The Effects of Partner and Relationship Characteristics - Assignment Example

?Over recent years the focus Supplier relationships has shifted from being transactional and in some cases adversarial or even hostile,to one of increasing co-operation. The realisation of common goals and objectives and the mutual interdependence of buyers and sellers has helped foster this trend. However, many of these relationships have proved problematic over the years and failed to deliver the anticipated benefits. Over time it has been felt that closer working relationships would aid the customer / supplier relationship portfolios through the reductions of costs, quality based improvements, novel product development and the like. Theoretical frameworks exist in abundant supply that try to delineate the advantages of close cooperation between partners in supply chain mechanisms. In practice however things are far more different as the specific attributes of such working relationships are not fully understood (Goffin, 2006). Overall there has been a move towards close cooperation based relationships though the actual realised benefits of such relationships is not fully established and is generally overestimated. The range of relationships between various entities in the supply chain domain varies from transactional type relationships to close and more collaborative relationships. Another issue of importance that needs clarification is the use of the term “partnership” that has been used to describe such relationships though there is no legal or other justification for using such a term. The use of the term “partnership” has caused confusion in respect of these relationships on a number of fronts though three major reasons are more significant. These reasons are: Customer / supplier relationships are purely business relationships though they may be described as partnerships. However the use of the term does not indicate any legal privileges are inferred as in the case of a business partnership or alliance. This clearly demonstrates that customer / supplier partnerships do not carry any legal value and are instead purely voluntary in nature; Any partnership like relationships between supply chain entities are not absolute but are rather context dependent. The extent of closeness of the subject relationship determines the variations in such relationships and previous research supports such contentions (Ellram, 1991) (Saxton, 1997). It can be inferred from this that the particular degree of closeness in a relationship provides the necessary insight to explore such relationships although the degree of closeness is not absolute; Relationships based on the partnership model alone cannot attempt to explain the supplier side of relationships fully although this is universally assumed as such (Goffin, 2006). A large amount of material exists on the value of close customer and supplier relationships although this is not relevant to the issue at hand. Instead this text will focus more on why such close relationships are not performing as desired or expected using three different approaches. These approaches include: assessing the appropriateness of close relationships between customers and suppliers; creation of and sustainability of close relationships between customers and suppliers; contextual nature of close relationships between customers and suppliers. 1. Appropriateness The majority of literature on relationships between suppliers and customers has implied that close relationships are desirable though such literature has failed to provide due consideration to any contextual causes or to the effectiveness of such relationships. As an example a large amount of literature has concentrated on implying that manufacturers and their suppliers should have close relationships and have indicated that these relationships have evolved into partnerships over the last two decades. However such literature has failed to account for a few transactional relationships that not only exist but are also desirable. Similarly there has been talk of evolution of such relationships such that they are “away from arm’s length transactions towards partnerships, alliances and networks”. The aspect of commodity purchasing has been overlooked altogether by this school of thought given also that commodity purchasing does not require the creation of any close relationships. Moreover the various risks that are associated with forging such partnerships are also often overlooked or ignored altogether by the subject literature (Spina & Zotteri, 2000). In addition to the above, another major area for focus is finding out when close relationships are actually desirable. A large amount of research is now being diverted to find out what kind of contextual factors can help explain such partnerships as “apposite and viable” (McCutceon & Stuart, 2000). Research has indicated that a large amount of relationships exist within the customer supplier relationship domain while any different number of such relationships may be desirable at any point in time. It has also been recommended that the base of suppliers ought to be managed in the form of a “portfolio” of relationships (Petroni & Panciroli, 2002). Certain research has also indicated that product and service categories should be clearly demarcated and the ensuing relationship between customers and suppliers ought to be modelled and managed accordingly. These managed portfolios should be dealt with along the lines of special relationships. A pertinent example stems from the automotive sector where an automotive manufacturer has found it helpful to distinctly classify various suppliers under the heads of new product development, component lead times and the