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Collaborative commerce slide pack

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  • 1. 9/09/2012 Collaborative Commerce Putting Collaboration to WorkAD Supply Chain Group Pty Ltd(ACN 120 573 864)Supply Chain ConsultingTel: 61 (0) 419 581 705email andrew.downard@adsupplychain.com.auweb www.adsupplychain.com.au Carlos Santana Has released 32 Studio Albums, 2 EPs, 6 Live Albums,  8 Unofficial Albums and 17 Compilation Albums (The  Beatles only did 10) The first was in 1969, over 40 years ago Supernatural (1999) is considered by many to be  Carlos Santanas greatest work. It became the Album  of the Year, received eleven Grammy awards, and  sold over 25 million copies worldwide.  Santana  equalled the record for most Grammy’s in a year Supernatural was a collaboration! 1
  • 2. 9/09/2012Definition of Collaborative Commerce• Collaborative Commerce is the combination of eCommerce and Collaboration• Some would argue that Knowledge Management is also part of the mix• eCommerce is understood with defined processes & methodologies it is Technlogy based• Collaboration is People based and is not well understood! Collaborative  eCommerce Collaboration Commerce EDI Values Product Identification Electronic Payment Culture Messaging Online Stores/Catalogues eTicketing Collaboration: from Latin = Colaborare Meaning: “to labour together” 2
  • 3. 9/09/2012Benefits of Collaboration • That Collaboration makes good sense has been known  for a while: – Plato (428‐348) “As the builders say, the larger stones do not  lie well without the lesser.”  – Adam Smith (1723 – 1790) Division of Labour &  Specialisation (Restated by Peter Drucker as “Do What You Do Best  and Outsource The Rest!”) – Jean‐Jacques Rousseau (1712 – 1778) Concept of Social  Cooperation – Charles Darwin (1809 ‐ 1882 ) “In the long history of  humankind (and animal kind too) those who learned to  collaborate and improvise most effectively have prevailed”Other Contributors to Our Understanding • Ronald Coarse – Nobel Prize Winning Economist – Introduced the “Total Cost” concept – Showed that a key cost not previously identified was the cost of “transactions” – This approach allowed the proper costing of “Make versus Buy” decisions • Robert Solow – Nobel Prize Winning Economist – Identified that Innovation makes up 87% of economic growth – Highlighted the short‐sightedness of the NIH mindset – Innovation by Collaboration shown to  deliver results • Oliver Williamson – Nobel Prize Winning Economist – Developed the theory of Transaction Cost Economics (TCE) – Highlighted that transaction style matters – Adversarial contracting methods incur higher costs – Stated that “Muscular” buyers dont just “use” suppliers they also “use up” suppliers 3
  • 4. 9/09/2012More on Oliver Williamson “The Muscular approach to buying goods  and services is myopic and inefficient!” • How do we know this is true? – $ cost of a lack of trust, “untrusting buyers pay more than 6 times the cost  to source a component” ‐ Dyer, J H, Wujin Chu, 2000 • What is the benefit of this additional expenditure? – US Car Manufacturers pay US$1,500 to US$2,000 more per car for the  parts they purchase v’s the Japanese – Anklesaria J, 2008  “It’s not how little you spend, it’s how much you get!” Todd C Snelgrove, General Manager Value, SKF 4
  • 5. 9/09/2012More on Jean-Jacques Rousseau Jean‐Jacques Rousseau John Nash “Discourse on the  The “Stag Hunt” a  Mathematical Proof Origin and Basis of  discussion around  Inequality Among  Social Cooperation Men” 1754Systems Theory View of Collaboration Doing The Right Things Effectiveness Basic System/Process System/Process with Efficiency Collaboration can  System/Process with Effectiveness identify better  Goals based on  System/Process with Collaboration Goals Customer Value Inputs Activity Outputs Resources Collaboration  can add  better  Resources Efficiency Doing Things Right Based on O’Donnell & Duffy 5
