He says, and I totally agree, that collaboration is arguably one of the most overused words in supply chain management. (Other overused but often unrealized terms include flexibility, agility, visibility, innovation, transparency and a biggie, trust—but all of those get their impetus from a true collaborative spirit between companies and service providers.)

The lip service is that every relationship, especially every new one, is born of a collaborative process that is destined to last for the long haul and ensure ultimate success. I hear and read about that all the time, but too often in the real world when push comes to shove and “business happens,” that collaborative spirit becomes nothing more than lip service, an ironic buzzword.

Gonzalez says there are “many more false starts and failures” when it comes to collaboration, and that comes down mainly to the attitudes and expectations that parties bring to the table. Is the driving force behind a collaborative endeavor truly a shared goal? Are there conflicting goals? Or is the “collaboration” really tilted more to one side’s selfish interest but described as collaboration anyway?

Another major question identified by Gonzalez is whether collaboration is really possible “if everyone wants the benefits but none of the risks, costs, and assets.”

Those are important questions to consider and resolve before bragging about how collaborative the deal is.

“WHO to collaborate with and HOW are also interesting questions to ponder,” Gonzalez continues. “When you take into account the potential benefits of a prospective collaborative relationship, and how easy or difficult it will be to set up and manage, which type of partner provides the best opportunity for success? Collaborating with a customer? A supplier? A competitor? A company outside your industry? A 3PL?”

Simply put, who you dance with is only part of the story—it’s also about choosing a partner you’re in sync with, one who won’t step on your toes, or sit it out if the dance gets too fast or complicated.

Vested Outsourcing is designed with true, transformative collaboration at the heart of the relationship. The Five Rules create the proper direction, guidelines, conditions and measures to install, operate and monitor a collaborative relationship. From focusing on the what, not the how, to mutual agreement at the outset on desired outcomes, to creating a relationship framework that provides insight and not merely oversight, the Vested approach has collaboration as the essential element.

While there is some evidence that collaboration is moving beyond the feel-good buzzword stage as companies and suppliers adjust to the new realities of economics, trade and finance, true collaboration is still relatively rare.

I believe the desire for collaboration is universal. True collaboration is really hard, but necessary. The Vested model creates the conditions to achieve it.

A great example of this occurred in mid-November when Jaguar posted the highest score among all luxury brands in America in the J.D. Power and Associates 2010 Sales Satisfaction Index study.

Jaguar is also ranked first among luxury car brands for customer satisfaction—for the third straight year! Could it be that Jaguar’s vested alignment with Unipart Logistics has anything to do with this spectacular result? It’s not a coincidence: It has everything to do with it!

Earlier this year I wrote about a white paper written by ARC Advisory Group’s Adrian Gonzalez on behalf of Unipart Logistics. Gonzalez, an ARC analyst, also writes for ARC’s Logistics Viewpoints blog. The ARC paper, “Shared Destiny”: Key Lessons from Unipart’s Vested Outsourcing Journey with Jaguar and Vodafone is an excellent real-life case study of the Vested Outsourcing experience.

Gonzalez wrote about the realization that the Jaguar-Unipart relationship was not working very well, even though the companies had a long relationship with each other spanning more than 20 years. Meetings between top-level executives, including the CEOs for each company, led to the creation of a shared vision statement that continues to guide their business structure today. In essence they transformed the Jaguar and Unipart relationship into a vested partnership.

This underscores the need for buy-in, active involvement and trust at the CEO level in developing successful outsourcing relationships – a hallmark of Vested Outsourcing’s Five Rules. The ideas of true collaboration, trust and flexibility are embedded in the rules, especially Rule 5, Governance Structure Should Provide Insight, not Merely Oversight, and also Rule 2, Focus on Outcomes and Rule 3, Agree on Clearly Defined and Measurable Outcomes.

The J.D. Power study analyzes the new-vehicle purchase experience and is based on responses from 25,244 owners and lessees in the U.S. of new vehicles registered in May this year. Sale satisfaction is tracked based on four factors: the dealership facility; salesperson; working out the deal; and the delivery process.

With the #1 ranking I won’t be surprised if Jaguar passes their already strong sales numbers (Jaguar sales in the U.S. are up 16 percent year-to-year through October 2010 – that’s really something in this economy!).  While Jaguar gets the kudos for designing high quality cars people love, Unipart gets the kudo’s for making sure that their supply chain is delivering parts and keeping up the Jaguar image of high quality service after the sale which drives customer loyalty. I think it’s safe to say that Jaguar has overcome the image that people who drove a Jaguar needed two cars – one to drive and one sitting in the shop waiting for parts!

Jaguar is increasing U.S. sales by double-digit percentages and sales satisfaction now extends to new model lineups.  It’s a great accomplishment and one that in the long view Vested Outsourcing helped to achieve.

