sive to make and missed the mark on package size,
product specifications, and shelf appeal. Sales were
disappointing, and within months the partners were
forced to reassess their relationship.
MAKING THE RIGHT CHOICES
Consumer packaged goods companies can greatly
improve their prospects for collaboration by taking a
more thoughtful approach to the areas they select for
collaboration, their choice of partners, and the way
they implement their collaboration efforts. Based on
our experience, we have identified six essential steps
(summarized in Figure 1) that can make the difference
between a productive collaboration
and a frustrating one.
1. Collaborate in areas where you
have a solid footing
Companies are often tempted to use
collaboration as a way to fill gaps in
their own capabilities. In practice, the
most successful collaborations build
on strengths rather than compensating for weaknesses. A manufacturer
seeking to collaborate with a major
retailer in order to improve its own
forecasting performance, for example, will have little
to gain from access to the retailer’s point-of-sale data
unless it has the in-house analytical capability to make
effective use of that data. Similarly, there is little point
in entering collaborations to boost sales if any increase
in demand is likely to run into manufacturing-capac-ity constraints.
Potential collaborators should also be sure they have
the right supporting infrastructure in place in advance
of any collaborative effort. Is top management committed to the collaboration process and ready to offer
support over the long term? Are in-house information
technology (IT) systems robust enough to facilitate
real-time data sharing if required?
2. Turn win-lose situations into win-win opportu-
nities with the right benefit-sharing model
Some collaborations promise equal benefits for both
parties. If, for example, a manufacturer and a retailer collaborate to optimize product mix, both could
expect to benefit from the resulting increase in sales.
In other cases, however, the collaboration might create
as much value overall but the benefit could fall more
to one partner than to the other. Here’s one real-life
example: a retailer and a manufacturer were able to
reduce overall logistics costs between factory and store
by cutting out the manufacturer’s distribution centers
and treating the retailer’s distribution network as one
integrated supply chain, from manufacturing plant
to store shelf. However, the retailer’s supply chain
executives struggled to gain acceptance for the idea
from their leadership because it resulted in the retailer
carrying a far larger fraction of the logistics cost.
Rather than shying away from such asymmet-
ric collaborations, smart companies can make them
work by agreeing on more sophisticated benefit-shar-
ing models. These can come in the
form of discounts or price increases
to more fairly share increased margins
or cost reductions, or they can involve
compensation in other parts of the
relationship. For example, when one
retailer collaborated with a manufac-
turer on a co-branded product line,
the manufacturer agreed to absorb the
upfront product-development costs
in return for an expanded share of the
retailer’s product offerings across a
wider set of categories.
Benefit sharing can help to overcome differences in
strategic priorities, too. One growth-focused manufac-
turer was persuaded to join a supply chain waste-re-
duction collaboration with a retailer by establishing an
agreement to deposit part of the savings both compa-
nies achieved into a joint pool, which would then be
invested in efforts to generate additional sales.
Similarly, in the product-flow improvement case
described in the sidebar, the manufacturer provided
the upfront investment in new retail-ready packaging,
while its retail partner reaped most of the benefits in
terms of increased availability and reduced labor costs.
The two companies established a joint benefits pool
and agreed to use a percentage of the savings to fund
future cost-reduction efforts and a sales-improvement
program.
3. Select partners based on capability, strategic
goals, and value potential
The biggest potential partner might not be the
best one. Many companies aim to collaborate with
their largest suppliers or customers because they
assume that the greatest value is to be found there.
