Kevin O'Marah, AMR Research's Chief Strategy Officer, blogs a thought-provoking piece that highlights how so many retailers and manufacturers have failed to embrace collaborative supply chain models through fear of "giving more than they'll get". Kevin argues that consolidation amongst suppliers will accelerate in this environment as major industrials drive cost out of their supply chains by reducing their supplier bases. He adds,"what we have since seen is that cooperation takes a lot more than just setting up EDI, reverse auctions, or visualization. It takes trust, which apparently is still in short supply."
Kevin refers to a piece of analyst foresight from nine years' ago, where the logical next step in achieving supply-chain value was productivity gains across the economy driven by bilateral relationships (meaning win-win) between trading partners:
When some analyst designed that graphic, we'd just come through a major period of innovation where the Internet was forcing businesses to explore new business models – or face death by failure to change. So what happened to put the kibosh on businesses revolutionizing their supply/demand models?
When we look at the rise of global sourcing of back office support processes, namely IT support and finance, the common thread is cost-reduction, cost-reduction, cost-reduction. Where immediate cost-savings are on the table, companies can't wait to disrupt their businesses. However, where they need to work more closely with others to improve speed-to-market, control inventory, or access new geographies and markets, it appears that an unwillingness to take a "risk", and a lack of competence to embrace collaborative supply chain models are holding firms back. Dare I say that our businesses are scared of innovation – of challenging the talent of their executives to embrace technology and global delivery models, and work more closely with their suppliers and partners to achieve this? Moreover, if firms are incapable of embracing these models themselves, how long will it be before before business leaders reach out to third-party providers who do get it?
Something tells me it's been the recent years of easy credit, easy growth, a sense of entitlement and a fear of disrupting business models that has stagnated innovation in global business delivery. However, fear of change can only last as long as these business survive. As Kevin's headline emphasizes: "Consolidation and death". Many businesses will only change when they are forced to, and it will require a new wave of firms which are prepared to embrace new collaborative business models that will form the next wave of growth in our economy.
Posted in : Procurement and Supply Chain, Sourcing Best Practises
I think you are spot-on with your comments and your chart. Over the past year, I have seen two of my clients ask for price cuts and other concessions from 3PLs and then offer nothing in return. It would have been easy enough for them to offer to provide a quarterly forecast, faster payments, referrals, etc.
It feels like companies are moving backward into arms-length transactions instead of forward into collaboration. That is not the right direction.
Brian Dietmeyer, an expert in business negotiations, says, “Never concede, always trade for something.” He’s right. 3PLs and other outsource service providers should be asking for trades such as faster payment terms, more electronic exchange of information, etc., not conceding just because their customer has asked.
Rosemary Coates
Blue Silk Consulting
I agree with Rosemary. Cash may be king right now, but developing closer integration with your supply chain partners offers long-term potential, as opposed to squeezing the life out of everyone for the sake of a low-margin deal,
Ralph Burton
Hi Rosemary,
You’re preaching to the choir 🙂 Feel free to share these views with Kevin O’Marah:
http://blogs.amrresearch.com/supplychain/2009/04/consolidation-and-death-where-is-supply-chain-collaboration.html
Phil