He talked about how a Fortune 500 company could have saved a stack of money in transportation costs by putting its freight out to bid. But the company (which must remain nameless) instead decided to honor its current rates with carriers when it could have easily squeezed them for lower rates.

The question then – and now for that matter – was why a company would willingly choose to risk its bottom line health in this manner? Gonzalez explained the company “knows that capacity will tighten again down the road, and when that day comes, it expects its carriers to maintain their commitments to them and not abandon them for other shippers offering a cent or two more per mile.”

In an update this week of this interesting situation – both from a business and a Vested Outsourcing perspective – Gonzalez notes: “Well, that day has arrived. Capacity is starting to get tight again in certain markets and rates are starting to rise. Did this shipper make the right decision?”

“The jury is still out on whether our strategy has worked or not,” the logistics executive at this company told Gonzalez. “We don’t know yet if we are going to have an advantage [relative to other shippers] or if carriers are going to decide that the temptation for quick outsized profits is just too hard to resist. How the carriers respond will ‘train’ the buyer for the next time this changes.”

What is known is that transportation rates across all logistics modes, but particularly on the part of ocean carriers, are rising dramatically just as the economy is struggling to get back on its feet and just as retailer and manufacturer inventories need to be replenished.

“It’s a struggle to get carriers to think long term,” the company executive told Gonzalez. “I’m willing to discuss different contracting terms and continuous improvement ideas with them, such as putting in price mechanisms that adjust over time and doing things at our end to turn their equipment faster, but when it gets to that second or third meeting, they just don’t know what to do.”

Gonzalez asks whether this means that many carriers lack the management know-how and sophistication to engage in more strategic and collaborative relationships with shippers. If you look at the history of shipper-carrier relations, the answer is yes. But many shippers are just as guilty of this lack of sophistication, a failure to recognize the beauty of a ‘What’s in it for We’ framework and of instead playing the strategic same old what’s-in-it-for-me muscular game.

“This experience illustrates once again how difficult it is to create vested outsourcing relationships,” Gonzalez writes. “As I’ve said before, vested outsourcing (aka performance-based outsourcing) requires a mind shift that will be difficult, if not impossible, for many 3PLs/carriers and customers.”

Difficult? Most definitely. Impossible? No. I believe the day is not too distant when shippers and carriers will realize they can prosper by getting away from treating transportation purely as a commodity (or transaction) and view it instead as part of a mutually beneficial outcome that’s based on collaboration.

One gutsy company is a great start.

But would you rather have a lawyer do it? Really?

Gonzalez does make a point, and in entertaining style, featuring background music and lyrics by the 1980s rock group Depeche Mode.

Gonzalez makes the connection between the band’s “handshake deal” (sans lawyer or economist) for its first record label contract in 1981 and how it might have gone for them if they had “lawyered up” and taken the normal contract negotiation path. Back then they came up with a simple 50-50 agreement that offered flexibility, shared risks, rewards and interests – and all without contract legalese.

Of course that was then and this is a more complicated and legalistic now but perhaps you can see where this is going in the context of Vested Outsourcing. The crucial message that a rock band discovered (and even wrote about in song) back then is that the best and most useful contracts will flow from a vested, relationship-based approach that features mutually agreed upon and beneficial terms rather than me-first terms based on transactions, shifting risk and limiting liability.

I wrote about the vested approach to creating value through contract terms in a recent blog post, spurred by the International Association of Contract & Commercial Management’s 9^th Annual Report on the most frequently negotiated contract terms. What alarmed me then – and still does now—about the IACCM findings is that most contracts remain much too bound by traditional legal exercises in self-interested power plays that set out first to limit liability, avoid risk and set transaction, service level and pricing level provisions, rather than striving from the start to foster collaboration on contract goals and scope with specific understandings on flexibility, communications, reporting and the responsibilities of the parties.

In his post Gonzalez tracks the IACCM report in a similar vein and notes that economists such as Oliver Williamson (whom we have talked about in other posts) “have a more enlightened and scientifically-grounded approach to structuring win-win business relationships than lawyers do.”

Economists understand that “people and organizations are in fact able to grasp the benefits of cooperation and team behavior,” he continues. “The law is struggling to catch up and still appears to believe that the best way to manage risk is to allocate it to someone else and the greatest incentive to perform is via threats of dire punishment for failure.”

Of course the foundation of a vested contract approach is based on the Five Rules because a Vested Outsourcing relationship functions best in a culture where the participants work together to ensure mutual success, or getting to What’s in it for We?

Thanks Adrian for the shout-out to my blog in your post; I figure a turn-about shout-out to yours is apropos.

So lawyer or economist for your next contract? Maybe it’s not that tough a call after all.