  • 6. 9/09/2012 Mechanisms For CollaborationMatrix of Strategies for Working TogetherType of relationship Networking: Coordinating: Cooperating: Collaborating: Exchanging information for  Exchanging information for  Exchanging information for  Exchanging information for  mutual benefit mutual benefit and altering  mutual benefit and altering  mutual benefit and altering  activities and sharing  activities and sharing  activities, sharing  resources to achieve a  resources to achieve a  resources, and enhancing  common purpose common purpose. the capacity of another to  achieve a common  purpose.Relationship style Informal Formal Formal FormalCharacteristics Minimal time  Moderate time  Substantial time  Extensive time  commitments, limited  commitments, moderate  commitments, high levels  commitments, very high  levels of trust, and no  levels of trust, and no  of trust, and significant  levels of trust, and  necessity to share turf;  necessity to share turf;  access to each other’s turf; extensive areas of common  information exchange is the  making access to services  sharing of resources to  turf; enhancing each  primary focus. and resources more user‐ achieve a common purpose  other’s capacity to achieve  friendly is the primary  is the primary focus. a common purpose is the  focus. primary focus.Resources No mutual sharing of  No, or minimal mutual  Moderate to extensive  Full sharing of resources,  resources necessary sharing of resources  mutual sharing of resources  and full sharing of risks,  necessary. and some sharing of risks,  responsibilities, and  responsibilities, and  rewards. rewards.Tools People’s networks, for  E‐mail, news groups, list  Shared access to  Integrated data, systems  example:  servers documents and data,  and knowledge resources,  www.google+.com; whiteboards, data  extranets. www.linkedin.com exchange www.facebook.com 6
  • 7. 9/09/2012Executing Collaboration • Collaboration in Supply Chains has been put into practice in  a number of ways over the years: – Vendor Managed Inventory (VMI), much beloved by CFO’s,  suppliers take responsibility for inventory replenishment and in  the CFO’s ideal world financial responsibility as well. – Co‐Managed Inventory (CMI), a more equitable approach to  managing inventory replenishment where both parties take a  role. – Efficient Consumer Response (ECR), in simple terms this was an  approach that sought to emulate the Lean practices of Auto  Manufacturing by shortening replenishment lead‐times and  reduce inventory – Collaborative Planning Forecasting & Replenishment (CPFR) The Full CPFR Process 7
  • 8. 9/09/2012“I believe that CPFR is the single largestopportunity to move inventory managementforward in the next 5 years. We plan toimplement collaborative relationships with wellover 100 suppliers in the next 12 months. Webelieve that CPFR is the driver for moving intothe next era of buyer-seller relationships”Randy Mott. Wall- Mart (2000)Benefits of CPFR Retailer benefits Typical Improvement Better Store Shelf rates 2%-8% Lower Inventory Levels 10%-40% Higher Sales 5%-20% Lower Logistics Cost 3%-4% Australian Manufacturer Benefits example Lower Inventory Levels 10%-40% Automotive Faster Replacement Cycles 12%-30 Customer Higher Sales 2%-10% reduced Better Customer Service 5%-10% Inventories by 30%Source: AMR research 8
  • 9. 9/09/2012CPFR Implementation (VICS Model)  Evaluate your current state  Define Scope and Objectives  Prepare for Collaboration  Execute  Assess results and identify improvements Read => Plan Do Check Action (PDCA) CPFR Process Steps  Develop front end agreement  Create Joint Business plan  Create sales forecast  Identify exceptions for sales forecast  Resolve/collaborate on exception items  Create order forecast  Handle exceptions for order forecast  Resolve/collaborate on exception items  Order generation 9
  • 10. 9/09/2012Why CPFR Has Not Been More Widely ImplementedLaborious.• Just too much work for the benefit, the benefit did not match the added costs• The programs were not grounded on good principles of collaboration• It was often an imposed process rather than one reached by mutual agreementRetail forecasts not up to the task.• For CPFR to work, retail forecast accuracy needs to be high and with sufficient granularity to enable analysis to be meaningful• The dirty little secret with CPFR is that most retailer forecasts are not up to the task.• In addition, the gap in retailer data for perpetual inventories and accurate on-hand quantities did not provide a good starting point.Lack of integration into Enterprise Systems.• For most Advanced Planning System (APS)/Enterprise Resource Planning (ERP) deployments, there was no logical connection for the data.• As a result, it failed to make a systemic impact on supply chain excellence. Collaborative Negotiation:- How Reach Agreement 10
