Countering The 'Buyer Win - Supplier Lose' Mind-Set : A Balancing Act
Terrorism, climate change and financial stability are not the only globally-critical areas where there is a huge need for greater co-operation and interaction between independent agencies with common needs and objectives. In a world increasingly characterised by division, alienation and conflict, corporate organisations are being urged to work in a more concerted way towards their common goals. Alan Kennedy looks at the upsides and downsides of closer collaboration in the field of pharma-logistics.
Speaking at a recent pharma-logistics conference I asked the audience how many thought that their employing company is currently operating its supply chains on a) a transactional-only basis, b) a partially integrated basis, c) a nearly-integrated basis or d) a fully integrated basis.
I expected the entire audience to say that they were operating, or were part of, one of the middle two streams (any participant saying they were part of a thoroughly-integrated supply chain would have attracted a very penetrating spotlight!). What astonished me, however, was the significant number of arm-ups from delegates claiming to be still principally engaged in, or subject to, traditional 'bid-buy' procurement procedures i.e. 100% transactional relationships dominated by 'buyer win - supplier lose' mind-sets.
Whether the CEOs at the companies concerned would have jumped to agree with these assertions is questionable. But either the revelations are indeed true or management perceptions are strongly at odds with reality. Whatever the case, it suggests we may have a long, long way to go before integrated supply chains become a de facto norm. Because, although reliable figures are hard to come by, both published research and anecdotal evidence suggest that more than half of all commercial collaborative ventures either fail completely or operate well below planned expectations.
But that's not because integration "doesn't work". Far from it. As I explained in "Integrate or Disintegrate" my opening IQ article last month, this lack of success is mainly on account of the 'Herculean effort' needed to persuade the pharma industry's hopelessly fragmented logistics chain to sit around the same table (and stay seated). Nevertheless, I want to touch on some of the reasons why companies should indeed be expending this massive effort and go on to examine some of the reasons why, regardless of the benefits on offer, an integrated approach is not always be seen as a commercially attractive option.
Implemented correctly there are many potential benefits from integrated working and most business people instinctively understand why it's in their interests to work collaboratively. Although collaboration is much easier said than done, when it comes to pharma-logistics the pay-off from improved supply-chain visibility alone should be enough to justify its wholesale adoption. Therefore, since the potential gains from collaborative working are well documented and fairly widely accepted (see Table), I'm going to use these precious column-inches to highlight some of the reasons why integrated working is frequently disparaged or rejected.
In the pursuit of integration there are numerous barriers to execution and these obstacles, combined with a highly visible failure rate, tend to focus the attentions of management on the drawbacks rather than the benefits of collaborative working. Let's look at some of these perceived weaknesses:
Due to the wholesale changes required there will always be direct, indirect, hard, soft and opportunity costs for the parties involved in collaborative ventures and this is money at risk. However, any properly conceived integration programme will have factored all these outlays into the business model and be able to demonstrate an excellent, or at least acceptable, ROI for the partnering organisations. Ill-conceived plans and poor implementations will always create undue cost and productivity deficits and this applies to any supply chain or management initiative.
b. Managerial Complexity
Establishing and managing a diverse network of independent concerns can be a difficult and daunting experience. Different organisations bring clashing objectives, conflicting priorities and varying levels of commitment to the party and these complications can look insurmountable to those operating in a non-consensual management environment. The result is that quandaries such as these are often employed to frustrate attempts to bring about collaborative working. However, in reality, there are no insurmountable barriers to pharma-logistics integration and any 'can't work here' argumentation usually amounts to nothing more than thinly-disguised avoidance tactics.
c. Partner Selection Issues
Some see a potential risk from getting involved with partner organisations which, in time, may turn out to be poor network fits. This can not only lead to direct business loss but also to brand and reputational damage. A rigorous and completely objective partner pre-qualification process will remove any significant risk here.
d. Loss of Flexibility
Some parties envisage a loss of agility when working collaboratively with a fixed group of suppliers and believe this could lead to commercial disadvantage. They usually assume such an arrangement will hamper the ability to switch suppliers in order to adapt to market pressures. However on balance, the market-response capabilities of a dynamic integrated network, configured with resilience in mind, will invariably eclipse that of any traditional 'them and us' procurement arrangements. For example, a well-managed integrated team will be much better placed to make and implement fast decisions based on comprehensive, relevant, mutually shared information.
e. Perceived Sustainability Problems
I'm not talking about the planet here (that's another story), I'm talking about the difficulty of sustaining network commitment, from both internal staff and from external partners, over the long-term. Again, this is a potential problem area but one that can be addressed with education, constant motivation and a record of win-win successes.
f. Diminution of Competition
Some integration naysayers point to a perceived elimination of competition as a reason for maintaining a traditional detached approach. The accompanying risks of putting all one's eggs, whether supplier or buyer, in a single basket are also frequently advanced to justify the retention of the status quo. However, any dangers from over-reliance or competitive deficit merely point to weaknesses in the partner qualification/selection process. In fact a properly conceived and set-up network will systematically elevate the importance of the competitive selection process and create a high level of controlled competition. Such competition will always be a core requirement in the vast majority of integrated networks, the only difference being that the competition comes from known, competent, pre-qualified partners that are competing on a 'level-playing field'.
g. Data Sensitivity Concerns
As the capture of data and it subsequent analysis becomes an ever-more important aspect of business, integrated partners often express concerns regarding its access, ownership, application and security when shared amongst network partners. And it's an apprehension that naturally extends to partnerships where 'open-book accounting' is required. However, as data sharing increasingly becomes a pre-requisite of any form of business relationship the management of commercially-delicate information is best conducted within the confines of an integrated network where all the appropriate security systems are in place.
h. Potential for Friction
Another perceived integration pitfall revolves around the potential for counter-productive intra-network discord, perhaps because network decisions have been taken which are a poor fit with the needs and aspirations of a particular member. Such antagonistic behaviour patterns can easily emerge if a collaborative network is mismanaged. However network wrangling need not necessarily be a cause for concern. It is a natural by-product of network democracy and if managed professionally can be a force for positive change. Even where it results in deeper conflict it should be subject to resolution within pre-agreed procedures and without risk to network cohesion.
There are certainly some big potential downsides to integrated working. But practically all of these relate to poor planning, poor execution and poor management. And although integrated working may not be right for all companies and for all situations, there is no doubt it is suitable for a big proportion of pharma-logistics scenarios where it promises significant cost, efficiency, safety and customer benefits.