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Is collaboration paying off for firms?
Business Horizons (2006) 49, 61 — 70
www.elsevier.com/locate/bushor
Is collaboration paying off for firms? Patricia J. Daugherty a,*, R. Glenn Richey b, Anthony S. Roath c, Soonhong Min c, Haozhe Chen c, Aaron D. Arndt c, Stefan E. Genchev c a
Room 2, Adams Hall, Michael F. Price College of Business, The University of Oklahoma, Norman, OK 73019, USA b Department of Management and Marketing, The University of Alabama, USA c Division of Marketing and Supply Chain Management, The University of Oklahoma, USA
KEYWORDS Collaboration; Formalization; Logistics; Supply chain strategy; Trust
Abstract Practitioners, academics, and consultants are all calling for firms to drop their guard and collaborate with their business partners. At best, reports to date are mixed. Does collaboration work? Can firms do better? This research indicates the answer is yes to both questions, but managers must do more to reap long-term gains by formalizing relationships. Executives at many of today ’s most successful companies provide important insights as to how this can be accomplished. D 2005 Kelley School of Business, Indiana University. All rights reserved.
1. Strategic collaboration: An unperfected strategy Practitioners, academics, and consultants have extolled the importance of strategic collaboration and its promise of significant inter-organizational gains. Within a supply chain setting, collaboration involves two or more independent companies working together to jointly achieve greater success than can be attained in isolation. Synergy is anticipated when the independent companies work together to plan and execute supply chain strategies. Collaboration between the companies can facilitate both strategic and operational foci,
* Corresponding author. E-mail address: [email protected] (P.J. Daugherty).
allowing individual supply chain members to exploit their core competencies. In turn, these individual core competencies can help to strengthen the entire supply chain. Conventional wisdom suggests that all firms involved in collaboration should reap greater benefits from working together. The potential for cross-enterprise gains is enticing, with possible benefits including improved customer service, better inventory management, more efficient use of resources, reduced cycle times, and increased information sharing. Although big promises have been made, it appears that reality falls somewhat short. According to Barratt (2003, p. 53), bprogress has been slowQ. Perhaps Sabath and Fontanella (2002, p. 24) best captured collaboration’s contribution: b. . .supply chain collaboration is at the same time the most used, the most frequently misunder-
0007-6813/$ - see front matter D 2005 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2005.06.002
62 stood, the most popular — and the most disappointing — strategy that has come along to date.Q A great deal has been written regarding how to set up collaborative arrangements and what’s required if supply chain partners want to integrate their operations for mutual gains. Less attention, however, has been focused on strategic aspects. Collaborative efforts often fail because critical long-term details are overlooked. Adequate care is not taken to select the right collaborative partners, to match inter-organizational needs and capabilities, and to clearly define standards, metrics, goals, and implementation procedures over a planning horizon of one to five years. If collaboration offers such potentially phenomenal gains, it is not worth a more structured and formalized strategic approach? We found both that question and the seemingly mixed signals about collaboration (i.e., it’s great, but not really happening yet) intriguing. Formalization of strategic collaboration may be the overlooked key to making business-to-business relationships work by focusing inter-organizational efforts to achieve maximum gains.
2. The buzz on supply chain collaboration Inter-organizational or cross-enterprise supply chain collaboration focuses on sharing of information, joint development of strategic plans, and synchronizing operations. In effect, collaborating partners seek the benefits of vertical integration without the burden of financial ownership. This does not mean, however, that resources are not required to support collaboration. Greatest success is likely when collaborative partners integrate human, financial, and technical resources to create a better business model (Bowersox, Closs, & Stank, 2003). Successful supply chain collaboration results in extended enterprises designed to leverage joint capabilities and resources across the supply chain. Each collaborating partner focuses on its unique competency and, working together, the partners can achieve boperational excellence that synergistically creates valueQ (Bowersox, Closs, & Drayer, 2005, p. 26). General Motors (GM) provides one example of how this can be accomplished. After struggling during the 1990s, GM looked for new ways to do business and gain efficiencies. Up until this point, supplier and sourcing decisions were made independently by divisions and individual plants,
P.J. Daugherty et al. which hindered potential economies of scale and resulted in poor asset utilization for logistics service providers. GM considered their vehicle assembly and global logistics strategy to be core competencies, but realized they were not doing as good a job of managing their supply chain flow. The company began to look outside their organization and eventually entered into a collaborative relationship with CNF. Vector Supply Chain Management was created, representing a joint venture between CNF and GM. Vector employees are now responsible for designing, implementing, and managing GM supply chains for components, workin-progress, and finished vehicles. This allows GM to focus on their core competencies, and to look to Vector to provide the needed supply chain support. One of the highest profile types of collaboration is Collaborative Planning, Forecasting, and Replenishment (CPFR). Under CPFR, retailers and suppliers work closely together in an attempt to match supply and demand, thus avoiding expensive overstocks and image-damaging out-of-stock situations. The intent is to work together to coordinate merchandising decisions. Wal-Mart and P&G have experienced significant success through CPFR by jointly forecasting sales of P&G products at WalMart stores, using the resulting information to plan replenishment accordingly (Attaran, 2004). Considering the volume and range of products involved, these CPFR-related improvements translate to significantly better profit margins. Liz Claiborne, Inc., maker of branded fashion apparel, has been particularly successful in implementing one component of CPFR: collaborative assortment planning (Bowman, 2004). The company works with customers, such as Federated Department Stores, to assess consumer buying patterns and match them to individual store needs. Together, Claiborne and the retailer come up with an assortment plan and recommendations concerning styles, colors, and sizes. This information is then shared with buyers and is used to make final buying decisions. As a result of these efforts, Claiborne reports improved fill rates, better assortment of product on the sales floor, a 2- to 3-week reduction in order cycle time, and better margins. Their retail customers have benefitted as well. Impressive results have been reported by other companies, too. K-mart has collaborated with Bell Sports, a manufacturer of cycling helmets. Through this pairing, K-mart’s sales have increased by 20% and safety stock has decreased more than 15%. In another example of collaborative planning success, Heineken USA has cut order cycle times from 3 months to 4 weeks (Forger, 2001).
Is collaboration paying off for firms? Collaboration requires that diverse entities work together by sharing processes, technologies, and data to try to maximize value for the whole group and their customers. Many feel that, in practice, supply chain collaboration has fallen short of its promise (Finley & Srikanth, 2005). Success stories such as GM and Claiborne are certainly not unique; collaboration has paid off for many companies. However, stories of success must be balanced against those of efforts that have failed or can, at best, be considered worksin-progress. After all, collaboration goes against traditional business practices of keeping proprietary information proprietary and releasing information only on a need-to-know basis. Opening up and, in effect, merging two or more supply chain firms is difficult. While many issues impact such initiatives, one of the primary stumbling blocks may be the issue of trust (Hyland, 2002; Poirier, 1999). The changes required for a collaborative approach to business cannot occur without trust. As Fawcett, Magnan, and Williams (2004, p. 22) noted, bWithout trust, neither partner is willing to step out of traditional comfort zones to take on new roles and responsibilities.Q The current research was undertaken to learn more about collaboration and better understand what makes collaborative relationships succeed. Surveys were sent to members of The University of Oklahoma Logistics/Supply Chain Executive Panel, who serve as a resource for the OU Research Team by periodically filling out bmini-surveysQ on hot topics. Details covering the composition of the panel are included in Appendices A and B.
