In a rapidly changing and expanding global landscape, companies are realizing they are only as good as the weakest link in their supply chain. Companies are also recognizing they are no longer in direct competition with each other, but in a supply chain to supply chain based competition. To compete as an integrated supply chain, companies must better understand how to manage their relationships with their supply chain partners, whether they are suppliers or third-party logistics providers (3PLs).
Not all Supply Chain Partners are Created Equal
Companies typically approach all of their suppliers and 3PLs with the same mindset. It’s common to hear managers talking about having a strategic partnership with all or most of their suppliers. While this is an ideal set-up, in reality it is very hard, if not impossible, to achieve. Applying the Pareto Phenomenon (80-20 rule) to your supply base can be very enlightening in terms of understanding which suppliers are the most critical for your operations. This segmentation process is important in order to enable companies to effectively formulate and implement their strategies with the inclusion of the key strategic partners.
Consistency in Relationship Type and Relationship Structure
Even with segmenting and identifying the appropriate relationship with each supplier (strategic vs. collaborative vs. arms-length) using the 80-20 rule, companies must ensure the relationship type is consistent with the relationship structure. A strategic relationship has to include trust, commitment, shared cooperative norms, and compatibility. Likewise, the metrics used to evaluate performance has to be consistent with the nature of the relationship of that supplier: strategic suppliers are expected to have a more comprehensive list of performance metrics than a transactional supplier. The level of information sharing is encouraged across all suppliers, but with the more strategic suppliers a higher level of information and knowledge sharing is more appropriate. This includes discussion of future growth and expansion plans as well as sharing market intelligence and assumptions. Collaborative or arms-length relationships may be limited to operational data sharing. The key is making sure the structure of sharing information and knowledge, sharing risks and rewards, incentive systems, and performance metrics are all consistent with each relationship type.
Company before Country
The growing trend of globalization in supply chains has led to a discussion on the impact of national cultural differences between companies and their suppliers. National cultural distance, or differences in cultural values and norms, may have an impact on the understanding of operations between a company and one of its global suppliers. Recent research findings from marketing, supply chain, logistics, and international business scholars are pointing towards corporate culture as a more important factor to consider and address in order to establish a strong relationship with a global supplier.
Inter-firm relationships can be a source of a unique competitive advantage in global supply chains and understanding the strategic importance of key suppliers coupled with the appropriate structure and mechanisms to support that relationship can be key to ensuring a successful and lasting partnership.