The Rapid Change In Globalisation Markets Commerce Essay


Rapid change in the Technology, globalisation of market, change in the customer preference, hyper competition and the shorter product life cycle are the some of the characteristics of the today's business environment. As a result of this, companies had realised the fact that working alone is almost impossible. Hence, they began to understand that the key for a successful business is to create relationships. As an organisations business process becomes more specialised they will start focusing on their core competences and the outsourcing becomes a relevant strategy (Z. Zacharia et al, 2009). As a result, a part of the value adding process is displaced outside the four walls of the organisation which in turn, require collaboration between the partners. The word collaboration itself is a relatively wider and an encompassing term, therefore when it is used in the context of supply chain it needs to be further clarified. According to Stank et al (1999), collaboration benefits both the parties, the exchange of information together with the sharing of rewards and risk as the foundation of collaboration. For maximising the success of collaboration organisations need to address a number of issues. These includes with whom, how and where they need to collaborate in the supply chain, what all activities do they need to collaborated and finally what are the elements they need to be collaborated (M.Barratt, 2004). Due to the collaboration the organisations have to face more risks, and in this modern world managing the risks in supply chain becomes increasingly challenging (Christopher and Lee, 2004 cited in S. Roy and T.J.Goldsby, 2009). This is because of the greater uncertainty in supply and demand, shorter product life cycle, shorter technological life cycle and the market globalisation. In addition, the worldwide collaborations by the firms in the areas like distribution, manufacturing and logistics results in a complex international supply chain relationship. This will leads to an ever increasing exposure to the risks (Christopher and Towill, 2002 cited in in S. Roy and T.J.Goldsby, 2009). The following paragraphs explain the need of collaborative relationship with customers and suppliers, and the problems relating with the collaboration.

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Togar and Sridharan, (2002) defines supply chain collaboration as "two or more chain members working together to create a competitive advantage through sharing information, making joint decisions, and sharing benefits which result from greater profitability of satisfying end customer needs than acting alone" (P.J. Singh and D. Power, 2009). Rather than keeping an arm length between suppliers and customers, during the year 1980s and 1990s there was a new trend towards the collaboration and integration with in the organisations. In order to focus on the cost and services offered to the customers, the actors involved in the same supply chain identify tradeoffs with their immediate suppliers and customer and recognise the significance of collaboration in the chain (E.Sandberg, 2007). According to Christopher (1998), Lambert and cooper (2000) excellence in internal supply chain is not enough for an organisation; it has to achieve excellence in its both internal and external supply chains. Supply chain players can achieve significant benefits by a true SCM based collaborations with includes a huge reduction of costs, enhanced services and reduces wastage. Examples are the collaborative planning, forecasting and replenishment (CPFR) collaboration of Wal-Mart (E. Sandberg, 2007), Dell (Magretta and Dell, 1998 cited in P.J. singh and D. Power, 2009) and HP (Lee and Billington, 1995 cited in P.J. singh and D. Power, 2009) with their suppliers are well know success stories. According to Holweg et al (2005), collaboration enables the firms to deal with the negative impact of the "Bullwhip effect" by minimising the wild fluctuations in the inventory and it helps the firms to become more responsive to the vagaries and fluctuations in the market (P.J. Singh and D. Power, 2009). There should be a positive impact in the financial performance of the company because of the collaboration. Moreover, organisations in the supply chain with high level of collaboration enjoy greater competitive advantage than those firms who has less collaborative supply chains (Vickery et al, 2003 and Themistocleous et al, 2004 cited in P.J. singh and D. Power, 2009). Yamaha, Muji and had successfully implemented collective customer collaboration (C3) concept. Through this concept organisation offers an opportunity to its customers for taking part in their products designing as well as commitment to product purchase (Piller et al. 2005, Ogawa and Piller 2006 cited in G. Elofsony and W.N. Robinson, 2007). The collaborative relationship developed by Ford can be use as a perfect example. By integrating and collaborating with a assemble plant suppler located within two miles the Ford Chicago had started saving $50 in the transportation costs per car. This helps ford to save $15million annually as their plant capacity is 300,000 cars (Jacobs and Chase, 2008 cited in F.Huq et al, 2010).

