Collaborative commerce combines ecommerce and collaboration. It involves exchanging information and altering activities to achieve common goals. Collaboration provides benefits like increased innovation, productivity and economic growth. CPFR (collaborative planning, forecasting and replenishment) is an effective collaboration method where trading partners jointly create sales forecasts and order plans to reduce inventory levels and costs. While promising, CPFR has not been widely adopted due to the work involved and lack of integration with IT systems. Touchpoint mapping and understanding who the key people are in an organization can help improve collaboration between partners.

1. 9/09/2012
Collaborative Commerce
Putting Collaboration to Work
AD Supply Chain Group Pty Ltd
(ACN 120 573 864)
Supply Chain Consulting
Tel: 61 (0) 419 581 705
e'mail andrew.downard@adsupplychain.com.au
web www.adsupplychain.com.au
Carlos Santana
Has released 32 Studio Albums, 2 EPs, 6 Live Albums,
8 Unofficial Albums and 17 Compilation Albums (The
Beatles only did 10)
The first was in 1969, over 40 years ago
Supernatural' (1999) is considered by many to be
Carlos Santana's greatest work. It became the Album
of the Year, received eleven Grammy awards, and
sold over 25 million copies worldwide. Santana
equalled the record for most Grammy’s in a year
Supernatural was a collaboration!
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2. 9/09/2012
Definition of Collaborative Commerce
• Collaborative Commerce is the combination of eCommerce and Collaboration
• Some would argue that Knowledge Management is also part of the mix
• eCommerce is understood with defined processes & methodologies it is Technlogy based
• Collaboration is People based and is not well understood!
Collaborative
eCommerce Collaboration
Commerce
EDI
Values
Product Identification
Electronic Payment Culture
Messaging
Online Stores/Catalogues
eTicketing
Collaboration: from Latin = Colaborare
Meaning: “to labour together”
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3. 9/09/2012
Benefits of Collaboration
• That Collaboration makes good sense has been known
for a while:
– Plato (428‐348) “As the builders say, the larger stones do not
lie well without the lesser.”
– Adam Smith (1723 – 1790) Division of Labour &
Specialisation (Restated by Peter Drucker as “Do What You Do Best
and Outsource The Rest!”)
– Jean‐Jacques Rousseau (1712 – 1778) Concept of Social
Cooperation
– Charles Darwin (1809 ‐ 1882 ) “In the long history of
humankind (and animal kind too) those who learned to
collaborate and improvise most effectively have prevailed”
Other Contributors to Our Understanding
• Ronald Coarse
– Nobel Prize Winning Economist
– Introduced the “Total Cost” concept
– Showed that a key cost not previously identified was the cost of “transactions”
– This approach allowed the proper costing of “Make versus Buy” decisions
• Robert Solow
– Nobel Prize Winning Economist
– Identified that Innovation makes up 87% of economic growth
– Highlighted the short‐sightedness of the NIH mindset – Innovation by Collaboration shown to
deliver results
• Oliver Williamson
– Nobel Prize Winning Economist
– Developed the theory of Transaction Cost Economics (TCE)
– Highlighted that transaction style matters – Adversarial contracting methods incur higher costs
– Stated that “Muscular” buyers don't just “use” suppliers they also “use up” suppliers
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4. 9/09/2012
More on Oliver Williamson
“The Muscular approach to buying goods
and services is myopic and inefficient!”
• How do we know this is true?
– $ cost of a lack of trust, “untrusting buyers pay more than 6 times the cost
to source a component” ‐ Dyer, J H, Wujin Chu, 2000
• What is the benefit of this additional expenditure?
– US Car Manufacturers pay US$1,500 to US$2,000 more per car for the
parts they purchase v’s the Japanese – Anklesaria J, 2008
“It’s not how little you spend, it’s how much you get!”
