Supply Chain Frontiers issue #43
The supply chain innovations derived from the relationship between a company and its core partners are a vital source of competitive advantage. Unlocking this potential is difficult, however, as these relationships often are stymied by daily problem solving and unwieldy organizational structures with multiple communication lines. The Spanish subsidiaries of Carrefour, the world’s second-largest retailer, and international logistics company DHL Supply Chain are overcoming these barriers with a systematic approach to collaboration. “We know that innovating along with our logistics service provider can add excellence to our operations,” said Jesús Lorente, Director at Carrefour Supply Chain, Spain. The initiative, which is being managed by the MIT-Zaragoza International Logistics Program (MIT-ZLC), Zaragoza, Spain, has already yielded a rich set of innovation projects.
Key to the approach is enhancing the “absorptive capacity” of the organizations, explains Dr. María Jesús Sáenz, Professor of Supply Chain Management at MIT-ZLC. Sáenz and Professor Desirée Knoppen, adjunct professor at MIT-ZLC and head of the Operations Management and Information Systems department of EADA Business School in Barcelona, are overseeing this initiative, named “innovamoSC.” While this absorptive capacity term may sound somewhat academic, it is firmly rooted in real-world collaboration.
“One of the main long-term benefits we aim to deliver is improving business performance by fostering learning and innovation between Carrefour and DHL SC based on a novel way of interaction,” says Sáenz.
Absorptive capacity is created when organizations pass through three stages or learning processes: exploration, assimilation, and exploitation. The stages are connected through a set of organizational mechanisms that can be structural, cultural, psychological, or policy based. Sáenz and Knoppen have developed a way to help organizations navigate this route to collaborative innovation in the supply chain.
In essence, the methodology evaluates organizations’ capacity for collaboration and learning, and takes them through a carefully planned process that gives them the tools and mindset to work creatively and constructively together.
The people involved are “boundary spanners” who operate at the interface between the organizations; in this case, they are senior managers at distribution centers who support Carrefour’s retail outlets. DHL operates DCs for the retailer, and personnel from both companies work together in these facilities. “For us, Carrefour is much more than a client,” says Javier Bilbao, Managing Director at DHL Supply Chain, Spain. In addition, managers in their respective headquarters cooperate on business and logistics programs.
The project has four phases: data gathering and diagnostics, defining joint projects, formulating joint action plans, and following up/capturing financial gains/knowledge transfer. In the first stage, researchers conducted more than 20 interviews with key boundary spanners from both companies. This initial research confirmed that the project could yield tremendous value for both trading partners.
The next step was to establish a framework for action based on the strategic objectives of each enterprise. These goals fall into three buckets: improving the added value within the DCs, shifting from large to small store formats, and developing end-to-end distribution networks.
With the framework in place, the second phase commenced with two Collaborative Skills Development Workshops that took place in July and September 2011. The goal was to foster and develop collaboration skills and innovative ideas. Sixteen individuals, including DC general managers and executives from the HQ offices from both organizations, participated in the event. The participants were grouped into inter-organizational and cross-functional teams.
“It can be very difficult to change habits when working practices are entrenched,” says Sáenz. “The workshops provide an opportunity to develop a truly inter-organizational culture.”
With the benefit of this shared mindset, the teams developed several fruitful innovation projects. These are now being evaluated on two critical dimensions: the value derived and the level of risk. “We are looking for quick hits within the three strategic umbrellas in order to keep the organizations motivated,” Sáenz says.
Phase 3 of the project is scheduled for completion later this year, and the final phase should be finished around March 2012. The anticipated paybacks fall into five areas:
- Alignment of actions, procedures, standards, objectives, and strategic vision.
- The creation of an environment that encourages individuals to propose bold ideas.
- The implementation of a system for sharing data, information, and resources between both companies.
- A new way of collaborating with the partner, based on increased transparency.
- Improved key performance indicators.
“Up until now, managers in both organizations have demonstrated that they are pretty good in the exploitation learning process, having some room for improving their common capabilities on supply chain innovation. We are working on this by opening up a free flow of ideas within and between the organizations in order to take advantage of their exploitation strength,” Saenz says.
For more information on the innovamoSC project, contact Prof. María Jesús Sáenz.