Developing Collaborative Relationship



The aim of this paper is to discuss and debate why companies struggle to develop collaborative relationships. There have been numerous ideas, views and opinions expressed by many authors and practitioners about collaboration. As a result the scope of the essay will be limited to the benefits that drive companies to collaborate and the constraints they encounter in developing these relationships. In this context, collaboration will be explained; then debate on the benefits and constraints of collaboration as well as discussing the issue of trust and power in building these relationships in supply chain network. The paper is concluded having critically analysed the gathered information concerning the ideology behind suppliers and customers in establishing collaborative relationships.

Collaboration is broad encompassing the whole range of the entire supply chain which can be built on developing a relationship (Barratt, 2004). Wilding (2006) expressed collaboration as working together to collate resources that are required to build relationship to achieve effective operations in harmony with the strategies and objectives of the parties involved resulting in mutual benefits. Hence collaboration involves the contribution of either two or more organisations performing a task to accomplish a common goal. Similarly, Writer Kippenberger (1996) likewise perceived collaboration as partnership involving a customer and supplier pulling their resources to work together so as to attain higher commercial advantage and to benefit both sides as a whole. Thus the partnership allows the parties to agree on certain terms as to how goals will be achieved and sharing the benefits through their commitment and support.

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From the given opinions of collaboration, the various authors (Wilding, 2006; Kippenberger, 1996) identified collaboration as working together through information sharing to achieve mutual benefits, rewards and objectives. Authors such as (Kampstra et al. 2006; Humphries and Wilding, 2004) cited that the keystone for companies to enter into collaborative relationship is to gain competitive advantage, reduce their cost of operations and improve upon the operational activities at the same time sharing transparent information. However the openness of modern supply chain has led to keen competition resulting into "survival of the fittest" among the members of the supply chain (Spekman et al., 1998).

It has been recognised by Emmett and Crocker (2006) that one of the reasons for collaboration among companies is to add value into their operations. Thus for companies to be successful, collaboration is seen as 'key weapon' to help them achieve their objectives. This helps companies to apply quality and ensure continuous improvement in the provision of better goods and services to their customers. In this case the companies engage in efficient and effective usage of resources at the optimum cost (Mehra and Rangathan, 2008). In addition Pawar and Sharifi (2002) also indicated that companies collaborate purposely to reengineer products due to the global market competitions. Thus keen market competition causes suppliers and customers to come together to adopt production strategies (example; sharing ideas to create joint business plan for introduction of new product) which will enable them to gain competitive advantage over their competitors. Wilding (2006) cited example of collaborative relationship whereby Heineken and Guinness (Diageo) work together as business partners to build brewery to gain advantage in entering into a new market. However Vereecke and Muylle (2006) argued that the effort in collaborating between customers and suppliers in the supply chain does not always bring about improvement unless potential partners are identified and drawn into the supply chain because changes in the environmental factors also plays a major role in determining the potential partners to make collaboration successful. Citing examples of the factors include the suppliers' commitment, magnitude of communication and attitudinal factor such as trust (Krause, 1999).

Trust is viewed as the fundamental cornerstone of business-to-business relationship (Hakansson et al., 2004). Kay (1993) linked the concept of trust to the red-blue game also known as prisoner's dilemma as a phenomenon whereby the reaction of a prisoner will depend on the unknown action of the other prisoner. Thus in the business perspective, the structure of the system can easily influence a firm's decisions and actions. According to Gattorna (2006) a firm usually engages in more than a single supply chain and usually financially independent chain members endeavour to be dependent on one another. This makes the supply chain difficult to predict the firms involved since the supplier will favour or team up with the customer that is financially dependent on. In view of this Simpson (2000) suggested that the red-blue game is characterised by uncertainties about the movement of the suppliers or customers as their behavioural pattern may change at any particular moment. These also occurs because there are more than three to four dominant buying behaviour in the customer base of a given product or service category of which is only one that can be collaborative (Gattorna, 2006).

