Just as a company educates and develops its own employees to enhance performance, it needs to extend that effort to its supply chain partners as well.

This is the process called collaborative education, and it has the proven ability to enhance supply chain returns and drive truly dynamic partnerships.

Here is a framework for making collaborative education work. 

These days, the story of globalisation is a familiar one—and so too is the story of the increasing use of outsourcing.

But there is one part of that story that has received little attention so far: the education of supply chain partners, primarily by their customers.

More and more companies are not just outsourcing critical supply chain activities next door or even in-country—they are choosing to extend their outsourcing relationships around the globe.

If you think it's hard to align several thousands of your own employees with what you're trying to do, just think how hard it is when those employees are on another continent—and they work for another company.

Nevertheless, we believe that most companies need to actively extend their training and educational efforts beyond their own four walls.

The resulting exchange of knowledge is what we refer to as collaborative education.

Rick Behrens, senior manager of supplier development at Boeing Company's Integrated Defense Systems unit, expresses it well:

“We look at our suppliers as an extension of Boeing. So since we invest heavily in training and education of our employees, why wouldn't we invest in education and development for our suppliers?”

This article firms up the argument for training suppliers' staff at least as assertively and consistently as your company's own employees are trained.
 
It lays out five levels of collaborative education and describes a framework comprising several training specifics.

The Case for Full-Strength Training
According to the American Society for Training and Development (ASTD), a typical US company dedicates an average of 2 per cent of its payroll to training expenses.

Additional research shows that this is money well spent: ASTD found that an increase in training investment equal to an average of $680 per employee generates an average 6-percent improvement in total shareholder return (change in stock price and dividends issued) the following year.

Similar results were found for gross profit margin, return on assets, ratio of price to book value, and income per employee.1

Training and education provide not only an increase in employee skills but also a common understanding and knowledge base from which to work.

Knowledge exchange results in joint learning. That, in turn, results in the joint creation of new products, technologies, and services.

There is nothing that restricts those benefits to a company's own boundaries. Collaborative education across the supply chain network can play a significant role in the success of a strategic partnership.

Yet many companies do little more than host annual supplier meetings, where even the most energetic of workshops or breakout sessions are inadequate training forums.

Our research indicates that precious few companies even go so far as to hold formal quarterly supplier reviews. The pressures to extend training outward are increasing.

As companies outsource more, they generally find they must relinquish the conventional arms-length relationship between supplier and customer and invest in developing and sustaining longer-term relationships.

And as those outsourcing relationships mature, senior managers begin to realize that a company's ability to compete globally is based to a large degree on its ability to establish partnerships of trust, knowledge, and collaboration.

The proof is in the results: Doing so has been shown to improve customer responsiveness, increase quality, lower inventory levels and capital expenditures, and reduce total costs.

But the migration to supply chain networks has also increased each participating company's operational complexity.

Gains in one company's performance now depend greatly on the skills and abilities of its partners. Because an organisation's performance is only as good as the weakest link in its supply chain, each company must strive to improve this degree of integration.
 
Every organisation (and therefore every expanded organization) consists of interrelated linkages—structure, rewards, decision making, information, knowledge, people, and tasks.

Behavior, strategy, structure, skills, and leadership must all be aligned.

Any effort that focuses solely on the “hard” elements (for example, structure, finances, and systems) across organizations and ignores the “soft” elements (such as skills, behavior, learning, and values) will likely fall short.2

Pushing Beyond Old Ideas
Of course, collaborative education is not a brand-new concept.

Total Quality Management (TQM) programs have long included supplier education. However, supply chain collaborative education should reach much further than just quality issues.

In particular, education initiatives aimed at relationship building, communication, trust, commitment, and shared benefits can help achieve an improved fit between companies.
 
At the same time, the field of supplier relationship management—fueled by a range of software suites—is emerging quickly.

However, most efforts in this space often lack a truly educational element.

