Insights Into Improving the Practice of Supply-Chain Public-Private Partnerships


By Mary Margaret Frank

Newswise — The sourcing, manufacturing and logistics within corporate supply chains can benefit from partnerships with governments and nonprofit organizations. These joint endeavors support a range of social and business objectives by employing the expertise and assets of multiple sectors. From technical advice on the use of natural resources for improved efficiency to coordination of rural agricultural producers for enhanced market participation, global companies in a variety of industries are turning to public-private partnerships. Improving the performance of these multi-sector partnerships is a priority for these companies. They must exercise balanced concern for profitability, efficiency, and reputation in their supply-chain decision-making, while assessing prospects for innovation and risk-sharing through partnerships.

In September 2018, we convened a roundtable at the Concordia Summit in New York City to discuss the state of supply-chain public-private partnerships. We benefited from insights offered by senior executives at consumer-packaged goods, technology, pharmaceutical, food and beverage, and financial services companies. From our discussion, four themes emerged as particularly important to improving the value of supply-chain public-private partnerships to the business sector: 

CONTRACTS AND COMPLIANCE: COMPLIANCE IS KING, AND THE FALSE COMFORT OF THE CONTRACT

Supply-chain public-private partnerships produce tension between innovation and compliance. These partnerships offer an innovative way to address the increasingly complex challenges in a company’s supply chain that it cannot address alone. However, these innovative partnerships introduce new parties and processes into the company’s business model, and with innovation comes risk. Compliance and legal departments are averse to risk for understandable reasons; however, if afforded too much power, the departments stifle innovation and learning. Consequently, they can hinder partnering activities. As one participant noted: “Overlay of compliance is an added complexity now. The decision-making often lies with compliance, which possesses a huge amount of power. They are not into innovation. Good ideas die in compliance or legal.” 

The contractual development process aims to reconcile differing incentives, success measures, and practices of the government, business and nonprofit sector. However, our discussion highlighted the paradox between the contract’s development process and its enforcement. As one participant noted: “Contracts create comfort, but it’s unlikely that you’ll enforce them. Otherwise people will say X company is going after a poor little nongovernmental organization. If you need to reference the contract, the partnership is already damaged.” Companies invest significant resources in the development of memorandums of understanding and formal contracts, yet they are unlikely to use litigation to enforce compliance because of concerns with their reputation. If enforcement is unlikely and a preference for flexibility exists, then the contractual development process must justify the significant resources it often requires. 

Four emergent questions addressing the prospects and perils of compliance in supply-chain public-private partnerships:

  • What activities in each phase of supply-chain public-private partnership development (i.e. design, funding, implementation and evaluation) often encounter compliance and legal challenges?
  • What value arises from the creation and existence of the contract if enforcement is unlikely to be realized (e.g. discussion and deliberation of key topics)?
  • What practices help reduce risk-aversion to innovation through supply-chain public-private partnerships? 
  • How can partners mitigate compliance and legal-related transaction costs?

 

DATA: CLEAR UPFRONT COSTS AND UNCERTAIN FUTURE VALUE

Supply-chain public-private partnerships can look to the indicators outlined for the United Nations’ Sustainable Development Goals to provide guidance on metrics for societal outcomes, and financial metrics abound to assess efficiency and profitability. However, even if metrics are clearly defined, these partnerships innovate with new ideas, processes and partners, creating uncertainty in the outcomes. Even when partnerships build on established practices of the partners, uncertainty in the outcomes can still exist because the partners did not have systems in place for consistent data collection, leaving the probabilities of outcomes unknown. This ambiguity in the probability of outcomes makes it difficult to assess the expected value of a partnership on the relevant aspects of a supply chain.

Given the partnerships require upfront, certain investment for future, uncertain outcomes, risk-averse decision-makers prefer to stay with the status quo. Thus, proponents of partnerships need to consider creative uses of internal and external existing data to reduce the ambiguity in the probability of the outcomes. In addition, the design and implementation of the partnership must incorporate systems to collect better data. One participant noted on the sources of data: “Regarding modeling risk and business unit engagement, if a program is in the early stages with some data, then we can measure that. Some of the modeling can be science based, and historical [external] data allows for extrapolation.”

Data issues reach far beyond defining metrics and collecting information. Framing and benchmarking are also important considerations related to data collection of metrics. On the front end, framing can unlock creative thinking about the data needed. As one participant noted regarding reframing business objectives:“It can be more effective to frame how a supply or strategy will be disrupted than to frame it as reputation risk. An NGO shutting down your supplier for a period is more disruptive than an NGO attacking your reputation.” On the back end, benchmarking is a popular way for organizations to assess performance objectively. However, benchmarking requires data for comparison. Unfortunately, the availability of comparison data can be out of the control of the partnership, requiring creative thinking about the criteria and data needed for performance assessment. 