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Simpson (2000) further claim that business relationships are epitomise by human behaviour whereby companies try to play a defensive and protective role when engaged in any form of partnership. This could be in the form of opaque legislative instrument or strategy to escape certain clause. But this is mostly spearheaded where there is economic or political power. Humphries and Wilding (2004) pointed out the fact that companies protect or defend themselves based on the past experience they have encountered with either their suppliers or customers cheating or deceiving them along the supply chain activities by means of not communicating transparent information.

On the other hand, Coulson-Thomas (2005) clearly stated that the phenomenon of red-blue game reveal that some organisations seek their interest at the expense of the other companies which makes them reluctant to share certain information to benefit all the parties. This then intensify conflicts of interest and hold back relationships. According to Armistead and Pettigrew (2004) suppliers or customers who portray the attitude of insincerity, personal gains, power conscious, all deals are one-offs and aspiring to win at all cost in any form of business cause setbacks in collaborative relationships. This leads to a zero-sum (win/lose or lose/win) situation for the chain members involved.

Furthermore inter-organizational trust is sometimes also interrupted by competition in the market causing changes in some companies' objectives and interest in dealing with their partners which may affects their relationship (Mouzas et al., 2007). Considering the case of Baird verses Marks and Spencer, whereby Marks and Spencer abruptly stopped Baird from supplying them with supplies after delivering the current orders. This was an attempt for Marks and Spencer to improve its profit margin by way of streamlining their sourcing policies. Baird then took a court action against its customer to claim cost of closing some production sites (Blois, 2003). In this case, Mark and Spencer did not communicate their intention to their supplier concerning their challenges for them also to streamline their operations as well. But having build these supplier-customer relationship over some period of time, they can come into a compromise in engaging in any form of business negotiation again (Ogilvie and Kidder, 2008).

Humphries and Wilding (2004, p.13) stipulated that "relationships are characterised by synergy where high trust and sincerity produce solutions better than the sum of contributions and participants enjoy a creative enterprise". Humphries and Wilding (2004) further pointed out that supplier or customer who demonstrates the attitude of openness, contribution towards quality, trust and desiring into long term deals brings about corporation, coordination and collaboration. And this leads to mutual benefit (win-win business relationship) for the chain members (as shown in figure 1). Therefore the only medium of developing trust is through transparency and effective communication input (Simpson, 2000). The below diagram illustrates a successive collaborative business relationship cycle.

Figure 1: business relationship success cycle (Source: Adapted from: Humphries and Wilding, 2004).

According to Hines and Johns (2001) the activities of supply chain provides a platform that promotes momentous relationship between the customers and suppliers in the sense that customers offer initiatives that guides the suppliers in developing customer satisfactory products in a cost effective way that brings about potential share benefits and build teamwork (cited in Rao and Halt, 2005). In support of these Matchette and Seikel (2004) agrees that cost reduction so as to maximise profits and operational effectiveness is one of the key factors for suppliers and customers to enter into collaborative relationship. In minimizing the cost of a supply chain by managing the inventory levels in a number of operations will in the long run cause a reduction in the bullwhip effect (van der Vorst et al., 2007).

Bullwhip effect as indicated by Chen et al. (2000) has been one of the major causes of logistics unsteadiness occurring within the supply chain activities. According to Forrester (1958) the bullwhip effect is a phenomenon whereby the large retailer (downstream) increases its levels of orders to the manufacturer through the first and second tier suppliers (upstream) whereas there is miniature variation indicated in the final demand. The bullwhip effect causes excessive swings and amplification of demand throughout the supply chain. This due to the fact that information flow was partially or ineffectively communicated to aid in planning of the logistics activities. Equally, Lee et al. (1997) attributed the variability to price oscillation and customers ordering more than the amount required and frequent update on demand forecast to prevent stock out which generates pile up inventory or backlog.

