Ranging from news articles to recent CEO interviews.
(Los Angeles, CA) February 2, 2016—BNP Paribas Securities Services is proud to sponsor this series of articles on supply chain innovation. We hope these remarkable innovations will give you an ‘outside the box’ view on the possibilities to innovate in your supply chain. We purposely looked outside our own partnerships and innovations to provide a very open and unbiased view. We are already working with clients around the world on supply chain innovation projects to reach higher value through partnership. We hope these examples will generate some new ideas for your business and insight on how to innovate with your partners.
This article series, written by The Economist Intelligence Unit, explores how senior executives across an array of different industries are achieving remarkable innovations through their supply chains.
Alignment enables innovation
Supply-chain collaborations only work if they are built on a foundation of trust and common goals
Hong Kong-based Cathay Pacific Airways relies on its supply chain to move the needle on innovation. From redesigning passenger seating to technologies that cut fuel emissions, the airline turns to trusted suppliers to address challenges and grab new opportunities at the core of its business. As Adrian Gjurasic, head of fuel and sustainable procurement, points out: “Collaboration is absolutely critical to the success of our company, and to our industry. We have to innovate our way out of the current state, and we can’t do it by ourselves.”
By collaborating with its suppliers to achieve innovations, the traditionally conservative airline is able to try out new ideas without assuming a lot of risk, according to Mr Gjurasic. Cathay’s supplier collaborations typically involve two kinds of vendors: major global suppliers, such as Rolls Royce, with which the airline has long-standing relationships, and innovative start-ups that bring disruptive solutions to the table and use the success of the partnership as a way to scale up their own businesses. “In both cases, these vendors have a vested interest in the success of the relationship, and that’s what we want,” Mr Gjurasic says.
In pursuit of biofuel
Cathay spends roughly 40% of its total operating budget on fuel, so finding ways to cut fuel costs and lessen the environmental footprint of its fuel use is a constant focus for the company. Fuel considerations are at the core of many of its supply-chain collaborations. In 2014 Cathay pioneered a partnership with Fulcrum BioEnergy, a US-based biofuel developer which converts municipal solid waste into jet fuel.
Not only will this partnership help Cathay lower its CO2 emissions and cut fuel costs, it will also establish the airline as a global leader in sustainable jet-fuel development. “A lot of airlines talk about biofuel, but we were the first to put real money behind it,” Mr Gjurasic says.
Cathay made a significant initial investment in the company, ensuring that it shares an interest in Fulcrum’s success. “This is a really good example of how we are partnering with a start-up to achieve our goals,” according to Mr Gjurasic.
What kind of company the airline is willing to collaborate with, and how deep those partnerships go depends on much more than a vendor bringing a creative solution to the table. “We need to have a good rapport, a good cultural fit and aligned values with a supplier for collaboration to happen,” Mr Gjurasic explains. “Otherwise these projects can fail dramatically.”
Cathay has a dedicated biofuel manager who explored several possible partnerships, and while Fulcrum seemed promising, Cathay still spent 12 months meeting with the Fulcrum leadership team before investing. This involved vetting the technology, assessing the company’s business model and getting to know its leaders and corporate culture to determine whether this was the partnership that could help make biofuel a reality for Cathay.
“A lot of relationships in Asia are built at the senior level, with two CEOs sitting together and getting to know one another before the project moves forward,” states Mr Gjurasic. Cathay’s CEO liked the fact that Fulcrum’s leaders had energy-industry experience, proven technology and a similar approach to business management.
Cathay now has a seat on Fulcrum’s board of directors and has a long-term supply agreement for an initial 375m gallons of sustainable aviation fuel over ten years. In exchange, Fulcrum has used Cathay’s initial investment to begin construction on several large-scale, waste-to-jet-fuel plants at locations strategic to the Cathay Pacific network in North America. Mr Gjurasic concludes: “From an operational perspective, this collaboration is a brand new direction for us. The risks are there, but they are manageable, and it puts us on the ground floor to take biofuel to the next level.”
Alibaba goes global
“Spending time up-front to build trust before diving into the innovation phase is key to the success of any supply-chain collaboration. This is especially true in Asia, where relationship-building is at the foundation of every strong partnership,” says Cleveland Brown, CEO of Payscout, a global payment-processing provider based in California.
In September 2015 Payscout announced a partnership with Alibaba Group, China’s largest e-commerce company with annual sales of Rmb76.2bn (US$12.3bn). “It is a collaboration that took years to solidify, but could change the long-term business trajectory for both companies,” according to Mr Brown. Through the partnership Payscout will provide global payment logistics for Tmall, Alibaba’s business-to-consumer portal. Tmall currently has more than 180m shoppers in China, but the company wants to expand its global product offering by encouraging non-Chinese companies to sell directly on its site. The Payscout platform will enable Alibaba to establish secure global payment processing quickly and accelerate Alibaba’s expansion into new markets.
“We often collaborate with suppliers mainly because of the need for new ideas and the desire for new perspectives on our market expansion,” says John Lu, co-ordinating manager for Alibaba’s logistics division, based in Hangzhou. Mr Lu notes that Alibaba was attracted to Payscout because of the vendor’s efforts to improve and modernise online payment technology.
However, the vetting process to partner with Alibaba had started three years earlier, when Payscout established a presence in China. On opening offices there it became a third-party service provider for China UnionPay, the only domestic bank-card organisation in China.
Mr Brown’s team spent a full two years meeting with Chinese financial institutions and local finance regulators building relationships, establishing trust and demonstrating his leadership team’s track record for good business decisions. “You have to be willing to prove yourself, and that takes time. We had to earn their trust through our own integrity and cultural empathy,” Mr Brown asserts. “That opens a space where true innovation emerges.”
Today Payscout’s engineers are working on a daily basis with Alibaba’s IT team to expand the payment platform and address issues around currency conversion, sales forecasting, regulations and tax laws, enabling Alibaba to rapidly deploy Tmall to countries around the world. This is where the time spent up-front ultimately pays off. Payscout’s presence in more than 100 countries can greatly benefit Alibaba by making a new market entry possible in a matter of weeks, rather than requiring a build-up over years. “Together, we can achieve mutually beneficial results across developing markets,” Mr Lu says. “This is our strategy.”
“Being selective about your partners increases the quality of the work and ensures that when problems arise, they will be handled efficiently—and then avoided in the future”, he adds. “Everyone makes mistakes. Not repeating them is the fate of great companies.”