EBU6609 Logistics and Supply Chain Management
TOPIC 16: RELATIONSHIP MANAGEMENT MS. BING HAN
Learning Objectives
Identify the right type of relationship to build with SC members.
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Discuss the benefits of improved relations from both buyer and supplier perspectives.
Describe the practices that promote successful alliance creation and management. Discuss the behaviours that impede collaboration among SC members.
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Learning Objectives
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Discuss the role of power and trust in establishing effective SC relationships.
Plan an effective negotiation — one that is capable of building strong SC relationships. Describe the elements of an effective negotiation strategy. Identify tactics that support win-win negotiations.
It’s not good enough to optimise the firm – we have to optimise the supply chain. But no one is king of the supply chain.
– , Chrysler
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Supply Chain
Relationships
Current and future success depends on the ability to identify outstanding supply chain partners and develop appropriate relationship with them.
Managers must learn how to define and manage a diverse set of relationships up and down the supply chain.
Cost Mgt – relationships
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EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
The Relationship Continuum
A CORE PRINCIPLE OF SCM IS THAT NOT ALL RELATIONSHIPS ARE CREATED EQUAL.
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Selecting the Right Relationship
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Transactional Relationships – Goals
Management of transactional relationships should seek to satisfy two objectives:
1. Maximumefficiencyandhandlingtransactions. 2. Goodrelations,bothpartiesfeeltheyaretreated
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Transactional Relationship
Focus is on cost
◦Use of reverse auctions ◦Managed for efficiency ◦Global sourcing
Relationships are often transitory ◦Receive minimal managerial time ◦Receive minimal assistance
◦Receive minimal investment
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Transactional Relationships – Outcomes
Lower administrative costs
Lower product and/or service costs
Better quality, innovation, and responsiveness
Enhanced technical support
Delivery of special services
Opportunity to collect competitive intelligence
Fewer complaints and better industry reputation
More profitable relationships
Opportunity to build closer, more collaborative relationships in the future
Strategic Alliance
Focus is on coordinating complementary core
Relationships are closely scrutinised and carefully managed
Intensive and open communication supported by linked information systems
Cross-organisational teams drive cooperative planning Long-term relationships
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competencies
Strategic Alliance – Factors
Relationship represents a high-value and volume, either in sales or purchases.
SC member represents a large share of the company’s business, either sales or purchases.
Potential partner possess skills, technology, or another unique aspect that cannot be found elsewhere.
Strategic component, service, or upstream/downstream relationship is affected.
Potential scarcity governs the marketplace.
Intensive collaboration can create advantage: better quality,
lower costs, shorter cycles, or unique service.
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Supply Chain Relationship Practices
Personal contact – Personal relationships generate goodwill and reduce miscommunication
Clear specifications – Product, process and contract fulfillment specifications should be clearly stated to reduce confusion and ambiguity
Timely payment – Suppliers should be paid as quickly and easily as possible.
Equitable treatment – Policies should be applied equally; playing favorites creates suspicion and mistrust, damaging relations.
Training – Appropriate support and training provided to customers and suppliers.
Open communication – Timely information shared via electronic linkages and face-to-face communication is critical.
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Supply Chain Relationship Practices
Feedback – Periodic surveys of suppliers and customers coupled with face-to-face feedback can build trust while helping improve the transaction process.
Mutual consideration – Managers should not unnecessarily burden other SC members. Delays or changes in product and service specifications should be shared immediately.
Give and take – All suggestions received from other SC members should be evaluated quickly and feedback provided promptly.
Confidentiality – Customer/Supplier information should remain strictly confidential.
Integrity – SC managers should always exhibit a desire to fulfill all contract obligations without hassle or argument.
Strategic Alliance – Benefits
Focus on individual strengths, potentially leveraging them into core competencies
Manage the chain as a value system, optimising resource usage across the chain
Offer unique product/service packages and one-of-a- kind satisfaction opportunities
Increase flexibility while spreading risk Learn from SC partners
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Strategic Alliance – Customer Outcomes
Lower cost
Improved product quality
Enhanced responsiveness
Decreased order fulfillment times Innovation
Improved allocation of scarce resources
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Strategic Alliance – Supplier Outcomes
Long-term, large volume contracts Production stability
Lower costs
Investment in new technologies
May result in:
Access to buyer’s expertise
Access to buyer financing for materials or equipment
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Alliance Development Process Question to be addressed:
What should our alliance strategy look like?
Overall relationship management policy should be established
Specific opportunities along with expected outcomes should be identified
A formal alliance strategy is established complete with policies to guide all aspects of an alliance – from who key contacts will be to how resources will be shared and when investments will occur.
A formal mechanism is used to identify and screen potential alliance partners
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Alliance Development Process
The goal is to quantify the net impact of the potential alliance on both parties
Gain top management support
Focus on implementing via goal identification, role specification, adoption of performance metrics and milestones
Clear and concise long-term (1-5 years) contracts govern most successful alliances.
