Horizontal collaboration in supply chains

A common concept when talking about collaboration in the supply chain is “horizontal collaboration”. Horizontal collaboration is nothing more than logistical collaboration between two or more companies, with the aim of generating benefits for both, which would not be possible independently. If vertical collaboration refers to cooperation between links in the same chain (such as industry and its suppliers, or industry and retail), the term “horizontal” refers to collaboration between entities from different chains, possible even between competing organizations.

Some examples of horizontal collaboration are sharing distribution centers and sharing transportation resources. Companies whose transport restrictions complement each other (cargo that exceeds weight and cargo that exceeds cubage, for example) have the potential to optimize their operations if they act together. The more efficient use of transport resources also impacts the reduction of carbon emissions, since the same load is transported in fewer trips.

A well-known case of horizontal collaboration is that of P&G and Tupperware in Europe. Both had factories in Belgium and distribution centers in Greece, but while the transport of P&G detergents was bursting in weight, Tupperware's plastic container load was restricted by the volume of products. P&G used a combination of road and rail modes, and Tupperware made exclusive use of road transport, faster than P&G's combination of modes, but with a lower frequency of shipments. By taking advantage of the synergy between the companies' routes with shared transport, following P&G's multimodal strategy, the combined logistics costs of both companies reduced by 17% and carbon emissions by 30%. Furthermore, despite the leadtimes longer times of multimodal transport, there was an increase in Tupperware's level of service, due to the higher frequency of shipments by P&G.

The search for collaboration initiatives between industries is widespread in Europe, largely due to government influence and pressures to reduce carbon emissions. In 2013 the European Commission founded the CO3 project – Collaboration Concepts for Co-Modality, whose objective was to develop tools and standards to encourage shippers and logistics operators to seek and implement opportunities, in order to professionalize horizontal collaboration. Some of the project's success stories include the shared transport of Nestlé and Pepsico refrigerated products in Belgium and Luxembourg; the collaboration between Mars, United Biscuits, Saupiquet and Wrigley in France; and the sharing of transport between JSP plastic products and HF-Czechforge brake discs from the Czech Republic to Germany.

Here in Brazil, the case of Ambev is well known. After supplying the company's distribution centers, the trucks return with the partners' loads instead of empty. At the end of 2016, Ambev's list of partners reached 20, including companies such as Heinz, Unilever, PepsiCo, among others, with an average of 3.000 monthly shared trips. The company reported savings of 5 million liters of diesel and stopped releasing 3 tons of carbon dioxide in 2015.

Despite the benefits found, whether in cost reduction, increased service level or reduction of carbon emissions, there are points of attention to achieve this type of collaboration. In addition to the challenge of finding a shipper compatible with the company's operations, processes need to be changed, IT integration may be required, and information sharing can be a sensitive issue. In the case of Nestlé and PepsiCo, for example, the project started involving five companies, but three gave up. Compliance with antitrust laws was also a crucial point, since the companies are competitors, and detailed information could only be shared between each company and the logistics operator, not between them.

There is no doubt that there are potential gains in shared operations, but issues such as information sharing and profit sharing must be handled transparently to mitigate risks and ensure that the collaboration is a sustainable process.

References:

Supply Chain Digest – More Developments in “Horizontal Collaboration”.http://www.scdigest.com/firstthoughts/16-06-03.php?cid=10784>

Inbound Logistics – Collaborative Distribution: Taking Off the Training Wheels.http://www.inboundlogistics.com/cms/article/collaborative-distribution-taking-off-the-training-wheels/>

Collaboration Concepts for Co-modality – Case studies.http://www.co3-project.eu/latest-info/news/>

Ambev – Ambev seeks companies for the Shared Fleet program.http://www.ambev.com.br/imprensa/releases/ambev-busca-empresas-para-programa-frota-compartilhada/>