April 2014 | Sponsored | Thought Leaders

The Fundamentals of Successful Value Chain Partnerships

Tags: 3PL, Supply Chain Management, Partnership

George Kontoravdis, PhD is President, FORTIGO Inc., 866-376-8884

Q: How can value chain partners cooperate to create and share efficiencies?

A: With an unprecedented global reach, access to new markets, increased regulation, and huge advances in technology, today's supply chain environment is more complex than ever. Coupled with increasing customer demands for speed, flexibility, cost efficiency, quality, and customization, it is very difficult for any single player to do it all by themselves and consistently meet customer expectations efficiently.

Thus is born the need for business partners to work together across the value chain with the intent to maximize the benefit to their customers—and, as a result, also to their own bottom line. Smart partners will do that by understanding their needs and combining, in varying degrees, their core competencies, total assets, technology, and relationships toward the mutual goals.

In all but the simplest of situations, this is not an easy endeavor, so it must be undertaken with great care. The first step is for each value chain partner to understand its own strengths and limitations. An honest assessment may not guarantee success, but a dishonest one—whether deliberate or not—will most certainly cause problems down the road and jeopardize the partnership's success.

At this point, the partners must also establish a well-defined framework of incentives and rewards. It is important for each side to feel motivated to do their best for the collective success of the partnership. It is equally important that all sides are satisfied that the eventual benefits will be shared justly and equitably.

Next, the specific elements of the partnership and the associated operational processes must be set forth. It could be a simple networking arrangement in which the parties exchange information about a new market's conditions, such as demand signals, local regulations, or processes in a new logistics hub. It could involve active coordination between the partners, such as using real-time track-and-trace to provide visibility for the exact timing of handoffs in the supply chain. Or the partnership could involve ongoing cooperation, including sharing resources to move freight or monitor freight flow.

Finally, at the pinnacle of this hierarchy is what we might call collaborative logistics, in which the partners have joint goals, share joint responsibilities, and incur joint risks. While the most complicated form of partnership, this model can also be the most rewarding, offering the highest potential to all partners involved.

Underlying all these arrangements—and fundamental to the partnership's success—is mutual trust and open communication. These elements develop over time, but when present, the sky is the limit for success in the value chain.