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In order to explore more into the phenomenon, Paik and Bangchi (2007) conducted a research and also identified one of the main causes of the bullwhip effect as the level of echelon. Thus adding more tiers into a supply chain elongates the parties in arriving at a decision point and sometimes hampers the relationship. The repercussion as illustrated in figure 2 is that the lead-time in the supply chain also increases affecting the information and material flow resulting in demand distortion. However customers will gain advantage in focusing on their order volume and influencing their vendors as well if they are able to collaborate and work with fewer suppliers. These results in cost reduction and quality improvement (Anon, 2009).

Figure 2 showing the causes of bullwhip effect (Source: Adapted from Paik and Bangchi, 2007)

On the other hand, Sharma et al. (2006) also argued that the bullwhip effect can be curtailed through effective information sharing strategies and efficient coordination of operational activities involving all the chain members in building strong relationship (Paik and Bangchi, 2007). According to Fransoo and Wouters (2000) transferring the aggregate retail orders through Electronic Point of Sale (EPOS) data which eases information flow can also reduce the bullwhip effect. Citing example, Tesco has improved its management information systems through a newly designed electronic data interchange (EDI) system to facilitate just-in-time operations with their suppliers (Mari, 2009). McCullen and Towill (2001) in their opinion recommended the use of control systems to reduce lead times, eradicating high level of echelon and providing transparent information through the supply chain activities. Though collaboration might not be always voluntary (Kampstra et al. 2006), powerful players such as Wall-Mart, Tesco, etc can force the chain members to collaborate. And by so doing, they are bound to exercise power on their suppliers in the supply chain. Citing an example, instead of negotiating with the producers (farmers), Tesco rather tells the producers the price to be offered for the dairy products (Wyatt, 2005). So whiles Tesco is making profit, the suppliers on the other hand are losing.

Belaya and Hanf (2009, p. 1046) defined power as "the ability to affect, influence others, to make , achieve, get things done in order to fulfil one's own will or interest". Cox (2001) claim that suppliers and customer who exert power within the supply chain delays building collaborative relationships. Writer, Coulson-Thomas (2005) stipulated that large firms use their superiority and wealth to influence the first and second tiers suppliers in the supply chain thereby preventing the suppliers involved to collaborate with other firms. In support of these Maloni and Belton (2000) also agrees that power abuse by the powerhouses in the supply chain will result in dissension and underperformance. On the contrary, Kampstra et al. (2006) argued that usually the larger companies are unwilling to share core information due to confidentiality and are of the fear that when some information are shared, their current suppliers could become their future competitors which could limit their influence in the supply chain (Fawcett and Magnan, 2002).

Furthermore, Lane and Bachmann (2003) in their opinion stipulated that in the business environment some companies that have recognise the benefits of the effort of supply chain collaboration uses their power to hide behind the facade of trust to persuade or manipulate other smaller suppliers to promote their vested interest. However, McDermott (2010) suggested the major business leaders can use their powers to positively influence the members of the supply chain to become more innovative and creating an atmosphere of mutual benefit to challenge other non-members as well. According to Stamm (2004) even though innovation create value and attempts to respond to customer needs, the high level of risk and cost associated with it requires collaboration between the suppliers and customers.

Zsidisin and Ellram (2003) claim that companies engage in collaborative relationship in order for them to be able to manage or reduce risk associated to the business. Supply chain is designed around a set of tradeoffs such as fixed or variable cost. Therefore companies collaborate in order to evaluate range of alternatives and understand the concentration of risk in their operational activities such as energy and transportation cost which are more vulnerable to major swings (Kilgore, 2006). However, Beckett (2005) argued that reducing risk in the supply chain requires trust and this trust can only be built in a long-term relationship. Khan and Burnes (2007) cited an example whereby a supplier or customer provides a financial assistance in investing in machinery or technology so as to supply the buyer. The high cost involved may cause the parties involved to be dependence on each other, hence work together for the interest of all. Therefore they can negotiate for the best price for the supplies as well. The investment will provide a platform for the supplier and customer to enter into a long-term collaborative relationship due to the high cost involved.