Four emergent questions addressing on the role of data in supply-chain public-private partnerships:

  • What is the role of data framing, collection, analysis and benchmarking in expanding acceptance of supply-chain public-partnerships as a means to address business objectives?
  • How does data availability influence modeling, diagnostics and benchmarking of a supply-chain public-private partnership?
  • How do leaders, business units and front-line employees use data to make decisions and evaluate the performance of public-private partnerships in the supply chain?
  • What are the mechanisms required to obtain relevant data needed to objectively evaluate the performance of supply-chain public-private partnerships?

INTERNAL ALIGNMENT: A CLASSIC ISSUE IN A NEW ARENA

Internal alignment is challenging for business objectives that involve change across multiple business layers. Introducing new stakeholders into the change through a public-private partnership in the supply chain enhances that challenge. Misdiagnosing implementation feasibility or miscommunicating shared objectives at the onset of a partnership may exacerbate alignment issues as the partnership proceeds. One participant questioned the effectiveness of top-down approaches to supply-chain management based on experiences with partnerships: “A long-held assumption that is being challenged is that upstream business knows best. This is a dangerous assumption. People/implementers on the ground often know best. It can’t be top down.” Another participant noted the importance of incorporating the ground level in assessing the feasibility of implementation: “Corporate alignment can be disrupted by the realization that something’s not possible during ground-level implementation. Engagement across the chain is critical, but it takes time and can be frustrating.” 

In addition to vertical alignment, organizations often struggle with horizontal alignment across units. For example, the sourcing team within the supply chain that is developing a partnership may run into alignment challenges with the marketing team about the purpose and value of the partnership.

A supply-chain public-private partnership requires substantial coordination across functions, management levels, business units and partners. Many at the session focused on the perils of disconnects between the business units: “The internal business unit is as important to engage, just as much as consultations with external stakeholders. Partnerships that lack business unit support should be abandoned.” Leaders of functional business units were seen as crucial but the most likely to be misaligned, as noted by a participant: “Limited understanding of realities on the ground is a substantial issue. We’re good at the corporate level, pretty good at the boots-on-the-ground level, but sometimes we disconnect at the middle level.” 

Four emergent questions addressing the importance of internal alignment for improving in supply-chain public-private partnerships:

  • What distinguishes internal alignment challenges in the supply-chain public-private partnership from other situations?
  • What are the underlying symptoms and causes of tension between (a) functional units (e.g. operations, sustainability, compliance) and (b) management levels (e.g. senior leadership, middle management, ground-level implementers) involved in supply chain partnerships?
  • What data is useful for nurturing internal alignment? Why?
  • How do you educate, incentivize and monitor to establish internal alignment?

THE FUTURE OF PARTNERSHIPS: PRIVATE-PRIVATE COLLABORATION

While public-private partnerships were the focus of the session, the potential of company-company or company-NGO collaboration for improving aspects of supply-chain performance was notable. Society’s complex global challenges that extend beyond the jurisdiction of a single government — or inoperative governments — create the potential for partnerships among businesses and nonprofits to be more suitable. The heightened awareness of the potential value of such partnerships may be influencing collaboration across corporate competitors, as noted in the session: “We now have a greater comfort level working with people pre-competitively that didn’t exist eight years ago. Private-private relationships may precede partnerships with NGOs.”

Four emergent questions addressing a move to private-private collaboration in supply-chain partnerships:

  • What situations are better served by private-private partnerships compared to public-private partnerships?
  • What roles do NGOs and businesses play in private-private partnerships compared to public-private partnerships?
  • When is government involvement needed and most valuable in the implementation of partnership activities?
  • What are the benefits of private-private partnerships?

CONCLUSION

Contracts, data, internal alignment and private partners represent four areas of interest to global companies seeking to improve the efficiency and effectiveness of their supply-chain partnerships. Improvement in these partnerships is important given the environmental, social and economic impact of supply chain activities on the United Nation’s Sustainable Development Goals. Through the seventeen SDGs, the U.N. has established a framework for sustainable global prosperity by 2030. The framework provides a call to action that has brought together companies concerned about their global footprints and governments interested in creating supportive environments.     

 

Mary Margaret Frank is Samuel A. Lewis Sr. Faculty Fellow, associate professor of business administration and academic director of the Institute for Business in Society at the Darden School of Business. Steve Schmida is chief innovation officer of Resonance. Neil Britto is Institute for Business in Society Fellow and executive director of The Intersector Support.

About the University of Virginia Darden School of Business

The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D. and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.

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