Supply chains today are under pressure to constantly bring greater value to the organisation. According to an article by Supply Chain Management review, two of the greatest challenges practitioners face include exponential growth in complexity of the supply chain and cost savings fatigue resulting from the unsustainable pursuit of achieving bottom-line growth by constantly cutting costs.
In a recently published white paper by the University of Tennessee titled “End-to-end Supply Chain Collaboration Best Practices”, the ways companies are responding to these challenges indicate that solutions lie within high collaboration. As supply chain partners collaborate to drive improvements, this enables for organisations to achieve greater levels of optimisation.
However, this also requires partners to shift from traditional transactional business models with the focus on cost savings to models that shift the focus to value creation.
Additionally, although many companies see value in collaboration, they continue to rely on conventional arms-length procurement methods and commercial models that disincentivise a value-creation model. This is because traditional buying decisions tend to rely on transactional models which, at its crux, is contingent on a competitive environment to lower costs and creates a distance between the buyer-supplier relationship.
An equity partnership, in contrast, would mean both parties are investing with the hope to drive value for the partnership. This was what the article called a “vested business”, which uses a buyer-supplier relational contract. This vested model works because it creates a win-win outcome that aligns both the interests of the buyer and supplier.
The second highlight from the UT white paper focused on a tool known as the Maine Ponte’s Total Value Optimisation (TVO), a best practice method that allows organisations to dynamically anticipate and meet demand by synchronising its buy-make-move-fulfil supply chain in order to deliver the greatest value while still achieving lowest business costs. The Total Value Optimisation approach looks beyond the basic metrics such as cost of ownership and purchase price variance, and adds an increased focus on the total added-value characteristics of the relationship with each supplier.