For many companies, supplier education equates to supplier performance management; managers work hard to establish supplier metrics and then measure them with fancy software and pretty reports on how they are doing.

Although supplier performance management is very important, it is only one tool in a company's supplier management toolkit.
 
It should be augmented by complementary supplier education efforts and by other initiatives to build trust and align goals and objectives.

Leading companies are realising and acting on those insights.

John Deere provides an excellent case in point. The agricultural and construction equipment maker has set up a global learning and development unit that is specifically responsible for supplier management education.

The supplier management education spans specific supplier training programs that deepen relationships while imparting skills and awarding certification in areas such as quality control, cost control, and technical support.

The relationship-building aspect cannot be understated: John Deere's materials on the topic hightlight the importance of the value of attending the same classes, hearing the same content, and spending focused time together.
 
Five Levels of Collaborative Education Our research has found that a growing number of organizations are extending learning to their supply chain partners.
 
However, the research also shows a great deal of variation in the degree of collaborative education.

We have found that education partnerships can be broken down into a continuum of five general categories.

A close look at each category will help readers determine their place on the continuum.

Level One: Transactional Knowledge
At this level, little education is provided across organisations.

Typical relationships consist of simple, one-time transactions or multiple transactions that do not affect either organisation's strategy.

What little training is provided is generally pushed by the supplier to the customer. Typical of this level is the supplier “educating” the customer as to what services are available to meet its needs.

Many of today's more traditional outsourcing arrangements with warehousing providers fall into this transactional type of relationship.

A real-world example can be seen in a business that serves Fortune 500 companies.

On a recent site visit, we asked the company's managers about their average inventory turns. Their answer:

“We don't own the inventory, so we don't track it. The client owns the inventory; we just provide warehouse and storage solutions. Heck, we charge a pallet-storage fee, and we'd actually lose revenue if the client was more efficient.”

From this actual example, it is easy to see that the company doing the outsourcing got exactly what it asked for—a service for a fee—and nothing more.

The exchange of information at this level often rides the waves of the sales process, where the primary learning that takes place is one-directional, in favor of the customer doing the outsourcing.
 
Although the supplier may gather some learning about the outsourcing company, it often does so informally and through its own devices.

Once products are ordered from suppliers, little knowledge may be exchanged beyond quantity required and requested delivery dates.

Level Two: Product Capabilities Knowledge
In level two, learning may occur across organisational boundaries by way of requirements and capabilities dissemination.

That is, suppliers are provided with product information through specifications and technical requirements. Customers, in turn, are given basic information on the product or service provided by the supplier in order to make use of the suppliers' product.

As customer requirements change or new products or services become available, this information is passed to the supply chain partner.

This exchange of information is typically technical in nature and is pushed from one party to the other. Suppliers are expected to be fully trained and capable of executing without assistance. Take the example of a supplier of manufactured parts.

Its customer will push technical specs to the supplier and expect it to deliver to the spec at predefined quality levels.

Level Three: Execution Certification
At this level, we begin to see the customer place an emphasis on ensuring that the supplier meets minimal training requirements, often using some form of industry certification.

The customer may also require the supplier to participate in additional training in customer-specific requirements.

Although some degree of customer-specific training may be provided by the customer, suppliers are generally expected to seek all other training independently.

Certification programs such as ISO 9000 are becoming increasingly common as today's companies look to either buy parts or outsource entire activities.

(Up to the end of December 2005, at least 776,608 ISO 9001:2000 certificates had been issued in 161 countries and economies; that's an increase of 18 per cent over 2004.3)

The primary purpose of this level of education is to provide the supplier with the skills and information required to execute effectively against the customer's standard requirements.

Information flow is typically from the customer to the supplier—a one-way process with little exchange of ideas.

Level Four: Cross-Relationship Education
 This level represents the beginning of a true collaborative-education process. A large portion of the education that occurs here is aimed at building a mutually beneficial partnership between members of the supply chain.

