Supply Chain Coopetition: Improve Your Business Performance by Partnering with Your Competitors
by Tarso Melo and Henrique Pedreira
October 8, 2020
Originally published in Supply Chain Management Review
Supply chains have been facing pressure to continuously increase efficiency and differentiation in operations to support businesses. A broadly adopted initiative to overcome that pressure is supply chain collaboration, which is an initiative of two or more companies sharing part of or their whole supply chain operations with one another, aiming to achieve substantial benefits and advantages in return.
A large number of companies have implemented collaborative relationships, allowing them to share risks, access strategic resources, reduce costs, enhance profit performance, and competitive advantage over time.
Logistics “coopetition” is a specific form of supply chain collaboration, defined as the simultaneous pursuit of cooperation and competition between firms. It is a bold way of adding value to the chain, and this aspect has motivated its discussions and implementation in the last decades.
Why would enterprises partner with their competitors? The returns gained from other forms of supply chain collaboration vary depending on the type of operation and the synergy of the involved companies. Intending to reach the same target customers or consumers, competitors build their downstream supply chain to deliver similar products at the same or very close places; therefore, the greater returns from supply chain collaboration come from the partnering between competitors; thus, supply chain coopetition.
Although logistics cooperation with the competitor may return great benefits and provide advantages to the companies involved, it can also expose those companies to managerial implications and operational risks. In an attempt to avoid these risks, many companies stay away from their competition’s partnerships, instead of developing mechanisms to overcome the implications and mitigating the risks. The only strategy guaranteed to fail in the volatile, uncertain, complex, and ambiguous (VUCA) world is not taking risks; thus, not taking risks is the biggest risk.
We used data from two world-renowned food manufacturing companies in Brazil as a case study to evaluate the quantitative benefits of the coopetition approach in terms of transportation cost, CO2 emissions, and service level. Using a simulation model as the quantitative method, this study demonstrates that the supply chain coopetition can drive significant business advantages.
The overall benefits stay in the 5% band if companies adhere to the coopetition approach without implementing collaborative policies in order to increase the percentage of shared shipments. Consequently, the 5% band may not be enough for companies to decide to get on board into this approach of acquiring competitive advantages.
In order to maximize the benefits, firms need to agree to change at least part of their regional and customer delivery schedules to match each other, thus improving their synergy and achieving the full potential of coopetition. As a result, the decrease in outbound transportation costs can range from 5% to 25%, the reduction on average lead time can range from 6% to 10%, and the drop in total CO2 emissions can range from 5% to 23%. Thus, we show that supply chain coopetition can drive significant business advantages.
Every year, around 80 students in the MIT Center for Transportation & Logistics’ (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.
The students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, we summarize a selection of the latest SCM research.