Todd C Snelgrove, General Manager Value, SKF
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5. 9/09/2012
More on Jean-Jacques Rousseau
Jean‐Jacques Rousseau John Nash
“Discourse on the The “Stag Hunt” a Mathematical Proof
Origin and Basis of discussion around
Inequality Among Social Cooperation
Men” 1754
Systems Theory View of Collaboration
Doing The Right Things
Effectiveness
Basic System/Process
System/Process with Efficiency
Collaboration can
System/Process with Effectiveness identify better
Goals based on
System/Process with Collaboration Goals Customer Value
Inputs Activity Outputs
Resources
Collaboration
can add
better
Resources
Efficiency
Doing Things Right
Based on O’Donnell & Duffy
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6. 9/09/2012
Mechanisms For Collaboration
Matrix of Strategies for Working Together
Type of relationship Networking: Coordinating: Cooperating: Collaborating:
Exchanging information for Exchanging information for Exchanging information for Exchanging information for
mutual benefit mutual benefit and altering mutual benefit and altering mutual benefit and altering
activities and sharing activities and sharing activities, sharing
resources to achieve a resources to achieve a resources, and enhancing
common purpose common purpose. the capacity of another to
achieve a common
purpose.
Relationship style Informal Formal Formal Formal
Characteristics Minimal time Moderate time Substantial time Extensive time
commitments, limited commitments, moderate commitments, high levels commitments, very high
levels of trust, and no levels of trust, and no of trust, and significant levels of trust, and
necessity to share turf; necessity to share turf; access to each other’s turf; extensive areas of common
information exchange is the making access to services sharing of resources to turf; enhancing each
primary focus. and resources more user‐ achieve a common purpose other’s capacity to achieve
friendly is the primary is the primary focus. a common purpose is the
focus. primary focus.
Resources No mutual sharing of No, or minimal mutual Moderate to extensive Full sharing of resources,
resources necessary sharing of resources mutual sharing of resources and full sharing of risks,
necessary. and some sharing of risks, responsibilities, and
responsibilities, and rewards.
rewards.
Tools People’s networks, for E‐mail, news groups, list Shared access to Integrated data, systems
example: servers documents and data, and knowledge resources,
www.google+.com; whiteboards, data extranets.
www.linkedin.com exchange
www.facebook.com
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7. 9/09/2012
Executing Collaboration
• Collaboration in Supply Chains has been put into practice in
a number of ways over the years:
– Vendor Managed Inventory (VMI), much beloved by CFO’s,
suppliers take responsibility for inventory replenishment and in
the CFO’s ideal world financial responsibility as well.
– Co‐Managed Inventory (CMI), a more equitable approach to
managing inventory replenishment where both parties take a
role.
– Efficient Consumer Response (ECR), in simple terms this was an
approach that sought to emulate the Lean practices of Auto
Manufacturing by shortening replenishment lead‐times and
reduce inventory
– Collaborative Planning Forecasting & Replenishment (CPFR)
The Full CPFR Process
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8. 9/09/2012
“I believe that CPFR is the single largest
opportunity to move inventory management
forward in the next 5 years. We plan to
implement collaborative relationships with well
over 100 suppliers in the next 12 months. We
believe that CPFR is the driver for moving into
the next era of buyer-seller relationships”
Randy Mott. Wall- Mart (2000)
Benefits of CPFR
Retailer benefits Typical Improvement
Better Store Shelf rates 2%-8%
Lower Inventory Levels 10%-40%
Higher Sales 5%-20%
Lower Logistics Cost 3%-4% Australian
Manufacturer Benefits example
Lower Inventory Levels 10%-40% Automotive
Faster Replacement Cycles 12%-30 Customer
Higher Sales 2%-10% reduced
Better Customer Service 5%-10% Inventories by
30%
Source: AMR research
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9. 9/09/2012
CPFR Implementation (VICS Model)
 Evaluate your current state
 Define Scope and Objectives
 Prepare for Collaboration
 Execute
 Assess results and identify improvements
Read => Plan Do Check Action (PDCA)
CPFR Process Steps
 Develop front end agreement
 Create Joint Business plan
 Create sales forecast
 Identify exceptions for sales forecast
 Resolve/collaborate on exception items
 Create order forecast
 Handle exceptions for order forecast
 Resolve/collaborate on exception items
 Order generation
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10. 9/09/2012
Why CPFR Has Not Been More Widely Implemented
Laborious.