  • 11. 9/09/2012Collaborative Negotiation • Approaching problems as a conflict between right and wrong, good and bad, winners & losers reduces potential value by up to 75% • A study some years ago found so much mistrust in France that it was costing 5% of gross national product and 8% of employment • People who make human connections with others are six times more likely to persuade others to do what they want. • Studies show that differences add value: they provide the basis for more creativity • Emotion takes focus off goals & greatly reduces the chance of deals. • start with the easy things on which there is agreement, even the date of the next meeting. It will bind parties together more. • progress incrementally, small steps at a time, particularly when there are big disagreements. Parties get nervous making big steps. • You dont have to trust them at first. Just acknowledge there isnt much trust & try to get commitments from each other in the absence of trust. • People dont expect you to disclose everything. But they do expect you to be direct, honest and real. Thats the essence of collaboration.A 12-Step Collaborative Negotiation Program 1 Goals Are Paramount 2 It’s About Them 3 Make Emotional Payments 4 Every Situation Is Different 5 Incremental Is Best 6 Trade Things You Value Unequally 7 Find Their Standards 8 Be Transparent and Constructive, Not Manipulative 9 Always Communicate, State the Obvious, Frame the Vision 10 Find the Real Problem and Make It an Opportunity 11 Embrace Differences 12 Prepare: Make a List and Practice with It 11
  • 12. 9/09/2012Collaborative Negotiation • According to Diamond one key question to ask right at the beginning is: • “Who Are They?” • He is highlighting the fact that Businesses don’t Collaborate, People Collaborate • Therefore we don’t have B2B arrangements we have P2P • This is relevant for new deals but also when working on and improving arrangements with existing partners • How to answer the question?Touch-point Mapping • Is a process for understanding how well you interact with your supply chain partners • Are the contacts at the right level? (Who talks to the MD?) • Are there missing touchpoints? (We don’t know anyone in Engineering!) • Allows you to set a communication plan for keeping the contact live. 12
  • 13. 9/09/2012Customer Touch-point Categories• Decision Maker • These are the people that initiate the process of awarding business and are closely aligned with the hands on activities involved with executing day to day business between the parties..• Approver • While not involved in day to day activities the Approver role is critical to success because they have the ability to approve or block the recommendations received from the Decision Maker.• Influencer • These are people not in the direct line as far as allocating new business or setting the agenda on relationships. They are however influential or persuasive in modifying or enhancing the relationship• Gate Keepers • Gate Keepers have very little role in the direct business activities between the parties but they can hinder the relationship by preventing access to people or information that can assist the firm win business or improve the relationship.Touch-point Categories Initiates Action Passes or Blocks Action Direct Decision Maker Approver Involvement Purchasing Finance in Business Manager Manager Allocation Indirect Influencers Gate Keeper Involvement Engineering in Business Receptionist Manager Allocation Exercise: • For your most important supply chain partner nominate the contacts you know and allocate them into the above matrix • Discuss any gaps with your partner 13