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Today's market is a highly competitive; because of this reason company's has to give a paramount importance to improve their customer-supplier relationships. This is because customers are demanding upgraded and enhanced products and if a suppler fails to supply the things demanded by a customer, they have many alternatives suppliers to choose from (F.Ounnar, 2007). For supporting the direct selling and build-to-order Dell has developed supply chain collaboration and to fulfil the demand of their end customers Dell had made a successfully collaboration with its technology and parts suppliers. These all collaborations help Dell to achieve a new level of technology and stock velocity. The adaptation of manufacturing facilities and Just-in-time deliveries are enjoyed by Dell with the help of collaborative relationships (Magretta, 1998 cited in T. Simatupang and R. Sridharan, 2009). According to Hameri and Paatela, 2005 the business approach of manufacturing companies with their supply chain partners are re- evaluated because of the excessive market revelry and changing preference of customers (P. Hadaya and L Cassivi, 2007).

By collaboration the supply chain partners work together as if they were a part of a single organisation. By doing so they can increase joint competitive advantage i.e., collaborative advantage and improved firm performance. These relationships are given in the below mentioned figure

Effect of supply chain collaboration on collaborative advantage and firm performance


Future trends in the fashion industry are being predicted by ZARA through effective collaborating with its suppliers. This collaboration helps ZARA to collect the product from their manufacturing partners and deliver to its customers within 10days, this helps ZARA and its partners to reduce their cost and increase their profit (Walker et al, 2000 cited in T.M. Simatupang and R. Sridharan, 2008). Using a joint initiative with P&G, called collaborative forecasting and replenishment (CFAR), managers from both Wal-Mart and P&G jointly forecast sales of P&G products at Wal-Mart stores and plan replenishment strategies (Chopra and Meindl, 2001).

The seven interconnecting components of a collaborative supply chain are information sharing, decision synchronisation, goal congruence, collaborative communication, resource sharing, incentive alignment and joint knowledge creation. These seven components helps in adding values to the supply chain collaboration by reducing the cost and respond time, improving innovation and leveraging resource (M.cao, 2008). As a result of collaborative relationship between Wal-Mart and P&G using collaborative forecasting and replenishment (CFAR), the managers of both company had implemented replenishment strategy and they predicted the Sale of P&G products in Wal Mart stores (M. Attaran and S. Attaran, 2007). As the collaboration is a never ending process the selection of partners is a crucial task for the organisation (A. Vereecke and S. Muylle 2006).

According to Das et al, 2006 the widely identified and accepted style of collaborative relationship is the close supply chain collaboration. Following is the characteristics of close supply chain collaboration.

A long term relationship between the independent firms.

Cooperation and coordination between the organisations on aspects like information sharing, joint demand management, joint planning, joint inventory management

Connecting distinct groups within and across the firms

Shared outlook of the merits of close ties

Creating visibility

Common aims (S Leeuw and J fransoo, 2009)

According to Henderson (2002) the partners in a supply chain shares not only the information's on financial and operational data such as cost of goods, scheduling etc but also they have to exchange even important strategic information's like new designs of their products, strategic goals, forecasting etc. to capitalise the possibilities from the supply chain relationship (G. Kwon and T. Suh, 2005). There are different types of potential supply chain collaborations; this can be divided into two main categories they are vertical and horizontal collaboration. In the vertical collaboration firms collaborate with suppliers and customers and in the horizontal collaboration firms collaborate with its competitors and with non competitors (Simatupang and sridharan 2002, cited in M.Barratt, 2004).

The below given figure explains the scope of collaboration.