3. The benefits of formalization Formalization deals with how structured things are (in this instance, the formal structuring of supply chain relationships). High formalization means that decisions and working relationships are influenced, for an extended period of time, by formal rules and Table 1
63 by standardized policies and operating procedures. Formalization of strategic collaboration sets expectations of what should be done and establishes standard practices. For example, a highly formalized relationship may detail the extent of information sharing, identify the type of information that is shared, establish a framework for joint planning, implementation, and control, and generally define the contractual terms of the relationship. Such agreements are expected to create a long-term stream of financial improvements for all firms linked across the supply chain. Formalization of strategic collaboration can lead to enhanced performance by eliminating ambiguity and clarifying priorities; it provides focus and can save time. Rather than looking at each operational occurrence as something new, formalized policies can be consulted to determine how to react in certain situations. Within reason (formalized rules should not be applied blindly due to potential reductions in supply chain flexibility and agility), formalization of strategic collaboration can speed business operations and help to ensure things run smoothly. This can be particularly important with inter-organizational relationships and help to manage cross-organizational resources. Our panel members were asked to answer questions based upon the one collaborative relationship they believed to be most important to their companies’ future success. A list of ten items was provided, and they were asked to indicate their level of agreement on a 7-point scale, with 1 equaling bstrongly disagreeQ, 4 equaling bneutralQ, and 7 equaling bstrongly agreeQ. One item was subsequently dropped during analysis due to low response. The nine scale items measure communications-related formalization. As shown by the mean scores in Table 1, panel respondents reported fairly high levels of formalization. Variations in responses provide important insights into the dynamics of supply chain collaboration. The profile that emerges indicates recurrent communication is common between the panel firms
Level of formalization
Scale items
Meansa
S.D.
Communication between our company and the trading partner takes place frequently. The basic terms of our relationship have been explicitly verbalized and discussed. The terms for sharing information between our companies have been explicitly verbalized and discussed. We share proprietary information with each other. We include each other in formal business planning meetings. Our expectations of the trading partner are communicated in detail. We always share supply and demand forecasts. We both share relevant cost information. Contact between our company and the trading partner is usually on a formal and preplanned basis.
6.38 5.84 5.71 5.67 5.51 5.47 5.40 5.09 4.73
0.76 1.03 1.20 1.55 1.56 1.30 1.94 1.66 1.80
a
7-point Likert scale: 1 = strongly disagree, 4 = neutral, 7 = strongly agree.
64 and their partners, and it appears as though many of the firms have made the effort to detail exactly how the collaborative relationships will work. These issues were further reinforced by respondents’ comments made during interviews. Panel members suggested that dynamic communications are, in fact, a cornerstone of collaborative efforts. Information is considered to be a resource for gaining competitive advantage in the market, and is also considered one to be safeguarded, in some instances. Trust must be developed before sensitive information is divulged to collaborative partners. Properly leveraged, information can also have significant strategic value and can be used to develop a synergistic advantage. How do firms manage all this information? What do they share? What do they safeguard? The panel member firms are exploiting the potential for gain by setting up formal guidelines and structuring an open exchange with their collaborative partners. However, they seem to be placing greater emphasis on operations-level rather than strategic-level formalization. Strategic issues such as sharing supply and demand forecasts and/or sharing cost information are not emphasized as much as setting up the basic day-to-day framework for the relationship (i.e., frequent communication, detailing of the terms of the relationship, etc.). This may be due to two reasons. First, firms may be avoiding the sharing of strategic information because of the relative newness of the collaborative relationship; on average, the panel member firms have been involved in the collaborative relationships slightly less than 5 years. Simply stated, some firms may be at an earlier stage in their partnerships and have yet to reach a level of collaboration fostering strong trust and long-term commitment. Over time, these firms may exchange more strategic information, but are currently satisfied with the tactical day-to-day benefits of sharing operational numbers. Second, firms are ultimately in the business of making money. Panel members may feel their firms possess an information-based competitive advantage that must be safeguarded in order to remain viable players in their industries, and that revealing strategic information would place the firm at too great a risk. Panel members seem to be more guarded when sharing internal forecasting and costing information. Potential for strategic-level collaboration may be sacrificed because of this safeguarding of information. Although panel members desire a formalized collaborative relationship, they do not want formalization to consist of totally structured communications. Their responses suggest that,
P.J. Daugherty et al. despite desires to formalize components of the relationship, opportunities for both formal and informal channels of communication are needed. Formal monthly meetings or quarterly cross-channel planning sessions may not be enough. When dealing with an increasingly demanding end-user, managers at these firms need to be able to make impromptu phone calls and schedule emergency meetings. Panel members also noted the need for cross-organizational brainstorming as a preventive strategy. Ultimately, we were interested in finding out whether formalization at the panel firms has paid off in terms of performance. Discussion of this issue follows.
4. Collaboration’s impact on performance Panel members were asked to indicate the levels of success their companies have experienced from the collaborative relationships. Seven common business metrics (information visibility, service levels, etc.) were selected for examination. Again, a 7-point scale was used, with 1 equaling bnot at all successfulQ, 4 equaling bneutralQ, and 7 equaling bhighly successfulQ. Table 2 provides mean scores for each of the seven performance indicators. Reported performance associated with the firmsT most important collaborative partners is impressive, and it is very likely that these firms are improving operational performance by focusing on service quality. Close collaborative relationships allow them to focus on what their trading partners want, creating more tailored service in the process. The firms reported very high success with respect to improved information visibility, improved service levels, and improved end-customer satisfaction relating to the collaborative relationships. Other performance improvements include increased flexibility in doing business and reduced cycle times. Although at lower levels, strong performances are
Table 2
Performance metrics
Scale items
Meansa
S.D.
Improved information visibility. Improved service levels. Improved end-customer satisfaction. Increased flexibility in doing business. Reduced cycle time. Increased business volume. Improved inventory visibility.
6.11 6.04 6.00 5.65 5.59 5.25 5.22
0.83 0.96 0.94 1.31 1.55 1.53 1.99
a
7-point Likert scale: 1 = not at all successful, 4 = neutral, 7 = highly successful.
Is collaboration paying off for firms?
65
also noted for increased business volume and improved inventory visibility.
