As more and more organizations digitally transform, the interconnectedness of supply chains is becoming increasingly apparent.
Companies rely on hundreds or thousands of factories, many of which also serve their competitors. Events in one production chain will inevitably affect others. In response, companies often strive to solve problems alone — problems that are common to their entire industry.
This scenario has led many organizations to adopt a bold and effective new strategy: collaborating with their competitors to overcome mutual supply chain challenges. It sounds easier said than done. However, digital transformation can actually make it easier for companies to solve industry-wide problems through collaborative efforts.
Before we dive into how that works, let’s discuss the current state of supply chains.
Today, 70% of executives expect digital innovation to impact their supply chains within the next 5 years. This is a significant increase from 63% just 4 years ago, and suggests that CEOs are taking note of digital platforms that are “disrupting traditional supply chain management, slashing response times and raising customers’ expectations,” according to Bain & Company
Organizations preparing for digital transformation must consider their supply chains’ interconnectedness. A recent survey revealed a dramatic difference in how supply chain executives and C-level executives view the reactivity of their supply chains:
Over 50% of supply chain executives believe their supply chains are reactive — that is, that they have low visibility and are inflexible in the face of shifting market demand — compared with just 36% of C-level executives.
In short, those on the front lines of supply chain activity sense potential trouble that C-level executives may not be aware of. Because these supply chains overlap with many others, this trouble can wreak havoc on multiple companies and industries in one blow.
How to Weave Interconnectedness into Digital Transformation
The following is a suggested strategy companies can adopt to wed supply chain interconnectedness with digital transformation:
1. Understand the context of your company’s starting point.
Don’t replicate the same supply chain silos you’re currently using.
The key part of digital transformation is “transformation,” and that cannot simply mean acting on the realities of today. Instead, your company must consider the likely realities of your industry 3, 5, and 10 years from now.
2. Identify your company’s pains and desired impacts.
Be thorough in identifying the gaps in your company’s performance and supply chain logistics. Make a list of all pains and the respective outcomes you would like to see from addressing them.
3. Design your impact journey.
Frame the path towards solving your company’s pains as a journey. Communicate this idea to your workforce — trying to tackle every problem at once can damage morale and lead to a lack of faith in the transformation.
The following chart outlines a helpful impact journey for companies, starting with standardization at the bottom and working upwards toward optimization:
Only when your company has solved issues of standardization — making operations process-reliant instead of human-reliant, seeking single efforts to resolve global problems, and so on — can it effectively move on to visibility, then to automation, and finally to optimization.
4. Differentiate company-specific pains versus industry-common pains.
If you can isolate those pains that affect the entire industry instead of just your company, you have the opportunity to solve those problems with other companies who share them. This is where pre-competitive collaboration comes in.
With pre-competitive collaboration, two or more competing companies work together to solve a common pain point by sharing capabilities and resources.
The idea, according to Drug Discovery World, is for companies to “develop a solution for a problem that they all share…from which none of them would gain a competitive advantage.” The output of the collaboration is available to all players in the industry to leverage as they will.
This idea naturally may evoke skepticism. Why not simply wait for others to generate the innovation and then capitalize on it?
The answer is that those companies that sit passively by are losing out on many key benefits of pre-competitive collaboration:
- Input on key strategic and technical decisions
- Visibility on the delivery date of the innovation
- A thorough understanding of the innovation, so that they can begin leveraging it immediately upon completion
- Fostering a collaborative spirit within the industry
- Creating new channels of communication
- Building the company’s reputation as an active, engaged player in the wider community
According to Drug Discovery World, the “simple act of engaging in conversation through a project of this nature can also itself be of great value regardless of the success of the outcome.”
Plenty of companies and industries have benefited from pre-competitive collaboration.
Here are some examples.
Benefits of pre-competitive collaboration
The Pharmaceutical Industry
Most pharmaceutical companies are involved in at least one pre-competitive collaboration. The relatively high costs of research & development (R&D) in the pharma industry necessitate collaborations to solve major obstacles, conduct research, and create new standards that benefit multiple players.
To collaborate effectively, pharma companies must settle on a single platform and set of standards for data. They must then promote this platform’s use throughout the industry. Although this requires some investment, it is beneficial in the long run compared to sifting through a multitude of duplicative, incompatible in-house solutions.
The Pistoia Alliance is an example of pre-competitive collaboration between pharma companies. Incorporated in 2009 by representatives of Novartis, AstraZeneca, Pfizer, and GSK, it now includes over 150 member companies. The purpose of the Pistoia Alliance is collaboration on open innovation projects that generate value for life sciences and pharmaceutical R&D. This goal benefits the bottom line of all pharma brands, as it allows them to accelerate their R&D and solve major problems more quickly.
“Pharma companies are not software houses or standards bodies,” writes Drug Discovery World. “In the same way that they often outsource their core IT systems and support, the effective outsourcing of sticky R&D problems to be solved by collaborative groups makes just as much operational sense.”
Benefits of pre-competitive collaboration
Circular Fashion System Commitment
The Global Fashion Agenda developed the Circular Fashion System Commitment, a motivator for fashion companies to practice a more circular economy — that is, one that maximizes resources instead of simply disposing of them.
This pre-competitive collaboration includes 90 signatories. Each company had a set of targets and worked to reach those targets within a given timeframe.
This effort details the initial actions companies took to reach their circularity targets, as well as the overall progress each company achieved for their action points. Most importantly, it focuses on “key learnings to inspire the whole industry with real actions toward a more circular fashion system,” according to the Agenda’s 2019 Report
Inditex, in an initiative to conserve high-conservation-value forests, has declared that their viscose sourcing will be 100% sustainable by 2023, and that their linen sourcing will be 100% sustainable by 2025. Through pre-competitive collaboration, Canopy empowers Inditex and other companies to transform their supply chains without the burden of undertaking all of the efforts alone.
Benefits of pre-competitive collaboration
Inspectorio’s Facility Risk Predictions
Inspectorio promotes pre-competitive collaboration by giving companies access to continuously aggregated data on thousands of facilities. Each company and facility using the platform generates data for the betterment of everyone else — data that is constantly feeding a powerful backend of artificial intelligence and machine learning.
This machine learning detects patterns in factories that shift between low-, medium-, and high-risk statuses, generating a risk profile for each factory:
For a factory that works with multiple brands and retailers, our platform provides benchmarks. You can see how that factory compares with others, as well as which activities have contributed to its score. This reveals the main drivers of risk:
Every single piece of data collected is making everyone smarter, more informed, and better prepared to make good decisions.
Inspectorio’s Facility Risk Prediction automatically alerts you as to whether you should be inspecting certain facilities. This helps your company allocate resources toward high-risk facilities and save on unnecessary audits of low-risk facilities:
Our platform also converts large quantities of defect data into trends. These trends provide brands with invaluable information on where defects tend to occur within each factory. Brands can then preemptively act on this by paying attention to the factory’s common problem areas:
In summary, keep the following points in mind as your company strategizes on digital transformation:
- Don’t forget about the interconnectedness of production chains
- In digital transformation:
- Understand your company’s starting point in the greater industry context
- Identify your pains and desired impacts
- Design your impact journey
- Differentiate industry-common pains from company-specific pains
- Seek pre-competitive collaborations to resolve industry-common problems