• Just too much work for the benefit, the benefit did not match the added costs
• The programs were not grounded on good principles of collaboration
• It was often an imposed process rather than one reached by mutual agreement
Retail forecasts not up to the task.
• For CPFR to work, retail forecast accuracy needs to be high and with sufficient granularity to
enable analysis to be meaningful
• The dirty little secret with CPFR is that most retailer forecasts are not up to the task.
• In addition, the gap in retailer data for perpetual inventories and accurate on-hand quantities did
not provide a good starting point.
Lack of integration into Enterprise Systems.
• For most Advanced Planning System (APS)/Enterprise Resource Planning (ERP) deployments,
there was no logical connection for the data.
• As a result, it failed to make a systemic impact on supply chain excellence.
Collaborative Negotiation:-
How Reach Agreement
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11. 9/09/2012
Collaborative Negotiation
• Approaching problems as a conflict between right and wrong, good and
bad, winners & losers reduces potential value by up to 75%
• A study some years ago found so much mistrust in France that it was
costing 5% of gross national product and 8% of employment
• People who make human connections with others are six times more
likely to persuade others to do what they want.
• Studies show that differences add value: they provide the basis for
more creativity
• Emotion takes focus off goals & greatly reduces the chance of deals.
• start with the easy things on which there is agreement, even the date of
the next meeting. It will bind parties together more.
• progress incrementally, small steps at a time, particularly when there
are big disagreements. Parties get nervous making big steps.
• You don't have to trust them at first. Just acknowledge there isn't much
trust & try to get commitments from each other in the absence of trust.
• People don't expect you to disclose everything. But they do expect you
to be direct, honest and real. That's the essence of collaboration.
A 12-Step Collaborative Negotiation Program
1 Goals Are Paramount
2 It’s About Them
3 Make Emotional Payments
4 Every Situation Is Different
5 Incremental Is Best
6 Trade Things You Value Unequally
7 Find Their Standards
8 Be Transparent and Constructive, Not Manipulative
9 Always Communicate, State the Obvious, Frame the Vision
10 Find the Real Problem and Make It an Opportunity
11 Embrace Differences
12 Prepare: Make a List and Practice with It
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12. 9/09/2012
Collaborative Negotiation
• According to Diamond one key question to ask right at the beginning is:
• “Who Are They?”
• He is highlighting the fact that Businesses don’t Collaborate, People
Collaborate
• Therefore we don’t have B2B arrangements we have P2P
• This is relevant for new deals but also when working on and improving
arrangements with existing partners
• How to answer the question?
Touch-point Mapping
• Is a process for understanding how well you interact with your supply chain partners
• Are the contacts at the right level? (Who talks to the MD?)
• Are there missing touchpoints? (We don’t know anyone in Engineering!)
• Allows you to set a communication plan for keeping the contact live.
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13. 9/09/2012
Customer Touch-point Categories
• Decision Maker
• These are the people that initiate the process of awarding business and are closely
aligned with the hands on activities involved with executing day to day business between
the parties..
• Approver
• While not involved in day to day activities the Approver role is critical to success because
they have the ability to approve or block the recommendations received from the Decision
Maker.
• Influencer
• These are people not in the direct line as far as allocating new business or setting the
agenda on relationships. They are however influential or persuasive in modifying or
enhancing the relationship
• Gate Keepers
• Gate Keepers have very little role in the direct business activities between the parties but
they can hinder the relationship by preventing access to people or information that can
assist the firm win business or improve the relationship.
Touch-point Categories
Initiates Action Passes or
Blocks Action
Direct Decision Maker Approver
Involvement
Purchasing Finance
in Business Manager Manager
Allocation
Indirect Influencers Gate Keeper
Involvement Engineering
in Business Receptionist
Manager
Allocation
Exercise:
• For your most important supply chain partner nominate the contacts you know and
allocate them into the above matrix
• Discuss any gaps with your partner
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14. 9/09/2012
The Vested Outsourcing Model
Vested Outsourcing
• Concept Developed out of research by University of
Tennessee carried out on behalf of USAF
• The term “Vested Outsourcing” was coined to
describe a relationship which is characterised by a
mutual commitment to outcomes
• Vested agreements deliver higher rates of
innovation, lower costs and improved service levels
• The Vested Outsourcing concept has been
supported by Michael Porter & Mark Kramer in
Harvard Business Review
– Porter and Kramer believe the next wave of innovation
and productivity gains will come from “Shared Value
Creation”.
