COLLABORATION: THE KEY TO A SUSTAINABLE SUPPLY CHAIN ​​– PART 1

This article seeks to present collaborative initiatives as key elements for building economically, socially and environmentally sustainable supply chains. In this first part of the article, a historical overview of the competitive strategies of supply chains in the XNUMXth century will be presented, the problems arising from these practices and how collaboration with commercial partners can offer a new, more sustainable management model. In the second part, the main collaborative practices will be presented and how they transform the values ​​that guide the market.

BUG OF THE MILLENNIUM

The 1997th century was characterized by profound economic, social and cultural transformations. Much of this period was marked by the dispute between two economic models that differed in terms of the distribution of wealth: socialism, which preached equal distribution, and capitalism, which proposed individual freedom for the accumulation of wealth. However, both models were based on the same form of wealth production, with the exploitation of the environment and intensive work (Hobsbawn, XNUMX).

In order to understand these transformations and, above all, the serious problems we face at the end of the 2009th century and the beginning of the XNUMXst century, let us analyze the predominant format of wealth generation. The traditional supply chain, as described by Bowersox, Closs and Cooper (XNUMX), begins with the extraction of raw materials from nature, goes through the transformation of this material through capital and people-intensive production processes, through the distribution of products, consumption and disposal of waste. The problem is that this linear format of the material economy, as described above, is not sustainable on a planet with finite natural resources.

In order to produce items that will be consumed by an ever-increasing number of people, it is necessary to extract an ever-increasing amount of minerals from the subsoil, produce energy through the combustion of fossil materials, replace native forests for wood extraction and open fields of grazing and large-scale agricultural production. All this led to a depletion of the planet's natural resources and, as a consequence of the increase in the emission of gases that cause the greenhouse effect in the atmosphere, to an increase in average temperature, a decrease in the polar ice caps and a rise in sea level. In the United States, the largest economy on the planet, only 4% of the original forests remain and 40% of its water reserves are no longer drinkable. If the rest of the planet had the same level of consumption as the US, the resources of five planet Earths would be needed (Leonard, 2011).

In addition to the serious environmental problems, we are also witnessing the worsening of the social situation, with an increase in inequalities and a strong rural exodus. We reached the end of the 0,14th century with 50% of the world's population controlling 50% of the wealth, while 2% of the population is in extreme poverty, having to survive on less than US$ 2011 a day (World Bank, 2008). Furthermore, the economic crisis of XNUMX was, for some leading economists, the first indication of the need to change the course of the economy.

The answer to all these problems seems to depend on breaking old paradigms and adopting a holistic view, understanding the interdependence between supply chain systems and stakeholders. To bring about the much-needed changes, two aspects are fundamental: facing complex problems in a systemic and comprehensive way and reforming the values ​​of the economy to prioritize collaboration and interdependence (Capra, 2006).

The supply chain management models were conceived and based on the principle of classical economics that served as the model for generating value in the XNUMXth century. Will they then be able to contribute or adapt to new needs? To begin answering this question, let's look at the evolution of supply chain management over the last century.

SUPPLY CHAIN ​​MANAGEMENT EVOLUTION

Summarizing the definition initially presented, a supply chain consists of a flow of information that originates in the demand of the final consumer and permeates the different links until it reaches the raw material in nature; on the other hand, we have a counterflow of products and services that starts with the extraction of raw materials, production and distribution, until the goods and services reach the final consumer.

The management of each of the companies that make up the supply chain is based on the principle of classical economic theory, which says that the function of managers is to deliver the maximum possible value to shareholders. However, companies' strategies to coordinate information and product flows with their commercial partners, in an attempt to maximize their value, have been changing over time (Bowersox, Closs and Cooper, 2009).

Before the industrial revolution, the flow of information preceded the flow of products, that is, the entire manufacturing process was manufactured by craftsmen who only started making items after demand occurred. If someone wanted a shoe, they would go to a skilled craftsman, who would measure their foot size, cut the leather, sew and finish. He would accept waiting for all the time necessary for this process. Reconciling production capacity and demand therefore did not present major challenges. However, only a small portion of the population that had the means to pay for the work of artisans had access to consumer goods.

With the industrial revolution and the advent of serial production, manufacturing prices dropped significantly, giving access to consumer goods to a larger portion of the population. Production, from that moment on, however, had to be standardized and anticipated in relation to final consumer demand. Today, if the consumer wants a shoe, he goes to a store and hopes to find the pair available in the size he needs, in the color he likes and the model he wants. If it doesn't find it, it will look at another store/chain.

Let us now take the classic example of Ford. Until the beginning of the Ford assembly line, in 1908, the production of a car was completely handmade, carried out from the customer's purchase order. Ford embarks on the enormous challenge of producing cars in series. To understand the magnitude of this challenge, think that, today, a mid-range car is made up of around 5.500 different items. These items have a large investment in technology and, in general, occupy a large amount of storage space. This means that it is necessary to coordinate very well the flow of information that goes to the suppliers and the counter flow of products that come from them so that they arrive in a short time at the factory so that the automobile can be assembled and made available for sale.