Training may focus on bettering that relationship, including elements such as supply chain management training and a specific focus on aligning vision, goals, and objectives.

Cultural differences (organizational and geographical) as well as training on how to best work with and leverage these differences may be taken into account.

Education is considered a two-way process at this level, with both the customer and the supplier taking advantage of the opportunity to learn from the expertise and knowledge of the other.

Although each organization still conducts the majority of its training within its own company, organisational boundaries are often crossed when training plans are considered, developed, and even executed.

At the very least, each organisation is mindful of the related skills and abilities of the partnering organisation and considers how each business might best leverage these in their education processes.

Level Five: Collaborative Learning
This level marks the culmination of a collaborative learning environment. Complementary abilities, knowledge, and strategies are leveraged to provide a catalyst for learning.

Boeing excels at this level. Emphasis is placed on the development of a strong partnership, including collaboration and process improvement through mutual knowledge sharing.

This level of education furthers each organization's ability to deal with changes in the external environment and to work together in meeting these challenges.

Companies that have evolved to this collaborative-learning level are often involved in joint product and process “team training” programs that extend across both organisations.

Honda, for one, has done well with collaborative-learning environments. Some years ago, employees from several Honda departments teamed with a supplier's employees to work for several weeks at the supplier's facility.

The team focused on improvements in a few narrowly defined areas—work organization, problems with second-tier suppliers, and workforce issues.

The tight scope generated quick results, which provided the motivation and data needed for participants to persuade managers to continue backing the effort.

The tightly defined project made a deep analysis possible, which helped teach systemic thinking. This systemic thinking could then be applied to other areas within the supplier's plant.4

In level-five programs, partners use process mapping and documentation to cross-train each other on their technology and processes.
 
Partners then consider possibilities for re-engineering processes based on the joint learning. The knowledge exchange and feedback result in the joint creation of new products, technologies, and services.

At the senior levels of each company, there is strong, articulated direction regarding the training and education of supply chain partners.

A Framework for Supply Chain Partner Education Based on our research, we believe there are several education focus areas that can help achieve an improved fit between companies.

We list five speific suggestions below. In addition, we explain how each of these education methods can contribute to relationship building.

Goals and Objectives Alignment Workshops
In a successful partnership, each party must clearly understand its partners' business needs from the outset. This highlights a need for strategic and cultural alignment between supply chain partners.

Goals and Objectives Alignment Workshops provide opportunities to promote dialogue and joint participation in decision making.

As such, they open up chances to build more effective relationships. They allow the partnering companies to explain who they are, what they value, why the partnership is important, and what future organization plans and strategies they have set.

Clearly communicating goals and objectives helps to build mutual trust by establishing roles, defining mutual expectations, addressing the “rules of engagement,” and identifying performance measures and resulting outcomes.

A good example of collaborative-education workshops in action are those sponsored by the US Department of Defense (DoD).

An imperative for the DoD is to transition to performance-based logistics (PBL) models for weapon systems support.

These types of arrangements are very complex. The DoD's Defense Acquisition University group teamed with the University of Tennessee to run joint workshops for DoD program managers and their contractors.

The workshops were designed to teach all parties the fundamentals of transitioning their programs to a PBL model.

Another good example is J.C. Penney Co., which partners with the Retail Compliance Council to train suppliers on how to best ship product to Penney's distribution centers.

Cultural/Change Management
Training Companies must consider the cultural impact of developing a supply chain strategy with their partners. As supply chains span the globe, cultural differences can exacerbate resistance to change.

At the same time, it's important to bear in mind that cultural differences go beyond just the geographic borders. Cultures, values, and ways of doing business can vary a great deal from company to company.

A company's collaborative education and training should address the softer side of partnership building, including real or perceived cultural differences.

Education initiatives might include workshops that address how the companies can better integrate their cultures (keeping in mind that the objective is not to merge cultures) and how they can best navigate through the changes necessary to success.

