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Increasing competition in responsiveness and delivery of efficient services to customers has transformed business practices from simple single firm approach to dynamic multi firm network collaboration (Cheng & Kam, 2008). Collaboration is about two or more organisations and enterprises working together order to reduce risk, maximise profit and create value to end customers with greater success than working alone (Matopoulos et al., 2007; Simatupang et al., 2004). Collaboration is more concerned with benefits, risk sharing and exchange of information which is the foundation of collaboration (Barrat, 2004a). However such benefits vary in importance and degree among collaborating firms (Angrawal and Park, 2001; cited in Fawcet et al., 2008). Collaboration does not always lead to improvements (Vereecke and Muylle, 2006) but in order to maximise the potential of collaboration, Barrat (2004a) argues that there is need to understand why companies need to collaborate, where and whom they collaborate with.
Sahay (2003) further argued that organisations will need to define the areas in which they would collaborate as not all areas requires full involvement and close relationship; define the level of collaboration be it operational, tactical or strategic and select the right techniques and technology to aid information sharing (Cited in Matopoulos, 2007). Collaboration can be classified into two groups, the vertical collaboration which deals with customer and supplier and the horizontal which deals with competitors and non- competitors (Simatupang and Sridharan, 2002 cited in Barrat, 2004a). This essay will be looking at the vertical collaboration, discussing why companies struggle to collaborate and how power, time, dependency and trust acts as barriers and negate the possibility of collaboration.
Relationships are formed in a supply chain network through effective information sharing in order to meet specific targets and reduce total cost and inventories (Yu et al., 2001). However, Henderson (2002) argued that supply chain partners should not only share information on operational and financial data only but on strategic information such as forecasting, new product designs and strategic goals to maximise the benefits of collaboration (cited in Kwon 2005). Yu et al. (2001) argues that with collaboration in the supply chain network, the bullwhip effect on a supply chain can be reduced or eliminated through effective sharing of information thereby reducing uncertainties. With collaboration, companies like Procter and Gamble, 3M and Wal-Mart used Vendor-Management Inventory (VMI) system in sharing information in a bid to reduce the bullwhip effect (Lee et al., 1997). However firms struggle to develop this relationship and developing collaborative relationship is a daunting task with several difficulties (McHugh et al., 2003) and conflicts between retailers and suppliers is unavoidable (Emiliani, 2003).
Yu et al. (2001) also stated that the bullwhip effect is the difference in variability of demand in upstream and downstream of a supply chain which is caused by uncertainties that are buffered up by increased inventories and Lee et al. (1997) argued that the causes of the bullwhip effect have been identified as demand forecasting, order batching, price fluctuation and rationing game which is best illustrated by the beer game. However, collaboration in the supply chain is dependent on trust (Bowersox et al., 2000) and lack of confidence in partners is a barrier to collaborative relationship (Sherman, 1992; Cetindamar et al., 2005). Lack of trust will result to not sharing information among partners which will cause a ripple effect leading to amplified demand and increase of the bullwhip effect.
Retailers in the UK grocery sector have realised substantial savings from collaboration with their suppliers (Fernie et al., 2000). This has led to the emergence of collaborative tools like collaboration planning, forecasting and replenishment (CPFR) which promotes the sharing of information to help reduce the bullwhip effect (Adraski, 2002; cited in Barrat, 2004b). An example is the collaboration between retail firms like Marks & Spencer, Tesco, and Sainsbury with manufacturers such as Kraft, Unilever, Nestle and Johnson & Johnson (Seifert et al. 2002). The envisaged behaviours of customer and suppliers have been a major concern for effective collaboration, but when relationship between supplier and customer are built on trust both partners are able to maximise the benefits of such relationship (Barney and Hansen, 1994). Dyer, (1995) further argued that the process by which trust is built is uncertain and varies depending on the partners involved and their previous experiences as the demonstration of honesty and integrity is positively related to the development of trust in a relationship. In addition, Jennings et al., (2000) argues that reputation and openness of organisations is also linked with trust (see appendix).
Maister et al. (2000) stated that trusts in relationships are driven by commitment, credibility, reliability, intimacy and lack of self orientation. Kwon (2005) further argued that without commitment between companies, business relationships are fragile and susceptible; the full benefits of collaboration cannot be achieved; there will be perceived lack of willingness to take risk in the business and that the success of a good relationship is built around commitment which cannot be separated from trust. Beckett, R.C. (2005) argues that trust is built over time.