5. Does performance improve with formalization? As mentioned previously, performance enhancements are expected from collaborative relationships. If this were not the case, firms would hardly go to the trouble of working more closely with trading partners, revealing sensitive inside information, and committing the time necessary for joint planning. Therefore, we looked more closely at the impact of formalization on performance. In order to identify potential differences based upon level of formalization, the respondent firms were divided into two groups: one of low formalization and one of high formalization. A summed score was calculated for each participant company based upon responses to each of the nine formalization items shown in Table 1. As each of the nine items had a potential score from 1 to 7, total possible scores ranged from 9 to 63. A cut-off point between 50 and 51 was the natural breakpoint, and was therefore used to divide the respondents. The 28 firms (50.9%) with scores of 50 or below were designated as less formalized, and the remaining 27 firms (49.1%) with scores of 51 or above were assigned to the high formalization group. Table 3 presents the results of statistical comparisons (t-tests) used to identify significant differences between high and low formalized firms regarding performance. In absolute terms, the high formalization group had higher performance scores Table 3 Comparative analysis — low vs. highly formalized firms Scale items
Low
High
Improved information visibility. Improved service levels. Improved end-customer satisfaction. Increased flexibility in doing business. Reduced cycle time. Increased business volume. Improved inventory visibility.
5.89
6.33
2.02
0.049T
5.64
6.44
3.38
0.001TT
5.71
6.30
2.39
0.021T
5.12
6.22
3.47
0.001TT
4.89 4.89
6.11 5.63
3.15 1.82
0.003TT 0.074
4.89
5.56
1.24
0.22
T p b .05. TT p b .001.
t
in all seven of the performance areas. Statistically significant differences were only found for five items, however. Highly formalized firms had significantly better performance than low formalized firms in these areas: (1) Improved information availability; (2) Improved service levels; (3) Improved end-customer satisfaction; (4) Increased flexibility in doing business; and (5) Reduced cycle time. No statistically significant differences were noted between the high and low formalization groups for the final two items: increased business volume and improved inventory visibility. Based upon these findings, formalization appears to provide big pay-offs in logistics/supply chainrelated service. Day-to-day operations between collaborative partners improved through better information visibility, greater flexibility, and shortened cycle time. The implication is that collaboration and the accompanying formalization of changes to standard business practice allow partners to bknowQ one another and smooth transactions. Overall service levels and end-customer satisfaction levels are also higher for the more formalized firms.
5.1. Implications High formalization of collaborative relationships can yield big rewards, as evidenced by the difference in performance levels between the high formalization and low formalization groups. Those rewards: it easier to do business with trading ! Make partners. Both day-to-day and longer-term
p
! !
efforts are facilitated through information visibility. Greater visibility of information improves decision making. Impact/enhance long-term relationships. Greater end-customer satisfaction encourages continuation of the relationships. Allow firms to meet escalating service expectations. Significant improvements in terms of cycle time reductions, greater flexibility, and better service levels were noted for the more highly formalized firms. How were they able to do this? Formalized feedback, joint planning, sharing of proprietary information, and explicit sharing of expectations help to ensure that things are not left to chance. Formalization helps provide sufficient information to tailor or customize service for trading partners.
66
6. The pay-off: It’s working! Interviews with panel members helped to expand understanding of how collaboration and formalization bworkQ, and provided examples of how strategic formalization can be used to gain advantage and enhance performance. Three key areas were identified as critical to achieving the greatest benefits from formalized collaboration: strategic performance measures, information sharing and monitoring, and inventory management.
6.1. Measure it (everything) Panel members noted that collaboration requires not only rules and standards, but also rule observation. While setting rules deals with standards for long-term relationships, information sharing, and interactions, rule observation evaluates whether the rules and standards, once conceived, are actually followed. The panel members discussed how rule observation can be monitored through the establishment of strategic-level performance metrics. Almost 30% of the survey respondents indicated that common long-term performance metrics have been developed to monitor collaboration-related performance; for example, a manufacturer referred to Key Performance Indicators (KPIs). His firm developed metrics including annual target costs and specific cost savings goals, and works with collaborative partners to jointly track these areas. When a specific area appears to be boff targetQ, corrective actions can then be taken. Panel members suggested that every aspect of the collaborative process can be measured, and they appear to be following through on this. For example, one panel member said his company performs as many as 360 different performance appraisals together with its partner firm. The establishment of metric reporting mechanisms such as written reports and review meetings is indispensable in guiding the long-term life of a collaborative relationship. Common metrics are utilized to determine higher level incentives (e.g., amount of payouts, timing of payments, business volume, etc.) to help hit or even stretch collaboration performance targets. Reviewing key metrics on a regular basis allows participating firms to adjust collaborative goals. The importance of rule observation in successful supply chain collaborations cannot be emphasized enough. One manufacturer talked about a close strategic relationship with a 3PL: b. . . (the 3PL) has agreed to very strict service KPIs to achieve joint year-over-year productivity.
P.J. Daugherty et al. Most 3PL relationships fail because neither party fully explains expectations.Q
6.2. Share it (information) As Hage and Aiken (1969) noted, with respect to formalization of information, routine work is more likely to be formalized than non-routine work; thus, as expected, most panel members indicated that routine, repetitive data transfer is highly formalized. They have developed standardized data transfer methods based upon the type of information technology employed. For example, panel members indicated the use of specific data formats (e.g., exact EDI standards, Wal-Mart’s Retail Link, SKU list, etc.), software standards (e.g., SAP), and systems link (e.g., proprietary versus public computer networks). Highly formalized data transfer makes efficient, accurate, and routine information sharing possible between partner firms; sales records, inventory levels, and demand forecasts covering predetermined SKUs flow back and forth regularly between collaborative partners. Still, to garner strategic gains, these firms must go further. Information sharing beyond routine data exchange is formalized to a lesser degree, but many respondents indicated their firms are bworking on itQ. Interestingly, panel members revealed clear preferences for formalized interactions with their collaborative partners. Collaboration was characterized by formal meetings held on a regular basis, regardless of the industry or business type (manufacturer, retailer, etc.) of the respondent company. Regular meetings are considered essential to monitor progress, re-assess goals and objectives, discuss collaboration results and action plans, and identify future business opportunities. They also offer a formal way to codify knowledge in the organizations, which facilitates understanding of the environment and allows assessment and dissemination of information. As such, meetings represent a formalized way to implement knowledge management between organizations. Regular meetings are held as frequently as every day (most likely at operating levels) and as infrequently as quarterly (at executive levels). Panel members indicated that the executive level needs to be involved in and committed to the process in order for strategic collaboration to take place.
