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Supply chain relationships. Firms have directed significant attention toward working more closely with supply chain partners, including not only customers and suppliers but also various types of logistics suppliers, to achieve coordination and integration among partners. Development of meaningful relationships through the supply chain has become a high priority.
There are two types of logistics relationships: vertical and logical. Vertical relationships refer to the traditional linkages between firms in the supply chain, such as retailers, distributors, manufacturers, and parts or materials suppliers. These firms relate to one another in the ways that buyers and sellers do in all industries, and significant attention is directed toward making sure that these relationships help to achieve individual firm and supply chain objectives.
Horizontal relationships may be thought of as a service agreement between two or more independent logistics provider firms, based on trust, cooperation, shared risk and investments, and following mutually agreeable goals. These companies belong to the same supply chain stage and normally produce or trade the same product.
Intensity of involvement. As suggested by the figure, the range of relationship types extends from that of a vendor to strategic alliance. In the context of traditional vertical context, a vendor is represented by a seller or provider of a product or service, and there is little or no collaboration with the buyer or purchaser. A relationship with the vendor is transactional, and parties to a vendor relationship are said to be at arm's length, that is, at a significant distance. This form of relationship suggests a relatively low or non-existent level of involvement between the parties. An arm's length relationship is appropriate for certain types of transactions, for example, one-time or multiple purchases of standard products or services.
Alternatively, in relationships suggested by a strategic alliance, two or more business organizations cooperate and willingly modify their business objectives and practices to help achieve long-term goals and objectives. A strategic alliance is highly relational in terms of the firms involved. This form of relationship typically benefits partners by reducing uncertainty, improving communication, increasing loyalty, and establishing a common vision. Alternatively, the challenges of a strategic alliance include the fact that it implies heavy resource commitments by the participating organizations and high switching costs.
Leaning toward the strategic alliance, a partnership represents a customized business relationship that produces results for all parties that are more acceptable than would be achieved individually. Partnerships are frequently described as being collaborative, forming a supply chain relationship.
The figure outlines the steps in a process model to form a logistics relationship. Let us assume a model for a manufacturing firm as it forms a relationship with a supplier of logistic services, for example, a transport firm, warehouse, etc.
Step one: Perform strategic assessment. This first stage involves the process by which the manufacturer becomes fully aware of its logistics and supply chain needs and the overall strategies that will guide its operations. A logistics audit at this stage may bring the following useful information: business goals and objectives, needs assessment from customer to supplier, environmental factors, and industry trends, identification of gaps between current and desired performance.
Step two: Decision to form relationship. At this stage, a decision is made to form a relationship. For example, in a manufacturing firm, when the decision relates to using an external provider of logistics services, such as a trucking firm or express logistics provider, then careful assessment of the company's core competency is considered.
Step three: Evaluates alternatives. Apparent levels of drivers and facilitators may suggest the most appropriate type of relationship to consider. If neither the drivers nor the facilitators seem to be present, then the recommendation is a transactional relationship. Alternatively, when all parties to the relationship share common drivers and when the facilitating factors are present, then the relationship is justified.
Step four: Select partners. Selection of a logistics or supply chain partner should be made only following very close consideration of the credentials of the most likely candidates.
Step five: Structure operating model. Structure of the relationship refers to the activities, processes, and priorities that will be used to build and sustain their relationship. Components of the operating model may include planning, joint operating controls, communication, risk and reward sharing, trust and commitment, contract style, and financial investment.
Step six: Implementation and continuous improvement. The implementation process may be relatively short, or it may be extended over a longer period of time. Future success of the relationship will be a direct function of the ability of the involved organizations to achieve both continuous and breakthrough improvement.
Types of collaboration. The three important types of collaboration are vertical, horizontal, and full. Vertical collaboration refers to collaboration typically among buyers and sellers in the supply chain. This refers to the traditional linkages between firms in the supply chain, such as retailers, distributors, manufacturers, and parts and materials suppliers. Horizontal collaboration refers to a relationship that is buyer to buyer and/or seller to seller, and in some cases, even between competitors. Essentially, this type of collaboration refers to business arrangements between firms that have parallel or cooperating positions in the logistics or supply chain process. Full collaboration is the dynamic combination of both vertical and horizontal collaborations. Only with full collaboration do dramatic efficiency gains begin to occur. With full collaboration, it is intended that benefits accrue to all members of the collaboration.
Laws of collaborative logistics. There are seven immutable laws of collaborative logistics that suggest how most effectively to create successful collaborative relationships: real and recognized benefits to all members, dynamic creation, measurement and evolution of collaborative partnerships, co-buyer & co-supplier relationships, flexibility and security, collaboration across all stages of business process, integration, open integration with other services, and collaboration around essential logistics flows.