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Even though the information technology allows the organisations to interconnect, trust places a significant role. The interaction between these two can encourage trust and can minimise the transaction cost in and amongst organisations (B.Welty and I.B. Fernandez, 2001). For implementing the supply chain effectively, the planning should be based on trust and shared information between and among the partners. The financial and strategic information of an organisation should be guarded, sometimes the information sharing between the partners who might be or will be their competitors. The sharing of effective information should be heavily depending upon the trust and eventually it extent to the partners of supply chain (Bowersox et al., 2000 cited in G. Kwon and T. Suh, 2005).La Londa (2002) claims that as supply chain relationship involves a higher degree of interdependence, the issues of risk and trust are the significant elements which determines these relationships between the organisations. So a higher degree of trust among and between supply chain partners is required, which is a challenging task (G. Kwon and T. Suh, 2005). Higher the degree of Trust, the greater the

Suppliers performance in the economy

Suppliers capability for evolution

Suppliers perceived equity (D. Corsten & N. Kumar, 2005)

Morgan and Hunt (1994) argue that "When both commitment and trust - not just one or the other - present, they produce outcomes that promote efficiency, productivity and effectiveness". The value of information degrades exponentially if it is not shared among the partners (G. Kwon and T. Suh, 2005). Lack of trust is the biggest stumble block for the success of a strategic alliance formation (Sherman, 1992 cited in G. Kwon and T. Suh, 2005). The significant factor in achieving supply chain integration is Commitment and the trust is a root which fosters such commitments and the trust is considered as the cornerstone of the strategic collaboration (Sherman, 1992 cited in G. Kwon and T. Suh, 2005). Among various constructs influencing the trust level, the associated firm's specific asset investments significantly and directly influence the trust in their partners, while these firms decision making ambiguity seems to be negatively affects the trust in their partner through a calculative way. That is, the companies will find some indirect means to mistrust their partner. According to Bowersox et al (2000) cultivating mutual trust is one of the biggest challenges in supply chain. Ineffective lines of communication and the intimidating legal issues among the organisations may inhibit the trust building procedure which is essential for a prosperous supplier development effort and extreme commitment (G. Kwon and T. Suh, 2005).

The majority of the problems relating to the supply chain collaboration are because of the lack of knowledge of what collaboration truly implies. Barratt and oliveira (2001) claims that the main obstacle for the development of CPFR (collaborative planning forecasting and replenishment) programme was a lack of attention to building the front end agreement as to specifically what firms were going to collaborate over. In the context of collaboration most of the organisations has to face another barrier which relates to when and with whom to collaborate. This is not a major obstacle but while taking into account the value created with the collaboration most of the firms get confused. To add more value, organisations attempt to collaborate with a large number of suppliers and customers but his will not always work. The costs of such attempt will simply overweight the value derived (M.Barratt, 2004). On the one side, the adaptation of higher degree of collaboration between the players in a supply chain generates greater advantages to the partners while on the other side, a higher degree of collaboration leads to an increased level of operational and developmental costs.It is an unfortunately reality that most of the organisation faces problems in their inventory recordings. This inaccurate information's of the inventory significantly affects the outcome of a collaborative relationship and due to the excessive collaboration, partners in the supply chain keeps only a lower level of safety stocks. When the lead time and customer demand reduces there should be an increase of chances for the wrong exchange of inventory information's (K.Sari, 2008).

The major blokes that organisation has to face during the time of collaboration are

Time period: For collaborating their need an internal aligning process with both suppliers and customers. Most of the companies take more time for building such relationships.

Information Technology: To overcome the IT issues organisations has to build a common plat form

Trust: One of the key challenges that organisations have to face during the period of collaboration is the cultural factor. This includes the lack of willingness to share the significant information's due to lack of Trust

Design of the organisation: The role of "Account Management" is designed to encourage the collaborations of organisations but this is usually overpowered by the "Functional" silos

Competition: The collaborating firms may always have the fear that, in future they are going to face competition from their current suppliers or their integration might reduce their response to the changes that happens in the market

External pressure: Due to the cooperation with larger players, the smaller firms may fear that the giants may use this opportunity to reduce their margins and to extract their values.

Organisations powerhouse: The various departments in the organisations may utilise this opportunity and they may maintain their power of bargaining, this may arise the problems like frictions in between the departments.

Financial: For a successful supply chain collaboration organisation has to make agreements on their inventory ownership, pooling resources, future business plans and sharing investment cost and benefits. Most of the firms are not willing to share their key information's with their partners.