6.3. Manage it (inventory) Many of the respondents indicated their collaborative arrangements focused on inventory manage-
Is collaboration paying off for firms? ment. Standardized, routine data transfer paired with information sharing in formal meetings is a must for implementing a structured, collaborative inventory management methodology (e.g., Continuous Replenishment Programs). Involvement in formalized replenishment programs such as Vendor Managed Inventory (VMI) and Collaborative Planning, Forecasting, and Replenishment (CPFR) is becoming more common. Formalized planning and monitoring are required for replenishment programs to succeed. According to panel members, clear rules must be developed and applied to determine inventory replenishment policies. This includes determination of bwho makes the replenishment decisionsQ, bwhen and where to replenishQ, and bhow much to replenishQ. As an example, a manufacturer stated: bOur 3PL workers are under strict guidelines to only accept shipments after receiving our required information. Also, they are only authorized to move shipments via deferred service. If a shipment requires expediting, they must receive an authorization directly from the Logistics Manager.Q Standardized practices need to be developed to address these questions of who, when, and how much. Panel members recommended meeting the standardization challenge by using a methodical, step-by-step approach. Internal standardization must be achieved before standardization can be lextended to the external formalized collaboration with partners. As one panel member stated: bConsiderable training is required to upgrade employee skills in the area of technology, forecasting, and demand planning (internally) in order to enable them to formally engage in these transactions externally.Q
7. Final comments It seems that everyone, from top business executives to shop floor workers, is talking about collaboration. Despite the suggested value of collaboration, we still know very little about how to manage it. Lessons from industry point to formalization as a critical key to fostering strategic collaborative relationships. This research shows that formalized collaboration allows firms to structure relationship-based processes and procedures. The formalization of strategic collaboration can add to the robustness and usefulness of information, as well as to long-term superior performance. In an age where firm-to-firm competition seems to be giving way to supply chain-to-supply chain competition, firms must find ways to collaborate
67 for the long haul if they hope to survive, grow, and flourish. Breaking down old barriers and entering into such open relationships with easy exchange of information is difficult for many business people. There’s an almost natural distrust or uneasiness inherent in such situations. As discussed previously, lack of trust is a major barrier to establishing collaborative partnerships. However, real gains can only be realized when supply chain collaborative partners trust each other and work to make business decisions and plans that are mutually beneficial. Perhaps the best way to develop trust is to first realize that it’s not going to happen immediately: supply chain partners will trust each other only when that trust has been earned. Therefore, all parties must prove through daily interactions over time that they keep promises and meet expectations. A proven track record is the best foundation for an on-going collaborative relationship. Supply chain professionals must also guard against being too myopic. Maintaining an internal focus does little when supply chains must battle a rapidly changing environment and swiftly adapt to competition. Firms must protect themselves and strive to make a profit while remaining cognizant of the fact that they may not be able to accomplish this strictly with internal resources, but may be forced to seek external help through supply chain collaborations. The current research indicates that formalization can play an important role in promoting success in such situations. Formalization can delineate expectations, role assignments, and, ultimately, help to improve performance. Detailing roles and expectations is especially important, considering that not all collaborative relationships involve partners with equal power and/or shared goals. Formalization can, in such circumstances, provide greater opportunity for equality by setting the ground rules. Although the potential benefits of collaboration have long been discussed, they have never truly fulfilled expectations. It now appears that formalization of collaborative relationships may be the missing key to striking a balance between maintaining individual firm competitive advantages and developing a shared synergistic advantage with partners.
Acknowledgement The authors would like to thank The University of Oklahoma Logistics/Supply Chain Executive Panel members. Their ideas, insights, comments, and time are greatly appreciated.
68
P.J. Daugherty et al.
Appendix A The University of Oklahoma Logistics/Supply Chain Executive Panel ABF Freight Systems Inc.
Mattel, Inc.
Alberto-Culver Company
Menlo Worldwide
Bi-Lo, Inc.
Mercury Marine
Blockbuster, Inc.
Michael Foods
Bosch
Mighty Auto Parts
Campbell Soup Company
Murphy Warehouse Company
Chef Solutions, Inc.
NCR Corporation
Colgate Palmolive Company
New World Pasta Company
ConAgra Foods, Inc.
New York City Housing Authority
Cooper Tire
Oce USA Inc.
CVS
Papa Johns International
Del Monte Foods
PEGASUS Logistics Group
Dean Foods Company
Pinnacle Foods
EAS
Sabath Supply Chain Consultants
Emerson
Sargento Foods Inc.
Fleischmann’s Yeast
Standard Corporation
Freese and Associates Inc.
Standard Register
Galderma Laboratories, L.P.
Steven Myers & Associates
GENCO Supply Chain Solutions
The Revere Group
Godiva Chocolatier Inc.
Thomson Learning
Harley-Davidson
Transplace
Heinz North America
Unilever
Ingersoll-Rand Company
Unisource Worldwide Inc.
International Paper
VICS
IR Productivity Solutions
Volvo Logistics North America, Inc.
Louisville Slugger
Williams-Sonoma, Inc.
Appendix B. Survey background and respondent profile B.1. Survey methodology Sample Sampling frame: Total surveys mailed: Total respondents: Respondents indicating a collaborative relationship: Range of annual sales: Average annual sales: Range in # of employees: Average # of employees:
The University of Oklahoma Logistics/Supply Chain Executive Panel 100 62 55 $30 million to $28 billion $4.4 billion 85-110,000 16,095
*Others include consulting companies, software companies, and marketing companies.
Is collaboration paying off for firms?
69
B.2. Firms indicating a collaborative relationship
Respondent firms
Indicated collaborative relationship with: Supplier
3PL
Customer
29 Manufacturers 5 Retailers 11 3PLs 10 Others
9 5 5 2
4
16
2 3
4 5
B.3. Respondent company profile Others 18%
Manufacturer 53%
3PL 20% Retailer 9%
B.4. Respondent title profile
25 20 15 Number of Respondents
10 5 0 Manager
Director
Vice President
References Attaran, M. (2004). Nurturing the supply chain. Industrial Management, 46(5), 16 – 20. Barratt, M. (2003). Positioning the role of collaborative planning in grocery supply chains. The International Journal of Logistics Management, 14(2), 53 – 66.
Senior President Vice President
Not Specified
Bowersox, D.J., Closs, D.J., & Stank, T.P. (2003). How to master cross-enterprise collaboration. Supply Chain Management Review, 7(4), 18 – 27. Bowersox, D.J., Closs, D.J., & Drayer, R.W. (2005). The digital transformation: Technology and beyond. Supply Chain Management Review, 9(1), 22 – 29. Bowman, R.J. (2004). More than a buzzword: Collaboration is the key to high-performing supply chains. Global Logistics & Supply Chain Strategies, 8(11), 52 – 56.
70 Fawcett, S.E., Magnan, G.M., & Williams, A.J. (2004). Supply chain trust is within your grasp. Supply Chain Management Review, 8(2), 20 – 26. Finley, F., & Srikanth, S. (2005). 7 imperatives for successful collaboration. Supply Chain Management Review, 9(1), 30 – 37. Forger, G.R. (2001). The problem with collaboration. Supply Chain Management Review, 4(5), 90 – 91. Hage, G., & Aiken, M. (1969). Routine technology, social structure, and organizational goals. Administrative Science Quarterly, 14(3), 366 – 377.
