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Supply Chain Relationship Management

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Title: Supply Chain Relationship Management


1
Chapter 11
  • Supply Chain Relationship Management

2
Objectives
  • After reading the chapter and reviewing the
    materials presented the students will be able
    to
  • Explain the importance of relationships to SCM
  • Describe the development and management of trust
    based relationships
  • Identify causes of conflict between supply chain
    members
  • Explain methods of dispute resolution and
    negotiation

3
Supply Chain Relationships
  • Relationship management is probably the most
    important aspect of SCM.
  • Relationship management involves issues that
    include respect, trust, agreements, negotiation,
    joint ventures, contracting, and even conflict
    resolution.
  • All relationships are not of equal importance.

4
Relationship Dimensions
  • A greater scope means a greater dependence on the
    supplier.
  • A large scope of tasks provided by a supply chain
    partner can bring large benefits as it allows a
    company to focus on their core competencies. The
    risks can also be greater as both operational and
    strategic responsibility is now in the hands of
    an outside party, requiring close relationship
    management.
  • The second dimension is criticality of sourced
    item or task.
  • Criticality is the extent to which the sourced
    item or task impacts the ability of the
    organization to perform its core competencies.
  • The greater the criticality of the sourced item,
    the greater the consequence of poor performance
    to the company and the greater the requirement
    for relationship management.

5
Supply Chain Relationship Matrix
  • 1. Non strategic transaction When both the scope
    and criticality are low we have relationships
    that are transaction oriented. The product
    provided by the supplier is typically
    standardized and alternative sources of supply or
    market access are readily available.
  • 2. Contractual relationship occurs when the cope
    is high although the criticality of purchased
    item is low. This relationship is characterized
    by moderate levels of communication frequency as
    there is a greater need for control over supplier
    activities.
  • 3. Partnerships This relationship type is
    characterized by the sourcing of critical
    components or tasks, although low in scope. An
    example is the sourcing of just in time
    replenishments of critical manufacturing
    component.
  • 4. Alliances Both criticality and scope are
    high. They reflect high interaction frequency,
    significant trust, and commitment between supply
    chain partners.

6
The Role of Trust
  • Successful supply chains are governed by a
    constant search for win-win relationships based
    on mutuality and trust.
  • A cooperative relationship results in the
    development and sharing of joint objectives.
  • Sharing of information is easier between parties
    that trust each other.
  • Cooperation and coordination results in the
    elimination of duplication of efforts between
    parties. Supply chain productivity is increased.
  • Sharing of sales and production information
    results in enabling members of the supply chain
    to coordinate production and distribution
    decisions.

7
Developing a Trust Based Relationship
  • Trust creates a belief that each company is
    interested in the others welfare and would not
    take action without considering the impact of
    those decisions on other companies as well.
  • An important element of the relationship is
    equity.
  • Managers can help promote trust by creating
    contracts that encourage negotiation as unplanned
    events arise.
  • What is needed is a combination of a contract,
    the mutual benefit of the relationship, along
    with trust that compensates for gaps in the
    contract.
  • A good conflict resolution mechanism should give
    the parties an opportunity to communicate and
    work through their differences.
  • Regular and frequent meetings between members of
    both organizations facilitate communication and
    are an important part of conflict management.

8
Managing trust Based Relationships
  • Often top management prefers to be involved in
    the design of a new partnership that often
    provides corporate visibility, but is rarely
    involved in its management.
  • Commitment of both parties helps a supply chain
    relationship succeed. Commitment of top
    management of both sides is crucial for success.
  • Clear method of communication Lack of
    information sharing, and the inability to resolve
    conflicts are the two major factors that lead to
    the breakdown of supply chain partnerships.
  • Performance visibility Mechanisms that make the
    action of each party and resulting outcomes
    visible and help avoid conflicts and resolve
    disputes.
  • Fairness The issue of fairness is extremely
    important in the supply chain context because
    most relationships will involve parties with
    unequal power.

9
Sources of Conflict
  • 1. Relationship conflicts are a result of strong
    emotions, misperceptions or stereotypes, poor
    communication or miscommunication, and repetitive
    negative behavior.
  • 2. Data conflicts are caused by lack of
    information, misinformation, different views on
    what is relevant, different interpretation of
    data, and different data assessment procedures.
  • 3. Interest conflict can be caused by not
    equally sharing cost savings that result from
    process improvements between members.
  • 4. Structural conflicts are caused by factors
    such as destructive patterns of behavior or
    interaction, unequal control, ownership, or
    distribution of resources, unequal power or
    authority, geographical, physical, or
    environmental factors that hinder cooperation,
    and time constraints. Structural conflicts are
    among the most common sources of conflict.
  • 5. Value conflicts are caused by different
    criteria for evaluating ideas or behavior, goals,
    and different ways of life, ideology, or
    religion.

10
Dispute Resolution Procedures
  • 1. Litigation When a supply chain member
    breaches a contract or commits fraud. Litigation
    should be used only as a last resort as it can be
    costly. Judgment is for plaintiff or defendant
    all or nothing.
  • 2. Arbitration When both parties can agree to
    procedures and norms for how their dispute should
    be resolved. Parties can choose a neutral
    arbitrator who is an expert in their field to
    determine the outcome.
  • 3. Mediation The mediator conducts shuttle
    diplomacy, ferrying information, offers, and
    counter offers between disputants. Mediation is
    usually voluntary.
  • 4. Negotiation is the most informal of dispute
    resolution procedures and does not involve third
    party assistance. Settlement agreement enforced
    as a contract. It can be the most inexpensive and
    swift method of resolving disputes.