It is not by chance that the automobile industry has been developing, in the last century, management models and tools to help it in this challenge. Today, we have a series of communication mechanisms that facilitate the flow of information to suppliers, such as EDI, Internet, e-mail, telephone and fax. A series of tools were also developed to help coordinate the flow of products, such as MRP, MRPII and DRP. In 1908, despite the fact that the automobile was composed of a smaller number of items, none of these tools was available.

Ford concluded that the only way to deal with this complexity was to coordinate the entire value chain, from extracting raw materials to selling automobiles. For this, he created a village 200 km south of Marabá (PA), named Fordlândia, to extract rubber from the rubber plantations. It also bought coal and ore mines in the US for sheet steel manufacturing. With that, it was able to reconcile the flows of information and capacity along its entire production chain.

Ford was clear about the great benefit of the industrial revolution: giving access to consumer goods to a larger portion of the population. This is clear in his famous sentence: “every worker with a living wage will have access to a car…”. This supply chain management strategy became known as the vertical integration strategy. Despite the great success, this model had an important limitation, as it only produced a single type of car and a single color. The continuation of Ford's famous quote is: "...as long as it's a black Ford T".

Small craft workshops that assembled cars in the US, such as Chevrolet and Cadillac, decided to unite to compete with Ford. For this, they opted for a strategy of differentiation, where they would concentrate their efforts on what they knew how to do best, that is, assemble cars. Thus, they founded General Motors. In this new management format, where each company is focused on a specific part of the value chain, it starts to depend on third parties to carry out the other stages.

The first consequence of this is observed in the operation, since as the company does not have visibility or interference in the capabilities of its suppliers, it needs to form safety stocks to guard against possible supply problems. Another no less relevant consequence is the fact that, in this new format, the company must relate to its commercial partners and discuss how much each one is adding value to the process. The problem with this format is that, as all the companies in the chain are based on the same fundamental economic principle of maximizing the value they deliver to their shareholders, the relationships between them are one of conflict and distrust.

It is for no other reason that many companies wait until the last week of the month to negotiate with their suppliers, as they know that as their commercial area usually has monthly sales targets to meet, their partner will be more susceptible to giving up their margin on the end of the month. This practice causes concentration of operations and higher costs for the entire supply chain, also bringing environmental and social impacts.

It can be clearly identified, already in the beginning of the 1997th century, the two generic strategies of Michel Porter (XNUMX): Ford with cost leadership and GM with product differentiation. While in Ford's model the maximization of value generated was obtained from the maximum efficiency in the use of assets throughout the chain, in GM's model the objective was to guarantee maximum absorption of margin in the negotiation process with commercial partners. This second goal leads to what John Nash called a few decades later “The Bargaining Problem”.

The question is: how can a management model that leads to inefficiency, in the form of safety stocks, concentration of demand, higher operating costs and conflict between commercial partners, with enormous environmental and social costs, be the predominant model for more than a century? century? Although we can cite a number of factors for this, such as specialization, risk dilution, product diversification or increased efficiency, the paradoxical answer is that this model of relationship between the links in the value chain remains insofar as it privileges the strongest companies, which manage to appropriate the largest share of the margin.

However, when the final consumer no longer accepts paying for the inefficiency of this relationship, companies are forced to review their strategies, building collaborative relationships that lead to increased efficiency. In the second half of the XNUMXth century, we saw the emergence of policies to reduce waste and increase integration in the value chain, which made Toyota the largest automaker in the world at the end of the century.

Despite this, economic, social and environmental problems are still far from being resolved. When we are confronted with the real possibility of a climate crisis and the global economy seems to be collapsing, it is essential to hear the call of our time and think about how we will manage, as executives, to guarantee economic, social and environmental sustainability simultaneously, which has been agreed call the Triple Bottom-Line, for our companies?!

Figure 1 – Triple Bottom Line concept in sustainability

Source: Carter and Roger in International Journal of Physical Distribution & Logistics Management, 2008; Reviews: ILOS Institute

COLLABORATIVE ACTIONS

To illustrate the market forces that have forced companies to adopt collaborative strategies in their relationships, let us take the example of the Brazilian automobile industry in the early 1990s. Until that moment, the national market was divided into four large companies – Ford, General Motors (Chevrolet), Volkswagen and Fiat – which adopted a non-aggressive policy. This lack of competition led to companies' operational inefficiency, with high costs and products with a low level of innovation and technology.

Fernando Collor, newly elected President of the Republic, calls cars produced in Brazil “wagons” and drops import tariffs for cars manufactured outside Brazil. With that, modern cars at competitive prices begin to enter the Brazilian market. For Porter (1997), in the description of his generic strategies, if the competition has a better product and a competitive price, there are only two alternatives: improve and differentiate the product or lower the price.

