency: Measurement--developing and maintaining measurement systems that facilitate segmental strategies and processes. Capabilities:
* Functional assessment--development of comprehensive functional performance measurement capability.
* Activity-based- and total-cost methodology--adoption and commitment to activity-based costing, budgeting, and measurement for comprehensive identification of cost/revenue contribution of a specific entity such as a product.
* Comprehensive metrics--establishment of cross-enterprise and overall supply chain performance standards and measures.
* Financial impact--direct linkage of supply chain performance to financial measurement such as economic value-added and return-on-net assets.
Integrated Operations Process
Competency: Customer Integration--building lasting differentiation with customers of choice. Capabilities:
* Segmental focus--development of customer-specific programs designed to generate maximum customer success.
* Relevancy--maintenance and modification of customer focus to continuously match changing expectations.
* Responsiveness--accommodation of unique and/or unplanned customer requirements.
* Flexibility--adaptation to unexpected operational circumstances.
Competency: Internal Integration--linking internally performed work into a seamless process to support customer requirements. Capabilities:
* Cross-functional unification--integration of cross-enterprise functionality into manageable operational processes.
* Standardization--establishment of cross-functional policies and procedures to facilitate synchronous operations.
* Simplification--identification, adoption, implementation, and continuous improvement of best practices.
* Compliance--adherence to established operational and administrative policies and procedures.
* Structural adaptation--appropriate modification of network structure and deployment of physical assets to facilitate integration.
Competency: Material/Service Supplier Integration--linking externally performed work seamlessly with internal work processes. Capabilities:
* Strategic Alignment--development of a common vision of the total value-creation process and clarity on shared responsibility.
* Operational fusion--linkage of systems and operational interfaces to reduce duplication, redundancy, and dwell time while maintaining synchronization.
* Financial linkage--willingness to structure joint financial ventures with suppliers to solidify goal attainment.
* Supplier management--extended management including multiple tiers of the supply chain.
GM's Take On Collaboration
The early 1990s found General Motors (GM) in serious trouble. The automaker was struggling with bloated and inflexible management, unexciting cars, constraining union contracts, and difficult supply chain relationships characterized by unhappy suppliers and service providers. To ensure its long-term viability, GM realized that it had to make substantial changes to the way it did business.
On the supply chain front, this realization was manifested in major initiatives to reengineer its procurement and fulfillment processes. A global sourcing initiative focused GM purchases on a limited number of tier-one suppliers that collaborated on the design, development, and scheduling of modules and components. GM also implemented an order-to-delivery initiative aimed at improving the effectiveness of the vehicle assembly and delivery system. Because it viewed sourcing, vehicle assembly, and global logistics strategy as core capabilities, GM decided to maintain responsibility for these activities within the organization.
GM did not believe, however, that analysis and management of supply chain flows should be a core focus of its operations. Further, it felt that internally maintaining this capability masked opportunities for achieving economies of scale. These decisions resulted in the creation of Vector Supply Chain Management (Vector SCM), a joint venture between CNF and GM, with CNF as the majority partner. Vector SCM's mission is to design, implement, and manage corporate-wide supply chains for components, work-in-process, and finished vehicles.
Vector meets the design objective by continually analyzing GM's supply chain flows using planning tools in conjunction with a comprehensive shipment history database. Analysts review the global flow of parts, components, and vehicles to identify opportunities for synergy in shipment consolidation and lane balancing. Once those opportunities are identified, Vector selects lead logistics providers (LLPs) to execute the plan. Vector then collects the volume and performance data from the LLP in order to manage the relationship and update the comprehensive shipment history.
Although the Vector initiative is relatively new, it has produced some impressive results. For example, the initiative has:
* Reduced order fulfillment leadtime by 50 percent.
* Increased on-time delivery of parts to assembly-line station to 99.9 percent.
* Increased damage-free outbound shipment of vehicles to 99.5 percent.
* Improved vehicle-delivery-date reliability to more than 85 percent.
* Reduced work-in-process inventory costs by 30 percent.
* Reduced logistics costs by 15 percent.
In effect, GM and CNF have created a joint supply chain venture to develop and execute sourcing and manufacturing strategies that improve consolidation and achieve economies of scale. The results to date offer substantial evidence of the benefits of integrated design, coordination, and management. Although GM is Vector's first customer, the plan is to commercialize the service for other major accounts. With this business model, Vector has become one of the first firms to commercialize an integrated supply chain.
Donald J. Bowersox is the John H. McConnell University Professor of Business Administration, David J. Closs is a professor and the John H. McConnell Chair of Business Administration, and Theodore P. Stank is an associate professor of logistics--all at Michigan State University.
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|Author:||Bowersox, Donald J.; Closs, David J.; Stank, Theodore P.|
|Publication:||Supply Chain Management Review|
|Date:||Jul 1, 2003|
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