The concept of collaboration is not new, however it has traditionally occurred between related companies with strong single leadership that offer each other a privileged right to use certain products, services and personnel. The development of technology has enabled organizations to expand their ability to collaborate beyond the traditional supply chain and into collaborative planning, forecasting and replenishment, David Carney, a senior procurement specialist at Volition Consulting Services, tells SmartProcurement.
Collaboration in the Supply Chain
Today’s business, however, involves a far greater degree of collaboration to remain globally competitive and technology has acted as an enabler in areas such as reducing communication costs and creating a competitive advantage. At an application level collaboration can facilitate the integration of business processes. However, in order for collaboration to work in the long-term there are two fundamental requirements that technology must provide;
• It must enable people to use information effectively to make quality decisions.
• It must deliver the right information to the right people at the right time.
New technology can facilitate process integration that enables previously disparate companies to collaborate on a broader scale while still achieving their individual company objectives. Interdependency between companies is continually increasing and this means that information such as forecasting and planning must be shared in order to meet market expectations.
Global competition is forcing companies to form alliances and to collaborate in order to differentiate in an increasingly standardised market, says Carney.
An example of this is the increasing use of Internet-based technology by international logistics providers to offer their clients greater visibility throughout the network of third-party providers. This improved visibility no longer stops at identifying a shipment delay or inventory issue. Rather, an alert is the first step in a structured notification, resolution, and root cause analysis process, which ultimately improves the client’s ability to respond to local market demand.
Types of Collaboration
A number of battle-tested collaborative models exist, including shared services, joint procurement and commissioning, purchasing consortia, open framework agreements and eMarketplaces. There are many different models and many different reasons why organisations might want to enter into partnerships, including access to new technology, wider markets, new skills and investments.
Two additional models for collaboration in which improvements in technology play a leading role are the “member-owned service centre” (whereby participating organisations set-up a separate entity to provide common services to participants and a board of representatives from the member organisations sets the policy and operations are carried out by paid staff),and the “for profit enterprise model” (where a separate enterprise purchases goods on the basis of the participating clients’ demands and resells them at a profit or charges a commission for acting as an agent on behalf of the participating organisations). Thanks to continuing reductions in communication costs the profit enterprise model also enables participating organisations to set-up these enterprises as Offshore Multicurrency Management Centres, which can operate from anywhere in the world.
Due to the speed at which technology enables information to be shared and combined with relatively low setup and infrastructure costs the opportunity exists for the creation of virtual organisations. These virtual organisations are a temporary network of independent organisations linked by information technology to share skills and costs in procurement to achieve a short-term specific goal. These virtual organisations are based on co-operation and are enabled by technology, however the underpinnings remain trust, equality and a shared objective.
Collaboration to Create a Competitive Advantage
Business intelligence tools must continue to evolve in order for collaboration to develop so that critical business data can be extracted effectively. While Business-2-Business eCommerce has grown from passive websites with limited interaction to integrated portals where web-based transactions are common, there is still a need to enable these integrations to allow for greater collaboration.
This will ultimately lead to more agile collaborations where independent companies are linked by information technology to share skills, capacity and innovation for mutual success. Each company contributes only its core competency while focusing on functionality along the value chain.
This type of collaboration is leveraged with technology and enables competencies to complement each other with the objective of delivering a product or service to the market as a community with mutual shared interests. An example of this is Google’s development of Android, the open source mobile phone software platform, in collaboration with mobile phone hardware component manufacturers to create a fully integrated product that still enables the manufactures to adapt the software to maintain their corporate identity.
As new technology continues to blur functional and organisational boundaries, competitive advantages will increasingly be created by teams of companies and will require a change in the role procurement will play in an organisation from the traditional focus on an individual firm’s economics to a wider focus where the competitive advantage is channelled through the economics of the entire value chain.
This change in focus will require procurement departments to increasingly recognise their interdependence in order to achieve success.
David Carney is a Senior Procurement Specialist at Volition Consulting Services. David has substantial operational and consulting experience in various industries in South Africa and abroad. Email him on email@example.com.