The Main Steps of Supply Chain Relationships - Essay Example

Supply Chain Relationships xxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxx Instructor xxxxxxxxxxxxxxxxxxxxxx Date Xxxxxxxxxxxxxxxxxxxx It is quite evident that over the recent years the focus of suppliers and customer relationships has widely shifted from being transactional and in most cases being adversarial and even hostile, to one of increasing cooperation. The great realization of common objectives and goals as well as the mutual interdependent of sellers and buyers has largely assisted in building up of this trend. Nonetheless, many of these relationships has proved to be problematic over years and as a result failing to deliver the anticipated benefits (Chen, 2003). Clearly, supply chain relationships within an international context are considered to be one of the relationships being affected by the recent shift. This essay discusses supply chain relationship and how it has shifted from being transactional to one of increasing cooperation. Further, it will discuss both weaknesses and disadvantages of closer working relationships as well as the long term implications of a more competitive relationship for operational and strategic role of supplier function (Morrissey, 2004). Supply chain is the term widely used to describe various linkages within companies that usually turn a series of products, materials or services into a finished product in relation to customer satisfaction. There are three types of supply chain relationships namely; vertical, horizontal and full collaboration. Vertical relationship is whereby there are traditional linkages between various organizations in the supply chain such as distributors, raw materials suppliers, retailer and manufacturers. Horizontal relationship is where there are business arrangements between companies that normally occupy parallel position in a given supply chain (Mason-Jones, 2000). Finally, full collaboration is business arrangement existing between companies which occupy both parallel and vertical position within a given supply chain. Within the above discussed types of supply chain relationship there are various ranges of supply chain relationship namely; transactional, collaborative and strategic. Transactional is where both parties in the supply chain are at arm lengths with a certain limited commitment. Based on collaborative, two or more business companies cooperate in order to drive better combined results that are usually long term. Finally, strategic range which represent both deep and long term commitments among a company supply chain partners. Here, organizations are engaged in the modification of their stipulated practices and objectives to assist in achieving shared long term objectives and goals (Wagner, 2003). Shift from being transactional and in some case adversarial or even hostile to one which increases co-operation within the supply chain relationship context have created various trends in the supply chain management. The shift is known to create both long term and closer relationship where there are fewer suppliers in a given international context. This trend affects supplier proximity allowing just in time delivery so as to greatly facilitate closer working relationship that is usually targeted at improving service and product quality along a given supply chain. Further, increase in the influence of information technology has resulted to increase in both knowledge and relationship management (Sine, 2006). Within the supply chain relationship, contemporary view of competitiveness and strategy is largely based on a foundation which customer value is created by organization working together within common goals as opposed to companies working in isolation. Firms that have moved from being transactional to increasing cooperation have considerably improved on their supply chain relationship as there is a whole mutual benefit for all parties involved (Chopra, 2001). As a result the companies develop a degree of partnership that largely develops between buyers, sellers and supplies. Arguably, the shift from being transactional to that of increasing cooperation is viewed to have greatest benefits which are largely derived by extending the focus as a possible upstream towards the raw material as well as a downstream that is expressed towards the consumer and then back again as both the product and waste is recycled. These benefits have been widely considered to foster this trend within the supply chain relationship (Adair, 2007). The recent shifts of customer/ suppliers relationships within supply chain were mainly to react quickly to today’s market demand. Researchers indicate this shift widely suites the environment in which customer demand predictability is low, product cycle which is short, high forecasting error as well as frequent new product introduction. To balance the above described customer environment, there is need to realize common