Home' MHD Supply Chain Solutions : MHD Nov-Dec 2014 Contents 16
When it comes to the supply chain, the
notion of collaborating seems a natural way
of operating. Supply chain managers have
for many years been synchronising supply
with demand along the supply chain between
supplier and customers. Technology is making
this easier over time, as it is possible to
propagate demand signals to suppliers now
More broadly, however, companies have been
poor collaborators. They have tended to act
as distinct entities, and be measured on their
To act more collaboratively is an area of oppor-
tunity going forward. It requires companies to
conceive of themselves as managers of skills and
capabilities, some of which they hold in-house,
and some of which they source from elsewhere.
Collaborating companies create value
when they add value to the web of suppliers
and customers in which they operate. Quite
obviously, companies that create value for their
customers tend to stay in business.
In the logistics world, a collaborative model
of business might therefore see businesses
combining their freight tasks to achieve
higher than individually possible utilisation of
assets such as warehouses and trucks. They
could achieve this by exploiting a backhaul
opportunity or a cyclical opportunity, where one
company may require the assets for the winter
and another for the summer.
It is easiest to consider such a collaboration
occurring for regionally located businesses,
where critical mass might be difficult to achieve.
In this case, it is the companies that deliberately
choose not to act as distinct entities driving value
from discrete activities, that deliver the best value
to themselves and the customers they serve.
It seems clear that companies might think
about pursuing collaboration opportunities with
some vigour. Equally, it is possible that collabora-
tion might occur between non-competing com-
panies as well as competing companies. Along
the supply chain, the most common form of
collaboration has been in action for years -- the
sharing of order books and forecasts. This could
be characterised as essentially transactional.
A more powerful model of collaboration is
where a company shares more than the trans-
actional. Companies have knowledge, person-
nel, relationships, systems, facilities, suppliers,
competitors and customers. How valued would
the company be that can support its customers
by providing knowledge, systems and facilities
and services; or the one that can support a web
of related businesses along a supply chain? And
in turn, how efficient, effective and profitable
might such a company be?
Good examples of elaborate collaboration are
evident in food cooperatives. New Zealand has
Fonterra and Australia has Murray Goulburn as
examples of collaboration by farmers in market-
ing, milk production and milk product distribution.
The New Zealand fruit industry comprises
companies that are mutually supportive. They
collaboratively conduct research and marketing,
and jointly use pack-houses and further
Two organisations that demonstrate this level
of cooperation are Zespri, which in 2012 had
sales revenues of NZD 1.6 billion, and AVOCO,
which recorded sales of NZD 130 million in the
season ended 30 April 2014.
Zespri is a corporatized cooperative with
origins in a single-desk system established
by the New Zealand Government. The Zespri
system, supported by all growers, is an
integrated production and distribution system,
underpinned by a history and practice of
planning, scientific and technical research and
The New Zealand Avocado Company Ltd,
which exports avocados under the AVOCO trade-
mark, resulted from the coming together of the
two biggest avocado exporters in New Zealand,
Southern Produce Ltd, and Primor Produce Ltd.
A reason for success in New Zealand is
perhaps the realisation that an individual
organisation does not have all the skills,
knowledge and resources it might need to be
successful. In today's complex world companies
need a great range of skills, and it is unlikely a
single organisation can hold them all.
Technology improvements have significantly
lowered the coordination costs between
company functions, throwing into contention the
capabilities that properly constitute a company.
Similarly, due to technology, inter-company
coordination costs are very low, and more than
ever, the opportunity exists for companies to
share some of their skills and capabilities and
similarly to leverage those of other companies.
The same technologies have brought global
competition closer -- this is the threat that drives a
need for companies to get smart and collaborate.
The challenge for managers is to select the
skills and capabilities they need to create sus-
tained competitive advantage. They can achieve
some of this with intuition, and some using
mathematics to indicate where they might find
efficiencies amongst the web of customers and
suppliers in which they operate.
Drawing from Michael Porter, Professor at
Harvard University, we would argue that to be
sustainably successful, the nature of the col-
laboration chosen should be unique. The result
will be an organisation that has access to sets
of skills and capabilities that are difficult for
competitors to replicate. Such an organisation
is likely to maximise its efficiency, effectiveness
and profitability over the long term.
To collaborate an organisation has to be
a little bit socialist and many writers have
written on the significance of industry clusters,
particularly for manufacturing.
It is worth contemplating the opposite, the
non-collaborative model. There are many
examples of organisations with market power
that draw more value from the supply chain
than they add to it. Australia is prone to this,
with its oligopolistic industry structures.
In these instances, non-collaborative
behaviour may well stifle growth. We would
submit there is short-term gain for these partic-
ular companies, but at the risk of slower growth
of the industry or the supply chain overall and,
therefore, in the long term suboptimal profit for
the particular companies concerned. It would be
smarter to act in ways that promote growth.
Technology is driving changes in company and
market structures. It is potentially redefining what
occurs within a company's walls. To extend the
analogy, it suggests that a company's walls are
becoming quite porous. In this environment, a
nuanced approach to competition and collabora-
tion is highly desirable and may be a more sure
way to create sustainable competitive advantage.
Peter Carney is the leader of supply chain
advisory and analytics at Aurecon. He holds
a BSc (Hons) and MBA degrees from the
University of Melbourne. He has over 25 years
of experience in working with and advising
Australia's largest corporations in mining
and manufacturing on matters of marketing,
strategy, business development and supply
chain improvement. For more information visit
"A reason for success in New Zealand is perhaps the realisation
that an individual organisation does not have all the skills,
knowledge and resources it might need to be successful."
MHD SUPPLY CHAIN SOLUTIONS --- NOVEMBER / DECEMBER 2014
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