Recently, at a supply chain conference I was attending, the discussion came around to collaboration and transparency in the communication between supply chain actors. The question was what information should be shared, and what are the limits to transparency, if any? As expected, service providers, OEMs, distributors, and logistic companies had different approaches.
In the customer-supplier relationship, the customer wants to understand everything about the cost structure of its supplier, whereas the supplier is trying hard to preserve its margin. As every company is the customer and supplier of someone else, there is some sort of a schizophrenic attitude; the information we expect our suppliers to give us we do not want to provide to our own customers!
I believe that there is a definite need for a better understanding of each other's cost drivers, and that the more comprehensive the understanding, the more collaborating partners know what they can expect from each other. This helps to drive enhanced responsiveness, predictability, and financial sustainability and contributes to the goals of reducing risks in the supply chain.
At the same time, the fuel for process innovation and improved efficiency is a company's appetite for improved growth, profit, and return. If, for the sake of collaboration, the customer ends up having full control over its supplier's gross profit, this is very likely to inhibit the supplier's creativity, and it will diminish the collaboration efficiency in the longer term.
Think about it: A common theme when talking with OEMs about their logistic service providers is that they regret their lack of creativity. Many are saying they would love to have more dialogue around innovative solutions. Those conversations will only be enabled if we move from an open-book policy to a shared benefit practice. A conclusion drawn in a paper by Martin Christopher and John Gattorna was that “alignment of supply chain strategies and processes between business partners enables service improvements to be achieved at less cost,” and that “by releasing value in this way prices can actually be reduced if necessary whilst still maintaining the supplier's margin.”
Targets should be focused on longer-term process improvements that reduce cost across the supply chain, rather than being short-term and standalone as well as driven by suppliers' gross profit goals. I don't see how an open-book policy between supply chain partners can encourage anything but a short-term focus where the attitude is more toward making quick wins on the back of one another, instead of embracing the overall efficiency of the supply chain.
The planned economy has shown its limit; the opportunity for enhanced profit is the fuel for innovation. If that opportunity is taken away, I fear that there will be a loss of appetite for innovation.