goals and objectives as well as mutual interdependence of both buyers and sellers. The shift is giving the supply chain relationship a design that widely attracts a competitive priority which greatly emphasizes on development, volume flexibility, customization, fast delivery as well as intermediate and flexible flows which are attributed to mutual interdependence of both buyers and sellers (Simchi-Levi, 2003). In a supply chain relationship context, shifting from adversarial or transactional to increasing co-operation ensure there is coordination in the flow of materials and services thus maximizing efficiency of both service providers and manufacturers in the chain. Therefore, researchers indicate that the shift best fits today environment whereby demands are highly predictable (Cox, 2001). Even with the benefits linked to supply chain relationship, it is evident that there exist some disadvantages and weaknesses of closer working relationship especially within an international context. Firstly, closer working relationships in a given international context can give raise to particular powerful relationship within supply chains thus making the supply chain relationship become more ineffective in dispatching its duties. Therefore, this create an essential aspect which is trust need to operate within a given supply chain relationship frame work. Another argued weakness that arises from closer relationship especially in supply chain management is the fact that stakeholder needs are largely ignored due to the fact that organization are involved in creating mutual benefits at the expense of their stakeholders (Bovel, 2000). Closer working relationship within supply chain relationships creates rigidity of direction and organization. This is considered to be a weakness in that organization operates in set rules and regulation where adjustment of these rules requires authorization from all organization. Further, these relationships are usually externally focused. Closer working relationships between in the supply chain have resulted into weaknesses and disadvantages as a result of the modes of strategies utilized to facilitate this process. Many suppliers in this case have not been able to grow to sizeable scales as the manufacturers share the same share suppliers and the quest for the manufacturers to restrictions to the scale size of some manufacturers (Sheather, 2000). This is meant by the main manufacturers to maintain a high degree of the alternative supply sources and relative power to bargain. For example, the US automakers suppliers are fewer in number on average compared to the Japanese suppliers of the Toyota and Nissan as a result of the lower trust levels, lower investments in supplier in relation to the specific assets. The automakers on the other hand demand a high degree of loyalty from their selected suppliers. This is mainly witnessed by the suppliers for the Korean auto suppliers which results into the suppliers making investments that are relation specific and have to coordinate their strategies and activities closely with the customers of their primary automakers. This implies that the Korean automakers enjoy the services and benefits of specialized suppliers who are dedicated only to their products. Thus the investments that are aimed at developing the suppliers of a primary manufacturer will not spill over to the suppliers of a competing company (Vokurka, 2000). These activities thus keep the supplying firms small and result in economies of scale that are sub-optimal. The suppliers are thus not able to have an opportunity to learn from the multiple customers who are availed if they are given a chance to be suppliers of more than one primary manufacturer. This is also an impediment to have the suppliers to have the ability to learn with a view of upgrading their innovative technological abilities (Kulwiec, 2000). The suppliers on the other hand who deal with multiple primary product manufacturers on the other hand do not have the chance to have increased investments in assets as the primary manufacturer will not provide substantial direct assistance to them. This is widely perceived by the product companies that an extensive direct assistance would definitely have a spillover to the other competing firms who will pose stiff and more devastating competitive advantage over it (Findlay, 2003). The direct assistance is seen by most companies to have a spillover effect to other competing companies and thus the suppliers suffer from having fewer asset investments that are dedicated to particular primary manufacturers. In this case, many Japanese automakers most effectively apply the segmentation strategy to suppliers thus making them realize the full benefits of the arms of length of the models of their partners (Kaufman, 2000). The independent suppliers to the Japanese automakers like the Bridgestone tires realize the economies of scale as they sell products from all the automakers