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Horizontal Co-operation

Horizontal and transversal Co-operations

Target of a horizontal co-operation is an improvement of the economic situation for all participating partners which surpasses the benefits of an optimization of the single partners. This so-called selfish optimisation typically takes place in sectors with low trust amongst the companies (especially with investment goods). The fact, that selfish optimisation cannot exploit synergies between the companies is the reason that savings in the frame of a company are always smaller compared to horizontal or transversal co-operations.

Co-operations mainly take place in the consumer-goods industry and in research intensive segments which practice co-operations regularly.

Fields of co-operation
Co-operation might comprise the following layers:
- Transports, packaging, loading
- Storage warehousing
- In-house logistics and information management
- Procurement and EDI Electronic Data Interchange
- Investments, adaptation of processes

Co-operation are possible in almost every businesses, some examples for co-operations with a high success rate:

Logistics Consolidation and equalising of loads between the logistics providers amongst the co-operating, producing or retailing companies.
By employing the services of the contracted party of the partner, also tight schedules might be kept and own warehouse surfaces might be kept or reduced. The co-operation has only to be on a basis non disclosing capacity and prices to the competing partner in this transversal co-operation (horizontal and vertical at the same time). But also horizontal co-operations are possible i.e. transport by the in-house logistics provider of a co-operating industry in case the goods are transported in sealed containers. By using craneable containers there is also the chance of minimising transhipment costs when using intermodal transport.

Development of suppliers: Searching and developing of suppliers which may fulfil the criteria (quality, location, prices). The joint development of suppliers (parts producers) with the required quality near the assembling plants will improve the supply chain stability and reduces the transport costs. The joint supplier may ship smaller jobs easily by bundling. No disclosure agreements secure that there is no information spill-over from the supplier or the freight forwarder. This co-operation might be horizontal and lateral. Lateral co-operation needs a search on a higher abstraction level to find skills fulfilling the needs of the different assemblers.

Development of human resources Training on the job or off the job, increasing the skills of the apprentices. In case of high fluctuations smaller companies have big problems in finding skilled employees. Joint initiatives facilitate to get skilled employees also in very specialised segments and to reduce costs to train them on a high level. Those type of co-operation might be on vertical or transversal level.

Enabling factors for co-operations
Horizontal co-operations are frequent, if the partners are used to participate in research projects and are also able to take responsibility. The following three points show three different reasons to start co-operations:

Crisis may be a trigger for enterprises to have a wider focus to solve their problems in a more risky or resource consuming way. On the other hand the circumstances (fearful situation, risk of bankruptcy) may prevent the build up of trust. Therefore an early take up of the co-operation exercises is useful.

Trust is a very important nucleus - personal relationships and a mediating influence of the administration or funding organisations are creating trust amongst the co-operating partners. Face to face meetings which are very important for the build up of trust only take place when companies and their employees are going public and have language skills.

New business models are offering new services where all profit from (market research, tracking and tracing, warehousing, freight exchanges etc.) may support co-operation. The new service provider addresses the companies and offers them services (also electronic virtual services). This includes third party logistics.
Co-operating enterprises may subcontract third parties, but also nominate dominating enterprises in the supply chain or cluster as lead buyer co-ordinating and organising the logistics in the supply chain. But co-operations might also be agreed upon as the case may be or as part of a framing contract.

Success criteria
Where are the easy points to succeed in joint procurement activities?
- In case of a high volume (A+B parts)
- High standardisation of products
- Low planning effort for the implementation
- Transparent distribution of benefits and costs
The development of suppliers is not restricted to standardised products, because it makes sense for specialised skills which were not available in this region before.
Co-operations in logistics require to pass the critical mass, so investments in logistics infrastructure and special transport means have a fast return on investment. Counter flow arrangements and line haul have the highest potential to avoid empty return trips. With asymmetric goods flows in the vicinity of very big agglomerations it is better to set up triangle transport networks connecting with two or more smaller centres. A co-operation in human resources and trainings is especially important, if there is a gap regarding specific skills. A segment spanning training of experts creates the least problems with regards to information spill over.

Co-operations in logistics
Statistical data show that there exists co-operation in regional and long distance transport, but also in short distance transport using storage areas, but there is less joint usage of information systems. There might be a chance for distributed systems operating via the internet through standardised interfaces.

Examples for co-operations with joint distribution or collection hub
In Japan as well as in Italy there are examples where transport routes have been set up connecting different suppliers in the so called "milk run". The transport might be contracted by the group of suppliers or organised by the assembler.
The second example covers the joint use of pallets/containers and other transport equipment as well as whole vehicles.

Supportive technologies
The development of tcp/ip based networks and open standards (xCBL XML Common Business Library see http://www.xcbl.org, ebXML Electronic Business using eXtensible Markup Language see http://www.ebxml.org, EDI-INT AS2 EDI over the Internet) enabled the set up of internet based systems with low effort for closed groups. Technologies that stand behind this are:
- XML Extensible Markup Language to store the data
- SOAP (Simple Object Access Protocol) to transmit the data
- WSDL (Web Services Description Language) the describe the offered services
- UDDI (Universal Description, Discovery, and Integration) to store the service description

In case the co-operation is restricted to a small group of users it is more important to integrate the data in the own enterprise resource planning systems than to have flexible, but complex systems with open standards.

Please give us your feedback
Is this feasible in your enterprise, can you contribute with a case to the list of best cases?
If no, please tell us the reason.
Please use the follwing link to get in touch with us, we would be happy to co-operate.CORELOG Team