P.J. Daugherty et al. Hyland, T. (2002). Real collaboration remains elusive. Transportation & Distribution, 43(8), 52 – 56. Poirier, C. (1999). Advanced supply chain management. San Francisco7 Berrett-Koehler Publishers, Inc. Sabath, R., & Fontanella, J. (2002). The unfulfilled promise of supply chain collaboration. Supply Chain Management Review, 6(4), 24 – 29.
www.elsevier.com/locate/bushor
Is collaboration paying off for firms? Patricia J. Daugherty a,*, R. Glenn Richey b, Anthony S. Roath c, Soonhong Min c, Haozhe Chen c, Aaron D. Arndt c, Stefan E. Genchev c a
Room 2, Adams Hall, Michael F. Price College of Business, The University of Oklahoma, Norman, OK 73019, USA b Department of Management and Marketing, The University of Alabama, USA c Division of Marketing and Supply Chain Management, The University of Oklahoma, USA
KEYWORDS Collaboration; Formalization; Logistics; Supply chain strategy; Trust
Abstract Practitioners, academics, and consultants are all calling for firms to drop their guard and collaborate with their business partners. At best, reports to date are mixed. Does collaboration work? Can firms do better? This research indicates the answer is yes to both questions, but managers must do more to reap long-term gains by formalizing relationships. Executives at many of today ’s most successful companies provide important insights as to how this can be accomplished. D 2005 Kelley School of Business, Indiana University. All rights reserved.
1. Strategic collaboration: An unperfected strategy Practitioners, academics, and consultants have extolled the importance of strategic collaboration and its promise of significant inter-organizational gains. Within a supply chain setting, collaboration involves two or more independent companies working together to jointly achieve greater success than can be attained in isolation. Synergy is anticipated when the independent companies work together to plan and execute supply chain strategies. Collaboration between the companies can facilitate both strategic and operational foci,
* Corresponding author. E-mail address: [email protected] (P.J. Daugherty).
allowing individual supply chain members to exploit their core competencies. In turn, these individual core competencies can help to strengthen the entire supply chain. Conventional wisdom suggests that all firms involved in collaboration should reap greater benefits from working together. The potential for cross-enterprise gains is enticing, with possible benefits including improved customer service, better inventory management, more efficient use of resources, reduced cycle times, and increased information sharing. Although big promises have been made, it appears that reality falls somewhat short. According to Barratt (2003, p. 53), bprogress has been slowQ. Perhaps Sabath and Fontanella (2002, p. 24) best captured collaboration’s contribution: b. . .supply chain collaboration is at the same time the most used, the most frequently misunder-
0007-6813/$ - see front matter D 2005 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2005.06.002
62 stood, the most popular — and the most disappointing — strategy that has come along to date.Q A great deal has been written regarding how to set up collaborative arrangements and what’s required if supply chain partners want to integrate their operations for mutual gains. Less attention, however, has been focused on strategic aspects. Collaborative efforts often fail because critical long-term details are overlooked. Adequate care is not taken to select the right collaborative partners, to match inter-organizational needs and capabilities, and to clearly define standards, metrics, goals, and implementation procedures over a planning horizon of one to five years. If collaboration offers such potentially phenomenal gains, it is not worth a more structured and formalized strategic approach? We found both that question and the seemingly mixed signals about collaboration (i.e., it’s great, but not really happening yet) intriguing. Formalization of strategic collaboration may be the overlooked key to making business-to-business relationships work by focusing inter-organizational efforts to achieve maximum gains.
2. The buzz on supply chain collaboration Inter-organizational or cross-enterprise supply chain collaboration focuses on sharing of information, joint development of strategic plans, and synchronizing operations. In effect, collaborating partners seek the benefits of vertical integration without the burden of financial ownership. This does not mean, however, that resources are not required to support collaboration. Greatest success is likely when collaborative partners integrate human, financial, and technical resources to create a better business model (Bowersox, Closs, & Stank, 2003). Successful supply chain collaboration results in extended enterprises designed to leverage joint capabilities and resources across the supply chain. Each collaborating partner focuses on its unique competency and, working together, the partners can achieve boperational excellence that synergistically creates valueQ (Bowersox, Closs, & Drayer, 2005, p. 26). General Motors (GM) provides one example of how this can be accomplished. After struggling during the 1990s, GM looked for new ways to do business and gain efficiencies. Up until this point, supplier and sourcing decisions were made independently by divisions and individual plants,
P.J. Daugherty et al. which hindered potential economies of scale and resulted in poor asset utilization for logistics service providers. GM considered their vehicle assembly and global logistics strategy to be core competencies, but realized they were not doing as good a job of managing their supply chain flow. The company began to look outside their organization and eventually entered into a collaborative relationship with CNF. Vector Supply Chain Management was created, representing a joint venture between CNF and GM. Vector employees are now responsible for designing, implementing, and managing GM supply chains for components, workin-progress, and finished vehicles. This allows GM to focus on their core competencies, and to look to Vector to provide the needed supply chain support. One of the highest profile types of collaboration is Collaborative Planning, Forecasting, and Replenishment (CPFR). Under CPFR, retailers and suppliers work closely together in an attempt to match supply and demand, thus avoiding expensive overstocks and image-damaging out-of-stock situations. The intent is to work together to coordinate merchandising decisions. Wal-Mart and P&G have experienced significant success through CPFR by jointly forecasting sales of P&G products at WalMart stores, using the resulting information to plan replenishment accordingly (Attaran, 2004). Considering the volume and range of products involved, these CPFR-related improvements translate to significantly better profit margins. Liz Claiborne, Inc., maker of branded fashion apparel, has been particularly successful in implementing one component of CPFR: collaborative assortment planning (Bowman, 2004). The company works with customers, such as Federated Department Stores, to assess consumer buying patterns and match them to individual store needs. Together, Claiborne and the retailer come up with an assortment plan and recommendations concerning styles, colors, and sizes. This information is then shared with buyers and is used to make final buying decisions. As a result of these efforts, Claiborne reports improved fill rates, better assortment of product on the sales floor, a 2- to 3-week reduction in order cycle time, and better margins. Their retail customers have benefitted as well. Impressive results have been reported by other companies, too. K-mart has collaborated with Bell Sports, a manufacturer of cycling helmets. Through this pairing, K-mart’s sales have increased by 20% and safety stock has decreased more than 15%. In another example of collaborative planning success, Heineken USA has cut order cycle times from 3 months to 4 weeks (Forger, 2001).
Is collaboration paying off for firms? Collaboration requires that diverse entities work together by sharing processes, technologies, and data to try to maximize value for the whole group and their customers. Many feel that, in practice, supply chain collaboration has fallen short of its promise (Finley & Srikanth, 2005). Success stories such as GM and Claiborne are certainly not unique; collaboration has paid off for many companies. However, stories of success must be balanced against those of efforts that have failed or can, at best, be considered worksin-progress. After all, collaboration goes against traditional business practices of keeping proprietary information proprietary and releasing information only on a need-to-know basis. Opening up and, in effect, merging two or more supply chain firms is difficult. While many issues impact such initiatives, one of the primary stumbling blocks may be the issue of trust (Hyland, 2002; Poirier, 1999). The changes required for a collaborative approach to business cannot occur without trust. As Fawcett, Magnan, and Williams (2004, p. 22) noted, bWithout trust, neither partner is willing to step out of traditional comfort zones to take on new roles and responsibilities.Q The current research was undertaken to learn more about collaboration and better understand what makes collaborative relationships succeed. Surveys were sent to members of The University of Oklahoma Logistics/Supply Chain Executive Panel, who serve as a resource for the OU Research Team by periodically filling out bmini-surveysQ on hot topics. Details covering the composition of the panel are included in Appendices A and B.
