Collaborating with your trading partners. It’s a critical strategy. One that can help you deliver on product development and market penetration goals. Reduce costs and improve working capital. But poorly executed, it can also damage your brand. Revenue can take a hit. Learn how you can get the most out of collaboration—and mitigate your risks—in this report from The Economist Intelligence Unit, sponsored by Ariba.

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No business is an island
Pete Swabey Senior editor, Thought Leadership The Economist Intelligence Unit

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Introduction
Ariba commissioned The EIU to investigate collaboration between business partners:
How are businesses collaborating now?
What value do they place on collaboration?
What, if anything is holding back progress?
Launched ‘No business is an island’
We surveyed 281 executives based in EMEA
All from organisations with $500m+ in annual revenue across functions including finance, procurement, IT, sales, marketing, strategy, etc.
Qualitative insights from:
Folkert Bergstra, finance director for container logistics, CEVA Benelux
Robert Fieten, board member, the German Association Procurement and Material Management
John Francis, senior manager, Accenture Strategy
Craig Lardner, global president of The Chartered Institute of Purchasing and Supply
David Loseby, chief procurement officer, Arriva
Heiko Rumpl, European e-business director, Brammer
Emmanuel Walter, chief financial officer, Caterham Alpine

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Summary
There is a growing recognition of the importance of collaboration
Companies with strong technology capabilities make for attractive trading partners
Information sharing is the most common form of collaboration
Collaboration does pose risks but they can be mitigated
Collaboration is widely recognised as a strategic capability but few organisations appear to pursuing innovation in collaboration

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The value of collaboration
97% of respondents agree that they derive value from collaboration.
Value chains cross organisational boundaries
Collaboration extends capabilities and situational awareness
These days, you cannot stop improving business processes when they reach your company’s borders. You need to improve the competitiveness of your value network if you want to improve the competitiveness of your own organisation. Heiko Rumpl, European e-business director, Brammer
What people have to recognise is sometimes suppliers have access to market insight, knowledge and a trend. It is recognition that you cannot afford to be too arrogant no matter how big you are. You need to be able to listen to feeds from all sorts of angles and if you don’t respond to that, then that is a very dangerous place to be. It will be part of helping deliver future business models. David Loseby, Chief procurement officer, Arriva
‘

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Source: EIU
49%
27%
27%
26%
24%
24%
21%
19%
19%
18%
13%
10%
10%
0%
10%
20%
30%
40%
50%
60%
Increasing customer satisfaction
Reaching new customers
Developing new products and services
Increasing share of wallet with existing customers
Reducing unit costs
Reducing supply chain risk
Improving cash flow
Reducing process costs
Geographic expansion
Improving compliance
Gathering information
Improving demand forecasting
Lowering inventory
Why do companies collaborate?
QUESTION:
What are your organisation's priorities when collaborating with trading partners?

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56%
38%
37%
37%
30%
29%
29%
20%
0%
10%
20%
30%
40%
50%
60%
The partner’s technological capabilities
There being an existing relationship in place
The partner's size and reach
Aligned objectives
The partner’s organisational capabilities
Readiness to share information
Matching company culture
The partner's brand
Source: EIU
What do companies want in a collaboration partner?
QUESTION: What are the most important considerations when selecting a partner to collaborate with?

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Technological capabilities
‘
‘
This includes product development…
…and internal processes
[Technology] is the key issue right now, especially in industries like automotive and aerospace. It is an absolute must. Nobody has all the wisdom that is necessary to make high-tech products. It is driven by a need to cooperate and reap the rewards of synergies.” Robert Fieten, board member, German Association for Procurement and Material Management
Brammer offers a number of technology-based, value-added services, such as data integration, analytics and access to business networks in order to become the most cost effective supplier to do business with

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Source: EIU
63%
57%
54%
51%
51%
38%
33%
29%
0%
10%
20%
30%
40%
50%
60%
70%
Information sharing
Joint product development
Joint marketing / promotion
Process automation
Joint long-term (5 years +) strategy
Intellectual property sharing
Early payments in return for discounts
Joint financing
How companies collaborate
QUESTION: Which of the following collaborations has your organisation undertaken at least once in the last three years?

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Source: EIU
65%
61%
54%
49%
38%
35%
34%
32%
30%
0%
10%
20%
30%
40%
50%
60%
70%
Demand/supply forecasts
Your strategy
Operational metrics (eg, units sold)
Operational data - SKUs - in aggregate
Real-time performance metrics
Financial metrics (eg, revenue / profit earned)
Your financial targets
Internal communications
Intellectual property
Information sharing
QUESTION:
In a typical collaboration, how much information does your organisation share with partners and suppliers (tick all that apply)?

