Types of Relationships

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

2. Relationship Continuum

3. 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?

4. 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?

5. 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?

6. 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?

7. 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?

8. 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?

9. 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?

10. Trust

11. Dependence

12. Interaction Frequency

13. Questions to consider • What does it take to manage a long-term relationship? • What types of behaviors are important? • What are the guiding principles?

14. Basis for a Successful Relationship Mutual Trust Open Communication Common Goals Commitment to Mutual gain Organizational Support Source: Weitz, et. al., 2004

15. Basis for Successful Relationships • 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. Mutual Trust

16. Basis for Successful Relationships • 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 Open Communication

17. Basis for Successful Relationships • 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 – specific, measurable, achievable, realistic and linked to timelines • 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. Common goals

18. Basis for Successful Relationships • 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. Commitment to Mutual gain

19. Basis for Successful Relationships • 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. Organizational Support

20. LESSONS LEARNED: PRACTICAL TIPSBASED ON COMPANIES’ EXPERIENCES • 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

21. LESSONS LEARNED: PRACTICAL TIPSBASED ON COMPANIES’ EXPERIENCES (cont.) • 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

22. LESSONS LEARNED: PRACTICAL TIPSBASED ON COMPANIES’ EXPERIENCES (cont.) • 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