3. The benefits of formalization Formalization deals with how structured things are (in this instance, the formal structuring of supply chain relationships). High formalization means that decisions and working relationships are influenced, for an extended period of time, by formal rules and Table 1
63 by standardized policies and operating procedures. Formalization of strategic collaboration sets expectations of what should be done and establishes standard practices. For example, a highly formalized relationship may detail the extent of information sharing, identify the type of information that is shared, establish a framework for joint planning, implementation, and control, and generally define the contractual terms of the relationship. Such agreements are expected to create a long-term stream of financial improvements for all firms linked across the supply chain. Formalization of strategic collaboration can lead to enhanced performance by eliminating ambiguity and clarifying priorities; it provides focus and can save time. Rather than looking at each operational occurrence as something new, formalized policies can be consulted to determine how to react in certain situations. Within reason (formalized rules should not be applied blindly due to potential reductions in supply chain flexibility and agility), formalization of strategic collaboration can speed business operations and help to ensure things run smoothly. This can be particularly important with inter-organizational relationships and help to manage cross-organizational resources. Our panel members were asked to answer questions based upon the one collaborative relationship they believed to be most important to their companies’ future success. A list of ten items was provided, and they were asked to indicate their level of agreement on a 7-point scale, with 1 equaling bstrongly disagreeQ, 4 equaling bneutralQ, and 7 equaling bstrongly agreeQ. One item was subsequently dropped during analysis due to low response. The nine scale items measure communications-related formalization. As shown by the mean scores in Table 1, panel respondents reported fairly high levels of formalization. Variations in responses provide important insights into the dynamics of supply chain collaboration. The profile that emerges indicates recurrent communication is common between the panel firms
Level of formalization
Scale items
Meansa
S.D.
Communication between our company and the trading partner takes place frequently. The basic terms of our relationship have been explicitly verbalized and discussed. The terms for sharing information between our companies have been explicitly verbalized and discussed. We share proprietary information with each other. We include each other in formal business planning meetings. Our expectations of the trading partner are communicated in detail. We always share supply and demand forecasts. We both share relevant cost information. Contact between our company and the trading partner is usually on a formal and preplanned basis.
6.38 5.84 5.71 5.67 5.51 5.47 5.40 5.09 4.73
0.76 1.03 1.20 1.55 1.56 1.30 1.94 1.66 1.80
a
7-point Likert scale: 1 = strongly disagree, 4 = neutral, 7 = strongly agree.
64 and their partners, and it appears as though many of the firms have made the effort to detail exactly how the collaborative relationships will work. These issues were further reinforced by respondents’ comments made during interviews. Panel members suggested that dynamic communications are, in fact, a cornerstone of collaborative efforts. Information is considered to be a resource for gaining competitive advantage in the market, and is also considered one to be safeguarded, in some instances. Trust must be developed before sensitive information is divulged to collaborative partners. Properly leveraged, information can also have significant strategic value and can be used to develop a synergistic advantage. How do firms manage all this information? What do they share? What do they safeguard? The panel member firms are exploiting the potential for gain by setting up formal guidelines and structuring an open exchange with their collaborative partners. However, they seem to be placing greater emphasis on operations-level rather than strategic-level formalization. Strategic issues such as sharing supply and demand forecasts and/or sharing cost information are not emphasized as much as setting up the basic day-to-day framework for the relationship (i.e., frequent communication, detailing of the terms of the relationship, etc.). This may be due to two reasons. First, firms may be avoiding the sharing of strategic information because of the relative newness of the collaborative relationship; on average, the panel member firms have been involved in the collaborative relationships slightly less than 5 years. Simply stated, some firms may be at an earlier stage in their partnerships and have yet to reach a level of collaboration fostering strong trust and long-term commitment. Over time, these firms may exchange more strategic information, but are currently satisfied with the tactical day-to-day benefits of sharing operational numbers. Second, firms are ultimately in the business of making money. Panel members may feel their firms possess an information-based competitive advantage that must be safeguarded in order to remain viable players in their industries, and that revealing strategic information would place the firm at too great a risk. Panel members seem to be more guarded when sharing internal forecasting and costing information. Potential for strategic-level collaboration may be sacrificed because of this safeguarding of information. Although panel members desire a formalized collaborative relationship, they do not want formalization to consist of totally structured communications. Their responses suggest that,
P.J. Daugherty et al. despite desires to formalize components of the relationship, opportunities for both formal and informal channels of communication are needed. Formal monthly meetings or quarterly cross-channel planning sessions may not be enough. When dealing with an increasingly demanding end-user, managers at these firms need to be able to make impromptu phone calls and schedule emergency meetings. Panel members also noted the need for cross-organizational brainstorming as a preventive strategy. Ultimately, we were interested in finding out whether formalization at the panel firms has paid off in terms of performance. Discussion of this issue follows.
4. Collaboration’s impact on performance Panel members were asked to indicate the levels of success their companies have experienced from the collaborative relationships. Seven common business metrics (information visibility, service levels, etc.) were selected for examination. Again, a 7-point scale was used, with 1 equaling bnot at all successfulQ, 4 equaling bneutralQ, and 7 equaling bhighly successfulQ. Table 2 provides mean scores for each of the seven performance indicators. Reported performance associated with the firmsT most important collaborative partners is impressive, and it is very likely that these firms are improving operational performance by focusing on service quality. Close collaborative relationships allow them to focus on what their trading partners want, creating more tailored service in the process. The firms reported very high success with respect to improved information visibility, improved service levels, and improved end-customer satisfaction relating to the collaborative relationships. Other performance improvements include increased flexibility in doing business and reduced cycle times. Although at lower levels, strong performances are
Table 2
Performance metrics
Scale items
Meansa
S.D.
Improved information visibility. Improved service levels. Improved end-customer satisfaction. Increased flexibility in doing business. Reduced cycle time. Increased business volume. Improved inventory visibility.
6.11 6.04 6.00 5.65 5.59 5.25 5.22
0.83 0.96 0.94 1.31 1.55 1.53 1.99
a
7-point Likert scale: 1 = not at all successful, 4 = neutral, 7 = highly successful.
Is collaboration paying off for firms?
65
also noted for increased business volume and improved inventory visibility.
