Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf ·...

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Chapter 11 Supply Chain Relationship Management 11-1

Transcript of Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf ·...

Page 1: Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf · Chapter 11 Supply Chain Relationship Management ... • Relationship Management

Chapter 11

Supply Chain RelationshipSupply Chain RelationshipManagement

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Lecture Outline

• Supply Chain Relationships

• The Role of Trust

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• Managing Conflict and Dispute Resolution

• Negotiation Concepts, Styles, and Tactics

• Relationship Management in Practice

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Importance of Relationships

SCM is primarily about the managementof relationships across complex networksof companies

•Issues include:

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•Issues include:– respect and trust

– joint ventures

– negotiation

– contracting

– conflict resolution

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Relationship Management as anElement of SCM

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Relationship Dimensions

Relationships should be segmented basedon how much management is needed

Two Dimensions:

• Scope• Scope– degree of responsibility assigned to supplier

– greater scope means greater dependence

• Criticality– extent to which the sourced item or task

impacts ability to perform core competencies

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Relationship Dimensions Continued

As scope and criticality increase, so does the riskto the buyer

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Relationship Matrix

Four categories of relationships:

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Non-Strategic Transactions

– low scope and criticality

– transaction oriented relationships

– typically standardized products

– limited buyer/supplier communication

– typically alternative sources of supply

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Contractual Relationships

– high scope and low criticality

– moderate levels of communication

– some relationship managementrequired due to size of arrangement

– relationship based on formal contracts

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Partnerships

– low scope and high criticality

– limited frequency of interaction

– strong trust between supplier and buyer

– relationship management not extensive

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Alliances

– high scope and high criticality

– high interaction frequency

– significant trust and commitment between– significant trust and commitment betweenbuyer and supplier

– significant investment in relationshipmanagement

– products and services are highly customized

– typically large transaction volumes

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Power-Based vs. Trust-BasedRelationships

• Power-Based Relationships

– historical basis of relationships

– one partner maximizes its profit at expense– one partner maximizes its profit at expenseof others

– extracting unfair concessions hurts thecompany if balance of power shifts

– creates competition rather than cooperation

– decreases supply chain profitability

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Power-Based vs. Trust-BasedRelationships

• Trust-Based Relationships

– development of joint objectives

– greater sharing of information

– elimination of duplication of efforts

– coordination easier to implement

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Relationship Evolution

• Contractual Based View– formal contracts used to ensure cooperation

– the initial view of supply chain relationships

• Relationship Based View– trust and cooperation viewed as a result of

interactions over time

– a strong supply chain relationship evolvestoward the relationship-based view over time

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Developing a Trust-BasedRelationship

Key Steps:

• Assessing the Relationship– identify the mutual benefit

– equity– equity

• Identifying Operational Roles– sequential interdependence

• activities and information of one partnerprecedes the other – traditional approach

– reciprocal interdependence• parties exchange information in both directions

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Developing a Trust-BasedRelationship Continued

Key Steps Continued:

• Creating Effective Contracts

– contracts that encourage negotiation as– contracts that encourage negotiation asunplanned events arise

• Designing Effective Conflict ResolutionMechanisms

– specify rules and guidelines

– frequent meetings

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Managing a Trust-BasedRelationship

Factors:

• Commitment

– top management commitment is crucial

– clearly identify the value of the– clearly identify the value of thepartnership for each party

• Clear Method of Communication

– two major factors that lead to thebreakdown of partnerships are:

• lack of information sharing

• inability to resolve conflicts

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Managing a Trust-BasedRelationship Continued

Factors Continued:

• Performance Visibility

– helps identify defective processes

– makes it harder for either party to beopportunistic

• Fairness

– most relationships involve parties withunequal power

– fairness influences relationship strength

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Managing Conflict andDispute Resolution

Look at:

• Sources of Conflict

• Dispute Resolution Procedures• Dispute Resolution Procedures

– Litigation

– Arbitration

– Mediation

– Negotiation

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Page 21: Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf · Chapter 11 Supply Chain Relationship Management ... • Relationship Management

Sources of Conflict

Potential Sources:

• Relationship Conflicts

– strong emotions, poor communication,negative behaviornegative behavior

– stereotypes and language differencesproblematic with intercultural communications

• Data Conflicts

– different interpretation of data

– lack of information

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Sources of Conflict Continued

Potential Sources Continued:

• Interest Conflicts– competition over substantive interest

• Structural Conflicts• Structural Conflicts– unequal control, destructive behavior

– physical factors that hinder cooperation

– prominent source of conflict

• Value Conflicts– different ways of life, ideology, religion

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Dispute Resolution Procedures

Supply chain partners should decide aheadof time how they will resolve disputes

• Four primary resolution processes

– can be combined to form hybrid options– can be combined to form hybrid options

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Litigation

– legal wrong committed

– judge and jury determine outcome

– time consuming

– potential for bad press

– costs can be excessive

– outcome usually “all or nothing”

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Arbitration

– neutral third party issues a binding decision

– useful when international courts not desirable

– desirable for highly technical fields who want– desirable for highly technical fields who wantto avoid a lay jury in litigation