On the other hand, the unforeseen events such as 9/11 attack on United States of America, military actions, natural disasters such as hurricane Katrina brought to bare the risk of overdependence on a single supplier or customer, as such events cause uncertainty in the supply chain (Elliot, 2005; Peck and Juttner, 2002). Nonetheless Cheng and Kam (2008) stipulated that the effort to continually meet the increasing demand of the market caused a transformation in the dependence on a simple single firm approach to interdependence multi-firm network collaboration.

According to Gross and Yellen (2004) the levels of relationship and interaction between the suppliers and customers through the supply chain activities integrate into supply chain collaborative network. Romano and Vinelli (2001) viewed the supply chain collaborative network as the integrated network of suppliers, manufacturers, distribution, retailers and customers in a business environment. Thus within the supply chain, the chain members involved may also have other suppliers and customers. Lam et al. (2008) used a diagram (figure 3 and 4) to illustrate collaborative supply chain network. The diagram indicates the process in which a Hong Kong lamp manufacturing company comprising of ten organisations interact by means of communicating, cooperating and collaborating in the supply chain network to manufacture the lamps.

Figure 4 showing the interactions of the entities in the manufacturing processes (Adapted Lam et al., 2008)

Figure 4 showing a collaborative supply chain network of a manufacturing company (Adapted Lam et al., 2008).

Measuring the performance of the activities in the supply chain network is essential to the chain members. Authors such as Pourakbar et al. (2007) suggested the use of Genetic Algorithms (GA) to determine the order quantity and inventory shortage level to improve inventory systems, bullwhip effect and optimizing source decisions in the supply chain. Lam et al. (2008) also supported the use of the Genetic Algorithms - Supply Chain Network (GA-SCN) as an effective and efficient network capable of cutting cost and shortening processing times.

Meanwhile, Stamm (2004) claim that lack of trust, lack of support and lack of transparency usually results in collaboration failure hence establishing collaborative relationship requires a thorough evaluation of the supplier or customer which usually takes long time (Ho et al., 2009). In addition, Humphries and Wilding (2004) also stipulated that building business relationships are like marriages where tolerance and forbearance are essential for ensuring success. And this success is recognized in the long-term.

According to Kirby (2003) organisations that are not able to manage their transitions properly either from the employee perspective or changing stages of the product lifecycle or market conditions could cause disruption to the existing collaborative relationship with its suppliers and customers. Meanwhile, Gattorna (2006) suggested that suppliers and customers who do not share the same collaborative values with a firm do not deserve to be treated equally as those who do because each relationship type has a different need for collaboration. Thus the firm plays one off against the other for price. Moreover, Wildings (2006) re-emphasize that for companies to establish collaborative relationship; first of all, they should have a common focus of communicating by sharing information (trough Information Technology System) and secondly coordinating to synchronize the flow of information that will facilitate decision-making. This also calls for flexibility, agileness and responsiveness in their operations as well as adopting strategies to measure the successes of their relationship. Additionally, Kampstra et al. (2006) suggested that intensive involvement of the chain members in the form of open dialogue will broaden their scope to the non-logistics activities of their operations especially issues in regards to policy constrains, marketing oriented issues and forming partnership related to mutual benefits (shared investment and benefits).

The research has shown that the major pillar in building collaborative relationships is trust. Despite the hitches some companies face in collaborating with business partners, collaboration helps companies to reduce their cost of operations, become productive and innovative in designing structures that will eliminate waste in their activities to speed up their responsiveness and maximise profit in the long ter. The research revealed that companies are collaborating with their suppliers and customers in an effort to penetrate into new and existing market or maintain their market share by satisfying customers' needs within the shortest possible time. And companies who do not build collaborative relationships with its customers and suppliers will not survive in the long-term.


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