Written by Mikael Lind, Wolfgang Lehmacher, and Richard T. Watson, UNCTAD, Article No. 112, [UNCTAD Transport and Trade Facilitation Newsletter N°100 - Fourth Quarter 2023]
Illustration: Sandra Haraldson
Supply chain collaboration and digitalization are central features of the global economy, as they are foundational to generating economic and societal value. We contend these two drivers must be intertwined to maximize benefits. Digitalization promotes collaboration by allowing swift, efficient information sharing. However, algorithmic management, delegating managerial decisions to computers, designed for stable times, is not enough when global climate change, wars, and trade disputes create a turbulent global economic environment. Ongoing success requires collaboration augmented by digital systems. Humans are a social species. Cooperation is in our genes, and our capacity to collaborate has always been essential to our ability to prosper and survive. Digital systems can raise the level and speed of information sharing to oil the gears of collaboration, but they cannot supplant it.
Businesses have increasingly focused on digitalization, but collaboration has not enjoyed the same level of attention and uptake. In this article, we emphasize the interdependency between the two drivers and analyze the state of collaboration in the supply chain and logistics industry at a high level to understand where collaboration needs to be reinforced. Without a greater focus on collaboration, the supply chain and logistics industry will struggle to reach digital maturity. It cannot build resilience or decarbonize to capture its full potential of capital creation for itself and society.
In a previous contribution to the UNCTAD Transport and Trade Facilitation Newsletter, we introduced the Shipping Decarbonization Partnerships Matrix, a framework for transformational collaboration, considering two dimensions: the focus and the form of a partnership. This article presents a framework for operational collaboration by examining actor dependencies in supply chain networks and ecosystem turbulence. The goal is to outline what partnerships work in what configuration and which environment.
Collaboration to address ecosystem turbulence
Recent shocks, like the US-China trade tensions and the Covid-19 pandemic, have rattled global supply networks. During the pandemic, companies faced unprecedented volatility, lockdowns, changing consumer behavior, and other major challenges across the markets, resulting in shortages of chassis in the United States and ships on Trans-Pacific routes, global container imbalances, and port and terminal congestion, causing increased costs and unprecedented delays. Digitalized companies coped with the disruption better than those with higher levels of manual processes or legacy information systems. However, even advanced digital tools and systems struggled as their algorithms were not designed to handle high volatility. But the goods kept moving because when computer systems failed, firms raised their level of collaboration to enable goods to continue flowing. Humans can reprogram their procedures more rapidly than computers. We argue that digitalization and collaboration are crucial, mutually reinforcing components for success in complex global supply chains, especially in highly volatile and uncertain times.
The CDES paradigm for balanced collaboration and digitalization
In a prior UNCTAD article, we describe a new paradigm for capital creation, dubbed CDES. Collaboration (c) powered by large-scale digitalization (d), in combination cd, is a path towards effectively balancing economic and societal goals. The combination of collaboration (c) and digitalization (d), we aver, can drive economic (e) and societal (s) advances. We further believe the supply chain and logistics industry can benefit from such a holistic approach. As a self-organizing ecosystem, it is a loosely coupled collection of interacting and interdependent organizations that continually adapt to the forces they experience or anticipate. Strong disruptive forces increase the importance of collaboration and digitalization.
The shipping industry has much to gain from a cdes approach because, as a self-organizing ecosystem, it exemplifies the extensive integration of connected economies. Still, it is blighted by a slow evolution of digitalization. This lag is not surprising as self-organizing ecosystems lack centralized command and control. Furthermore, when these ecosystems are global, such as shipping, they must accommodate cultural differences and operations spanning many jurisdictions. Nevertheless, while digitalization is a priority area of the supply chain and logistics sector, collaboration falls short as an area of focus. We call for a more balanced approach to digitalization and collaboration to improve the productivity of economic and societal capital creation.[1]
Every organization is in the business of capital creation, but the targeted output is not always economic capital (e.g., universities are in the business of creating human capital). The winners are those organizations with a capital creation recipe that generates the highest level of productivity within their competitive sphere. A pure short-term focus on profits that neglects a balanced broader stakeholder view can jolt the share price but inflict long-term damage to an organization’s productivity.