11
Negotiation Concepts, Styles and Tactics
  • Negotiations involve give and take, where
    positions are exchanged until the two parties can
    agree to mutually beneficial settlement.
  • Issues such as cost quantity, quality, timing,
    control, options, shared resources, and penalties
    for non compliance are usually subject to
    negotiation.

12
Leverage
  • The party with the greatest leverage is able to
    extract the most value out of the other party.
  • You can use this leverage to request a higher
    price.
  • Before entering a negotiation, you should reflect
    on who has the most leverage.

13
Position versus Interest
  • A position is what you signal to the counterparty
    about your willingness to accept or willingness
    to pay.
  • An interest is your underlying reason for your
    position.
  • If both the seller and the buyer disclose their
    underlying interests to one another, they could
    discover possibilities for mutual gain.

14
Negotiators Dilemma
  • When a negotiator shares truthful information,
    they have a higher chance of achieving mutually
    beneficial outcomes.
  • A negotiation will present opportunities for the
    parties to offer one another things that increase
    the size of the pie.
  • A good negotiator makes efforts to increase the
    total value of the deal to both parties, even as
    the negotiator claims as much value as they can
    find for themselves.

15
Negotiation Styles
  • Problem solving negotiators approach negotiations
    as a non zero sum game, where concessions are
    made by each party in order to create value, and
    trusting, creative discussions address underlying
    interests.
  • You should be prepared for adversarial tactics to
    be employed against you in a negotiation.
  • However you should also be willing to engage in
    problem solving tactics in a negotiation.

16
Adversarial Tactics
  • 1. Extreme Openers Anchoring An analysis of
    negotiation studies found that for every 1.00
    increase in opening offer, we can expect the
    final sale price to increase by 0.50.
  • 2. Few and Small Concessions Reciprocity
    Adversarial negotiators will make concessions
    that grow increasingly closer together to signal
    the counter party that the are reaching their
    bottom line below which they will not go.
  • 3. Withholding Information This tactic prevents
    parties from bargaining on the basis of good
    information about the actual underlying interests
    of one another. Negotiation outcomes may be less
    than satisfactory as a result.
  • 4. Manipulating Commitments This type of
    manipulation can backfire in terms of lost
    credibility and trust if the counterparty views
    it as trickery.

17
Problem Solving Tactics
  • 1. Listening It is critical to attack the
    problem, rather than the people. Listening can
    transform a conversation from a heated argument
    into a collaborative dialog.
  • 2. Asking Asking open questions about underlying
    interests allows negotiators to focus on
    interests rather than positions. Asking why can
    uncover hidden interests that can create
    opportunities for mutual gain.
  • 3. Inventing Differences between the negotiators
    can actually help to mutually beneficial
    settlements.
  • 4. Referencing Using objective standards such as
    industry norms or market value allows negotiators
    to get past different personal preferences to
    reach an agreement that is defensible from any
    perspective.

18
Partnership Agreements
  • The Japanese keiretsu concept means a close knit
    network of suppliers that continuously learn,
    improve, and prosper along with their parent
    companies.
  • Draw up a partnership agreement that defines the
    agreement financially and also a buy-sell
    agreement, in case one wants out or in case of
    disputes.

19
Diluting Power
  • It is not uncommon for companies to seek out a
    partner for additional capital, business
    connections or managerial skills, or to share
    expenditures.
  • Often they are offered in exchange for a portion
    of ownership, control, or some type of decision
    making power.
  • Power is a limited resource that must be divided
    carefully.

20
Summary
  • Relationship management involves issues that
    include respect, trust, agreements, negotiation,
    joint ventures, contracting, and even conflict
    resolution.
  • A greater scope means a greater dependence on the
    supplier.
  • The second dimension is criticality of sourced
    item or task. Criticality is the extent to which
    the sourced item or task impacts the ability of
    the organization to perform its core
    competencies.
  • Alliances Both criticality and scope are high.
    They reflect high interaction frequency,
    significant trust, and commitment between supply
    chain partners.
  • Trust creates a belief that each company is
    interested in the others welfare and would not
    take action without considering the impact of
    those decisions on other companies as well.
  • Commitment of both parties helps a supply chain
    relationship succeed. Commitment of top
    management of both sides is crucial for success.
  • Structural conflicts are caused by factors such
    as destructive patterns of behavior or
    interaction, unequal control, ownership, or
    distribution of resources, unequal power or
    authority, geographical, physical, or
    environmental factors that hinder cooperation,
    and time constraints. Structural conflicts are
    among the most common sources of conflict.
  • Litigation When a supply chain member breaches a
    contract or commits fraud. Litigation should be
    used only as a last resort as it can be costly.
  • Mediation The mediator conducts shuttle
    diplomacy, ferrying information, offers, and
    counter offers between disputants. Mediation is
    usually voluntary.
  • Negotiations involve give and take, where
    positions are exchanged until the two parties can
    agree to mutually beneficial settlement.
  • Problem solving negotiators approach negotiations
    as a non zero sum game, where concessions are
    made by each party in order to create value, and
    trusting, creative discussions address underlying
    interests.
  • Asking open questions about underlying interests
    allows negotiators to focus on interests rather
    than positions. Asking why can uncover hidden
    interests that can create opportunities for
    mutual gain.
  • The Japanese keiretsu concept means a close knit
    network of suppliers that continuously learn,
    improve, and prosper along with their parent
    companies.

21
Home Work
  • 1. What is the buyer supplier relationship in
    alliances?
  • 2. Why should litigation be used only as a last
    resort?
  • 3. Why should we ask open ended questions?
  • 4. Explain the Japanese keiretsu concept.
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