They can also make use of metrics to measure “soft” attributes such as communication, relationship building, leadership style, and creativity.5

As employees begin to engage more deeply with people in the other company, organizational trust can flourish—and with it comes a translation of tacit knowledge to explicit knowledge.

In addition to communicating vision and objectives, the training must also convey what is expected of employees and how any changes brought about by the relationship might affect them. Benefits of such training include strong leadership engagement and extensive employee participation.

These elements help to eliminate change resistance and motivate employees to fully engage in the success of the entire value chain.

Less well understood is that manufacturer and supplier relationships often require employees to manage conflict sparked by cultural differences.

Often, partnering companies have opposing opinions, different styles and ways of doing things, diverse values, and conflicting cultures that can result in damaging clashes.

A clear understanding of how to resolve conflict—and perhaps even take advantage of it—is important to building an effective long-term relationship.

Training in how to address these conflicts is important to supporting change management in the partnership.

Team Training Organisations are recognizing that they must establish teamwork with suppliers and other supply chain partners.
 
For this reason, we believe that supply chain managers should include cross-company team education as a key element of their collaborative­-education plans.
 
A particularly pressing need is education for team leaders. Without specifically trained and skillful leaders, teams run a high risk of failure.

Team-leadership training includes key elements such as goal setting, decision making, and mutual problem solving.

Most organisations provide general leadership development for their employees and include an element of team leadership in this process.

These efforts not only foster leadership skills but also build relationships and trust among participants. Rather than limiting this effect to inside the organization, companies should extend these sessions to include partnering organisations and produce similar benefits throughout the supply chain.

For example, companies often have annual goals and objectives alignment meetings or workshops for their top-level employees.

These sessions often require the leaders of each functional area to ask themselves, “How should I align my functional responsibilities to the organization's overall goals and objectives?”

We have found that it can also be valuable to conduct this kind of alignment exercise with outside strategic partners. Feedback is also a vital part of growth, development, and overall relationship building.

Since much of the individual's or team's performance depends on relationships across the supply chain, the knowledge of how he, she, or they affect others is an important part of understanding the relationship's overall effectiveness.

The ability to achieve supply chain performance metrics, while preserving—and taking advantage of—effective relationships has become more important today than at any time.

The capability to measure behavior along with performance metrics may be a more complete assessment of a manager's ability to build and maintain effective relationships.

Furthermore, it may establish an early warning indicator for those ties that have the potential to be damaged by a manager who is unable to build a partner-focused relationship.

Supply Chain Skills Training
We advocate that supply chain partner training also include specific supply chain skills training. Few business concepts have evolved more quickly than supply chain management.

Fifteen years ago, even the term “supply chain” was new, having recently evolved from “business logistics” or “integrated logistics.”

New technologies, advances in the supply chain body of knowledge, increased business complexity, and greater integration across companies and geographies have increased the need for more comprehensive supply chain knowledge.

With continual changes in the field, it is virtually impossible for today's supply chain manager to rely exclusively on an institutional degree or past supply chain knowledge.

Learning should be continuous and ongoing. Many agree that supply chain managers need to elevate their thinking above the day-to-day issues so they can work from the viewpoint of a CEO. One relevant and effective way to do that is to play the “Beer Game” with supply chain partners.

Created at the Massachusetts Institute of Technology in 1965 to teach the principles of systems dynamics, the Beer Game is an interactive supply chain simulation.
 
In the game, teams of four to eight players act as four companies that are each other's customers or suppliers. The goal is to minimize the total cost for everyone in the supply chain by maintaining low stocks while delivering all orders—but not at the expense of other players.

Players can clearly see the impact of their individual actions on the rest of the teams. The game is a staple for business schools that teach supply chain management, and companies have taken to it too.