importance of various components in the overall performance of vehicles (Zirpoli & Caputo, 2002). The entire domain of special relationships needs to be managed as portfolios as indicated above but industrial and commercial practice stands otherwise. Generally relationships between suppliers and consumers are based on generalised patterns that are supposed to deal with all specialised functions. When specialised functions are forced into the mould of generalised relationships it cannot be expected to work out even if the relationship is close. For example in the case of an automotive manufacturer if product development is considered the kind of relationship with the vendor needs to be very close but in the case of commodity purchasing the relationship needs to be rather formal. However, generally automotive manufacturers keep similar relationships with vendors for all different kinds of functions. It could be speculated that some functions out of the domain of functions could work well but the entire domain of functions cannot be expected to perform well. For this reason, all different kinds of functions should be managed using specialised relationships in order to work the well enough. In case that a generalised pattern of relationships is allowed to manipulate the overall domain of functions, the working relationship cannot be expected to function. On the basis of this argument it can be seen that using close relationships can offer certain advantages to suppliers and consumers but it cannot be considered as a panacea for the entire issue of problems (Johnson et al., 2004). 2. Creation and Sustainability One of the most demanding aspects of supply chain management is the creation of relationships between customers and suppliers (Johnson et al., 2004). Other researchers have found out that it is necessary for suppliers to classify the “desirability” and the “feasibility” of their forged partnerships before such relationships is entered into (McCutceon & Stuart, 2000). The desirability of such relationships is based largely on the technical capabilities displayed by the supplier and these can be modified over time in order to better suit the particular requirements of the customer. This change in the level of technology also banks on the concept of technology development trajectory. In contrast the feasibility of such relationships is more dependent on the view garnered by both or more interacting parties. These views encompass the basics of matters such as potential benefits, trust as well as goodwill between the interacting partners. In order to bring two or more parties onboard it is necessary for them to realise the potential benefits of a relationship if a close relationship is desired. Once a relationship has been created and its sustainability has been established, it is simpler for the involved parties to take things to the next level by building a multifaceted close relationship. Certain strands of research have identified a set of differentiated complex factors that are responsible for establishing customer supplier relationships effectively. These factors may include (but are not limited to) long term contract based agreements that aim to reduce uncertainty and to bolster mutual investment, the appropriate use of financial monitoring methods such as the use of target costing to bring efficiency to centre focus and sharing relevant strands of information (Zirpoli & Caputo, 2002). Moreover when it is deemed that a supplier is suitable enough, it falls to subtle management in order to develop the supplier as a fully fledged service provider. The use of the term “full service provider” indicates that the supplier provides total logistical support along with required technical services (Petroni & Panciroli, 2002). In addition to “full service” provision a large amount of trust is required to create relationships and to maintain them in a working posture. However in order to take this concept into operation a number of other requirements are just as necessary. “Trust is not simply an input to a relationship; it is both a pre-requisite and an outcome of relationship development” (Johnson et al., 2004, p.26). Trust is unable to function alone without the support provided by ethical behaviour as ethical behaviour is pre-requisite to the dyad. The proper implementation of ethical behaviour is necessary for a successful and long term relationship between suppliers and consumers (Carter, 2000). Other than the issues of ethical behaviour, other researchers have suggested that all involved parties present in such a relationship should define the expectations meticulously in order to ensure a sustainable working relationship. In a number of given cases, the involved parties do not develop a relationship based on ethics purely. Though the relationships are based on ethics in large part but certain areas are not covered by ethics such as for example communication between supplier and consumer over trade secrets or compromised components or materials. The inclusion of melamine in powdered milk shipped from China a few years ago represents a considerable ethical compromise in a supply chain relationship. Here a relationship of trust exists but unethical behaviour in business transactions has undermined both ethical behaviour as well as trust. Hence it is safe to assume that trust and ethical behaviour exist as a dyad as outlined by relevant literature. Furthermore, the absence of either ethical behaviour or trust can be expected to undermine supplier consumer relationships. The need for open communication cannot be under stressed for successful consumer supplier relationships. When communication is explored in this context, it must be noted that