Cornerstone

Types of Relationships

Source: An Assessment of Supplier-Customer Relationships, Rinehart, Handfield, Atkins, and Page, 2004, Journal of Business Logistics

building our foundation for the future

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Relationship Continuum

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NonStrategic Transaction (16%)

• • • • These situations included one-time as well as multiple transactions between parties.

Little to base a relationship on. – This may be partly due to the limited communication that occurs, restricting opportunity for the parties to get to know one another on a personal basis. 10% of these exchanges involved capital assets and equipment transactions. Examples?

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Administered Relationships (14%)

• • • The most basic cluster that can be classified as a true “relationship.” These situations also can include one-time or multiple transactions between parties, but there is a stronger emphasis on attempting to manage the relationship through non-formalized influence strategies.

These would include efforts related to merchandising support or business process consulting by representatives of one party with the other. • Can you think of any examples?

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Contractual Relationships (18%)

• • Reflect the need for formalized control over business activity between suppliers and customers. At the organizational level, managers recognize a strong supply or market-based need for the relationship based on the business volumes conducted with the other organization, without a desire to raise the level of required investment in the relationship. • Can you think of any examples?

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Specialty Contract Relationships (6%)

• • • Contracts for unique products or services that are exchanged between suppliers and customers. In these situations, few alternatives exist in the supply/customer base. Another unique element of these relationships is that they seem to be less formal than other relationships (67% of responses indicated no formal written agreement between the parties).

• Can you think of any examples?

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Partnerships (12%)

• • • • • Higher levels of personal character (4.72), organizational capability (5.19), and organizational investment (3.51). Communication frequency (2.96) and perceived dependence (3.06) are at the median relative to the other relationships, and business volume (2.71) in Partnerships is below the median. Span a wide range of product-oriented transactions (An example might be a supplier of a critical component for a product that delivers on a weekly basis.

Do not always have formalized controls over business activity (43% of the use a standard form contract 44%no written agreement or agreements designed by non-legal personnel) The lack of a formal agreement may at times create confusion between the parties • Can you think of any examples?

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Joint Ventures (27%)

• • • • • Joint Ventures are generally associated with some form of financial investment by the parties in the relationship to achieve mutual benefits. 17% percent of Joint Ventures have some form of ownership investment, Perception of dependence by one party upon the other is greater in Joint Ventures than Contractual Relationships. Low levels of personal character and organizational capability. Investment may occur because there is a lack of trust in the other party, and the firm uses the investment as a mechanism to maintain control over the relationship • Can you think of any examples?

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Alliances (18%)

• • • • 28% of Alliances involve some form of investment by the parties to achieve joint benefits. However, Alliances reflect different behavioral dimensions relative to the other relationships. Alliances indicate a high level of importance in the personal character of the other party and greater communication frequency between the parties. In addition, Alliances demonstrate the second highest level of importance to be perceived dependence, business volume, and investment.

• Can you think of any examples?

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Trust

7 6 3 2 5 4 1 0

Non-Strategic Transactions Administered Relationship Contractual Relationship Specialty Contract Relationship Partnership Joint Venture

Personal Character Organizational Capability

Alliance

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Dependence

6 5 4 3 2 1 0

Non-Strategic Transactions Administered Relationship Contractual Relationship Specialty Contract Relationship Partnership

Perceived Dependence Organizational Investment

Joint Venture Alliance

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Interaction Frequency

6 5 4 3 2 1 0 Non-Strategic Transactions Administered Relationship Contractual Relationship Specialty Contract Relationship Partnership Business Volume Communication Frequency Joint Venture Alliance Page 12

Questions to consider

• What does it take to manage a long-term relationship?

• What types of behaviors are important?

• What are the guiding principles?

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Basis for a Successful Relationship

Mutual Trust Open Communication Common Goals Commitment to Source: Weitz, et. al., 2004 Mutual gain Organizational Support

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Basis for Successful Relationships

Mutual Trust

• • • • Trust is a belief by one party that the other will fulfill its obligations in a relationship Where trust exists, partners are more willing to share relevant ideas, clarify goals and problems, and communicate more effectively Shared information becomes increasingly comprehensive, accurate and timely Less energy on “checking up” and “proof testing” because both parties believe one will not take advantage of the other.