By incorporating simulations such as the Beer Game, collaborative education can provide all participants with an understanding of how each affects, and is affected by, others within the supply chain.

Technology and Process-Mapping
Training Employees can also benefit from both technology and process training.

Real optimisation of the supply chain requires full integration of people and tools.

Achieving this integration requires technology training, as well as process mapping and education.

Technology is often the enabler that ties the organizations' supply chains together. Identifying and agreeing upon standards, meanings, definitions, and expectations for shared technology and data is critical.

In addition to data standards and metrics, supply chain partners need to understand process standards. This will help raise the level of mutual trust.

Two good resources in this regard are the Council of Supply Chain Management Professionals' Supply Chain Process Standards (www.cscmp.org) and the Supply Chain Council's SCOR model.

In addition, companies that want their suppliers to adopt more lean philosophies can use value-stream mapping as a key tool.

We suggest that training programs include some form of technical training as well as collaborative process mapping and documentation training to make sure that all parties are “speaking the same language.”

Process mapping, along with the subsequent re-engineering of processes, promotes organisational learning through questioning and developing the content of the solutions.

The frequent interaction between the participants who are tasked with mapping new supply chain solutions also will raise the level of trust among them.

Similarly, supply chain partners will benefit from having jointly documented processes. Although most companies have documented many of their processes, the documentation is often incomplete, inconsistent, or both.

Moreover, there are many different methods for documenting processes, and it is common for companies to have disconnects in how they approach and document their processes.

Different companies have their own semantics in their operational procedures. Joint education in understanding common process- mapping methods will greatly reduce levels of confusion.

A Call to Push the Education Boundaries
The critical differentiator in the global economy is shifting from mass production and manufacturing to knowledge.

Success now depends increasingly on the ability to identify, develop, and leverage skills, knowledge, and relationships—not only within an organization but across a network of partners.

Nowhere is that more vital than in supply chain networks. Yet shared education and training are still rare. Most alliance exercises focus on maximizing resource synergies—not human synergies.

The shortfall is summed up well in the recently released 11th Annual Third-Party Logistics Study from the Georgia Institute of Technology.6

“The future vision of a successful third-party logistics (3PL) provider-customer relationship lies in both parties helping each other,” says the report. It goes on to point out that a lack of understanding of their customers' business prevents many 3PLs from being more innovative in meeting their customers' needs.

Collaborative education can bring about those levels of understanding. We urge all organisations—especially those that have already outsourced or are about to outsource critical supply chain management activities—to think of their suppliers and outsourcing partners as extensions of their own businesses.

If those key providers are not on board and aligned with your strategic direction, then by default they are holding you back.
 
Author Information
Tracy Maylett is a partner and president of DecisionWise Inc., an organization and leadership development firm.

Kate Vitasek is managing partner of Supply Chain Visions, a consulting firm specialising in supply chain strategy and education.  

Endnotes:
 
1. L. J. Bassi, J. Ludwig, D. P. McMurrer, and M. Van Buren, Profit from learning: Do firms' investments in education and training pay off? (American Society for Training and Development, 2000).

2. R.J. Trent, “Making Sure the Team Works,” Supply Chain Management Review, April 2005.

3. The ISO Survey of Certifications–2005: www.iso.org/iso/en/commcentre/pressreleases/2006/Ref1021.html.

4. J.P. MacDuffie and S. Helper, “Creating lean suppliers: Diffusing lean production through the supply chain,” Remade in America: Transplanting and Transforming Japanese Management Systems (Oxford: Oxford University Press, 1999).
 
5. Ken Cottrill and L. Gary, “How Soft Metrics Can Make Hard Choices Easier,” Harvard Business Review Supply Chain Strategy newsletter, December 2005-January 2006.

6. C. John Langley Jr., Erik van Dort, Ulrik Topp, and Scott R. Sykes, 11th Annual Third-Party Logistics Study (Georgia Institute of Technology, 2006): www.3plstudy.com    

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