– parties can customize arbitration procedure

– courts usually enforce arbitration agreements

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Mediation

– neutral third party facilitates process

– parties not required to agree to outcome

– usually voluntary– usually voluntary

– preferred over litigation and arbitration whenrelationship preservation is important

– parties can customize mediation procedure

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Negotiation

– positions are exchanged until the two partiescan agree on a mutually beneficial settlement

– most informal procedure– most informal procedure

– no third-party assistance

– can be inexpensive

– can be fast

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Negotiation Concepts

• Leverage

– amount of bargaining power

– party with the most leverage loses the leastwalking away from the negotiationwalking away from the negotiation

• Position vs. Interest

– position is a signal of willingness to accept (orpay) “won’t pay any more than $7/unit”

– interest is the underlying reason for position

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Negotiation Concepts Continued

• Negotiator’s Dilemma

– sharing truthful information provides a higherchance of a mutually beneficial outcomechance of a mutually beneficial outcome

– Integrative Opportunities

• non-zero-sum negotiation opportunities

– Distributive Opportunities

• zero-sum negotiation opportunities

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Page 30: Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf · Chapter 11 Supply Chain Relationship Management ... • Relationship Management

Negotiation Styles

Two Categories:

• Adversarial– zero sum approach: every benefit one party

receives is a direct loss to the other partyreceives is a direct loss to the other party

– tough positional bargaining tactics

• Problem-solving– non-zero sum approach: concessions made

by each party to create value

– discussions address underlying interests

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Adversarial Negotiation Tactics

• Extreme Opening Offers

• Few and Small Concessions• Few and Small Concessions

• Withholding Information

• Manipulating Commitments

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Extreme Opening Offers

• Anchoring

– initial offer has powerful effect on thefinal agreement

– can make a company look less credible

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Few and Small Concessions

Concessionary Tactics:

• Norm of Reciprocity

– when one party makes a concession, apsychological norm encourages the otherpsychological norm encourages the otherparty to do the same

• Rejection-then-Retreat

– make an offer that you know will be rejected

– “real” offer is subsequently made with greaterlikelihood of acceptance

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Withholding Information

• Information Asymmetry

– one party has access to information that theother party does not know about

• Both Parties can Withhold Information

– prevents parties from understandingunderlying interests

– don’t know the true position of counterparty

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Manipulating Commitments

• Binding the Counterparty

– get the counterparty to commit to aprinciple, then use it against thecounterparty later in negotiationcounterparty later in negotiation

• Binding Yourself

– committing yourself can be effective withadequate leverage

– constrains your flexibility

– may erode credibility if found untrue

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Problem-SolvingNegotiation Tactics

• Listening– separating people from the problems

– identify misperceptions

– acknowledge emotional conflicts

– “looping” technique

• Asking– focusing on interests rather than positions

– can uncover hidden interests

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Page 37: Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf · Chapter 11 Supply Chain Relationship Management ... • Relationship Management

Problem-SolvingNegotiation Tactics Continued

• Inventing– inventing options for mutual gain

– brainstorming

– differences more helpful than similarities– differences more helpful than similarities

• Referencing– using objective criteria to evaluate the terms

– depersonalizes the negotiation

– can help overcome unfair counterparty tactics

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Relationship Managementin Practice

• Keiretsu Supplier-Partnering Model

• Partnership Agreements

• Diluting Power

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Page 39: Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf · Chapter 11 Supply Chain Relationship Management ... • Relationship Management

Keiretsu Model

Helps turn power-based relationships intopartnerships based on trust

Six Steps:Six Steps:

1. Understand how your suppliers work

2. Turn supplier rivalry into opportunity

3. Supervise your suppliers

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Page 40: Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf · Chapter 11 Supply Chain Relationship Management ... • Relationship Management

Keiretsu Model Continued

Steps Continued:

4. Develop supplier capabilities

5. Share information

6. Joint improvement

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Partnership Agreements

– contract that creates the partnership

– formal contract too early can create problems

– financial agreement

– buy-sell agreement

– hand shake deals:

• “even a dog can shake hands”

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Page 42: Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf · Chapter 11 Supply Chain Relationship Management ... • Relationship Management

Diluting Power

– decision-making power offered in exchangefor resources

– beware of “tragedy of commons”– beware of “tragedy of commons”

• resources not utilized efficiently because toomany people exercise simultaneous control

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Page 43: Supply Chain Relationship Management - Αρχική | mba ...mba.teipir.gr/files/Chapter_11.pdf · Chapter 11 Supply Chain Relationship Management ... • Relationship Management

Review

1. Four categories of supply chain relationships:non-strategic transactions, contractual,partnerships, and alliances.

2. Relationships should be developed on basis of2. Relationships should be developed on basis oftrust rather than exploitation. Trust-basedrelationships developed by assessing thevalue of the relationship, identifying operationalroles, negotiating effective contracts, anddesigning effective conflict resolutionprocedures.

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Review Continued

3. Five potential sources of conflict: relationshipconflict, data conflict, interest conflict, structureconflict, and values conflict.conflict, and values conflict.

4. Prepare for negotiations by studying thecounterparty, identify who has the most leverage,and think about underlying interests.

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