Supply Chain Optimization, Part 3: Scaling Up Long-Term Collaboration

Retailers, CPGs and vendors all stand to benefit from collaborations around supply chain, which they can best launch by committing to a small number of them, starting with top-down support on all sides, and allocating sufficient time and resources to the project, particularly in the area of data. But once they’re up and running, how can supply chain collaborations best be sustained and taken to scale for the long term? A survey of stakeholders jointly conducted by the Path to Purchase Institute and A.T. Kearney, with sponsorship from Menasha, revealed some thoughts that augment the experience of A.T. Kearney, Menasha and others.Among the differentiators that A.T. Kearney has observed between organizations that do and do not successfully sustain supply chain collaborations is the simple-sounding but ultimately rare commitment of the customer team to play a strong role in establishing a disciplined cadence in reviewing the progress of the collaboration. This requires having a dashboard in place with the right measurements as well as regular meetings to go over results and discuss areas of concern.A.T. Kearney has found that in most cases, even collaborations that started with top-to-top executive involvement end up being more narrowly structured around key points of disagreement and “firefights,” which vary from instance to instance and meeting to meeting. It’s more seldom that the customer team helps the leadership structure the conversation in such a way that it has the same script and the same metrics every time they meet – and yet this is essential to sustainability and scale.“It’s so important to make sure that you have the right people and the right culture. Otherwise, that’s going to drive behavior that won’t move the needle.”— Jeff KreplineIn one sense, scale simply implies doing more collaborating, sharing more information, project management and design to gain efficiencies, says Annette Groenink, group vice president at Menasha. “The other level of scale is to reach into more functions,” she says. “How do we get engaged in things we aren’t doing today? With supply chain adjacencies, it’s getting a customer to trust us with that [scale of collaboration], helping them grow and develop in areas we’re not doing today.”The best way to do so involves taking what a stakeholder knows about one aspect of the supply chain and applying it somewhere else, Groenink says. “The best customers, I think, the ones who have the ability to move the quickest and improve the quickest, are the ones that don’t put you in a box,” she says. “They ask, ‘Could you guys do this if I gave you the opportunity and worked with you?’”To start moving a collaboration to scale, the parties need to focus on quick wins, says Jeff Krepline, vice president of national sales with Menasha. “What I see is everybody worried about every single item or SKU, and it actually slows down collaboration,” he says. “Rather than focusing on the 20% that can move the needle tomorrow, we’re worried about the 80% that are for the most part the frustrating ones. Sometimes we want to cover all aspects of the supply chain, and we find ourselves a year later not making any changes because we’re trying to cover too much and be too broad.” Instead, he says, stakeholders need to “get some success going. It’ll help.”Greg Dugan, regional vice president at Menasha, suggests that stakeholders ensure they have a dedicated person in place to guide collaborations forward. “The people who have been involved in a lot of the collaboration and supply chain efficiencies improvements, that’s part of their job,” he says. “In large organizations, there has to be someone to take that to scale – that does have to be someone’s full-time job. They have to own that.”Survey Says …The P2PI-A.T. Kearney survey revealed several key takeaways about taking supply chain collaboration to sustainability and scale:Most are collaborating at the functional and business unit level, but most would like to broaden their scope. Half said they were collaborating at the functional level and another quarter at the business unit level, while only 13% were collaborating at the global level. Half hoped to reach global scale within the near future.There are sound reasons why they should want to do so, says Arun Kochar, principal at A.T. Kearney. “That’s where most synergies are,” he says. “That’s where most organizations desire to go.” Yet a wine-and-spirits company with which A.T. Kearney worked focused heavily on operations, mainly within freight, warehousing and integrated planning, and “did not take a full, 360-degree view of the business from a functional standpoint,” including pricing, or sales and marketing, he says. And he suspects some of the respondents “want to go global in theory, but it’s currently not the case.”Dugan says that most companies with which Menasha works probably fall into the functional or business unit category. “The global level, taking it to scale, that’s a much bigger challenge,” he says. “They’re hoping to get there, I would say yes.”“We’ve got to get out of that business-unit-by-business-unit thinking,” Krepline adds. “Depending on the company, it might be national, North America or global. You have to get out of that very narrow-minded focus around a BU. In order to make significant change, you have to look at how it’s impacting the network.”With stores in about 10 states, Food Lion tries to operate at the regional level but does not have reason to go broader than that, says John Barnette, vice president, center-store merchandising. “We do work to make sure we understand the markets where we do business,” he says.Respondents see integration of information systems and data sharing as the most important factor in building sustainable collaborative relationships. Nearly half (43%) chose that as the most important driver, followed by resources (29%) and co-location of facilities and joint go-to-market strategy (14% each).