Article 60–Business relationships - SCCI………........Page 2 of 4

Realistically the opportunities for failure points to occur in supply chain relationships are legion. Traditionally management knowledge and learning is all about managing inside one’s own organisation. Looking outside of one’s own organisation and working with other businesses is not generally something that many of us are trained to do. It runs contrary to the natural competitive instinct of any organisation to work close to home and to be wary of company outsiders, be they suppliers, customers or partners.

Beyond these cultural issues, alliance management is an often misunderstood concept. In many organisations the function is dispersed among commercial, sales, operational and senior staff. These people focus on outcomes rather than the relationship that influences them. There is no one single point of contact at each of the partners responsible for coordination, problem resolution, performance management, and planning functions of the joint enterprise. The problem is compounded by many business schools that continue to teach Supplier Relationship Management and Key Account Management that promotes a self-centred approach rather than Alliance Management that focuses on collaboration. In seeking to foster collaboration, companies must adopt measures that recognise the strategic value of their partnership. Otherwise, they will invite failure. An example of the wrong sort of relationship and measurements could be the failure of the major supplier of specialist fasteners to the Australian automotive industry. The customers were caught by surprise because their supplier measurement system (focused on cost savings and quality failures) failed to alert them to the impending problem. Propping up the supplier cost them significantly more than having a better understanding of the relationship and the problems that they (the customers) were causing.

The steps in a failing relationship can be represented by a dynamic relationship spiral with value being the main casualty that suffers as a consequence.

Problems may begin with the partners feeling trapped and under pressure. Trapped in the sense that they feel their independence of action is threatened by their commitment to work with the other party. The feeling of entrapment grows and leads each party to take a very self-interested view of the arrangement. This in turn forms the background to adversarial negotiations where “I win, you lose” replaces the notion of “you win, I win”. Both parties look to the “fine print”; investment in the partnership of time, energy and resources is kept to a minimum. Both companies start to take a short-term view, sacrificing the long-term profitability and benefits of the partnership for short-term gains. The final step in the spiral downwards is the withholding or manipulation of information to gain advantage. As each party becomes increasingly aware of this, their feeling of entrapment grows still further and the spiral begins again.

But partnerships do not have to end like this. There are many examples where suppliers and customers have supported each other through difficult times based on relationships and understanding. Again from the automotive industry, stories abound about Toyota turning up to help a supplier overcome a problem that that cannot solve alone. The approach being that, once you are in the Toyota supplier family then you will be supported. This is a policy that is true for any country in which they operate including Australia. It is possible to postulate the reverse of the spiral of failure where a positive feedback loop causes partnership value to rise continuously.

It is possible to postulate the reverse of the spiral of failure where a positive feedback loop causes partnership value to rise continuously.

The starting point for these successful partnerships is an openness and willingness to create value for the partnerships and to recognise that a “win-win” relationship will enable the individual businesses to achieve their goals and ambitions. The creation of value is built upon an overt attention to operational processes and outcomes but especially to the end customer. Focusing on the needs of the end customer generates an in-depth understanding of how partners can become more effective, more efficient and offer higher quality through the combination of their joint resources. The partners are willing and able to adapt and innovate in the face of an uncertain and changing market.
 

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