that are relatively standardized thus making little asset investments which hare dedicated to particular automakers as compared to their affiliated suppliers like the Calsonic and Nippondenso who have made substantial investment asset benefits as a result of selling automotive products from specific automakers (Ferrer, 2003). This is as a result of the suppliers being awarded more incentives by the Japanese Toyota and Nissan automakers as they view their success as a result of the suppliers being able to trade in their own products with relative exclusiveness. The supplier segmentation process is able to be extended to the value chain through the first and the second suppliers as the suppliers who are able and only deal with one identified product manufacturer are able to be accorded the differential assistance that is pegged on the relationships and component nature. The suppliers for example are not able or allowed to join certain associations that are only meant to serve the interests of those suppliers that trade in the products of one primary supplier. For example, Nippondenso which only supplies products of the Toyota and Nissan only provides differential assistance to the suppliers who trade in the products of its primary manufactures (Carter, 2000). The supplier firm also restricts and permits the second tire suppliers to join the Nippondenso association based on the component and relationship nature. The membership of certain associations is pegged on the suppliers who meet a specific targeted size, performance criteria and dependency. The suppliers are to demonstrate their worth to be members of the associations by trading in the products of the primary manufacturers. Suppliers who deal in the products of one primary manufacturer risk losing their competitive advantage if the primary manufacturers do not match up with the expectations of the customers in line with the growing and dynamic demands (Zhang, 2003). The primary supplier is to be innovative and advance at the same pace of the dynamic globe and maintain its competitive advantage. This implies that if the products of the other competing firms are more innovative than the products the supplier is dealing in might result in the customers shifting and purchasing the products of the other supplying company. If Toyota for example does not match the growing needs to have them develop automotive products that do not consume a lot of fuel and meet the customer safety requirements, it would be hard for the suppliers to maintain the competitive advantage as other automotive manufacturers like the Mercedes Benzes which are always innovative and dynamic to the ever changing needs of the world will be able to provide the services and products that the customers need (Levary, 2000). Furthermore, the suppliers will have an overreliance on the firm to provide the marketing that will provide the relevant information to the customers on their new products that have been released in the market as well the provision of realistic and affordable prices for the customers (Handfield, 2002). The suppliers on the other hand are depended on by the primary manufacturers in the provision of the relevant feedback information to the primary manufacturers that is helpful in the analysis and evaluation of the performance of their products. The suppliers in this case are to set up clear and meaningful customer feedback information systems that are aimed in the evaluation of the products and provision of information that is aimed at developing products that are in line with the needs of the clients (Lancioni, 2000). If the information system is not realistic and meaningful, the products will thus be rejected by the manufacturers as they will not meet the specifications of the clients. Toyota for example depends on the feedback information from the suppliers in Africa to be able to develop the automotive products that meet the needs of the African clients which are different from the clients in the American or European states depending on the road network and course. The products will only have an impact in the sales if they reflect the demands of the population. On the other hand, the relationships between the supplier and the primary manufacturers are only maintained based on the performances (Krajewski, 2002). The supplier is only assured of a long term relationship with the primary manufacturer if the prices are competitive. Vigorous price competition is maintained by frequent benchmarking in prices that maintain the competition between the suppliers. The benchmarking of prices works as a strategy to place the suppliers on their toes as they are compelled to offer comparatively low prices (Lambert, 2000). This requires the need for the formation of strategic partnerships that are able to develop trust and in order to facilitate investment that is specific and facilitate the sharing of information that will enhance the sharing of inter firm