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15. 9/09/2012
Outsourcing’s 10 Ailments
• Ailment 1 – Penny Wise and Pound Foolish: Occurs when a company outsources based
purely on costs.
• Ailment 2 – The Outsourcing Paradox: Happens when a buyer hires a service provider as
the “expert” and then proceeds to tell the provider precisely how to do the work.
• Ailment 3 – Activity Trap: The more transactions performed the more money the service
provider makes, there is no incentive for improvement.
• Ailment 4 – The Junkyard Dog Factor: The decision to outsource can mean that jobs will
go, employees push back with processes that “must” stay in‐house
• Ailment 5 – The Honeymoon Effect: The beginning of any relationship has a honeymoon
stage. The provider initially goes overboard to perform but drops back over time.
• Ailment 6 – Sandbagging: To prevent the Honeymoon Effect, some companies adopt
approaches to encourage service providers to perform, can lead to minimalist results.
• Ailment 7 – The Zero‐Sum Game: This is one of the most common ailments. Companies
believe, mistakenly, that if something is good for the service provider, then it is
automatically bad for them.
• Ailment 8 – Driving Blind Disease: Occurs when there is no formal governance process to
monitor the performance of the relationship.
• Ailment 9 – Measurement Minutiae: Too much of a good thing can be bad for you. This
applies to Fast Food and to measuring service providers.
• Ailment 10 – The Power of Not Doing: The saddest of all the ailments, having
performance measures but not using them.
Vested Outsourcing 5 Rules
1. Focus on Outcomes, not Transactions.
2. Focus on the What, not the How.
3. Agree on clearly defined and measurable Outcomes.
4. Optimise pricing model Incentives.
5. Governance Structures should provide Insight, not merely
Oversight
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16. 9/09/2012
Vested Outsourcing Relationship
3
Clearly Defined &
Measurable
2 Desired Outcomes 4 Pricing Model
Focus on the
“What” not the Incentives Optimise
Cost/Service Trade-
“How” off’s
1 5
Outcome based v’s Win/Win Insight v’s Oversight
Transaction based WIIFWe Governance
Business Model Relationship Structures
WIIFWe = “What's In It For We”
Structure of a Vested Outsourcing Agreement
Master Services • Non-Disclosure • Termination
Agreement • Non-Compete Agreement • Renewal
(MSA) • Limitation of Liability • Other
Rule 1 Rule 2 Rule 3 Rule 4 Rule 5
Statement of Desired Governance Other
Business Pricing Model
Objectives Outcomes Structures Appendix and
Model
(WHAT) Exhibits
Shared Vision Work Scope & Performance Margin Relationship
Statement of Allocation Management Matching Management
Intent (HOW) Plan Incentives Framework
Operational Baseline Transformation
Performance Calculations Management
Reporting Framework
Exit
QA Plan Management
= Owned by Service Provider
Vested Outsourcing Manual Plan
P296
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17. 9/09/2012
A Final Point on Collaboration in Australia
Based upon a survey of 207 Australian Businesses (168 Product Related/68 Service
Related) the following statement was made:
“Overall these results indicate that closer relationships with trading
partners are associated with higher levels of performance”
Boonyathan, P. and Power, D.J., (2007),
Caveats:
• What does “closer” mean?
• What type of relationship?
• It is not possible to closely collaborate with all trading partners!
Questions
AD Supply Chain Group Pty Ltd
(ACN 120 573 864)
Supply Chain Consulting
Tel: 61 (0) 419 581 705
e'mail andrew.downard@adsupplychain.com.au
web www.adsupplychain.com.au
> Supply Chain Strategy
> Collaborative Planning Models
> Supply Chain Relationship Assessments
> Strategic Sourcing
> International Trade
> Supply Chain KPI Systems
> Continuous Improvement
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