How to achieve collaboration in logistics?

In the modern business world, the term “collaboration” and the concept of resource sharing occupy an important place. These ideas are regularly raised at professional conferences as harbingers of new S-curves in business models or drivers of another wave of innovation. How to get productive collaboration in logistics and synergies from joint activities?

Collaboration as a myth

First, let’s decide on the main terms:

Collaboration is mutually beneficial cooperation between organizations in areas beyond their main specialization.
Synergy is a principle in which co-operation results in a greater overall result than the sum of the individual efforts of each of the parties (“1 + 1 = 3”).

It sounds obvious, but in practice everything is not the same as it seems in theory. Finding effective ways to share resources and achieve synergies is a complex process that requires careful planning and coordination. Not always these efforts lead to the required result. On the way to the implementation of the idea, there are many factors that reduce the effectiveness of interaction to almost “no.” Let’s analyze the most popular examples of potential scenarios for achieving synergy.

1. Free transport sharing

Sharing free transport is perhaps the most popular idea in logistics. But, as usual, the devil is in the details. Cooperation with competitors is unlikely in this context. It can be effective to partner with companies whose activities complement your operating model. For example, if your main delivery is in the morning, it is advisable to look for a partner for whom evening or night transportation is important. Self-search for such partners and optimization of vehicle downtime is a difficult task that requires a dedicated resource. In the market, it is solved by specialized companies – freight forwarders or transport aggregator sites.

2. Unified corporate fleet

Creating a single corporate fleet to serve different business units can lead to problems, especially during periods of peak demand. At such times, conflicts for access to vehicles tend to arise, reducing potential synergistic advantages. Economies of scale in the maintenance and management of drivers, of course, will remain, but it is important to monitor the effectiveness of this department. Otherwise, it will turn into a unit that responds to requests in the style of “you are numerous, and I am unique.”

3. Warehouse sharing

The situation with the joint use of free storage space is similar to the sharing of transport. At the same time, a complex contractual process is added to it (even the signing of a SLA, a short-term lease agreement is a very long process), internal tender procedures and approvals, preparation of premises for a specific partner (servers, chargers, locker rooms, entrance perimeter). Solving all these issues requires considerable effort and time.

However, if the warehouse was originally designed with the possibility of modular rental, then we are already talking about a specialized logistics business, and not about sharing or synergy in their classical sense.

4. 3PL business itself

Everything is simple and difficult at the same time. Depending on the goals and objectives of the company, the answer to the question “do it yourself or buy it as a service” is always different. For small businesses, the benefit is obvious – all fixed and administrative costs are included in the tariff. But with large clients and partners, the situation is more complicated. Very often, these are global corporate operators who simply add their margins to the cost of operations, although they declare efficiency and synergy.

5. Internal captive companies

In theory, internal captive companies must meet the needs of the core business by offering their surplus resources (time, mileage, warehouse space) in the market. In practice, successful examples of such an approach are most often found only to reduce reverse idle runs. Electronic marketplaces have done really well in this and are helping well. As usual, with one nuance: if your operating supply chain model matches your customer’s expectations.

An example from practice: in our domestic transport company, a delay of over 15 minutes was considered late. The goals for timely filing were tough – at least 98%. In the search for a customer for a reverse idler, we found a cannery – a great coincidence. However, there the download idle time was considered after two days of waiting. By providing intercompany transport for a dairy company, where the bill goes to hours, we did not agree to such conditions.

6. Joint procurement

They are gaining popularity, but they face the same problems as physical logistics: mismatch of operational cycles, internal bureaucracy and conflicts of interest. The solution to these problems is to create marketplaces that take on the entire administrative burden. Such projects are already beginning to emerge and are likely to play an important role in the future. However, this model is not a pure example of sharing and partnership, since it involves earnings for certain market participants.

7. Car sharing, hostels and scooters

This works with a clause: if a partner has a different business culture, the partnership will not last long. Like in a hostel, when a neighbor unbearable in everyday life quickly ceases to be one. Many stop using car sharing for this reason: the vast majority of cars are in terrible sanitary condition. Finding the “right” and good car is a procedure that negates all the benefits of the service. But in scooters it works great simply because there are fewer elements that can be broken or dirty.

As a result, it turns out that there no partnership in the market, but there is just a service market?

Why collaboration is difficult to achieve

Why does a sound idea face so many barriers to implementation? The answer is in a combination of three factors:

1. The basic postulate of the modern economic model: each subject acts independently of the others and strives for maximum personal benefit. Most of the partnerships are seen as a scheme: “if I benefit – I use a partner, if it is unprofitable for me – I do not contact him.” This arrangement is unsustainable, since each participant seeks to violate it. At the same time, there are no fines for violation, since the partnership is voluntary. Intuitively, the scheme looks logical. However, it is just here where the main contradiction is concluded. The next point helps reveal it.