Cost Reduction-------Info --Visibility
Atrill and McLaney (2008) argues too much stock and inventory cost is seen to be one of the factors that eats into the profitability of organisations as too much stock depicts that the organisations money is tied down in the stock until they are sold and its expensive to maintain stock (example warehousing cost, handling charges etc.) as large warehouse will be required for storage. However, Fawcet et al., (2008) argues that collaboration in the supply chain brings about reduction in total cost and reduction of inventories through sharing of information. Information sharing is seen to be the vehicle or bridge for effective collaboration (Cetindamar et al., 2005). Chen et al. (2005) argues that organisations should try to balance the reduction of inventory, as firms with too much inventory and firms with lowest inventory do not perform well. Reducing inventories in the supply chain eventually leads to the reduction of bullwhip effect.
Ireland and Bruce (2000) argues that reports from world practices depict how supply chain collaboration brings benefits to all participating members. Collaboration has helped Procter & Gamble to reduce the inventory level of their retailers through higher visibility of actual customer demand. This lead to an increase in perfect orders, reduced delivery expenses while her retailers enjoyed an increase in inventory turnover, reduced inventory, reduced storage and handling cost and increase in sales (Simatupang et al., 2004). Collaboration is meant to achieve a win-win situation but it is always not the same in the real world (Mentzer et al., 2000). However, lack of visibility in information sharing among partners in the supply chain acts as barriers to collaboration (Leger et al., 2006). Organisations tend to hold vital informationââ‚¬â„¢s from their partners in the supply chain due to lack of trust and security reasons depending on the nature of the goods. For effective collaborative relationships, Frankel et al. (2002) argues that it is essential to create an environment that would foster information sharing and shared understanding in order to avoid single points of contacts where a relationship between organisations is not destroyed as a result of a person leaving the organisation as most strategic relationships are built based on relationships between employees of different organisation (cited in Barrat, 2004a).
Competitive Advantage-----info ---trust
Effective collaboration has become important if supply chains are to gain competitive advantage (Pawlak and Malyszek, 2008) since the competition is now between supply chain versus supply chain rather than individual business versus individual business (Li et al., 2006). Grover et al. (2002) argues that organisations struggle to develop collaborative relationship because collaboration helps customers and suppliers to improve time to market of product, increase responsiveness to business environment, reduce cost and exploit better market opportunities in order to deliver exceptional value to customers and gain competitive. A single supply chain cannot deliver rapid response to customer demands in efficient manner (Christopher and Towill, 2002, cited in Barrat, 2004a). However, to win customers commitment, firms must know what customers want when and where they want it (Fawcet et al., 2008) in order to be able to deliver these exceptional values. (Talk more on competitive advantage)
Talk on Innovations
Control of Information is a source of power that has the potential to result in dependency on partners for strategically important knowledge (McDonald, 1999 cited in Dapiran & Hogarth-Scott, 2003, pg. 259). Due to the interdependency between companies, risk of failure and trust cannot be over looked (La Londe, 2002) and the interdependency among organisations results to the exercise of power of an organisation over another which explains why a buyer is more likely to influence the supplier when in a relationship over time and why a big organisation is likely to exercise power over small organisations (Adams & Goldsmith, 1999; Spekman and Salmond 1992; cited in Matopoulos, 2007). Matopoulos, 2007 argues that power makes large companies impose their rules to collaboration and dictates the risk reward sharing and this imbalance affects trusts and deters collaboration intensity. Munson et al. (1999) argues that some retailers do shift the inventory cost and burden of information to the upstream members in the supply chain as a result of power, an example is Tesco and its suppliers.
However some authors suggest that the use of power denies the level of collaboration hence companies operating a power based-relationship have few reasons to collaborate (Schroder et al, 1996 cited in Dapiran & Hogarth-scott, 2003)
Oââ‚¬â„¢Keeffe (1998) argues that in the agro-food industry small and less powerful industry will be more dependent on large powerful companies due to the size imbalance (cited in Matopoulos, 2007).
Am through with Introduction, Trust, bullwhip,