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Introduction to Horizontal Collaboration (c) TRI-VIZOR 2010
 

Introduction to Horizontal Collaboration (c) TRI-VIZOR 2010

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According to the World Economic Forum (Supply Chain Decarbonization Report 2009), the overall capacity use of EU transport networks is less than 50%. Horizontal collaboration offers a radically new ...

According to the World Economic Forum (Supply Chain Decarbonization Report 2009), the overall capacity use of EU transport networks is less than 50%. Horizontal collaboration offers a radically new way to organize supply networks and realize 2-digit improvements in logistics cost, service level and sustainability. Some of the largest corporations in the world are currently gearing up to bundle their supply chains by creating logistics communities built on trust, synergy and gain sharing. This presentation provides a brief summary of terms, concepts and examples which are relevant to this highly innovative and rapidly evolving domain.

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    Introduction to Horizontal Collaboration (c) TRI-VIZOR 2010 Introduction to Horizontal Collaboration (c) TRI-VIZOR 2010 Presentation Transcript

    • Eyefortransport Horizontal Collaboration in the Supply Chain Summit Brussels, June 1st – 2nd 2010 Establishing a Common Vocabulary: What IS Horizontal Collaboration? Presented by Sven Verstrepen, founding partner TRI-VIZOR TRI≡VIZOR © 2010
    • About TRI-VIZOR... ≡ The world’s first “Cross Supply Chain Orchestrator” ≡ Impartial, transparent shareholder structure ≡ Spin-off of the University of Antwerp ≡ Strategic Advisory Board ≡ Wouter De Geest (CEO BASF Antwerpen) ≡ Luc Hooybergs (CEO NIKE CSC) ≡ Roger Roels (Member of Executive Committee of DP World, Dubai) ≡ Marc Vandenplas (former CEO of various LSP’s) ≡ Alain Verschoren (Rector University of Antwerp) ≡ 3PL Advisory Board ≡ Certified 3PL’s (NYK Logistics, Ewals Cargo Care, Hessenatie Logistics, G.Snel, Nova Natie,...) TRI≡VIZOR © 2010
    • Today’s lesson Welcome to the age of « co-opetition » ! ≡ Vertical collaboration (1990-2006): ≡ Between subsequent actors in the same supply chain ≡ Between suppliers, manufacturers and customers ≡ Outsourcing, VMI ≡ Driven by ICT (extended enterprise) ≡ Horizontal collaboration (2006 -…): ≡ Between companies in the same market ≡ Alliances, partnerships, network organisations ≡ Collaborate in some markets, compete in others ≡ “New frontier” or “paradigm shift”? TRI≡VIZOR © 2010
    • Vision ≡ Before 2006 : Trade off between 2 supply chain forces Supply Chain Efficiency Effectiveness Optimisation TRI≡VIZOR © 2010
    • Limits of internal supply chain optimization Sustainability ≡ Before 2006: Trade off between 2 supply chain forces ≡ After 2006 (*) : Trade off between 3 supply chain Supply forces reduces further Chain Optimisation optimization potential Efficiency Effectiveness (*) 2006: An Inconvenient Truth; Stern Report;… TRI≡VIZOR © 2010
    • Vision ≡ Only cross-company collaboration, consolidation and bundling of flows can simultaneously improve efficiency, effectiveness and sustainability Effectiveness Supply Cross Chain Supply Sustainability Supply Chain Supply Chain Chain Optimisation Supply Chain Efficiency TRI≡VIZOR © 2010
