In the current global environment, there is a growing concern over shocks being experienced in established supply chains in every industry. As results, many business organizations are rethinking their existing supply chains collaboration in an effort to combat such shocks (Journal of supply management). The effect on business organizations has also been predicable by the fact in the modern business scenario. There are fewer individuals around to take on an increasing workload, significant cost pressures, ballooning excess inventories, plant closings, and rising conflicts between consumers and suppliers (Chapter 7 Watson G). This in essence make it appears to some that the conventional adversarial, arms-length approach to supply chain management collaboration is once again back in style.
On a radical contrast, recent events in supply management have compelled many supply managers to realize that, the old model of managing supply chains simply does not work anymore in the modern business organizations (Chapter 7 Watson G). Perhaps, the downturn in the economy has increased the requisite to take waste out of various nodes within the whole supply chain. For example, in organizations such as automotive, electronics and industrial equipment among others, the management acknowledges that raising prices is no longer an alternative, and neither is the possibility of radically rising sales in a flat economy (Chapter 7 Watson G).
This leaves them with a single alternative that of reducing costs across the supply chain. This means that many business organizations are left with opportunity of taking out the cost, and work better with suppliers.
Actually, industries, today are realizing that in the future, supply chains compete against supply chains. This implies that in order to succeed in these difficult and prosperous economic times, business organizations in a supply chain will need to simultaneously step on the brakes as well as step on the gas (Journal of Marketing Research).
Although there has been a remarkable advancement in e-commerce, supply chain management’s sourcing and physical distribution components remain building elements for a successful supply chain. This comprises three major pillars including managing relationships, managing supply chain material flows, and managing information (Nooteboom).
Effective collaboration between companies and their suppliers remains a key to supply chain development. This implies that sitting down and communicating effectively and efficiently with individuals in your supply chain goes a long way towards improving the bottom line (Nooteboom).
For instance, understanding the flow of materials via multiple tiers of suppliers and customers is a significant initial step. General Motors and other automotive industries are working on creating an order to delivery strategy for selling vehicles over the Internet and delivering customized vehicles in a shorter time (Cox et al, 2003 p. 24). To make this a possibility, General Motors managers and researchers have been developing process maps of General Motor’s supply chain structure to better understand the information flows between multiple supplier tiers, and to identify opportunities for further reductions in inventory and cycle time (Chapter 7 Watson G).
Prior to adopting any supply chain collaboration managers must understand the existing state of their company’s’ supply chain and design information systems around their re-designed business processes (Chapter 7 Watson G). This is to say that a internet based application can not resolve the difficult associated with a large and poorly performing supply base, a fragmented logistics and distribution network, an adversarial set of supplier/customer relationships, and an unwillingness to share information due to a lack of trust (Journal of Marketing Research). In order to be successful in supply chain management, business organizations must be willing to share risks and rewards, and to create the underlying infrastructure to apply these instruments.
Supply chain collaborations have been on the rise because of the rising technological advances and mounting competitive pressures which has forced the supply chain participants to work with each other. Currently there is much theory on it as well as the riser in the number of firms choosing the collaborative route to manage their supply chains however there still remains a big deal of confusion.
So what is supply chain collaboration? It represents the highest level of commitment between/among supply chain participants, short of joint venture or vertical integration.
Many individuals employ the term collaboration interchangeably with cooperation and coordination however, based on organizational studies and marketing related text, these terms in fact depict various levels of supply chain relationships, leading up to supply chain collaboration (Journal of supply management).
Entirely, there are four levels in the supply chain collaboration. The most fundamental level of supply chain collaboration is the alarm-length which can develop into the second level that is cooperation and later on coordination. Collaboration is fourth on the continuum (Journal of supply management).
Arm-length collaboration which is also referred as open market negotiations is the most common type of relationship in supply chain environments (Nooteboom). This level of collaboration is characterized by little investment, hardly any information sharing and limited interaction between business organizations (Cox et al, 2003 p. 34). At the low side in this category of collaboration are trust and commitment. Collaborations at this stage are short-term, contract-based and adversarial, with various suppliers competing where price is the overriding factor. At this level, companies can easily change partners and efficiently perform routine tasks.