5. Does performance improve with formalization? As mentioned previously, performance enhancements are expected from collaborative relationships. If this were not the case, firms would hardly go to the trouble of working more closely with trading partners, revealing sensitive inside information, and committing the time necessary for joint planning. Therefore, we looked more closely at the impact of formalization on performance. In order to identify potential differences based upon level of formalization, the respondent firms were divided into two groups: one of low formalization and one of high formalization. A summed score was calculated for each participant company based upon responses to each of the nine formalization items shown in Table 1. As each of the nine items had a potential score from 1 to 7, total possible scores ranged from 9 to 63. A cut-off point between 50 and 51 was the natural breakpoint, and was therefore used to divide the respondents. The 28 firms (50.9%) with scores of 50 or below were designated as less formalized, and the remaining 27 firms (49.1%) with scores of 51 or above were assigned to the high formalization group. Table 3 presents the results of statistical comparisons (t-tests) used to identify significant differences between high and low formalized firms regarding performance. In absolute terms, the high formalization group had higher performance scores Table 3 Comparative analysis — low vs. highly formalized firms Scale items
Low
High
Improved information visibility. Improved service levels. Improved end-customer satisfaction. Increased flexibility in doing business. Reduced cycle time. Increased business volume. Improved inventory visibility.
5.89
6.33
2.02
0.049T
5.64
6.44
3.38
0.001TT
5.71
6.30
2.39
0.021T
5.12
6.22
3.47
0.001TT
4.89 4.89
6.11 5.63
3.15 1.82
0.003TT 0.074
4.89
5.56
1.24
0.22
T p b .05. TT p b .001.
t
in all seven of the performance areas. Statistically significant differences were only found for five items, however. Highly formalized firms had significantly better performance than low formalized firms in these areas: (1) Improved information availability; (2) Improved service levels; (3) Improved end-customer satisfaction; (4) Increased flexibility in doing business; and (5) Reduced cycle time. No statistically significant differences were noted between the high and low formalization groups for the final two items: increased business volume and improved inventory visibility. Based upon these findings, formalization appears to provide big pay-offs in logistics/supply chainrelated service. Day-to-day operations between collaborative partners improved through better information visibility, greater flexibility, and shortened cycle time. The implication is that collaboration and the accompanying formalization of changes to standard business practice allow partners to bknowQ one another and smooth transactions. Overall service levels and end-customer satisfaction levels are also higher for the more formalized firms.
5.1. Implications High formalization of collaborative relationships can yield big rewards, as evidenced by the difference in performance levels between the high formalization and low formalization groups. Those rewards: it easier to do business with trading ! Make partners. Both day-to-day and longer-term
p
! !
efforts are facilitated through information visibility. Greater visibility of information improves decision making. Impact/enhance long-term relationships. Greater end-customer satisfaction encourages continuation of the relationships. Allow firms to meet escalating service expectations. Significant improvements in terms of cycle time reductions, greater flexibility, and better service levels were noted for the more highly formalized firms. How were they able to do this? Formalized feedback, joint planning, sharing of proprietary information, and explicit sharing of expectations help to ensure that things are not left to chance. Formalization helps provide sufficient information to tailor or customize service for trading partners.
66
6. The pay-off: It’s working! Interviews with panel members helped to expand understanding of how collaboration and formalization bworkQ, and provided examples of how strategic formalization can be used to gain advantage and enhance performance. Three key areas were identified as critical to achieving the greatest benefits from formalized collaboration: strategic performance measures, information sharing and monitoring, and inventory management.
6.1. Measure it (everything) Panel members noted that collaboration requires not only rules and standards, but also rule observation. While setting rules deals with standards for long-term relationships, information sharing, and interactions, rule observation evaluates whether the rules and standards, once conceived, are actually followed. The panel members discussed how rule observation can be monitored through the establishment of strategic-level performance metrics. Almost 30% of the survey respondents indicated that common long-term performance metrics have been developed to monitor collaboration-related performance; for example, a manufacturer referred to Key Performance Indicators (KPIs). His firm developed metrics including annual target costs and specific cost savings goals, and works with collaborative partners to jointly track these areas. When a specific area appears to be boff targetQ, corrective actions can then be taken. Panel members suggested that every aspect of the collaborative process can be measured, and they appear to be following through on this. For example, one panel member said his company performs as many as 360 different performance appraisals together with its partner firm. The establishment of metric reporting mechanisms such as written reports and review meetings is indispensable in guiding the long-term life of a collaborative relationship. Common metrics are utilized to determine higher level incentives (e.g., amount of payouts, timing of payments, business volume, etc.) to help hit or even stretch collaboration performance targets. Reviewing key metrics on a regular basis allows participating firms to adjust collaborative goals. The importance of rule observation in successful supply chain collaborations cannot be emphasized enough. One manufacturer talked about a close strategic relationship with a 3PL: b. . . (the 3PL) has agreed to very strict service KPIs to achieve joint year-over-year productivity.
P.J. Daugherty et al. Most 3PL relationships fail because neither party fully explains expectations.Q
6.2. Share it (information) As Hage and Aiken (1969) noted, with respect to formalization of information, routine work is more likely to be formalized than non-routine work; thus, as expected, most panel members indicated that routine, repetitive data transfer is highly formalized. They have developed standardized data transfer methods based upon the type of information technology employed. For example, panel members indicated the use of specific data formats (e.g., exact EDI standards, Wal-Mart’s Retail Link, SKU list, etc.), software standards (e.g., SAP), and systems link (e.g., proprietary versus public computer networks). Highly formalized data transfer makes efficient, accurate, and routine information sharing possible between partner firms; sales records, inventory levels, and demand forecasts covering predetermined SKUs flow back and forth regularly between collaborative partners. Still, to garner strategic gains, these firms must go further. Information sharing beyond routine data exchange is formalized to a lesser degree, but many respondents indicated their firms are bworking on itQ. Interestingly, panel members revealed clear preferences for formalized interactions with their collaborative partners. Collaboration was characterized by formal meetings held on a regular basis, regardless of the industry or business type (manufacturer, retailer, etc.) of the respondent company. Regular meetings are considered essential to monitor progress, re-assess goals and objectives, discuss collaboration results and action plans, and identify future business opportunities. They also offer a formal way to codify knowledge in the organizations, which facilitates understanding of the environment and allows assessment and dissemination of information. As such, meetings represent a formalized way to implement knowledge management between organizations. Regular meetings are held as frequently as every day (most likely at operating levels) and as infrequently as quarterly (at executive levels). Panel members indicated that the executive level needs to be involved in and committed to the process in order for strategic collaboration to take place.
