Trust Me! The Human Side of Collaboration

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How business partners can conquer their fears of intimacy by learning to collaborate, share forecasts and plans, and build the kind of trust that supports successful supply chain operations.

For several years now, experts have been urging companies to forge stronger ties with trading partners. The movement to share information and make joint decisions is no mere fad, says C. John Langley, Jr., professor of supply chain management at the Georgia Institute of Technology. "Long term, there's a right way to do business, and it very definitely involves having collaborative relationships with all parties in the supply chain."

To some, collaboration means sharing the details of supply chain transactions, so that if something goes awry, partners can cooperate to solve the problem.

To others, collaboration starts long before execution; it means communicating forecasts and plans, working closely with partners to ensure that the right goods flow in the right volumes at the right times. Firms also collaborate on transportation, perhaps sharing a truck for different legs of a continuous move.

Companies that want to collaborate find many tools to help them. These include the Collaborative Planning, Forecasting and Replenishment (CPFR) processes established within the Voluntary Interindustry Commerce Standards (VICS) organization, and a host of supply chain systems that make it easy for partners to work together online.

But process and technology provide only the bare bones of collaboration. The heart of the matter involves human beings working with other human beings.

As in any intimate relationship, opening yourself to another means taking a risk that you'll get hurt. And as in any intimate relationship, your best shot at happiness comes when you build a solid foundation of trust.

Ethics Question

Chipping away at the walls that divide two enterprises can be scary. What if the data you share ends up in the wrong hands? What's to stop a dishonorable trading partner, or a rogue employee, from leaking valuable secrets to your competitor?

"I get many questions about the boundaries and benefits of collaboration," says Ed Frazelle, president and CEO of consulting firm Logistics Resources International. "There has been so much made of the topic, and everyone assumes more is better. That's true to a point. That point is defined by the level of trust established in the relationship.

"Unfortunately, that trust is harder and harder to come by as the foundations for business ethics are crumbling, the attacks on business information systems are increasing, and the individuals between whom trust is established in organizations are in positions for shorter and shorter tenures," he says.

The prospect of collaboration also raises other all-too-human fears. For example:

Can we trust the data? Is the information you and your partner bring to the relationship reliable? Can you act upon it in confidence?

When Nistevo first introduced its online network for sharing transportation resources, "many people who wanted to collaborate were still using paper and pen. They had very little data on the amount of freight they were moving, other than word of mouth inside the firm," says Kevin Lynch, president and CEO at Nistevo.

"You may start off sharing your forecasts, and quickly find that one partner has a more accurate forecast than the other," says Karin Bursa, vice president of marketing at Logility, which develops technology for supply chain management and collaboration.

The weaker link might be your partner—or it might be you.

"Imagine being a supplier, and your top customer asks you to collaborate," Bursa says. "Then your top customer finds out, 'Gee, you haven't even been forecasting the level of business through my channel.' Some discomfort can come from that."

Is our partner as competent as we are? You might worry about how wisely your partner will use the data you share, and how those decisions will affect your business.

"Everybody who has information and knows it is powerful tends to dole it out," says Bill Lindquist, business unit leader at The 21st Supplier, Torrington, Conn. A division of manufacturer Ingersoll-Rand (IR), his firm provides purchasing services to other IR divisions and external customers, dealing mainly with small suppliers.

"It's a human trait to think that we're the only ones capable of understanding all the information," Lindquist says. That's why managers might divulge only the small slice of data they think a partner requires.

For example, adds Lindquist, a manufacturer might not want to give a supplier a six-month forecast of the parts it will need, for fear the supplier might take that forecast too literally, hastily produce all those parts and ship them with an invoice.

Will other departments in our company misuse our partner's information? Ron Ireland, principal with consulting firm Oliver-Wight, often encounters this qualm among his clients who supply goods to Wal-Mart.

The retail giant routinely shares sales forecasts with vendors through its proprietary Retail Link system. Sales teams that work directly with Wal-Mart make good use of this data, says Ireland, who helped develop CPFR processes as a Wal-Mart executive in the 1990s.

But, he adds, too often the sales organization keeps these forecasts under wraps, denying their home offices information they need to manage their business.

"They don't trust their own corporate offices to handle the data in confidence, or to actually know what to do with it," Ireland says.

Corporate executives complain that Wal-Mart keeps surprising them with orders and cancellations. "Then I drill down, and the corporate offices do not have visibility. They are not given access to that Retail Link data," he says.

Will our partner honor its commitments? "Suppliers have been abused for so long that they really don't trust any customers," says Lindquist. Buyers still routinely cancel orders on the spur of the moment, or stop processing invoices at the end of a quarter or year, he says.

"A lot of adversarial relationships between retailer and supplier have built up historically," says Gregory Lenard, director of inventory control at Ace Hardware, Oakbrook, Ill. That hurts attempts to collaborate. "If you say, 'we agree to increase sales in our business at four percent next year,' and if either party doesn't believe that, what's the point of signing the agreement?"

