Higher Freight and Fuel Costs could spur more Horizontal Supply Chain Collaboration

This past week I had the privilege of attending and speaking at the Food and Consumer Products of Canada’s (FCPC) first ever Supply Chain Day. This well-attended event attracted an audience of some of Canada’s largest shippers. The day featured a number of Canada’s leading authorities on logistics and transportation. It also included some fascinating group discussions on some of the most challenging issues facing shippers of consumer products in Canada.

One of the work group sessions that was focused on Western Canada distribution was led by Mark Thomas, Managing Principal at Meta Management Consulting. The very animated discussion touched on many of the issues facing Canadian shippers including the trade-offs of GTA versus western Canada based warehouses, the impacts of the large retail inbound freight management programs, tightening freight capacity, freight cost increases and a host of other issues. One possible approach to address some of these challenges is for food and consumer products manufacturers, whether competitors or not, to more effectively combine their freight volumes.   This could serve to reduce costs while maintaining or improving service.

This brought to mind a recent study on horizontal collaboration conducted by eyefortransport. The study defined horizontal collaboration in the supply chain as the process where “manufacturers share supply chain assets for mutual benefit. This can include sharing distribution centres, combining truckloads or collaborating on manufacturing. The important distinction is that horizontal collaboration is co-operation across rather than along supply chains (shipper + 3PL + retailer, for example) and can even be between direct competitors”.

The author points out that “with transportation costs on the rise and increasing pressure to reduce spend, horizontal collaboration provides a unique solution to improving supply chain efficiency, asset optimisation, minimising the risk of emerging markets, and maintaining margin. The initiative is by no means a quick fix – it requires diligence, patience and internal support at all levels. However, forward thinking supply chain executives who implement horizontal collaboration now will gain a crucial competitive advantage in the years to come as opposed to those who ignore its potential”.

The study surveyed shippers, logistics providers, transport companies and consultants/technology providers. “Of respondents who have experience(s) with horizontal collaboration, a notably greater number had done so with non-competitors (95% shippers, 73% 3PLs, 45% carriers) than with competitors (68% shippers, 50% 3PLs, 30% carriers). Results also showed that a slightly greater number of respondents choose horizontal collaboration to bundle complementary goods (66% shippers, 48% 3PLs, 24% carriers), than to bundle non-related goods (48% shippers, 46% 3PLs, 21% carriers), or to share information (49% shippers, 29% 3PLs, 30% carriers). Perhaps the most interesting result was the general trend for carriers to collaborate more than 3PLs, who in turn collaborate more than shippers”.

This begs the question of how does a manufacturer (or carrier or logistics provider) find trusted partners for horizontal collaboration. “The most popular results included; seeking partners that are trusted, seeking partners with similar goals, comparing trade flows and delivery info, seeking partners who sell similar goods, and seeking partners that are customers”.

Shippers who responded to the survey were asked to identify the key drivers encouraging their company to consider or initiate horizontal collaboration. “Cutting transport costs and satisfying customers were seen as the biggest drivers for shippers, though cutting sourcing costs, enhancing customer service, improving delivery times, improving overall efficiency, and cutting distribution costs were all seen as being very important or quite important by more than 50% of shippers.. . . The most widely perceived barriers were; fear of information disclosure, lack of widespread acceptance of idea, difficulty starting trusting relationships, and difficulty finding appropriate partners”.

In one of the morning sessions at the FCPC meeting, Jim Eckler, President of Eckler Associates, examined some key “Canadian Supply Chain Outsourcing Trends”. He suggested that one of the top priorities for logistics providers is to become more innovative. The very same comment may apply to shippers as they deal with the unique challenges they face in 2011. Taking Horizontal Collaboration to a new level may be one such strategy that leading edge shippers should be exploring more diligently.