  • 14. 9/09/2012 The Vested Outsourcing Model Vested Outsourcing• Concept Developed out of research by University of  Tennessee carried out on behalf of USAF• The term “Vested Outsourcing” was coined to  describe a relationship which is characterised by a  mutual commitment to outcomes• Vested agreements deliver higher rates of  innovation, lower costs and improved service levels• The Vested Outsourcing concept has been  supported by Michael Porter & Mark Kramer in  Harvard Business Review – Porter and Kramer believe the next wave of innovation  and productivity gains will come from “Shared Value  Creation”. 14
  • 15. 9/09/2012 Outsourcing’s 10 Ailments• Ailment 1 – Penny Wise and Pound Foolish: Occurs when a company outsources based  purely on costs.• Ailment 2 – The Outsourcing Paradox: Happens when a buyer hires a service provider as  the “expert” and then proceeds to tell the provider precisely how to do the work.• Ailment 3 – Activity Trap: The more transactions performed the more money the service  provider makes, there is no incentive for improvement.• Ailment 4 – The Junkyard Dog Factor: The decision to outsource can mean that jobs will  go, employees push back with processes that “must” stay in‐house• Ailment 5 – The Honeymoon Effect: The beginning of any relationship has a honeymoon  stage.  The provider initially goes overboard to perform but drops back over time.• Ailment 6 – Sandbagging: To prevent the Honeymoon Effect, some companies adopt  approaches to encourage service providers to perform, can lead to minimalist results.• Ailment 7 – The Zero‐Sum Game: This is one of the most common ailments. Companies  believe, mistakenly, that if something is good for the service provider, then it is  automatically bad for them.• Ailment 8 – Driving Blind Disease: Occurs when there is no formal governance process to  monitor the performance of the relationship.• Ailment 9 – Measurement Minutiae: Too much of a good thing can be bad for you. This  applies to Fast Food and to measuring service providers.• Ailment 10 – The Power of Not Doing: The saddest of all the ailments, having  performance measures but not using them. Vested Outsourcing 5 Rules 1. Focus on Outcomes, not Transactions. 2. Focus on the What, not the How. 3. Agree on clearly defined and measurable Outcomes. 4. Optimise pricing model Incentives. 5. Governance Structures should provide Insight, not merely Oversight 15
  • 16. 9/09/2012 Vested Outsourcing Relationship 3 Clearly Defined & Measurable 2 Desired Outcomes 4 Pricing Model Focus on the “What” not the Incentives Optimise Cost/Service Trade- “How” off’s 1 5 Outcome based v’s Win/Win Insight v’s Oversight Transaction based WIIFWe Governance Business Model Relationship Structures WIIFWe = “Whats In It For We” Structure of a Vested Outsourcing Agreement Master Services • Non-Disclosure • Termination Agreement • Non-Compete Agreement • Renewal (MSA) • Limitation of Liability • Other Rule 1 Rule 2 Rule 3 Rule 4 Rule 5 Statement of Desired Governance Other Business Pricing Model Objectives Outcomes Structures Appendix and Model (WHAT) Exhibits Shared Vision Work Scope & Performance Margin Relationship Statement of Allocation Management Matching Management Intent (HOW) Plan Incentives Framework Operational Baseline Transformation Performance Calculations Management Reporting Framework Exit QA Plan Management = Owned by Service ProviderVested Outsourcing Manual PlanP296 16
  • 17. 9/09/2012A Final Point on Collaboration in Australia Based upon a survey of 207 Australian Businesses (168 Product Related/68 Service Related) the following statement was made: “Overall these results indicate that closer relationships with trading partners are associated with higher levels of performance” Boonyathan, P. and Power, D.J., (2007), Caveats: • What does “closer” mean? • What type of relationship? • It is not possible to closely collaborate with all trading partners! QuestionsAD Supply Chain Group Pty Ltd(ACN 120 573 864)Supply Chain ConsultingTel: 61 (0) 419 581 705email andrew.downard@adsupplychain.com.auweb www.adsupplychain.com.au> Supply Chain Strategy> Collaborative Planning Models> Supply Chain Relationship Assessments> Strategic Sourcing> International Trade> Supply Chain KPI Systems> Continuous Improvement 17