E-Sourcing Forum » Collaboration - More does not always equal less.

Collaboration - More does not always equal less.

July 25th, 2007 at 02:30am Sean Delaney - Iasta UK

This article in supply management is a classic misconception that just by adding together more of the same does not always equal lower unit costs. As highlighted by Michael Lamoureux there are a number of issues that inhibit collaboration like culture, time and timing.

I think the SM article gives us a great opportunity to dissect a particular collaboration project and measure it against the inhibitors outlined by Michael and Tim Cummins

1. The process of collaboration is difficult enough with 2 parties. Each party has different objectives and consequently different contractual requirements. Honda has been used as an example of how collaboration can work successfully however each project tends to imply that only 2 parties were involved. The project being announced by SM has 10 parties!

2. Collecting together requirements often adds delays to projects. Any benefits gained can often be lost in the process, only leading to frustrations of those involved. This directly relates to the time issue however there comes a point were time invested out weighs the benefits.

3. Benefits can be eroded when the contract is finally awarded it may no longer suit all parties. In order to meet their requirements stakeholders are required to buy off line from the contract. This further erodes the integrity of the awarded contract. Future collaboration projects have less importance as they only act as a loose frame work agreement thus further undermining the integrity of the process.

In my opinion not only does culture, time and timing prohibit collaboration but also the IT infrastructure and more specifically the category chosen to collaborate with.

In this particular case it is unclear what IT infrastructure is in place. However without it collating the requirements of each member will be a logistical nightmare and will result in high % of non compliance post award.

For me though the real crux of this project is the category that has been chosen to collaborate with. Claiming a potential 10% saving by simply adding together the road surfacing requirements for 10 authorities is a little ambitious especially when you consider the following.

Let me highlight some of the supplier cost drivers:

• The cost of Asphalt is fixed by the crude oil prices and therefore is index linked. Since Oil is in the process of reaching an all time high it is unlikely that savings would be achieved in this portion of the overall cost.
• The Cost of plant and Machinery is fixed by the cost of money i.e interest rates. If suppliers have bought/leased machinery the costs are fixed and standard returns must be achieved.
• The Cost of labour is subject to minimum wages and experience. Since there is a limited supply of labour, underpinned by a minimum wage there is likely to be little room from negotiating here too.

When suppliers are constrained by such cost drivers coupled together with a more bureaucratic process of winning business you start to get a sense 10% might be a little…err pie in the sky?

Furthermore with so many vested interests the requirements are likely to be watered down to such an extent that the service levels become too vague. Measuring any benefit is going to be impossible.

I am not adverse to collaboration but I think small steps should be taken at first to establish procedures, measure benefits and compliance. After all that’s how Honda started!

Entry Filed under: General, Project Management, Supply Management Best Practices