    • What’s in a name? “A partnership is a tailored business relationship based upon mutual trust, openness, shared risk and shared rewards that yields a competitive advantage, resulting in business performance greater than would be achieved by the firms individually.” (Lambert & Gardner, 1999) TRI≡VIZOR © 2010
    • « On the origin of collaboration… » commensalism mutualism +0 ++ parasitism +- TRI≡VIZOR © 2010
    • Thesis “If you want to be incrementally better: be competitive. If you want to be exponentially better: be cooperative.” TRI≡VIZOR © 2010
    • Bundling and consolidation Point-to-Point: simple Low effectiveness Low efficiency Low sustainability Decoupling: challenging High effectiveness High efficiency through volume High sustainability TRI≡VIZOR © 2010
    • European distribution trend 1990 -2005 2005 -... traditional central EDC structure Hybrid EDC structure TRI≡VIZOR © 2010
    • Case Study 1 Horizontal Collaboration in Belgian FMCG Distribution TRI≡VIZOR © 2010
    • Present situation: company A ≡ Clients: 55 ≡ Orders: 1610 ≡ Pallets: 20670 ≡ Vehicles: 497 ≡ Trips: 742 ≡ Distance: 110154 Km ≡ Costs: 188685 Euro ≡ Working hours: 4134 hours ≡ Total C02-emission: 77561 kg TRI≡VIZOR © 2010
    • Present situation: company B ≡ Clients: 696 ≡ Orders: 6086 ≡ Pallets: 26174 ≡ Vehicles: 1168 ≡ Trips: 1374 ≡ Distance: 244918 Km ≡ Costs: 446078 Euro ≡ Working hours: 9948 hours ≡ Total CO2-emission: 175576 kg TRI≡VIZOR © 2010
    • Present situation: summary AS IS A AS IS B Costs (Euro) 188685 446078 Distance (Km) 110154 244918 Working time (Hours) 4134 9948 Orders 1610 6086 Pallets 20670 26174 Clients 55 696 Vehicles 497 1168 Trips 742 1374 Total CO2-emission (kg) 77561 175576 The average delivery cost per pallet is 9 euro for A and 17 euro for B
    • Distribution network overlap B A TRI≡VIZOR © 2010
    • Future scenario 1: groupage ≡ Clients: 727 ≡ Orders: 7696 ≡ Pallets: 46844 ≡ Vehicles: 1544 ≡ Trips: 1931 ≡ Distance: 326352 Km ≡ Costs: 612841 Euro ≡ Working hours: 13785 hours ≡ Total CO2-emission: 239555 kg TRI≡VIZOR © 2010
    • Groupage: summary AS IS (Sum) TO BE 1 Result Costs (Euro) 634763 612841 -3,58% Distance (Km) 355072 326352 -8,80% Working time (Hours) 14082 13785 -2,15% Orders 7696 7696 0% Pallets 46844 46844 0% Clients 751 751 0% Vehicles 1665 1544 -7,84% Trips 2116 1931 -9,58% Total CO2-emission (kg) 253137 239555 -6% ≡ An incremental drop in kilometres, vehicles and trips is the result of reactive order consolidation by date (=groupage) for both shippers. ≡ But in this scenario, the cost per pallet changes to 13 Euro per pallet for both shippers -> no incentive for Shipper A to collaborate.
    • Future scenario 2: horizontal collaboration ≡ Clients: 727 ≡ Orders: 7696 ≡ Pallets: 46844 ≡ Vehicles: 1187 ≡ Trips: 1647 ≡ Distance: 243814 Km ≡ Costs: 456545 Euro ≡ Working hours: 10262 hours ≡ Total CO2-emission: 183172 kg TRI≡VIZOR © 2010
    • Horizontal collaboration: summary AS IS (Sum) TO BE 2 Result Costs (Euro) 634763 456545 -39,04% Distance (Km) 355072 243814 -45,63% Working time (Hours) 14082 10262 -37,22% Orders 7696 7696 0% Pallets 46844 46844 0% Clients 751 751 0% Vehicles 1665 1187 -40,27% Trips 2116 1647 -28,48% Total CO2-emission (kg) 253137 183172 -38% ≡ In the collaboration scenario, orders are orchestrated to maximize vehicle loads and to synchronize delivery dates (with same or higher service level). ≡ The result is an exponential improvement in all parameters. ≡ The cost to serve decreases to 10 Euro per pallet in the horizontal collaboration scenario -> collaboration and gain sharing between A & B become possible.
