I interviewed Sven Verstrepen who discussed The Latest Trends And Horizontal Collaboration And Network Orchestration.
It’s good to speak with you today, Sven, and I’m looking forward to hearing your views on the latest trends and horizontal collaboration and network orchestration. Can you start by providing a brief background of yourself?
Thank you, Dustin. It’s a pleasure to be part of your program. My name is Sven Verstrepen; I’m from Belgium. My office is in Antwerp. I cofounded a company called TRI-VIZOR five years ago. We are a spinoff company of the University of Antwerp in Belgium, and we are specialized in facilitating what is called horizontal collaboration. This is the creation of synergies and economies of scale and economies of scope across multiple supply chain or multiple supply networks. It’s really extending collaboration outside of the company, looking across the wall, and looking into other companies as well. This is what is called horizontal collaboration, and we have been specializing in this topic. We actually coinvented it as a business concept five years ago, and we’ve been applying it ever since.
Can you talk more about what exactly horizontal collaboration and network orchestration are?
Absolutely. This actually started about, I would say, ten years ago, when a number of large companies, especially in the fast-moving consumer-goods industry, were beginning to notice that all of the effort and all of the optimization they were doing in terms of supply chain and logistics and transportation was really reaching a maximum, was reaching the ceiling. By integrating vertically by eliminating wasting their supply chain in a vertical supply chain—so, in their relationships with customers and with suppliers—they actually came a long way since the early ’90s and implementing ERP packages or integrating customers and suppliers to their systems, doing things like vendor-managed inventory, inventory optimization, sharing inventories across multiple places to increase service levels to customers and to reduce inventory levels. But at some point these companies were all starting to notice that they were having a fundamental problem with their transportation.
There was pressure from consumers to be delivered just in time, with smaller drop sizes and higher frequencies, and this was causing, for all these companies, a low utilization rate in their transportation networks. This meant that both the cost of delivery or the cost of drop or the cost of mile was going up. Also, and this was getting important around 2006—also, the carbon footprint of their networks was going up. There was not a lot these companies could do about that but look outside toward other companies and start looking at sharing supply chain capacity and transportation capacity. Of course, their networks are really starting to collaborate normally vertically but also horizontally outside of their own company. And this could even include collaborating with direct competitors, which, from a mental and psychological standpoint, is something very new. No one had ever really thought about this before, I would say, 2005, 2006. And most companies that were willing to try it and practice, they quite fast bumped into a number of practical problems.
All of the concepts, all of the solutions that we as a company had developed since 2008 are basically to facilitate, to supporter, and to maximize the synergies that companies can create by collaboration horizontally, across multiple supply chains. This was the starting point and quite a number of large companies have successfully applied this in practice; companies like Baxter health care, companies like Procter & Gamble, companies like PepsiCo, Heineken, Unilever. They are all starting to look at sharing transport capacity across multiple companies in what is called a community. But the scale is up to the level whereby this can be controlled on a larger scale by a control tower so that the entire network is starting to create synergies instead of one single network of transportation. This we call network orchestration. Horizontal collaboration is looking for synergy across multiple supply chains; and network orchestration is really the application in practice of this concept on a very high scale, steering the entire networks to maximize the synergy with other supply chains and other networks.
Can you talk about why this is important?
Absolutely. This is important for a number of reasons, and I will start by giving the European background, but this also relates to what is happening at the moment in other markets across the world. In Europe—and this was especially the case before the economy crisis of 2008, the financial crisis—quite a lot of companies, especially in the business and consumer sector, were starting to look at sustainability and carbon footprint as a very important new dimension in the organization of their supply chains and transportation networks. This meant, for example, that, especially in Europe, where there’s a lot of congestion on the roads, that things like multimodal transportation—transport via railway or via barge or short sea shipping—that this has become very important. Now, to successfully organize multimodal shipping, you need quite a lot of freight volume.
There are very few companies—even the very large ones—that have enough internal freight volume to fill a train or to fill a short-sea ship or to fill a barge. This led these companies to reach out to one another and to say, “Well, why don’t we fill a train together? Why don’t we share capacity? Why don’t we connect transport capacity together, and then we will fill this train capacity, for example, with both of our goods, both of our products.” This happened quite a few times around 2008, 2009, but, immediately, a lot of these companies got called back by the legal departments, and that does little importance for freight that this type of collaboration, which was very new, which could even suggest that competitors were in conflict with antitrust legislation, that it was in conflict with the collusion legislation, which is, of course, not only Europe, and attention from the markets.
I would say that the push for sustainability initially was one of the big drivers for horizontal collaboration. Now, at the same time, companies that successfully applied the concept into practice also know that this was generating significant cost reductions. Typically, when you talk about the success of horizontal-collaboration community, you talk about cost reductions, per-transport kilometer of more than 10 percent. At the same time, as carbon footprint reductions of 20, sometimes even 30 percent and more. These are very, very significant numbers which cannot be achieved by, I would say, internal or vertical supply chain optimization; this is really the synergy effect when you combine multiple supply chains, when you put multiple shapers into a community.
There’s a systemic drive, the cost drive, and then the last dimension, I would say, is the service-level drive, because by combining the freight flows of multiple companies and synchronizing them to the same network, you can also significantly increase your service level, your frequency of delivery without increasing your cost and without increasing the number of empty miles. The whole concept of synchronization across multiple supply chains, multiple companies is very important to enable the reductions and cost and improvements in carbon footprint and service level.
How is this done effectively?
Well, to put this into practice—the idea’s quite simple, actually, but to put this into practice, you need a number of, I would say, new elements in the supply chain organization, new concepts in supply chain management, and one fundamental concept which has been developed quite thoroughly in the meantime in Europe is the concept of the neutral trustee. Imagine if you went to put several companies, including competitors, into the same company and you want them to share transportation capacity and you want them to synchronize their activities and their planning and their transportation.
This is something not easily done if these companies have to talk to each other directly. They have to exchange information and data, and they will have to exchange, at a certain point, cost information. This is for antitrust legislation not only in Europe but also in other markets. The solution that we came up with in Europe is the invention of what is called today a neutral trustee. This is some kind of neutral referee, a go-between, or a Chinese wall, so to speak, which is standing between multiple collaborating companies or parties, which is collecting all of the data necessary to collaborate from those parties, leveraging this data, and managing it to create synergies and to synchronize the activities of all of the different partners but without those partners having to exchange data directly with each other. When this is done in an organized way, in a large-scale way, through a central control tower, then we talk about network orchestration, and this is what a number of companies in Europe are, at the moment, already testing.
Thank you for sharing your views today on the latest trends in horizontal collaboration and network orchestration.
You're welcome; it was my pleasure. We’re hoping that we will see a lot more of this concept in practice in the coming years both in Europe and in the U.S.
About Sven Verstrepen
Sustainable Logistics & Horizontal Collaboration Pioneer,
Business Developer & Entrepreneur at TRI-VIZOR