Managing Global Supply Chain Relationships the Right Way

A collaborative mindset is the cornerstone of supply chain management. However, establishing and managing relationships on a global scale can be a challenging task. In this guest commentary, Professor Ayman Omar will shed light on this issue.

In a rapidly changing and expanding international business landscape, companies realize they are only as good as the weakest link in their supply chain. Companies also recognize 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 and negotiate with 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 as used in six sigma or lean manufacturing program) 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 the procurement team 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. Strategic planning of relationship management 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 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 a discussion of future growth and expansion project as well as sharing customer service feedback, market intelligence, and assumptions, and inventory management practice. 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 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.

About the Contributor:
Professor Ayman Omar is a global supply chain expert from Kogod School of Business at American University.

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Last review and update: July 5, 2022
About the Author and Editor:
Ben Benjabutr is the author and editor of Supply Chain Opz. He holds an M.Sc. in Logistics Management with 10+ years of experience. You can contact him via e-mail or Twitter.