Horizonal Collaboration – Yankees and Red Sox Sharing a Plane?

In a sign of how integrated today’s business environment has become – and how “yesterday” competitive rivalries could soon be – manufacturers are increasingly teaming up to share warehousing, transportation and other logistics costs.  And sometimes, that means having products commonly perceived as bitter rivals sharing space in a warehouse or on a truck.

This trend, known as “horizontal collaboration,” is increasingly common as manufacturers look for out-of-the-box approaches to cutting costs and finding new ways of doing things.  A recent article by Mary Siegfried in Inside Supply Management described horizontal collaboration as “manufacturers sharing supply chain assets for mutual benefits.”

Businesses in the same industry, who often have the same customers and same logistics needs are prime candidates for horizontal collaboration.  As Siegfried notes in her article, a “high-profile” example of horizontal collaboration now underway involves two competitive chocolate manufacturers, the Hershey Co. and the Ferrero Group in North America.  “Late last year,” Siegfried writes, the two companies announced plans to collaborate on warehousing, transportation and distribution…”

Other “competitors” sharing logistics processes include Nestle USA and Ocean Spray,  as well as Pennsylvania-based “Just Born” confectioner (best known for “Peeps” marshmallow candies) and an alliance of five other candy companies.  According to Joel Sutherland, managing director at the University of San Diego’s Supply Chain Management Institute, “Just Born increased the amount of freight shipped out of its distribution center by including other confectionery shippers to form a collaboration of ‘like’ shippers delivering product to ‘like’ customers.”  The impact?  Sutherland says that the collaboration will save the companies “about 25 percent of their total transportation costs per year.”

Businesses interested in integrating horizontal collaboration solutions into their supply chains should be forewarned though.  It’s not for everyone, and it’s hard work.  According to the North American Horizontal Collaboration in the Supply Chain Report – 2011, produced by supply chain research group Eyefortransport, top concerns for businesses include:

• Fear of information disclosure
• Lack of clarity over who’s in charge
• Lack of widespread acceptance of ideas
• Difficulty finding appropriate partners
• Difficulty starting trusting relationships

Eyefortransport also found that legal issues and uncertainty over customer needs are the biggest concerns for carriers and 3PLs.  But, as the survey notes, “should these challenges be overcome, it is clear there is a real potential to reduce costs and drastically improve supply chain efficiency.”

Would your company consider a horizontal collaboration?