“That’s by far the most important enabler or driver,” Kochar says of data integration. “But you can’t make that seamless integration overnight.” The wine-and-spirits client of A.T. Kearney wanted to exchange forecasts within its distributor but the systems did not communicate, he says, so the distributor agreed to “implement a forecasting system to have the same hierarchy and data standardization, to be able to share information.”A slight majority said they preferred one-to-one partnerships, but others were open to three or more collaborators being involved. Fifty-six percent were most comfortable sustaining collaboration between just one CPG and one retailer, while 33% could see one retailer and more than one manufacturer collaborating; only 11% could imagine more than one of each.One-to-one collaborations are relatively easy, Kochar says, while one-to-many “are something you can fathom, with the retailer doing the same arrangement with multiple suppliers because they have so much muscle. The retailer would be the center of gravity.” For the most part, he adds, “Many-to-many is uncharted territory. It’s harder to do from a logistical and information-sharing standpoint but also a political standpoint.”A.T. Kearney worked with a food company and retailer, the latter of which wanted an exclusive arrangement. “That’s where it becomes tricky,” Kochar adds. “Collaborations more often happen across the value chain, where competitive values don’t get in the way.”Dugan has worked with customers who try to gather Menasha and a few competitors in the same room to work on collaborative ideas together. “That’s tough,” he says. “You’re not going to speak up and tell your competitors to get better. I would agree that one-on-one is probably the best way.”Barnette of Food Lion is not surprised that one-to-one is the most preferred setup. “Even when we have those [multiple-party] summits, there are breakout sessions, if you will, because Nestle doesn’t want to share all their cards with Hershey in the room,” he says. “I get that. We have these initial meetings to talk about, ‘Here’s what we’re all about, here’s what events we’ll have that we hope you want to play in.’ Then we move to one-on-ones for specific conversations.”The vast majority of respondents preferred to share the value generated from collaborative efforts by continually tracking savings. A full 75% chose this option, compared to just 13% who preferred to reinvest all savings in the joint business.While the concept sounds easy enough on paper, Kochar says tracking savings can become fraught over time. “The fact of the matter is, it becomes cumbersome in year two, three and four,” he says. “The first year you can split the savings [vis-a-vis beforehand]. Fine. But the second year, the train has left the station, the business has changed, the top line has grown and costs are down. What do you calculate [savings] against? … It sounds great, but it is hard to do, and it goes back to trust.”The food company and retailer with which A.T. Kearney worked decided after the second year of their collaboration that they were saving roughly the same amount and did not need to track savings anymore, Kochar says, but the wine-and-spirits company and distributor found it difficult to count who was saving how much. “The jury is still out,” he says.Menasha has found tracking savings to be “very, very successful,” Krepline says. “One person tracks it and helps people with accountability,” he says. “The other thing that’s so, so important is how do you get silos within CPGs to define what success looks like [overall]? Everybody’s got their measurement that’s important to them.”To scale up and sustain collaborative efforts requires several elements that respondents described as roughly equivalent in importance. On a scale of one to five, with five being the most important, respondents chose information technology tools, measures and incentives, and roles, accountability and governance as slightly more important than others (3.6). But management processes (3.5), people and culture (3.4) and organization structure (3.0) were only slightly less valued.“Everything is important,” Kochar summarizes, adding that in A.T. Kearney’s experience, data sharing and governance structure were probably the most important. “You need to have a small group of people who are accountable for making this happen,” he says. “There need to be incentives to do it. If my bonus is associated with being able to generate collaborative efforts – otherwise, it doesn’t work.” That’s because “you’re more likely to be working with a company with a different culture,” Kochar adds. “What’s my incentive to work with a guy from another company, when my review is going to come from my boss, not that other guy or his boss?”Dugan expresses surprise that people and culture lagged slightly behind many of the other elements. “To me, that should be one of the highest, if not the highest,” he says. “The next one I go to is IT. Systems are huge.”Krepline would rate people and culture, and organization structure as the two most important elements of collaboration. “It’s so important to make sure that you have the right people and the right culture,” he says. “Otherwise, that’s going to drive behavior that won’t move the needle. … The other things are important, but the people and culture can take you down so quickly. Depending upon the organization and structure, you could be in collaborative mode, or you could be in desperate mode to get a win; sometimes that leads to behavior that’s not conducive to a team environment.”NOTE: This is the final installment in a three-part series.About the SponsorMenasha is a packaging- and merchandising-solutions company focused on optimizing the retail supply chain. Menasha collaborates with the world’s leading retailers and consumer packaged goods companies to deliver the greatest measurable value across the entire integrated merchandising supply chain. As market leaders within the in-store merchandising industry, Menasha combines an unmatched understanding of the retail sector with a proven methodology for developing efficient, sustainable offerings to meet customer-specific goals.

Supply Chain Optimization, Part 3: Scaling Up Long-Term Collaboration

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