Buying into the benefits of collaboration

Thomas Fisher is getting ready to peel back the covers on his company’s confidential information so that suppliers can better serve his needs. But before he takes that big step toward collaboration, he’s got to take a deep breath.

“There’s some leeriness on our side. Suppliers will need to have a lot of our proprietary information to fulfill our raw materials needs in real-time. That could be used against us if we’re not careful,” says Fisher, vice president of global information technology for Applica Inc., a US$850 million maker of small appliances (including the Black & Decker line) headquartered in Miami Lakes, Fla.

In June, Fisher is planning to launch a Web-based front end to his manufacturing system, based on QAD’s MFG/PRO, that will give suppliers unprecedented access to Applica’s production data. Sharing the information will allow Applica to do real-time procurement of raw materials it uses, which Fisher expects to lower costs and increase production flexibility. But with that big win comes the risk that the information will be misused – for example, specifics on Applica’s manufacturing processes or product design might somehow make their way to competitors.

“We’re working on rules and procedures on how that information should and should not be used,” Fisher says.

His sense of unease is pretty universal. Seventy-five per cent of senior IT managers cited lack of trust as the number-one barrier to electronic collaboration in a recent survey conducted by NerveWire, a consultancy in Newton, Mass.

“It is a tradition that we don’t trust our business partners,” says Hau Lee, professor of operations, information and technology in the Graduate School of Business at Stanford University and an authority on supply chain management. “People don’t have a clear understanding of how sharing information would result in better performance. The lack of understanding induces fear and scepticism: ‘I’m not sure, so it’s better not to do it.'”

Yet the potential benefits of collaboration are huge, be it integrating supply chains, product development or even business processes. Companies – and their supply chains – can cut out waste, speed time to market and be more responsive to customers’ needs by sharing information. During an otherwise grim year in 2001, for example, Applica cut US$60 million out of its average inventory and trimmed the number of days product remained in inventory from 136 to 94, thanks to collaboration projects already in place, Fisher says.

Collaborate to compete

Sooner or later, companies in all industries must face the fact that competition is increasingly between supply chains rather than between companies. Hardly any big-name manufacturers actually make anything themselves now – they leave it to contract manufacturers so that they can compete on the basis of superior information and efficiency.

“All companies will have to do collaboration as a core competency, or they will not survive,” asserts Denis Mathias, a partner in San Jose, Calif.-based IBM Consulting Services. Supply chain partners “need to have a different value proposition not based on exploitation but win-win.”

Spalding Holding, a maker of sporting equipment in Chicopee, Mass., finds its collaboration with Wal-Mart Stores Inc. to be a win-win, says Spalding CIO Christine Rousseau. “Getting their forecast and [point-of-sale] data is beneficial to us because it allows us to keep our inventory levels down. It lets us serve [Wal-Mart’s] needs better,” she says. Wal-Mart, in turn, runs short of Spalding goods less frequently than it did before the companies exchanged data and has a better understanding of Spalding’s capacity and costs.

Adversaries no more

In contrast, companies that screw their trading partners to the proverbial wall will find they cannot work as effectively, says Mathias, as those that collaborate seamlessly in an electronic environment designed to help all parties thrive. The age of specialization demands that companies lay down their age-old adversarial relationships with trading partners.

Of course, company practices won’t change overnight. And neither will human nature. Fear, uncertainty and doubt (FUD) has always driven people to hold information close to the vest, even among coworkers. At this early stage of collaboration, companies are struggling to find ways to safely open up. Unless and until partners can see that it is in their own best interest to collaborate, getting them to trust each other will be an uphill battle.

Scott Griffin, vice president and CIO at The Boeing Co., is running up against the trust barrier. Boeing engineers have long shared product design data electronically with their supply chain partners. At that basic level of collaboration, trust has not been a big issue because the arrangement is covered by standard nondisclosure agreements. But a higher level of collaboration, in which the company will integrate its business processes with its partners, holds both the promise of fatter profits and the peril of greater risks, Griffin says.

In the near future, Boeing engineers and their partners won’t just pass design documents back and forth but will actually share the same product data management system with their partners, as if there were no corporate boundaries. “In this high-level collaboration we will have designers [from all sides] working concurrently. Someone is building the components; someone is designing the assembly; someone is figuring out how to make the assembly; someone is figuring out how the assemblies will go together into subassemblies and then finally into an airplane. That is nirvana as far as collaboration,” says Griffin, speaking from Boeing’s new headquarters in Chicago.

Even at such an advanced level of collaboration, technology is no longer a barrier. “The technology is getting to the point where you can literally work together as if you were in the same company. The only rules are non-technical rules about who gets to work together, how do they work together, what information can they share, what information can’t they share, who owns the intellectual property,” Griffin says.

But “this is a big deal in terms of trust because the [supplier] could build the same part for your competitor,” he says. “Once you say, ‘build me the world’s best overhead arch beam,’ they could turn around and sell that to Airbus.”

No one has come up with a satisfactory solution to that conundrum yet, despite vendor claims to the contrary, says Griffin, adding, “we need to work some stuff out.”

How to build trust among partners

When you first embark on a collaboration project, you can expect a lot of raised eyebrows and crossed arms – from coworkers as well as trading partners. Here’s what people typically think and sometimes say to each other.

From a supplier to a manufacturer: “If we share more information, you’re going to squeeze us on cost even more.”

From a manufacturer to a supplier: “If we share more information, you’ll go directly to the customer and cut us out of the loop.”

From a retailer to a supplier: “If we share promotional information, our competitors will find out.”

From all parties: “If the collaboration project does prove to be useful, the other side will get more value than we do.” “We can’t share information or processes. That’s our competitive advantage.”

Successful collaboration boils down to trust among partners. Trust has to be built up over time. “You have to earn it,” says Applica’s Fisher. “You can’t walk in the door with bright eyes and bright ideals. It takes time.”

Acknowledging that there are no quick fixes, here are six ways to lay the foundation for trust.

1.Start small. Begin by collaborating on a small scale – such as synchronizing one type of sales data – and with a partner you already trust (hopefully, the feeling is mutual). Pick a project that is likely to provide a quick return on investment for both sides. Once you show real benefits and create a climate of trust, then it’s time to go for bolder stuff. Spalding, the sporting goods manufacturer, launched its collaboration with Wal-Mart by initially exchanging data via EDI. Today, the companies share forecasts and real-time sales data over the Internet. The key to the successful venture, says Spalding CIO Rousseau, was establishing a track record of collaboration, however modest.

2.Look inward. The necessary precondition for establishing trust with outside partners is establishing trust with one’s internal peers. That means the CIO and staff must make peace with the supply chain folks, the e-commerce team, the marketing and sales force, and whomever else might be involved (which is to say, everyone). Give the same pitch you would to external partners, singing the commonsense benefits of working together and grinding along toward consensus. Your internal political situation might be a mess, but that’s no excuse. If you can’t break down barriers with the people you play alongside on the company softball team, you don’t have a hope in hell of doing it with outsiders.

3.Gather ’round. This is no time to use e-mail or videoconferencing. There’s no more sophisticated method to build up trust than to meet with people the old-fashioned way, around a table. Listen to the objections, find out what the agendas are, buy them lunch (better yet, cocktails), and then do it all over again as people leave and management changes.

4.Go for the win-win. It’s a clich