Collaborative relationship

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 organisations and enterprises working together order to reduce risk, maximise profit (Matopoulos et al, 2007) and it 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). 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 (cited in Barrat, 2004a). 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).

Bullwhip ------ Risk

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 sharing of information thereby reducing uncertainties. Companies like Procter and Gamble, 3M and Wal-Mart uses 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 but developing collaborative relationship is a daunting task with several difficulties (McHugh et al., 2003) and conflicts between retailers and suppliers is unavoidable (Emiliani, 2003). 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 (Yu et al., 2001) 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. Rephrase Effects of bullwhip and why companies struggle to eliminate it.

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)

Cost Reduction-------Info --Visibility

Collaboration brings about reduction in total cost and reduction of inventories (Fawcet et al., 2008). Information sharing is a bridge for effective collaboration (Cetindamar et al., 2005).

Competitive Advantage-----info ---trust

Grover et al. (2002) argues that collaboration allows companies to deliver exceptional value to customers and lower transaction cost in order to 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)

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). 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. 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.


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.

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)

O’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


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Yu, Z., Yan, H. and Cheng, E. (2001) Benefits of Information Sharing With Supply Chain Partnership, Industrial Management & Data Systems, Vol. 101, No. 3, pg. 114-119

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