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Information sharing
Very few are convinced straight away. Initially it may seem like additional work so we have to explain why it is beneficial to them. We can demonstrate with other customers what steps we made, how they deliver information and how we deliver it to them and what the benefits are. By doing those sorts of thing, we convince the customer to change to a certain way of working to get benefits on both sides. Folkert Bergstra, finance director for container logistics, CEVA Benelux
‘
Situational awareness CEVA Logistics encourages customers to share as much information as possible so that it can spot operational issues in advance and tailor its services to their needs. For example, it works with UK retailer Primark to gain upstream visibility of its supply chain. Some customers need encouragement, however.

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‘
Information sharing
We’ve developed tools that allow customers to analyse how much they spend with us, and sometimes that means they can see that we sell a product to one of their plants at a cheaper price than we do to another plant. So the data might not always be easy to explain to customers, but we don’t hide it from them because transparency builds trust. And without trust, value cannot be released between trading partners. Heiko Rumpl, European e-business director, Brammer
Building trust
For the ‘value network’ to function, partners need to trust one another. Sharing information – perhaps more than immediately prudent – is one way to achieve that.

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48%
40%
38%
37%
28%
25%
22%
18%
13%
13%
0%
10%
20%
30%
40%
50%
60%
Shared objectives
Communication
Transparency
Shared values
Performance monitoring / management
Executive buy in
Strong contract
Staff buy in
Automated means of collaboration
Investment
Source: EIU
The qualities of a successful collaborative relationship
QUESTION: Which of the following do you believe are the critical components of a successful collaboration? (Select up to three)

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Source: EIU
The risks of collaboration
50%
42%
36%
35%
33%
31%
16%
0%
10%
20%
30%
40%
50%
60%
Damaged reputation
Loss of product quality
Wasted money
Unreliable supply
Loss of intellectual property
Wasted time
Damage to morale
QUESTION:
What do you consider to be the biggest risks in undergoing collaboration with a supplier, B2B customer or other trading partner? (Select up to three)

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‘
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Key risks
Damaged reputation
Loss of product quality
If you look at the apparel or textile industry, they might have a problem if they have many suppliers in Bangladesh or Cambodia where working conditions are not good. You read about this sort of problem almost every day in the newspapers. It has a very strong impact on the firm’s reputation and they are very concerned about this.
It can be due to neglecting the supplier relationship, without sufficient quality control. It is very important that after the relationship is established you have continual checks.
Robert Fieten, board member, German Association for Procurement and Material Management

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‘
‘
Supplier risk
Danger of suppliers going bust is preventing some companies from collaborating
Mitigated by innovative approaches to collaboration
For some companies, this is a real barrier. They are not engaging, and they are keeping more things in-house. John Francis, Senior manager, Accenture Strategy
Caterpillar was concerned that small suppliers would not have the working capital to ramp up production during economic recovery.
* Standardised payment terms
* Offered early payment in exchange for discounts
* Helped suppliers access US government supply chain finance

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Strategic collaboration
What does this mean?
86% agree that their organisation recognises collaboration as a strategic capability.
[Strategic collaborators] do things differently, and one of those things is how they look at the strategy of an organisation from board-level. They ask themselves and their team the question: ‘what are we going to do, in our area of speciality, to help deliver on those strategic goals?’ That behaviour is called strategic alignment.
Craig Lardner, global president, The Chartered Institute of Purchasing and Supply

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Formal collaboration
Source: EIU
QUESTION: Which of the following statements best describes your organisation's approach to collaboration trading partners?
15%
13%
32%
39%
We collaborate only as much as is required to perform transactions
We have made informal efforts to improve collaboration with some trading partners
We have taken formal action to improve collaboration with some trading partners
We have institutionalised collaboration with trading partners to maximise mutual benefit

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Source: EIU
63%
57%
54%
51%
51%
38%
33%
29%
0%
10%
20%
30%
40%
50%
60%
70%
Information sharing
Joint product development
Joint marketing / promotion
Process automation
Joint long-term (5 years +) strategy
Intellectual property sharing
Early payments in return for discounts
Joint financing
Is this strategic?
QUESTION: Which of the following collaborations has your organisation undertaken at least once in the last three years?

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Conclusions
Value chains cross organisational boundaries
Good collaboration strengthens those chains via e.g. trust, visibility
Technology an important platform for collaboration
There is more room for innovation