It Just Feels Wrong

Sometimes, roadblocks to collaboration spring up for reasons that don't easily yield to logic. "Many times, information that people hold closely and want to make sure remains in limited distribution isn't that sensitive anyway," Langley notes.

Nistevo has never managed to persuade direct competitors on its network, such as Kellogg's and General Mills, or Georgia Pacific and International Paper, to share transportation resources.

"It's very hard for them to collaborate, no matter what business benefits there are," Lynch says. "Even though they say, 'We compete at the shelves, not at the truck,' we haven't found people breaking through and saying, 'I just want to collaborate all I can with my competitors.'"

Elijah Ray, senior vice president of customer solutions at Standard Corp., a third-party logistics provider in Columbia, S.C., has been trying to persuade two clients to pool shipments bound for the same retail distribution centers.

"They would both achieve significant savings," and probably make life easier for their shared customers, he says. And although they're in the same industry, the manufacturers in question are not direct competitors.

"As slam-dunkish as that might sound, there's difficulty launching that idea within those companies," although they both recognize the potential savings associated with collaboration and seem to want to work together to achieve those savings, Ray says.

While some fears about collaboration prove insubstantial, risk is undeniably part of the equation. Before starting a collaboration, all the parties involved should define potential risks and talk about how to reduce them. "If you can intelligently discuss it and agree to agree, you can come close to eliminating risk," Langley says.

Companies that show too much caution run another kind of risk: they could fall behind in their market. "They have to do a risk assessment—what's the risk of sharing the data, and what's the risk of not sharing the data?" Ireland says.

So how can trading partners cut their risk and build the kind of trust that supports successful supply chain collaboration?

Get Up Close and Personal

"Definitely develop face-to-face relationships," says Lindquist, whose company holds an in-person meeting with each new supplier. "You're more likely to trust somebody you've met and had a cup of coffee with than somebody you're just talking to over the phone or by e-mail."

To build solid relationships with a new client, representatives of Standard Corporation sit down with all the key processes owners from the client's staff, to discuss their individual concerns. "The key to this is that we have a skilled facilitator," says Ray, who can draw people out and help all the stakeholders understand one another's roles and needs.

Nistevo plays matchmaker, identifying clients whose freight flows and preferred carriers make them good potential mates. "Then we sit the shippers down in a room together, have them look at our analysis, and have them meet the person on the other side," Lynch says. "They start to interview each other, almost as you would a carrier."

One shipper, Land O'Lakes, joined the Nistevo network largely to collaborate with two firms it already trusted—Pillsbury and General Mills (which acquired Pillsbury in 2001). All three organizations are based in the Minneapolis-St. Paul region, and many Land O'Lakes employees used to work for one of the other consumer products firms. Land O'Lakes had also done some co-shipping in the past with General Mills.

"We know the logistics people over there," says Pat Johnson, logistics manager for the Dairy Food Division at Land O'Lakes.

So when General Mills and Land O'Lakes build continuous moves for their freight, there isn't much concern about possible risks. "If we were dealing with somebody outside that comfort zone there might be, but so far we haven't seen it," Johnson says.

Take it Step by Step

For a company that wants to collaborate with suppliers, the best course is to forge relationships one by one, says Lenard at Ace Hardware.

"I don't believe you can dictate to a supplier community that you must have collaborative relationships. That's something you earn," he says. "You build success one vendor at a time. Then you go to the second vendor and try to use those same guiding principles again. Before you know it, you've built a family of suppliers that have all mutually benefited from that relationship."

Companies that decide to collaborate often start with a pilot, says Bursa. "When they see that success, they'll roll it out to either multiple stores or regions, or to all the SKUs that they manage in the relationship," she says.

"Trust is the result of experience, not a leap of faith," says Lindquist. "People have to have experiences to make them see that there's a reason to have trust."

Agree on Metrics

A chorus makes sweet music when everyone sings from the same score; supply chain partners work in harmony when everyone works from the same rules and uses the same standards to measure success.

For example, Bursa says, "we'll measure on-time delivery the same way. Is it when the truck enters the yard, or is it when the truck enters the dock?" The difference could add up to a couple of hours.

Buyer and seller need to establish rules of this sort up front, define tolerable margins of errors, and decide in advance how to resolve problems that arise, she says.

In the case of partners who don't have equally accurate forecasts, "usually that comes to light pretty quickly in a collaborative relationship," Bursa says. "Initially, I might not trust your number and you might not trust my number. But as we start collaborating, we might find out, for example, that I have a more accurate picture than you do."

Partners working toward a solid relationship would agree to use the better forecast, no matter who first produced it.

