Co-creation and Collaboration in the Supply Chain Emeritus Professor Martin Christopher Cranfield School of Management Cranfield University Cranfield Bedford MK43 0AL United Kingdom Tel : 44 (0) Fax : 44 (0)

Agenda The new rules of competition Gaining advantage through collaboration The challenge of complexity The case for ‘co-opetition’ The Supply Chain of the future 2

3 New competitive realities Input costs are rising but … New sources of low cost competition mean that the pressure on price will continue and … Continued concentration of markets means that bigger, more powerful customers will demand more from their suppliers whilst … Conventional marketing strategies have less effect in a time-sensitive, on-demand world

4 Volatility Index

5 Nothing ever changes “..... In 50 years between 1870 and 1920 the cost of distributing necessities and luxuries has nearly trebled, while production costs have gone down by one-fifth.... What we are saving in production we are losing in distribution.” Ralph Borsodi ‘The Distribution Age’ 1929

6 Days of Inventory First Tier Supplier Inbound Logistics Vehicle Manufacturers Outbound Logistics Distribution & Retail (UK 1999 Figures, Volume Car Stock Levels Source: Holweg (2002) Inventory profile of the automotive supply chain

7 The search for collaborative advantage Seek out opportunities for horizontal as well as vertical collaboration Co-operate to grow the cake, compete on how to slice it Leveraging capabilities and knowledge through collaboration Share assets in the supply chain where appropriate

Complexity in the global supply chain : the Boeing

Co-creation in the supply chain 9 Value to Customer Value to Supplier Traditional Relationship Focus on splitting the pie Extended Enterprise Focus on expanding the pie Source: J.H. Dyer, Collaborative Advantages

The extended enterprise viewpoint Single company thinking Focus on the customer Increase own profits Consider own costs “Spread the business around” Guard ideas, information and resources Improve internal process efficiency Extended enterprise thinking Focus on the ultimate consumer Increase profits for all Consider total costs Team with the best Share ideas, information and resources Improve joint process efficiency 10 Source : A T Kearney

The business case for supply chain integration Supply chains compete, not companies Most opportunities for cost reduction and/or value enhancement lie at the interface between supply chain partners Supply chain competitiveness is based upon the value-added exchange of information Supply chain integration implies process integration Supply chain competitiveness requires the collective determination of strategy 11

12 The role of supplier and customer collaboration Source : Accenture Enterprise CustomerSupplierComplementorIntermediary SPEED to Margin Manufacturing Collaboration Design for localisation Scheduling synchronisation Design anywhere build anywhere Product Development Collaboration Global platform design Customisable products Global distributed product development Customer Collaboration Joint product definition Rapid proposal response Online custom configuration Supplier Collaboration Joint development Outsource design Contract manufacturing

Co-opetition: a definition 13 A business strategy based on a combination of cooperation and competition, derived from an understanding that business competitors can benefit when they work together. A “non zero sum” scenario, in which the sum of what is gained by all players is greater than the combined sum of what the players entered the scenario with. Source: D. Meyer, 15 th March 2011 and istockphoto

Co-opetition 14 Source: D. Meyer, 15 th March 2011 Cooperative Competition Co-opetition occurs when companies work together in parts of their business where they do not believe they have competitive advantage and where they believe they can share common costs. Basic premise: - Co-opetition strategy and value creation leverage the alliance - Partner with other shippers (even competitors) to control logistics and transport costs - Load consolidation

Co-opetition Partners 15 Source: D. Meyer, 15 th March 2011 Producers, Customers, Consumers who drive producer demand and determine product eco-footprint Shippers and Terminal Operators who generate the freight flows and provide the critical infrastructure for product flow Logistic Service Partners (3PLs) who can design and implement optimised solutions and move the freight Fourth Party Providers who can facilitate partnerships, referee blockages, find common ground Governments who can assure that legal and regulatory arrangements are in place to support seamless collaboration

Co-opetition = Value Creation 16 Source: D. Meyer, 15 th March 2011, and reubenmiller.typepad.com Co-opetition does not simply emerge from coupling competition and cooperation issues Co-opetition implies that cooperation and competition merge together to form a new kind of strategic interdependence between firms, giving rise to a co-opetitive system of reciprocal value creation.

The Prisoner’s Dilemma – The Importance of Trust 17 Source:

From “Bow-Tie” to “Diamond” 18 Traditional buyer/supplier interface Building stronger partnerships through multiple linkages R & D Production Marketing Supply chain Sales Marketing Operations Business development Supply chain Buyer Supplier Customer R & D Production Marketing Supply chain Key-account selling Marketing Operations Business Development Supply chain Supplier Development Supplier Customer

The supply chain of the future 19 Yesterday’s Model Independent entities Inventory Based Low cost production Market Driven Supplier Driven Mass customisation one-to-one marketing Mass production Tomorrow’s Model Virtual networks Information based Customer value oriented mass marketing