6.3. Manage it (inventory) Many of the respondents indicated their collaborative arrangements focused on inventory manage-
Is collaboration paying off for firms? ment. Standardized, routine data transfer paired with information sharing in formal meetings is a must for implementing a structured, collaborative inventory management methodology (e.g., Continuous Replenishment Programs). Involvement in formalized replenishment programs such as Vendor Managed Inventory (VMI) and Collaborative Planning, Forecasting, and Replenishment (CPFR) is becoming more common. Formalized planning and monitoring are required for replenishment programs to succeed. According to panel members, clear rules must be developed and applied to determine inventory replenishment policies. This includes determination of bwho makes the replenishment decisionsQ, bwhen and where to replenishQ, and bhow much to replenishQ. As an example, a manufacturer stated: bOur 3PL workers are under strict guidelines to only accept shipments after receiving our required information. Also, they are only authorized to move shipments via deferred service. If a shipment requires expediting, they must receive an authorization directly from the Logistics Manager.Q Standardized practices need to be developed to address these questions of who, when, and how much. Panel members recommended meeting the standardization challenge by using a methodical, step-by-step approach. Internal standardization must be achieved before standardization can be lextended to the external formalized collaboration with partners. As one panel member stated: bConsiderable training is required to upgrade employee skills in the area of technology, forecasting, and demand planning (internally) in order to enable them to formally engage in these transactions externally.Q
7. Final comments It seems that everyone, from top business executives to shop floor workers, is talking about collaboration. Despite the suggested value of collaboration, we still know very little about how to manage it. Lessons from industry point to formalization as a critical key to fostering strategic collaborative relationships. This research shows that formalized collaboration allows firms to structure relationship-based processes and procedures. The formalization of strategic collaboration can add to the robustness and usefulness of information, as well as to long-term superior performance. In an age where firm-to-firm competition seems to be giving way to supply chain-to-supply chain competition, firms must find ways to collaborate
67 for the long haul if they hope to survive, grow, and flourish. Breaking down old barriers and entering into such open relationships with easy exchange of information is difficult for many business people. There’s an almost natural distrust or uneasiness inherent in such situations. As discussed previously, lack of trust is a major barrier to establishing collaborative partnerships. However, real gains can only be realized when supply chain collaborative partners trust each other and work to make business decisions and plans that are mutually beneficial. Perhaps the best way to develop trust is to first realize that it’s not going to happen immediately: supply chain partners will trust each other only when that trust has been earned. Therefore, all parties must prove through daily interactions over time that they keep promises and meet expectations. A proven track record is the best foundation for an on-going collaborative relationship. Supply chain professionals must also guard against being too myopic. Maintaining an internal focus does little when supply chains must battle a rapidly changing environment and swiftly adapt to competition. Firms must protect themselves and strive to make a profit while remaining cognizant of the fact that they may not be able to accomplish this strictly with internal resources, but may be forced to seek external help through supply chain collaborations. The current research indicates that formalization can play an important role in promoting success in such situations. Formalization can delineate expectations, role assignments, and, ultimately, help to improve performance. Detailing roles and expectations is especially important, considering that not all collaborative relationships involve partners with equal power and/or shared goals. Formalization can, in such circumstances, provide greater opportunity for equality by setting the ground rules. Although the potential benefits of collaboration have long been discussed, they have never truly fulfilled expectations. It now appears that formalization of collaborative relationships may be the missing key to striking a balance between maintaining individual firm competitive advantages and developing a shared synergistic advantage with partners.
Acknowledgement The authors would like to thank The University of Oklahoma Logistics/Supply Chain Executive Panel members. Their ideas, insights, comments, and time are greatly appreciated.
68
P.J. Daugherty et al.
Appendix A The University of Oklahoma Logistics/Supply Chain Executive Panel ABF Freight Systems Inc.
Mattel, Inc.
Alberto-Culver Company
Menlo Worldwide
Bi-Lo, Inc.
Mercury Marine
Blockbuster, Inc.
Michael Foods
Bosch
Mighty Auto Parts
Campbell Soup Company
Murphy Warehouse Company
Chef Solutions, Inc.
NCR Corporation
Colgate Palmolive Company
New World Pasta Company
ConAgra Foods, Inc.
New York City Housing Authority
Cooper Tire
Oce USA Inc.
CVS
Papa Johns International
Del Monte Foods
PEGASUS Logistics Group
Dean Foods Company
Pinnacle Foods
EAS
Sabath Supply Chain Consultants
Emerson
Sargento Foods Inc.
Fleischmann’s Yeast
Standard Corporation
Freese and Associates Inc.
Standard Register
Galderma Laboratories, L.P.
Steven Myers & Associates
GENCO Supply Chain Solutions
The Revere Group
Godiva Chocolatier Inc.
Thomson Learning
Harley-Davidson
Transplace
Heinz North America
Unilever
Ingersoll-Rand Company
Unisource Worldwide Inc.
International Paper
VICS
IR Productivity Solutions
Volvo Logistics North America, Inc.
Louisville Slugger
Williams-Sonoma, Inc.
Appendix B. Survey background and respondent profile B.1. Survey methodology Sample Sampling frame: Total surveys mailed: Total respondents: Respondents indicating a collaborative relationship: Range of annual sales: Average annual sales: Range in # of employees: Average # of employees:
The University of Oklahoma Logistics/Supply Chain Executive Panel 100 62 55 $30 million to $28 billion $4.4 billion 85-110,000 16,095
*Others include consulting companies, software companies, and marketing companies.
Is collaboration paying off for firms?
69
B.2. Firms indicating a collaborative relationship
Respondent firms
Indicated collaborative relationship with: Supplier
3PL
Customer
29 Manufacturers 5 Retailers 11 3PLs 10 Others
9 5 5 2
4
16
2 3
4 5
B.3. Respondent company profile Others 18%
Manufacturer 53%
3PL 20% Retailer 9%
B.4. Respondent title profile
25 20 15 Number of Respondents
10 5 0 Manager
Director
Vice President
References Attaran, M. (2004). Nurturing the supply chain. Industrial Management, 46(5), 16 – 20. Barratt, M. (2003). Positioning the role of collaborative planning in grocery supply chains. The International Journal of Logistics Management, 14(2), 53 – 66.
Senior President Vice President
Not Specified
Bowersox, D.J., Closs, D.J., & Stank, T.P. (2003). How to master cross-enterprise collaboration. Supply Chain Management Review, 7(4), 18 – 27. Bowersox, D.J., Closs, D.J., & Drayer, R.W. (2005). The digital transformation: Technology and beyond. Supply Chain Management Review, 9(1), 22 – 29. Bowman, R.J. (2004). More than a buzzword: Collaboration is the key to high-performing supply chains. Global Logistics & Supply Chain Strategies, 8(11), 52 – 56.
70 Fawcett, S.E., Magnan, G.M., & Williams, A.J. (2004). Supply chain trust is within your grasp. Supply Chain Management Review, 8(2), 20 – 26. Finley, F., & Srikanth, S. (2005). 7 imperatives for successful collaboration. Supply Chain Management Review, 9(1), 30 – 37. Forger, G.R. (2001). The problem with collaboration. Supply Chain Management Review, 4(5), 90 – 91. Hage, G., & Aiken, M. (1969). Routine technology, social structure, and organizational goals. Administrative Science Quarterly, 14(3), 366 – 377.
P.J. Daugherty et al. Hyland, T. (2002). Real collaboration remains elusive. Transportation & Distribution, 43(8), 52 – 56. Poirier, C. (1999). Advanced supply chain management. San Francisco7 Berrett-Koehler Publishers, Inc. Sabath, R., & Fontanella, J. (2002). The unfulfilled promise of supply chain collaboration. Supply Chain Management Review, 6(4), 24 – 29.