knowledge. The course has a disadvantage in the as the lack trust leads to the customers seeking the relevant services from other suppliers of the same but more valuable quality products from other suppliers. This is as a result of inflated prices and lack of the product manufacturers in meeting the required customer demands. The overdependence of suppliers on one solid primary product suppliers on the other hand has the negative ability to have the supplier not having the adequate capital thus resulting in the inconsistencies in the supplies (Christopher, 2000). Lack of relevant sharing of information between the primary product manufacturers and the suppliers could consequently result in the production of products of poor quality which are later sold at high prices which will make it difficult for most of the customers to afford or maintain the loyalty to the products as they will not be able to perform to the expectations of the customer. The inconsistency in information may be as a result of poor customer records and statistics which are vital for the organization in the maintaining innovative products and the performance of certain products in the market. The provision and maintenance of adequate and standardized customer information will assist in the effective and sustainable competitive advantage of both the suppliers and the primary manufacturers (Sheather, 2000). References Adair, J. 2007. Leadership for innovation: How to organize team creativity and harvest ideas. London: Kogan Page. Bovel, D. & Martha, J. 2000. “From supply chain to value net”, Journal of Strategic Management, July/August, pp. 24-8. Carter, C.R. 2000. “Ethical issues in international buyer supplier relationships: a dyadic examination”, Journal of Operations Management, Vol. 18 No. 2, pp. 191-208. Chen, F. 2003. Information sharing and supply chain coordination, in de Kok, A., Graves, S. (Eds). Handbooks in Operational Research and Management Science, Vol. 11. Supply Chain Management: Design, Coordination and Operation, Elsevier Science, Amsterdam. Chopra, S. & Meidel, P. 2001. Supply Chain Management: Strategy, Planning, and Operations. Upper Saddle River, NJ: Prentice Hall. Christopher, M. 2000. “The agile supply chain – competing in volatile markets”, Industrial Marketing Management, Vol. 29 No. 1, pp. 37-44. Cox, A. 2001. “Managing with Power: Strategies for Improving Value Appropriation from Supply Relationships.” Journal of Supply Chain Management. Spring 2001. vol 37. no.2, 42-47. Ferrer, J. 2003. “European Supply Chain Management Characteristics and Challenges.” ASCET, Vol. 5, July 26. Findlay, C. 2002. “Europe’s Unique Supply Chain Opportunities, Challenges, and Innovations.” ASCET, Vol. 4, May 16. Handfield, R. B. & J. Ernest L. 2002. Supply Chain Redesign. Upper Saddle River, NJ: Prentice Hall. Kaufman, A., Wood, C.H. &Theyel, G. 2000. “Collaboration and technology linkages: a strategic supplier typology”, Strategic Management Journal, Vol. 21 No. 6, pp. 649-63. Krajewski, L. J. & Rotzman, L. P. 2002. Operations Management. Upper Saddle River, NJ, Prentice Hall. Kulwiec, R. 2000. “Elements of supply chain success”, Target – Journal of the Association for Manufacturing Excellence, Vol. 16 No. 4, pp. 16-21. Lambert, D.M. & Cooper, M.C. 2000. “Issues in supply chain management”, Industrial Marketing Management, Vol. 29 No. 1, pp. 65-83. Lancioni, R.A., Smith, M.F. & Oliva, T.A. (2000), “The role of the internet in supply chain management”, Industrial Marketing Management, Vol. 29 No. 1, pp. 45-56. Levary, R.R. (2000), “Better supply chains through information technology”, Industrial Management, Vol. 42 No. 3, pp. 24-30. Mason-Jones, R., Naylor, B., & Towill, D. 2000. ‘Engineering the agile supply chain,’ International Journal of Agile Management Systems, Vol. 2 No.1, pp.54-61. Morrissey, B., & Pittaway, L.2004. ‘A study of procurement behaviour in small firms’, Journal of Small Business and Enterprise Development, 11(2): 254-262. Sheather, G. & Hanna, D. 2000. “Towards an integrated supply network model”, The Journal of Enterprise Resource Management, Vol. 3 No. 3, pp. 5-10. Simchi-Levi, D., P. Kaminsky, et al. 2003. Designing and Managing the Supply Chain, 2nd edition. New York: McGraw-Hill. Sine, W. D., Mitsuhashi, H., & Kirsch, D. A. 2006. Revisiting Burns and Stalker: Formal structure and new venture performance in emerging economic sectors. Academy of Management Journal, 49, 121–132. Vokurka, R.J. 2000. “Supplier relationships: a case study”, The Journal of Enterprise Resource Management, Vol. 2, 2nd quarter, pp. 78-83. Wagner, B.A., Fillis, I., & Johansson, U. 2003. ‘E-business and e-supply in small and medium sized businesses’, Supply Chain Management: An International Journal, Vol. 8 No.4, pp.343-54. Zhang, Z. & Sharifi, H. 2000. “A methodology for achieving agility in manufacturing organizations”, International Journal of Operations & Production Management, Vol. 20 No. 4, pp. 496-512. Read More