From this initial level of collaboration, business organizations can eventually grow into a collaborative supply chain relationship if they invest a big deal of resources, build trust and commitment, and share long-term strategic goals (Nooteboom).
Non- non-adversarial Arms length is form of collaboration which emanates from companies’ need to manage the increasingly complicated flow of information and material between organizations. At this level of collaboration business organizations are more tightly tied together, sharing more information, than they would be in an extended arm-length relationship (Chapter 7 Watson G). The difference between this level and the arm-length is that in this level of collaboration are fewer suppliers and longer-term supplier-customer relationships. This collaboration stage involves a shorter-term perspective and less commitment than higher levels (Chapter 7 Watson G). This stage is characterized by two key elements that is integration and interdependency which are more moderate than in coordinated or collaborative supply chain relationships (Nooteboom).
As information technology is getting cheaper to implement adversarial collaborative it is becoming a defining factor in supply chain relationships. To be specific, the level of information infrastructure and sharing determines if companies are in coordinated supply chain relationships (Nooteboom). At this level collaboration companies information systems are more strongly linked, and there is more emphasis on strategy (Nooteboom). In this level business organizations work in more joint initiatives, including collaborative planning, predicting and replenishment as well as vendor managed Inventories to get a better handle on demand information (Cox et al, 2003 p. 34).
In the modern business environment supply chain management strategy has shifted priority from mass production and quality to customer satisfaction, increasing the need for collaboration on important business processes, which is not limited to logistics (Chapter 7 Watson G). Further, information technology has advanced rapidly and has become more affordable to deploy, allowing business organizations to embark on complicated supply chain partnerships (Chapter 7 Watson G).
Non- adversarial collaboration can be regarded as the most committed relationship between separate organizations without involving an equity relationship (Cox et al, 2003 p. 34). At this stage of collaboration, the bond between business organizations in a supply chain setting is as strong as it can be before joint venture or vertical integration (Chapter 7 Watson G).
Two vital characteristics differentiate this type of collaboration from preceding relationship forms. First, the elements that are present in cooperation and coordination are stronger in collaboration. In this level there is greater trust, commitment and information sharing in collaboration, allowing companies to share a vision and employ sophisticated processes such as joint planning and operation in the service of that vision (Cox et al, 2003 p. 34). ). Further in this type collaboration, there is a greater diversity of non-logistics activities and functions jointly undertaken in some collaboration (Chapter 7 Watson G).
There are two types of long term supply chain collaboration. The first type involves companies working together in logistics and manufacturing related activities in a supply chain (Chapter 7 Watson G). This level of collaboration emanates from the narrow definition of supply chain management, which involves traditional logistics management (Chapter 7 Watson G). Applying this definition, the system of supply chain collaboration is that of a virtual network, wherein independent organizations such as manufacturers, suppliers and customers are connected by information technology (Cox et al, 2003 p. 34).
The other type involves more non-logistics activities and functions (Journal of supply management). This is a result of broader definition of supply chain management, which supports the collaborative approach in a wider range of business processes, beyond logistics and across firms (Cox et al, 2003 p. 34). This form of collaboration is considered as a strategic alliance which brings together buyers and suppliers in separate industries or different supply chain stages and creating a single system (Journal of supply management).
The difference between these two types of collaboration is the motive for forming the collaboration (Cox et al, 2003 p. 20). Whereas the first type of collaborations is built on skill substitution, the second type is collaborations incorporate another motive that is organizational learning. The level of collaboration in relationships can be measure by putting into account how companies interact with each other and the means by which they interact (Journal of supply management).
In the first case elements like trust and commitment, the balance of power and how cultural differences among partners are worked out (Journal of supply management). On the other hand, the other element involves information systems and a collaborative controlling system, which includes a reward and risk sharing structure a joint decision making system and a conflict management system (Cox et al, 2003 p. 34). Overall, the degree of collaboration hinges on how balanced and developed such elements are (Journal of law and economics).
Works cited
Chapter 7 Watson G.
Cox et al, ‘Supplier Relationship Management: A Framework for Understanding Managerial Capacity and Constraints’, European Business Journal, No. 3, 2003 (EJ).
Journal of law and economics.
Journal of supply management.
Journal of Marketing Resaerch.
Nooteboom.