Today’s state of collaboration in shipping
While many claim that collaboration is a core characteristic of shipping and supply chains, the slow pace of digitalization and decarbonization of the sector indicates that there may be a missing piece.
Actors in the shipping industry collaborate for specific reasons, such as improving their asset productivity or services, increasing supply chain robustness, driving innovation, improving cybersecurity, and decarbonizing supply chains. There are multiple instances of successful collaborative actions. For example, backhaul collaboration avoids empty return trips by trucks. Manufacturers partner in production to diversify risk by reducing their dependency on a single source or country. Supply chain actors jointly organize challenges and hackathons to drive innovation. Companies from different industries establish cybersecurity networks to ensure early detection and warning. Pressure to decarbonize has led to many different forms of collaboration.
The shipping industry collaborates when it cannot achieve its ambitions alone. Collaboration, however, creates dependencies:
- Shipping optimization is dependent on cooperating with partners or peers.
- Resilience building requires access to multiple partners’ assets to reduce vulnerability.
- Innovation initiatives can benefit from cross-fertilization with partners and, sometimes, even competitors to create industry standards.
- Cyber threats require cooperative networks for early threat detection and sharing of effective response mechanisms.
- Decarbonization pressure demands broader ecosystem alignment.
The increasing complexity of global supply chains is a consequence of more ecosystem turbulence and greater levels of dependencies.
A new collaboration framework
We explore the different types of dependencies at a fundamental level in a prior article. We now raise the level of analysis to consider a multiplicity of dependencies typically found in a supply chain or logistics network. Economic or geopolitical instability impacts dependencies. For instance, the war in Ukraine shattered many food and energy dependencies. The likelihood of a dependency problem increases with the number of relationships. There are more linkages to break. We propose a model to capture four specific situations determined by the level of ecosystem turbulence and the number of dependencies. These four quadrants each require different types of collaboration (Table 1). This model helps companies to understand what operational partnerships work in what configuration and in which environment and when digitalization and collaboration become critical for efficiency, automation, and business continuity.
Table 1: Ecosystem turbulence and actor dependency
|
Ecosystem turbulence |
|||
|
Low |
High |
||
|
Actor dependencies |
Few |
Algorithmic management |
Interventionist collaboration |
|
Many |
Managed collaboration |
Intensive collaboration |
|
Algorithmic management, such as assigning Uber drivers to rides, is effective for well-defined and stable situations. Although many of today’s processes are still manual, there is a trend towards higher levels of algorithmic management.
Managed collaboration is a structured approach to a high number of collaborative relationships. It is founded on clear system strategies and aims at well-integrated supply chains based on mutual respect and well-structured communication. This form works best in stable situations and allows for managing many partnerships. Large networks with thousands of dependencies are hardly manageable without digital support and tools.
Interventionist collaboration means that network actors exert more influence over each other. Such intercessions can result from discussions in a (crisis) situation room and communication through traditional means, like phone calls and emails, which works for networks with few parties and dependencies. Transport and logistics value chains are excellent examples of areas where interventionist collaboration is common for dealing with shocks.
Intensive collaboration includes using technological tools and social business relationships to manage extreme situations. Covid-19 demonstrated that high ecosystem turbulence can cause system failures. Hence, agile and swift shifts between human intervention and digital tools were required for this massive perturbation.
Applying the new framework to the shipping industry
We have populated the collaboration framework with examples to show its usefulness in understanding the abilities and limits of current or future setups (Table 2).