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Basis for Successful Relationships

Open Communication

• • • • • A key building block for development of successful partnering relationships Partners need to understand what is driving each other’s business and what are respective underlying interests.

Commitment to address concerns and complaints to mitigate conflict escalation Commitment to sharing business information that facilitates communication and builds trust Acknowledge cultural differences can be easily misconstrued in an age of globalism – learn to critically reflect on assumptions Page 16

Basis for Successful Relationships

Common goals

• • • • • Shared goals create a strong incentive to pool strengths and abilities Partners can focus on exploiting opportunities rather than debate who benefits most from the relationship Identify SMART common goals if possible timelines – specific, measurable, achievable, realistic and linked to Incentive to cooperate because partners know they can achieve higher levels of performance and result attainment Can help sustain the partnership when expected benefit flows are not attained as initially envisioned.

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Basis for Successful Relationships

Commitment to Mutual gain

• • • • Crate win-win relationships by looking for overlapping areas of opportunity in which both can prosper.

Facilitate strategic integration by sharing appropriate information with key suppliers to improve product quality, sales, and total supply chain cost reduction.

Interdependence and mutual dependence drives high performing relationships; it facilitates a cooperative spirit and collaborative culture through credible commitments to each other.

Partners search for ways to “expand the pie” and minimize time spent resolving conflict over how to split it.

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Basis for Successful Relationships

Organizational Support

• • • • • Organizational systems, processes, and structures must support partnering relationships (early focus on barrier reduction and enabling – celebrate early wins.

Investment in building a “partnering culture”.

Special competencies in partnering are essential – interest-based negotiation, conflict management, relationship aptitude and sensibility, and open communication skills Management recognition of the “hidden by real” valuation in relational capital as an emerging form of intellectual capital Consulting skills – sales and other people need to be taught how to identify customer needs, design solutions, and work to improve performance.

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LESSONS LEARNED: PRACTICAL TIPS BASED ON COMPANIES’ EXPERIENCES

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INTERNAL REQUIREMENTS

 Top-level executive commitment and visible support  Company-wide education, training and understanding    Cross-functional collaboration Clear empowerment and realistic targets Integration of purchasing into new product development 

SUPPLIER SELECTION

 Complete a strategic supplier selection process  Integrate only critical strategic suppliers    Know the marketplace Know the limitations of suppliers’ capabilities Avoid integrating direct competitor suppliers in the same development   Specify required supplier skills Develop trust and partner-style relationships Page 20

LESSONS LEARNED: PRACTICAL TIPS BASED ON COMPANIES’ EXPERIENCES (cont.)

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MULTI-FUNCTIONAL, CROSS-ORGANIZATIONAL TEAMS

 Establish common goals and objectives based on buying company’s new product development needs, clearly specified and communicated to all parties   Educate and train all involved to understand the process Encourage teams to establish clear, achievable, realistic goals with delegated authorities and accountabilities  Remove internal boundaries and perceptions of traditional departmental/functional roles  Clearly establish roles and responsibilities to maximize exploitation of total potential capability   Ensure continuity of key individuals throughout the project Capitalize on supplier technical knowledge, skills and experience Page 21

LESSONS LEARNED: PRACTICAL TIPS BASED ON COMPANIES’ EXPERIENCES (cont.)

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PROCESS DEPLOYMENT

 Work from a clearly established set of expectations and specifications  Develop a formal, measured process to record and communicate impact    Monitor performance against targets Be prepared to end the integration effort if targets are not met Be prepared to change suppliers who don’t perform or improve as expected Allow suppliers to use their expertise, standards and products Seek a balance of “give and take” Encourage management reviews on pre-established criteria Learn and provide experience feedback to transfer improved process to other products  Establish contingency plans around people and technology Page 22