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Collaboration is an interesting word. The thesaurus notes that the word, “collaboration”, has a positive connotation except in wartime (ex. working with the enemy). With that note, how do you define business collaboration? Is strategic business collaboration essential to have an optimized supply chain? Can businesses be competitors, but still collaborate to optimize their supply chain? How does Business-to-Business (B2B) system integration relate to business collaboration? Paul Cousins has created an interesting business collaboration model that can be used to define the full spectrum of B2B relationships. In this 2D model all levels of business collaboration can be defined by the degree of dependency (Y-axis) in the business relationship and the degree of certainty (X-axis) in the relationship.

Cousins’ Business Collaboration Model - degree of Dependency and Certainty in a Business Relationship

Below are the four quadrants of the business collaboration model:

Traditional (Independent / uncertain relationship) - Lower Left Quadrant. A traditional-type of B2B relationship is weak. Both businesses are highly independent and they have no on-going relationship with each other. From a supply chain perspective, this is a transactional type of relationship. Examples of this is any type of auction like eBay auction, reverse auctions, and commodity-type markets. There is no value-add to the relationship except for the life of the transaction. From a B2B perspective, there is no motivation to do system-to-system interfaces to exchange electronic documents except through a third-party service provider that provides the electronic marketplace or auction.

Opportunistic (Dependent / Uncertain) - Upper Left Quadrant. An opportunistic-type of B2B relationship is weak, but there are select opportunities to do business together, and may be more opportunities in the future. Example of this could be a seasonal supplier or a supplier that is attempting to establish a long-term relationship with a retailer or manufacturer. From a B2B perspective, the “cost of admission” may be very high for a supplier. The large retailer or manufacturer may require several Electronic Data Interchange (EDI) interfaces (purchase order, advance ship notice, invoice, and so on) just for the supplier to do occasional business with a large business customer.

Tactical Collaboration (Independent / Certain) - Lower Right Quadrant. A tactical-type of B2B relationship in many ways may be a missed opportunity or an opportunity waiting to happen. Example of this is when two businesses are regularly doing businesses together, but at least one of the businesses has not realize the extent of the relationship. There may be millions of dollars and thousands of purchase transactions being exchanged, but both businesses are not collaborating strategically to optimize the relationship. From a B2B perspective, this current relationship is more than likely costly in terms of business transaction costs (transactions like purchase orders, ship status, payments, and so on). In this type of B2B relationship, all or most business transactions exchanged between the businesses are probably manual and / or the business customer may be paying premium pricing for the supplier’s goods or services (example: paying publish rates for shipping versus contract rates). This is where one or both businesses need to evaluate the relationship and either distance themselves from the relationship or develop a strategic relationship to reduce costs and improve the overall value-add to the relationship.

Strategic Collaboration (Dependent / Certain) - Higher Right Quadrant. A strategic-type of B2B relationship is where both businesses keep their business relationships optimized to minimize cost and to maximize value to the end-customer. Many International and large businesses as well as their suppliers seek this type of relationship. Strategic business collaboration is key in such industries as the automotive and electronics industries where all the businesses in the supply chain are dependent on each other and they have a long-term relationship with each other. From a B2B integration perspective, these businesses may exchange any where from three to 50 different EDI-transactions between their systems to minimize costs, maximize speed-to-market, and optimize value-add to the end-customer.

See JanHusdal’s posting, Biting the hand that feeds. Or why all firms are snakes, for more discussion on Paul Cousins’ business collaboration mode.

For global companies, transportation costs are souring to the extent that shipping costs are fundamentally changing the value-added proposition of off-shore outsourcing. For companies with high freight costs (steel, cars, and so on), these companies can now be extremely more competitive manufacturing locally than overseas.

E-Sourcing Forum’s posting, Reverse Globalization, provides a good overview on how transportation costs are creating a fundamental change in how global companies do business. Cost examples include:

“…the cost of shipping a 40ft Container from the Far East to the Eastern Seaboard of the US, has almost tripled since 2000 ($3,000 to $8,000). This will double again once the price of a barrel of Oil reaches $200.

Furthermore, at Today’s oil prices, every 10% increase in a trip distance, translates into a 4.5% increase in transport costs.”

Construction and project-centric businesses have to manage their supply chains more to minimize overall project failure than just to reduce costs. Project-centric businesses use their supply chains to manage risks. Supply chain costs are secondary than the risk of inadequate resources or meeting critical project deadlines and deliverables. Project-centric businesses must look at the total project cost instead of supply chain costs in isolation. To that end, project-centric businesses are using supply chain systems to provide better visibility, less risk, lower total costs, and strengthen supplier relationships.

SupplyChainBrain has a great article, Lifting the Burden of Project-Centric Supply Chains. This article talks about the five drivers of project-centric businesses: risk, cost, cash flow, time, resources. Additionally, enterprise systems are now increasingly being used by project-centric businesses for visibility and control, strengthening supplier communications, managing risk, and even managing return on investment (ROI).