it includes sharing information such as production planning, market forecasting and control data amongst other. However aspects such as product innovation are often not shared between the involved parties but these should be shared if a successful and sustainable relationship is desired (Spina & Zotteri, 2000). Relevant literature shows that communication should be both frequent and should deal with strategic issues in great detail (Primo & Amundson, 2002). Another major aspect to be noted here is that partner type relationships provide an open atmosphere of trust that should be based on ethical behaviour such that open communication is possible. In case that communication is either infrequent or not totally open, there are a number of chances that a consumer supplier relationship Effective and sustainable relationships between suppliers and consumers require both time as well as mutual effort on part of all involved parties. A large amount of resources and time are generally required to create and garner consumer supplier relationships but it is not possible often to provide such inputs with great commitment. Research based on a longitudinal study indicates that negotiations over the issue of using money saved from joint cost savings were best conducted using an upfront approach rather than a hushed up mechanism (Spina & Zotteri, 2000). Consequently such an approach allows the bulwark of efforts to be concentrated on effective problem solving strategies rather than protracted discussions that fail to bear any effective results. This case study clearly indicates both or more involved parties require dedicated efforts in order to deal with the integration of operation and product development issues. It must also be noted that such close partnerships have played a dominant role in traditional supplier consumer relationships but the exact nature of such relationships are not highly clear. 3. Contextual Nature The partnership like relationships between suppliers and consumers has been investigated widely but the exact nature of such relationships is unclear. The relationships between suppliers and consumers take on various different forms that have widely been identified as closeness, the number of transactions as well as the longevity of such relationships. Overall relationships have been classified ranging from transactional to long term and full end partnerships. A number of different transaction regimes have been proposed including short term, long term as well as long term with no end relationships. Suppliers and consumers may be in a relationship for a long period of time but the involved parties may not recognise this relationship. Decades of commodity pricing and purchase between involved parties does not necessarily indicate a recognised relationship. The classification of such relationships into short term, long term and long term with no end relationships depends on a host of other factors. On the other hand, closeness has been identified as a major characteristic of such relationships. Closeness has been defined in a variety of different ways for different relationships so these aspects need to be managed separately and rather as “portfolios” as mentioned before. In a similar manner the number of transactions conducted between such involved parties cannot alone define the nature of relationship between consumers and suppliers. 4. Conclusion Based on the arguments presented above, it can be surmised that partnership like relationships exist between consumers and suppliers that provide a lot of different advantages such as greater quality, reliable delivery as well as lowered costs. The creation and establishment of such relationships is highly resource intensive but the classification of partnership like relationships are not suitable for the entire supplier consumer relationship domain. Moreover a partnership like relationship is not absolute and not contextual in nature. 5. Bibliography Carter, C.R., 2000. Ethical issues in international buyer-supplier relationships: A dyadic examination. Jounral of Operations Management, 18(2), pp.191-208. Ellram, L.M., 1991. Life Cycle Patterns in Industrial Buyer-Seller Partnerships. International Journal of Physical Distribution and Logistics Management, 21(9), pp.12-21. Goffin, K., 2006. An exploratory study of ‘close’ supplier-manufacturer relationships. Journal of Operations Management, 24(2), pp.189-209. Johnson, D.A., McCutcheon, D.M., Stuart, F.I. & Kerwood, H., 2004. Effect of supplier trust on performance on cooperative supplier relationships. Journal of Operations Management, 22, pp.23-38. McCutceon, D. & Stuart, F.I., 2000. Issues in the choice of supplier alliance partners. Journals of Operations Management, 18, pp.279-301. Petroni, A. & Panciroli, B., 2002. Innovation as a determinant of suppliers' roles and performances: an empirical study in the food machinery industry. European Journal of Purchasing and Supply Management, 8(3), pp.135-49. Primo, M.A.M. & Amundson, S.D., 2002. An exploratory study of supplier relationships on new product development outcomes. Journal of Operations Management, 20(1), pp.33-52. Saxton, T., 1997. The effects of partner and relationship characteristics on alliance outcomes. Academy of Management Journal, 40(2), pp.443-61. Spina, G. & Zotteri, G., 2000. The implementation process of customer-supplier partnerships: lessons from a clinical perspective. International Journal of Operations and Production Management, 20(10), pp.1164-82. Zirpoli, F. & Caputo, M., 2002. The nature of buyer-supplier relationships in codesign activities: The Italian auto industry case. International Journal of Production and Operations Management, 22(12), pp.1389-410. Read More