Logistics Collaboration: Understanding Drivers, Barriers and Benefits

Logistics collaboration has been widely recognised as an effective way to improve supply chain performance, yet there are many factors which can affect the success of logistics collaboration.

There are two types of collaboration - vertical and horizontal. Vertical collaboration involves suppliers and customers in a supply chain, whereas horizontal collaboration normally occurs between shippers or competitors in a similar supply chain. 

The potential benefits of both horizontal and vertical collaboration have been widely discussed, however, the theory is often not put into practice.

Using insights from three case studies and existing literature, we have developed a framework that addresses typical challenges and barriers facing logistics collaboration. We have considered:

• What drivers initiate new logistics collaboration?
• What are the challenges and emerging barriers?
• What success factors help to reap the benefits of new logistics collaboration?

Our research is based on data collected from three case studies from a shipper perspective. The European Logistics Users Provides and Enablers Group (ELUPEG) is the main source for case study one. Logistics managers involved in collaborations were interviewed during 2015 for case studies two and three.

Case study one involved a Swiss and American multinational food and beverage company in Belgium. The company engaged in horizontal collaboration with competitors, mainly to reduce empty miles by identifying overlapping distribution networks. The collaboration generated 10 to 15% of savings in transportation costs, increased warehousing and vehicle efficiency and reduced CO2 emissions.

Case study two focused on a German confectionery company and a British soft drink company in the UK. Planning for horizontal collaboration, they worked together to replace closed-book logistics service contracts with fixed rates to a service provider who was willing to implement horizontal collaboration with the two companies. The companies expected to achieve cost savings, better logistics service performance and improved customer satisfaction.

Case study three was about Santa Maria, a food processing company and its logistics service provider Yusen Logistics in the UK. The collaboration aimed to reduce costs while improving logistics service performance including an increase in accessibility of information and inventory management through some IT integration. As a result, the company achieved cost reductions and environmental benefits while also enjoying greater traceability.

Using external forces to drive legitimacy

The key here is to create legitimacy to initiate new collaboration. External driving forces, especially pressures from the customers to cut costs and regulations related to emissions, are often the best reasons for initiating logistics collaboration.

Inefficiency and delivery problems, such as empty miles and the increasing cost of transportation, are examples of two external factors that can be turned into opportunities. It is useful to discuss with other shippers, including competitors, about their transportation networks—any overlapping means new opportunities. Sometimes you just need to show colleagues how competitors can achieve benefits from collaboration.

Key success factors

From the three case studies, we found trust, commitment, openness and honesty as the top factors that can contribute to logistics collaboration success.

Communication was another key aspect. Misunderstanding of goals and priorities happen often because managers have not communicated effectively. For the majority of the time, it is better to create opportunities for staff at different levels to discuss how they may jointly solve common problems. Managers should then develop inter-organisational processes that facilitate joint decision making.

In particular, horizontal collaboration with competitors requires senior management support. Collaboration is not just a capability; it is a culture which top management needs to create. A similar working culture, with a focus on improvement, provides the right platforms for successful collaboration. In addition, senior management has to create a shared vision within the companies and industries.  Here is where supply chain leadership plays an important role.

Trustissues between competitors and even between shippers and logistics service providers will inevitably exist. To minimize conflict it may be a good idea to use a neutral trusteeto facilitate information sharing.

Lastly, collaboration does not have to involve complicated processes. Simplicityis the key.

Reaping the benefits of collaboration

The findings suggest that logistics collaboration: improves service performance; increases customer satisfaction; reduces cost and CO2 emission; and improves supply chain visibility.

Although case study three shows that forecast accuracy had been improved through vertical collaboration and information sharing between shippers and logistics service providers, this kind of collaboration does not always lead to lower inventory.

It is important to recognise that there are also many other benefits. For example, the collaboration journey helps build better understanding and stronger relationships among key staff members and therefore further improvement opportunities can be created.

The framework of logistics collaboration

Our framework highlights how the main challenges and barriers facing logistics collaboration can be overcome in three major steps:

Step 1: Build awareness, especially on the potential benefits and opportunities, so that staff start using internal and external factors to create legitimacy and urgency.

Step 2: Preparation and formation. This step involves the identification of challenges and barriers and then putting in place the required key success factors. By the end of this step there must be adequate trust, top management support and willingness to change.

Step 3: Implementation and management of new collaboration. This involves constant communication of the goals and providing necessary support such as IT and resources, as well as industrial-wide commitment to enable horizontal collaboration.