Other Reasons: Conflict in the business culture, goals and values among the organisations (R.P.Kampstra et al, 2006).

Williamson (1995) argued, that in writing the concept is power is discussed very rarely in supply chain. To argue that the concept of power is not appropriate to use in supply chain due to the lean approach, the basis of lean approach is on trust, equity and accessibility. It is said that companies has to possess power over something to become successful. Some of the players in the supply chain recognised that they have only very little power to appropriate value from their partner firms. For managing the supply chain operationally and strategically managers has to have a clear idea about the power that control the supply chain. In the automotive supply chain the model of Toyota is based on Transformation in the structure of power along with the hierarchy of structural dominance. This is a situation in where the significant resources are owned and controlled by a dominant player in that supply chain. Before collaborating and implementing particular operational practices or strategies in the power structure, managers have to understand their supply chain nature (A.cox, 1999).

The collaboration, competition and the coordination in a Supply chain are being investigated with the help of game theory. The game theory literature are being divided into, cooperative and non cooperative game theory. Each player in the supply chain acts individually according to the non cooperative game theory. In contrast, the individual behaviour of a supply chain player is not being investigated in a co operative game theory i.e. once the members form an alliance; in a way or another they will achieve the coordination. The Bargaining game theory comes under the cooperative game theory; this theory explains the corporation between the members in the supply chain. It is necessary that the application of cooperative game theory is a significant measure to analyse all the collaborative possibilities. In a collaborative supply chain bargaining game theory is used to determine the negation and profit allocation between the members of a supply chain (A.Meca and J.Timmer, 2007). The competitive and cooperative problems that arise in a collaborative supply chain can be solved with the help game theories and it also helps in making joint decisions on firms pricing, production and inventory (M Leng and M Parlar, 2005). In 1960's MIT developed a role play game called Beer Game to illustrate the significance of value sharing, cooperation between the partners and the implication of JIT inventory in an organisations supply chain. The bullwhip effect in the market is being explained through the help of Beer game (Forio, 2008). The key characteristic of a complex system are being illustrated through Red Blue game, It explains the things like conflict management, value of trust and negotiation, cooperation and coordination between the partners in a supply chain. It also emphasis that organisations have to follow a win-win strategy for the success of their supplies chain in which they operates (P. Simoson, 2000).


According to Andraski (1998) organisations need an effective leadership to achieve internal and external collaboration (E.Sandberg, 2007). The top level management plays a significant role for the successful implementation of collaborative relationship among the organisations in SCM. As the involvement of top level management increase the degree of common strategic planning among the partners will also increase. Operational issue based collaboration cannot be considered as the completely integrated supply chain. Complete supply chain based integration will be possible only by considering both operational and strategic issues (E.Sandberg, 2007). As per Williamson (1985), the self interested behaviour of dominant relationship explains that customers always exploit a particular position and the suppliers are always being exploited (G Parry et al, 2006). Frohlich and Westbrook (2001) the performance indicators of an organisation should appeared more positive with their integral relationship with customers than that of those companies who disintegrate their relationship with customers (G. Silveira, and R Arkader, 2007). Speckman et al, (1994) claims that supply chain sustainability can be achieved only by effective collaborations moreover the organisations had now released that a firm's success depends upon the collaboration (J. Jeong and P. Hong, 2007).Currently suppliers are experiencing a huge pressure from their customers. Customers are demanding their suppliers to adopt green supply chain in order to reducing the growing environmental issues. In the future the value of their products will be degraded if they failed to do so. A perfect example is: Wal-Mart had taken the initiative to green their supply chain (M.Delmas and I. Montiel 2008). C. Lee claims et al (2007) that Organisations have to face vulnerable situations in the market if they fail to satisfy their customers. According to Cheistopher, 2004 "a new competitive framework for supply chain operators is emerging". In the era of mass production the driving seat of a supply chain is being replaced from suppliers to customers (R. Mason et al, 2007). Even though organisations has to face a large number of risks while collaborating, for surviving in this highly competitive world organisations has to work together and they need to maintain a good customer supplier relationships.