Table 2: Examples of Ecosystem turbulence and actor dependency
|
Ecosystem turbulence |
|||
|
Low |
High |
||
|
Actor dependencies |
Few |
Operating based on agreed procedures and processes, moving towards a digital-first approach across supply chain networks (e.g., eBL (electronic bill of lading) |
Human or digitally empowered interventions along logistics chains, such as between shipping lines at the start of the US-China trade tensions |
|
Many |
A high number of suppliers onboarded on a procurement/trading platform of a brand (e.g., NHS/Tradeshift) |
Broad collaboration, such as during Covid-19, combining human intervention and digital systems |
|
As an example of algorithmic management tendencies, the maritime sector has expressed a strong interest in moving from a we-serve-you-when-you-come approach towards just-in-time port visits. This approach relies on sharing plans and outcomes to align operations along supply chains. Nevertheless, cultural and behavioral barriers often impeded a swift shift towards more synchronized practices in the transport and logistics industry.
INTTRA, which enables beneficial cargo owners to plan efficiently and easily book, manage, settle and analyze ocean freight shipments, is an example of managed collaboration. INTTRA was founded in 2001 as a joint venture of CMA-CGM, Hamburg Sud, Hapag-Lloyd, Maersk Line, MSC, and UASC. Its purpose is to create a standard electronic booking system for ocean freight. It provides an easy-to-use platform with access to the largest network of ocean carriers.
In response to the supply chain disruptions during Covid-19, the Biden-Harries Administration launched the Freight Logistics Optimization Works (FLOW), an information-sharing initiative to pilot key freight information exchange within the goods movement supply chain, a form of interventionist collaboration. The goal is to develop a proof-of-concept information exchange to ease supply chain congestion, speed up the movement of goods, and ultimately cut costs for American consumers.
Tankers International was created in 2000 to offer ship owners and charterers the advantage of large-scale operations by pooling very large crude carriers (VLCCs). The company is owned and financially backed by some of the world’s leading ship owners and managed by an independent team of professionals. The VLCC pool of ships provides a physical hedge and regular cash flow during volatile market conditions. The initiative can be categorized as an intensive collaboration among peers in the shipping industry.
It is better to follow the same order as the previous section (managed collaboration, then interventionist collaboration) [HT1]
Using the framework
The collaboration framework has three purposes. First, it assists executives in identifying their collaborative domain. Second, it guides them on appropriate actions for their circumstances. Third, it informs software entrepreneurs of potential opportunities to develop tools to support collaboration in each area, as each has different information and communication requirements. For example, the top-left quadrant requires traditional transaction software. The bottom-left is also transaction-oriented but needs a shared platform to support the trading of resources among the actors. Because the top-right digital communication tools are necessary to support continuing interaction among a few players, visual models of a supply chain will help to identify bottlenecks. The bottom-right needs software to enable humans to analyze complex situations, share their domain knowledge, and reach a consensus. Systems dynamics, for example, is particularly suited for exploring alternative solutions for multi-actor, nonlinear systems. The skills and expertise to develop and implement systems in the four domains are quite different, and the framework informs executives of the talent they need to recruit to construct supporting tools for each sector.
A future of enhanced collaboration
The supply chain and logistics industry has developed some strong pockets of collaboration. While goods kept moving during Covid-19 and incidents are less disruptive, the current setup for global supply chains and logistics is far from being sufficiently collaborative. Consequently, many projects and partnerships have been launched, including the virtual watch tower / VWT (www.virtualwatchtower.org) for improved supply chain risk management through digitalization and collaboration.
The current fragmented geopolitical landscape and challenges ahead, like the need to decarbonize shipping, require an unprecedented scale and scope of collaboration. The framework introduced in this article is designed to help companies succeed in an increasingly integrated economy. We dub the next phase collaborative, as this is the only way to ensure sufficient economic and societal capital is created to continue to raise living standards.
[1] For a comprehensive coverage of capital creation, see Watson, R. T. (2020). Capital, Systems and Objects: The Foundation and Future of Organizations. Singapore: Springer
Contact the authors:
Mikael Lind ǀ Research Institutes of Sweden (RISE) & Chalmers University of Technology ǀ Mikael.Lind@ri.se
Wolfgang Lehmacher ǀ Anchor Group & Topan AG ǀ w.lehmacher@gmail.com
Richard T. Watson ǀ Digital Frontier Partners | richard.watson@digitalfrontierpartners.com