    • Case Study 2 Horizontal Collaboration in European Healthcare Distribution TRI≡VIZOR © 2010
    • Network overlap by destination country (ex Belgium) A B - Not drilled down to destination cities - Exponential scale TRI≡VIZOR © 2010
    • Example: weekly overlap BE - Ireland 4.500 4.000 3.500 3.000 2.500 Baxter A B Pfizer 2.000 1.500 1.000 500 - 2 3 4 5 6 7 8 9 10 11 13 14 16 18 19 20 21 22 23 26 27 28 30 31 33 34 35 36 37 38 40 41 42 43 44 47 48 49 50 51 TRI≡VIZOR © 2010
    • Example: weekday overlap BE - Ireland 50.000 45.000 40.000 35.000 30.000 25.000 A Baxter PfizerB 20.000 15.000 10.000 5.000 - Mon Tue Wed Thu Fri TRI≡VIZOR © 2010
    • Business case: savings + gain sharing (BE - Ireland)  Cost to serve in present situation (=no collaboration): 1.5 euro / kg (shipper B) and 0.4 euro/kg (shipper A)  Cost to serve after “minimal” collaboration (=LSP benchmarking): 50% saving for shipper B; almost no saving for shipper A  Cost to serve after “traditional” collaboration (=reactive groupage): 50% additional saving for shipper B; almost no saving for shipper A  Cost to serve after horizontal collaboration (=bundling and orchestration of freight flows ): almost no additional saving for shipper B; 50% additional saving for shipper A  Results: 75% decrease in total cost to serve for both shippers. Annual recurring transport saving of 100.000 euro. Predictable freight volumes + steady margin for the LSP. Higher vehicle utilization. Potential for attracting additional flows + roundtrips. TRI≡VIZOR © 2010
    • Q.E.D. “If you want to be incrementally better: be competitive. If you want to be exponentially better: be cooperative.” TRI≡VIZOR © 2010
    • Proactive freight flow bundling ™ TRI≡VIZOR © 2010
    • Partnership paradox Horizontal collaboration is not easy! ≡ Partners are competitors ≡ They all want to make money ≡ Actions and intentions of one partner determine risks and rewards of other partners (« prisoner’s dilemma ») ≡ Hidden agendas & cultural differences As a result, horizontal partnerships are…: ≡ Unstable ≡ Dynamic (life cycle) ≡ Highly influenced by external factors ≡ Unique TRI≡VIZOR © 2010
    • Critical Success Factors ≡ Process, vision and methodology ≡ Critical mass (synergy) ≡ Partner alignment ≡ Legal framework (non-collusion!) ≡ CO3 initiative with P&G, NIKE, TRI-VIZOR, Wincanton, Jan De Rijk, Argus-I, Kneppelhout Lawyers, Elupeg,... ≡ Impartial facilitation / orchestration ≡ Gain sharing ≡ ICT integration (collaborative scheduling and BI) ≡ Active involvement of 3PL/4PL ≡ collaboration and orchestration are NOT the same as adding up purchasing power between shippers to squeeze LSP’s; this is not sustainable! TRI≡VIZOR © 2010
    • Roadmap for Collaboration « Successful collaboration is not a matter of chance… it is the result of a process.» frequent evaluation and feedback internal negotiation analysis and valuation (SW/OT) collaboration collaboration strategy contract systems control and evolution driver or potential and and vision (charter) integration management (growth) objective intent partner analysis form and selection selection 1. Strategic alignment 2. Formation 3. Implementation 4. Control and Mgt. Go/No go Go/No go Go/No go
    • Strategic collaboration drivers ≡ Cost (C): higher efficiency, lower operational cost, higher utilization,… ≡ Differentiation (D): customer service, brand building, USP,… ≡ Growth (G): market share, turnover, geographic coverage,… ≡ Innovation and learning (I): R&D, new products and services, technology,… ≡ Synergy (S): economies of scale, complementarity, "1+1=3”,… ≡ Agility (A): reaction speed, higher flexibility, lower dependency,… ≡ Social profit (S): environment, safety, modal choice, congestion,… TRI≡VIZOR © 2010