As improving the national productive park is not fast, the alternative at that time was to lower prices. For this, it was essential to improve the efficiency of the chain. Automakers had, at that time, hundreds of millions of dollars in spare parts in their dealership networks and this cost was certainly passed on to the final consumer. To understand how the automakers allowed this to happen, we just need to look at the relationship format with their network: the automaker, a strong link in the chain, pushed its inventories to retail, which is the next link in the chain, guaranteeing revenue from this sale. , low inventory levels in the industry and a high level of service for the final consumer.

That is, for the assembler, while the final consumer could not choose and had to pay for this inefficiency, there was no better management model. However, with the growth of competition, there was no alternative but to reformat its relationship with suppliers and customers, seeking collaborative strategies to increase the efficiency of the chain as a whole. This increase in competition in other sectors of the economy has forced companies to review their strategies, seeking integrative and collaborative alternatives (Gulati, Laive and Singh, 2009). These market forces are intensifying, forcing all segments, even those with higher margins, to reformulate their relationship formats.

In addition to economic issues, the social and environmental dimensions gained enormous importance in the first decade of the 2010st century, increasing pressure from the government and society on companies. It is no longer acceptable for a company to base its profitability on the degradation of the environment or on the social harm of agents in its value chain. This means, in other words, that the company is no longer exclusively responsible for what happens “within its gates”, but for what happens in all its commercial partners. How can an organization be socially responsible if its supplier uses child labor? And environmentally, if it deforests the soil and pollutes the surrounding waters? The graph below, a result of the ILOS Green Logistics Panorama (XNUMX), shows that companies are already being pressured by their customers:

Figure 2 – Are your customers increasingly demanding environmentally friendly solutions?

Thus, the dominant competitive logic in the supply chain, where each company takes care of its processes and has profit as the main indicator, needs to be replaced by a collaborative logic, where companies think about their products and relate to their suppliers and consumers in form a network, and no longer a linear chain, building a joint development based on collaboration.

COLLABORATIVE ACTIONS

Collaboration usually takes place between commercial partners, that is, in the vertical sense of the supply chain. Companies seek to build win-win relationships through initiatives that enable the reduction of waste and better joint planning (Bowersox, Closs and Cooper, 2009). Collaboration initiatives can range from simple information exchange policies and inventory management by the supplier, as in the VMI (Vendor Managed Inventory), to more structured planning processes, with the use of shared assets and open information, which requires the elaboration of well-defined governance policies to deal with disagreements and conflicts. An example of this second model is the CPFR (Collaborative Planning, Forecasting and Replenishment), a topic already discussed in other articles published by our team.

The innovation that is proposed to us is in the collaboration formats between different chains, forming a true network for the development of suppliers, waste treatment, product portfolio review, packaging disposal, clean development mechanism and promotion of diversified regional economies, between others. Perhaps the real problem is that the deployment of strategy in action is measured by short-term indicators, which often distance the organization from its mission, vision and values. For example, a company declares as its vision to be the most sustainable logistics operator in Brazil, but when we look at the transport manager's indicators, they are all oriented towards cost reduction. There is no doubt that he will hire carriers who charge less and use older, more polluting vehicles.

Therefore, in the second part of this article, we will discuss how we can break with current standards and analyze how initiatives such as sustainable S&OP, development of local suppliers, socio-environmental balance sheets, Greendex and collaborative Consumption, among other initiatives, can be the beginning of a profound transformation in supply chain management.

BIBLIOGRAPHY

Bowersox, D., Closs, D. and Cooper, MB Supply Chain Logistics Management. New York: McGraw-Hill, 480 pages, 2009.

Capra, Fritjof. The hidden connections. 5th ed. São Paulo: Editora Cultrix, 2006.

Ghemawat, P. Competition and Business Strategy in Historical Perspective. The Business History Review, v.76, nº 1, 2002.

Gulati, R.; Lavie, D.; Singh, H. The nature of partnering experience and the gains from alliances. Strategic Management Journal, v. 30, No. 11, 2009.

Hobsbawn, EJ The Age of Extremes: The Short Twentieth Century. São Paulo, Companhia das Letras, 632 pages, 1997.

Leonard, Annie. Video Story of Stuff viewed at link: youtube.com/watch?v=3c88_Z0FF4k on 06/06/2011.

Mintzberg, H.; Ahlstrand, B.; Lampel, J. Strategy Safari: A Roadmap Through the Wilds of Strategic Planning. Porto Alegre: Bookland, 2000.

Green Logistics Panorama, ILOS – Institute of Logistics and Supply Chain, 2010.

Porter, Michael E. Competitive Strategy: Techniques for Analyzing Industries and Competitors. 7th ed. Rio de Janeiro: Campus, 1997.
World Bank (access to the website www.worldbank.org on 23/04/2011)