2. Game theory and dominant strategy. According to game theory, the interaction between players from a strategic point of view is trivial. Everyone has a dominant strategy – one that, regardless of the opponent’s actions, is the best for him. However, analysis of classical game theory problems shows that the dominant strategy is generally not the most advantageous.

According to game theory, the interaction between players from a strategic point of view is trivial. Everyone has a dominant strategy – one that, regardless of the opponent’s actions, is the best for him. However, analysis of classical game theory problems shows that the dominant strategy is generally not the most advantageous.

Mafia game. At the final course of the game “Mafia,” “Maniac” and “Civilian” remain alive. With a dominant strategy for “Mafia” and “Maniac” – to kill each other – the option of their collaboration would lead to a guaranteed better result for both players.
Duel of three people (two sharp arrows, one weak one). A mutual attack by two strong players will lead to the victory of the weak one (there is even such a term: survival of the weakest). Again, if agreed, the two strong shooters could achieve a better outcome than mutual killing.
The prisoner’s dilemma (two criminals are offered either to surrender the accomplice or to remain silent). Obviously, everyone surrenders his partner (the most profitable strategy for him personally), and in the end he is in prison for a longer period than if they both agreed and were silent.

I repeat: if a player follows a winning strategy for himself, his result is worse than if he cooperated with other players. The roots of the win-win negotiation strategy grow from this postulate. A prerequisite for cooperation is the strict fixation of agreements with their mandatory implementation, as well as very painful fines and sanctions for violation. But this contradicts the first point – everyone acts freely within the framework of their interests. There is a dialectical contradiction.

3. Understanding the role of supply chains and the operating model in CVP. The effectiveness of supply chains is interesting only in terms of the implementation of the target CVP (Customer Value Proposal, unique-from-competitors experience or benefit that a client receives from buying a product or service). Logistics can be arbitrarily effective, but if it does not help sell and grow business, it doesn’t mean very much.

So the first question any logist should ask himself should not be “how to save money/reduce costs?,” but “how does my supply chain provide a competitive advantage for the company?.”

A mandatory step in developing a supply chain strategy is to formulate the company’s CVP in terms of logistics. Yes, many companies don’t even know what CVP is or can’t articulate it. But there are few successful companies, and even fewer truly efficient supply chains.

They do exist

Despite all the above factors and difficulties, partnership and synergy is possible. I will share a few examples from personal practice:

Choosing a logistics company that provides service to our competitor as a 3PL operator. They built a large warehouse, with a good supply of space, for 5 years. We agreed that they will be a logistics operator for us: they have experience and understanding of the processes, tariffs are below market, in order to compensate for fixed costs.
Using one of the distributors as a 3PL operator for the high season. Yes, the rate was higher than the market rate, but the operating period was only 4 months. No 3PL operator will talk to you about such short contracts for a high season. Alternatively, the price will be cosmic.
Revision of the supply chain between the manufacturer and the retailer to reduce the deadlines for the execution of the order of stores in the category “ultrafresh” from 7 to 1 day, an increase in the residual shelf life by 1 day from the date of production. The single motivation of the two teams for common KPIs, sales growth by category several times in six months.
Sale of recyclable materials directly to the processor and supplier of certain categories of goods. By eliminating the intermediate links of the chain (trader, distributor), it was possible to conclude a mutually beneficial transaction at a rate significantly better than the market, and in both directions.

And, perhaps, this is all for 20 + years of experience in my work in leading companies. There are very few cases of real synergy. I draw your attention to the fact that profitable and effective cooperation between commercial partners (“manufacturer-retailer”, “customer-client”) was not taken into account here – there are many such examples.

What to do in practice?

Then how to get real synergy and achieve real collaboration in logistics?

Evaluate your supply chain for how it provides CVP implementation. Does the company have a CVP? Then focus your energies on how to help colleagues sell more.
Evaluate unloaded capacity/assets that do not affect CVP. That is, what you can offer the market, and if it breaks, the main business will not suffer from this. For example, a completely empty warehouse section of 10 thousand. sq. m, which is built with a margin of 5 years, and the next 3 years it can be sublet. On the contrary, leasing what is your competitive advantage (servers, machines, squares, etc.) is the height of recklessness.
Find a potential partner who will be complementary to your operating model. The most interesting and exciting point. It is extremely difficult to implement, but sometimes you succeed to do it.
Use the supply chain optimization end-to-end method. Include the maximum number of links in it and evaluate the overall effect. With this approach, the problem of the dominant strategy of each of the links is eliminated, and the task of optimizing the entire system comes to the fore. Obviously, the solution will be fundamentally different than in the case of finding optima for each of the links.
Use platforms and marketplaces to find potential partners. If earlier the teams were created for such tasks, exhibitions were visited and complex market research was done, now the number of platforms is fantastic, and this should be used.
Regularly review your operating model for CVP compliance. In the modern BANI world, stability is mentioned only in the context of its absence. It is extremely important for companies to keep up with changes, and it is better to get ahead and lead. Without an effective supply chain, this is impossible.