their colleagues during the initial phase of subsequent
efforts.
5. Establish a robust, joint performance-manage-
ment system
An effective performance-management system helps
a company to ensure that any long-term project is on
track and delivering the results it should. In supply
chain collaboration efforts, both participants should
use the same performance-management system. By
building common metrics targets and jointly monitoring progress, companies avoid the misaligned
incentives that damage so many collaboration efforts.
Picking the right metrics can be challenging, however, and it will inevitably involve trade-offs. In a
collaboration to reduce logistics costs, for example, the
partners may have to choose between a pallet configuration that’s optimized to suit a retailer’s restocking
processes, which will reduce in-store labor costs, and
one that optimizes truck fill, which will reduce transportation costs from distribution center to retail store.
How to overcome these potential conflicts? The
trick is to keep things simple by picking the smallest
possible number of metrics required to give a picture
of the collaboration’s overall performance, and then
to manage those metrics closely, with regular joint
reviews and problem-solving sessions to address trade-
offs. The real power of any performance-management
system comes from this frequent, robust dialogue
between partners, yet this is also the element most
commonly ignored or underemphasized by collabo-
rating companies.
6. Collaborate for the long term
The final vital ingredient of a successful collaboration is stamina. It may take time and effort to overcome the initial hurdles and make a new collaboration
work. Both parties need to recognize this and build an
appropriately long-term perspective into their goals
and expectations for the collaboration. This means
including metrics that review performance beyond the
first year, as well as conducting some joint, long-term
planning so both partners can gain an understanding
of each other’s longer-term objectives and identify a
roadmap of initiatives they can work on together over
time. Such planning helps companies to break out of
the short-term-project mentality that can limit the
beneficial impact of collaborative efforts. Nevertheless,
partners must also take care to ensure that they are
doing everything they can to capture any available
In McKinsey & Company’s work with consumer goods
manufacturers and retailers, we have identified six
broad areas where companies can collaborate for
mutual gain:
x Category strategies
x Merchandising and in-store layout
x Joint innovation
x Demand planning and fulfillment
x Collaborative sourcing
x Joint flow efficiency
The final three of these have direct supply chain
implications, and in each case, successful collabora-
tions have delivered profound improvements in supply
chain performance. The following are some examples
we have seen:
A beverage manufacturer and a retailer collaborated
to improve demand planning and fulfillment. Prior
to the collaboration, the retailer’s ordering process
did not match changes in consumer demand, with
the result that shipments from the manufacturer
fluctuated twice as much as did retail sales. To avoid
stock-outs under this regime, both the manufacturer
and the retailer were forced to keep high levels of
inventory on hand.
Working together, the manufacturer and retailer
agreed on a joint forecasting and demand-analysis
system. They improved their information sharing,
too: The retailer gave the manufacturer access to
its on-shelf availability data, which allowed the two
companies to modify product distribution to maximize
availability in individual stores, while the manufacturer
informed the retailer about supply constraints that
might limit its ability to meet high levels of demand
at short notice. The partners also agreed to stagger
promotional activities among regions to reduce overall
demand peaks. The introduction of the new system
cut shipment volatility by one-third, allowing both the
retailer and the manufacturer to achieve inventory
OPPORTUNITIES FOR COLLABORATION