    • Collaboration conditions Resources collaboration impossible clear solid H rules foundation L clear quicksand focus Trust 0 L H collaboration impossible TRI≡VIZOR © 2010
    • Partner selection & alignment cultural fit strategic fit economic and operational fit trust and resources TRI≡VIZOR © 2010
    • Who should be involved? ≡ Shippers: generate the freight flows + create the vision (think outside the box) ≡ Logistic Service Providers: co-design the solutions + operate the freight flows ≡ Orchestrators/Trustees: trusted referees of logistics partnerships + neutral gain sharing function ≡ Governments & Infrastructure operators: are setting the right conditions to stimulate (multimodal) collaboration and to create legal “comfort zone” TRI≡VIZOR © 2010
    • Two or more partners? Collaboration complexityfunctiefunction of # partners Samenwerkingscomplexiteit in as van het aantal partners 50 45 communication channels 40 Number ofAantal communicatiekanalen 35 Without Trustee/Orchestrator 30 25 20 With Trustee/Orchestrator 15 10 5 0 1 2 3 4 5 6 7 8 9 Number partners N Aantal of partners N Equal partners: N*(N-1)/2 Dominated network: N-1 TRI≡VIZOR © 2010
    • Added value of neutral orchestration ≡ Impartial, neutral trustee / referee for the community ≡ Identify best-fit freight flows of different shippers to generate maximum gains (critical mass) ≡ Manage the partnership from the perspective of the company-specific objectives of the shippers (cost/service/Co2) ≡ Involve the 3PL/4PL in gain sharing ≡ Full transparency of the community KPI’s while keeping confidential the company-specific information (“Chinese wall”) ≡ Maximum stability of the community based on contractual exit strategies and volume bandwidths for each member TRI≡VIZOR © 2010
    • Critical mass: towards a “universal” freight flow database? TRI≡VIZOR © 2010
    • Antitrust aspects ≡ National and European legislation: ≡ Trade laws (National Councils for Competition) ≡ Article 101/102 EC Treaty (European Commission) ≡ European commission is generally supportive of collaborative supply chain initiatives which result in CO2 reduction and reduced road congestion ≡ Market disturbance is strictly forbidden: ≡ Price fixing ≡ Monopolies ≡ Cartels ≡ Market dominance ≡ Indicative tresholds: 15 mio (individual) of 40 mio (combined) EUR ≡ Unlikely to get in the way of “normal” logistics partnerships ≡ Risk management ≡ When in doubt or before any large project, seek legal advice!
    • Cost / benefit sharing… how to divide the cake? IT’S MY MONEY !!
    • Legal Framework (Marco Polo CO³) Developed in cooperation with P&G, Nike, Jan De Rijk, Wincanton, Kneppelhout Lawyers, ELUPEG, Argus-I , EIA,… Trustee / Orchestrator Multilateral contracts incl. • Enter/Exit strategy • Volume variation mechanisms Gain sharing Logistics Service Shippers Contract Provider(s) Community S1 LSP1 S2 LSP2 Outsourcing Contract S3 LSPn Sn TRI≡VIZOR © 2010
    • What have we learned? Top 10 management lessons 1. Look beyond cost savings: aim also for higher service or lower CO2 2. Mutualism: partner with non-direct competitors 3. Choose the right goods flows: partial loads offer most perspective 4. Gain sharing: discuss and agree the mechanisms in advance 5. Use a neutral facilitator to find a partner, create trust and stability 6. “Fit” between both organisations and people is essential 7. Maintain critical mass, but allow partner entry and exit procedures 8. Start with maximum 2 or 3 partners before adding extra partners 9. Collaboration takes time: allow room for error and learning 10. Have the legal aspects checked by an expert TRI≡VIZOR © 2010
    • Thank you for your attention ! Questions? sven.verstrepen@trivizor.com TRI≡VIZOR © 2010
    • ® TRI-VIZOR NV Waterfront Research Park Galileilaan 18 B-2845 Niel T: +32 3 292 62 10 F: +32 3 292 62 11 www.trivizor.com TRI≡VIZOR © 2010 TRI≡VIZOR © 2010