"Simple sharing of information itself is not collaboration," Langley says. "In order for all parties in the collaboration to make good use of the information, they must have a common understanding of what it is, what its purpose is, how it was derived, and how it could be used."

Another way to build trust is to always give your partners more detail than you think is strictly necessary, advises Lindquist. "Any time you have a working relationship, you're much better off sharing as much as you possibly can about information—why you're using it and what are you doing—than you are trying to edit it," he says.

In particular, a buyer never gains anything by simply demanding that a vendor take certain steps without explaining why. If you provide a reason, "you don't just get the understanding and the trust, but you also probably get a better solution because the vendor understands why you're doing it," Lindquist says.

Rely on Technology

Supply chain management systems and online exchanges that foster collaboration contain safeguards to protect the data they transmit and store. Users set different levels of access for different partners. Password protection ensures that individuals see only the data they're authorized to see.

Users who pay thousands or millions of dollars to use an information technology system do so on the understanding that the data they share will be used only as intended, Ireland says.

For example, the Nistevo network helps shippers share trucking capacity, but each shipper's individually-negotiated freight rates remain confidential. Through that and other built-in safeguards, "the system provides a lower level of risk and a very measurable return," Lynch says.

Nistevo and other systems also level the playing field for supply chain partners by making sure everyone provides the same kind of data in the same format, and by verifying that the data is correct.

"The only way collaboration works from a technology standpoint is when all partners can do an apples-to-apples comparison of what really is happening right now," Lynch says.

Standardization within a technology platform makes this possible, even when a large company works with a small or less sophisticated partner.

Mechanisms in supply chain collaboration software reinforce the sense of trust between partners, agrees Russ Henry, vice president of marketing at Velosel. Velosel provides collaborative product information management, allowing vendors to gather product data from many sources, control its quality, and present it to each customer in a customized format. Among other applications, the system supplies data for use in CPFR initiatives, such as the one conducted by Velosel customer Ace Hardware.

"A big portion of what we do is validate the data—we apply a business rule to make sure it's correct," Henry says. This not only prevents costly mistakes, such as selling a $999 item for $9.99, but it also builds confidence between vendor and buyer.

"Customers can start to trust that the manufacturer has placed some rigor and science into the information," he says.

The 21st Supplier uses its online supplier relationship management system, from SupplyWorks, to promote effective communications when it collaborates with vendors on behalf of its customers.

"For example, we can share more information or less information with certain suppliers based on the trust that the customer or we perceive is involved," Lindquist says.

SupplyWorks lets The 21st Supplier tailor its forecast for each part it needs, making sure vendors understand how to act on the information.

"You may give vendors six months' worth of data, but you tell them, 'look, you can only make parts within this first four weeks. You can buy raw material within the next eight weeks, and anything beyond that you should just use for forecasting purposes,'" says Lindquist.

Along with using technology to develop trust between partners, users need to learn to trust the technology itself. Instead of obsessively reviewing every transaction, they should allow the information system to execute routine business and alert them to exceptions.

"If you have old processes plus new technology, you end up with expensive old processes," Ireland notes.

Everyone's a Winner

Finally, to build the trust that promotes successful collaboration, partners must make sure the relationship benefits everyone. That's true even when one of the partners starts off in a position of greater power.

"A lot of times, in a buyer-seller relationship, the customer isn't as willing to share information," says Langley. "The suppliers have no choice, because they're receiving the check.

"To be effective long-term," Langley adds, "you have to treat your customers like customers, and treat your other partners, including suppliers, like customers as well.

"Everyone in a collaboration has needs. If you don't agree in the beginning to try to meet everyone's needs, your collaboration won't stand much of a chance to succeed."

Ethics Audit

How do you guarantee that your supply chain partner won't abuse the information you share? Or how do you make sure your own employees won't slip your partner's proprietary data into the wrong hands?

"You can't be absolutely sure," says Gerry Clarke, president and CEO of Human Synergistics International (HSI) in Plymouth, Mich. "But you can get a pretty good estimate of it by using some measurement tools."

One of the tools HSI offers its clients is the Corporate Ethics Audit (CEA), a 48-question survey meant to gauge whether a firm's corporate culture promotes or discourages ethical behavior.

Companies that reward competitive, power-driven employees can become breeding grounds for unprincipled activities, says Clarke, citing Enron as a prime example. By contrast, ethical behavior thrives in a firm that encourages "cooperativeness, friendliness, achievement orientation," he says. People who work in such companies "get stuff done, they enjoy working with each other; there's an atmosphere of learning, growing and developing."

A tool like the CEA could help a firm decide if it's safe to form a closer bond with a supply chain partner. "If I were a supplier to some other company," Clarke says, "and I were going to share documentation and share my secrets with them, I might ask them, 'Could you have a good sample of your company fill this out and let me take a look at your culture, just to give me some kind of assurance that I'm dealing with an ethical organization?'"

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