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Strategic Supply Chain Management
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Share Benefits, Gains, and Losses
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Our definition of collaboration includes the concepts of mutual objectives and of sharing risks and rewards. Formal gain sharing is a well-known way to distribute the financial benefits of a business relationship. In gain sharing, each partner agrees to work toward lower overall costs and to share the savings. The specifics usually are detailed in a legal contract. Gain sharing can be a highly effective incentive for continual cost reduction and improvement of services, and there are numerous approaches for implementing a gain-sharing strategy. While we have seen many examples of effective partnerships based on gain sharing, a collaborative relationship can be mutually beneficial even when it is not based on tangible cost savings. Consider the relationship between Dow Corning and Cabot Corporation. Dow Corning is equally owned by the Dow Chemical Company and Corning, Inc., and is one of the world s largest producers of silicon and silicone-based technologies, offering more than 7000 products and services.8 Cabot is a $1.5 billion plus global specialty-chemicals company. Its primary products are carbon black, fumed silica, inkjet colorants, plastic masterbatch, oilfield drilling fluids, and tantalum capacitor materials.9 In the world of specialty chemicals, one company s by-product is another company s key ingredient. Such is the case with Dow Corning and Cabot, and the two companies have established a collaborative relationship that demonstrates clearly how each company s results can be tied to its trading partner s performance. Dow Corning is a major producer of purified silicon for the silicon wafer industry using a process that results in a by-product known as silicon tetrachloride or chlorosilane. Silicon tetrachloride is a key ingredient used in the manufacture of fumed silica, one of Cabot s key products. Dow Corning uses 20 different grades of fumed silica as a key filler ingredient in its sealant (silicone caulking) product line. The relationship between the two companies is so strong that two of Cabot s primary plants are located directly adjacent to Dow Corning s, and material is transferred between the two entities through a shared infrastructure. To make the process work properly, Dow Corning and Cabot production managers meet to discuss production plans on a daily basis. Dow Corning managers identify the expected amount of silicon tetrachloride that will be made available and the amount and grade of fumed silica that will be required. In response, Cabot identifies the amount of silicon tetrachloride that it will be drawing from Dow Corning and the grades of fumed silica that will be available. If sufficient quantities of the desired
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CHAPTER 4 Core Discipline 4: Build the Right Collaborative Model
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grade are not available, both sides negotiate until a mutually acceptable solution can be developed. The production schedules for each company are then adjusted in response to these inputs. An additional indication of how tight this relationship is can be found in how each partner pays for the material used. Each company monitors the volume of product flowing between the factories. At the end of each month, the aggregate data are reviewed, any discrepancies are reconciled, and a summary invoice is produced. Since prices are set during negotiation, only the volume requires reconciliation.
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An Example of Mutual Gain
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Today s technologies offer the opportunity to manage business in ways previously thought impossible or, at the very least, implausible. Even though a capability may be technically feasible, setting up a process that leverages that capability is not always necessary. Indeed, in many cases it is not at all appropriate. Many effective collaboration strategies are not reliant on technology. Despite the hype associated with business-to-business (B2B) solutions that seems to envelop many supply chain professionals, most companies find that many of their prospective partners simply lack the technical sophistication required to participate in a collaboration process that is based on the use of complex information systems. Remember that transactional relationships are still considered collaborative; just because your systems are not seamlessly integrated with every sheet-metal shop and plastics molder who supplies your manufacturing operation doesn t mean that you are not working collaboratively. In fact, relationships all along the collaboration spectrum may be extremely effective but make little or no use of the advanced capabilities offered by supply chain collaboration systems vendors. Jamba Juice is a San Francisco based retailer that operates stores in 25 states throughout the United States. The menu at Jamba Juice stores is simple; the chain sells made-to-order all-natural smoothies, as well as a variety of freshly squeezed juices, baked goods, and other snacks. All items are created with the goal of balancing great flavor with powerful nutrition. 10 Jamba Juice s suppliers include large fruit and vegetable growers. The company establishes long-term contracts in order to ensure availability of supply. We can t strike a deal with Mother Nature herself, explains Joe O Neill, Jamba Juice s chief financial officer, so we have to get creative when it comes to getting as close as possible to guaranteed availability of the produce we need. And Jamba needs a lot of produce the
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