Finding ways to reduce the cost of supply chain management is a goal for many businesses. However, as a single business working on your own, there is limited leverage that can be brought to bear to establish different rates or to create more favorable rates and pricing.
To address this issue, many small to large businesses have created a process known as supply chain collaboration. In this process, two or more independent businesses can access the same supply chain, creating a larger volume of orders and increasing the leverage and ability to negotiate with all suppliers along the chain.
There are two different types or options in supply chain collaboration. These include horizontal and vertical collaboration. Horizontal collaboration refers to two organizations that are at the same stage or level in the supply chain. Vertical collaboration is when two companies at different levels in the supply chain work together.
When supply chain collaboration is used by a business, particularly in the retail industry, relationships with different partners in the supply chain improve. In other words, there isn’t the constant attempt to pass losses off up the chain, rather all parts of the chain attempt to work to the mutual benefit of all.
To make collaboration work is not always easy. In fact, there will be the need to open up the lines of communication, coordinate contracts to maximize efficiency and to also share information across the collaborative group.
In successful types of collaboration, there is also a form of a joint decision-making process shared on information known to all involved. One company or supplier in the chain cannot withhold critical information with other partners if the collaboration is to continue to be trusted and used to maximum potential.