Roles and responsibilities are clearly defined and communicated. Explicitly stated roles reduce conflict.
Confidentiality agreements protect proprietary technologies and processes – specify how jointly developed technology will be used in the future.
Continuous improvement clauses targeting cost, quality, delivery, and innovation performance are standard in most alliances. Clauses specify both rewards and penalties.
Exit criteria are spelled out at the very beginning of the relationship. Even productive relationships can become one-sided or cease to be mutually beneficial.
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Define alliance exit strategy
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Alliance Development Process
Transition to day-to-day operation
Celebration and partner recognition programs
Continuous performance evaluation
Continuous environmental scanning
Dedicated teams are used to foster “personal” relationships and establish continuity between alliance partners, facilitating collaboration, problem solving and brainstorming activities.
Technology linkages are established to make frequent, honest, and open information exchange routine.
Problem resolution methodology must be used to resolve occasional misunderstandings or breakdowns that occur.
Risks and rewards are shared on a mutually acceptable basis. Synergy requires that both sides of an alliance benefit from the relationship—real alliances are not one-sided.
Performance measures are aligned. Consistent measures allow identification of problems before they become crises.
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Alliance Development Process
Keys to Successful Alliances
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Collaborative/joint efforts
Patience and perseverance
Collaborative continuous improvement
Personal relationships Collaborative creativity and idea
generation
Shared vision and objectives
Cultural fit
Mutual commitment to the relationship
Understanding of each other’s businesses
Mutual dependence Willingness to be flexible and
tailor services
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The Importance of Trust
If entrepreneurs and senior managers do not trust frontline employees, a firm cannot act with speed and efficiency. If a supplier does not trust a customer, then the supplier hesitates to suggest productivity changes. If customers don’t trust suppliers, they cannot readily shift functions such as inventory replenishment to their supply chain partners. If employees do not trust management, they will not suggest changes that lead to better execution. Trust is the catalyst of progress in improved performance.
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The Role of Trust and Power Trust is the foundation of SCM
Promotes collaboration, risk taking, information sharing, and shared resources
Real trust exists only when both parties agree that it does
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Principles of Trust in SCM
Trust is Two-sided – trust is difficult to establish when power is asymmetrical
Trust is Behaviour – consistent patterns of behaviour build trust
Trust Requires Open Information Sharing – open communication promotes strong and dynamic relationships
Trust is Personal – suppliers don’t trust institutions, they trust people
Trust Means Performance – there is no trust without consistent and outstanding performance
Trust – Different Views
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Buyer Organisation Supplier Organisation
Corporate Objective
Relationship Expectations
Communication Style Problem Solving
Definition of Win-win
Have it!!!
Reduce costs!!!
Have needs met—buying solutions
THE FACTS!
Don’t like to be corrected by suppliers!!!
Suppliers should be happy if they are a little better off than before!
Do not have it!!! Protect margins!!!
Be treated fairly
Seek to accommodate!
Offers of help only when problems arise viewed as intrusive/controlling!
Expect to be compensated for value added over live relationships!
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Process for Assessing Trust
Modern Negotiation
Negotiation is the formal communication process where two or more parties discuss important issues and come to a mutually satisfactory agreement.
Successful negotiations require careful management of information, personal relationships, time, and power.
Note: No agreement is better than a bad agreement.
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Commonly Negotiated Areas
Service level
Confidentiality, especially cost structure and proprietary technologies
Continuous improvement (quality, cost, and other relevant areas)
Contract duration and volumes Delivery schedules
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Commonly Negotiated Areas
Joint research and development
Nonperformance definitions and penalties
Legal recourse for non-compliance
Ownership and use of intellectual property that is jointly developed
Provisions for terminating the relationship
Shared resources including capital, personnel, and technology Technical assistance and support
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Negotiation Philosophies
Win-Lose Philosophy
Fixed value exists in the relationship
Goal is to capture as much about you as possible Pits customer and supplier against each other
Win-Win Philosophy
Synergistic creation of value
Working together both parties can improve their competitive position and profitability
Prerequisites for Win-Win:
Win-Win solutions require that both sides must:
Adopt a win-win mentality.
Have vested interest in successful outcome.
View the negotiation as part of a larger or longer-term relationship.
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Prerequisites for Win-Win (cont’d)
Recognise the other’s needs and wants. The ultimate measure of success is the perception that the process has been fair and everyone’s objectives have been met.
Work jointly to create value. They share information and resources. When difficulties arise, cooperative efforts are undertaken to find an accommodating solution.
Approach the negotiation with an attitude of trust.
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Preparing for a Successful Negotiation Develop specific objectives
Establish an effective negotiating team Gather relevant information
Analyse strengths and weaknesses
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Preparing for a Successful Negotiation (cont’d)
Recognise the other side’s needs Determine the facts of the issues Establish a position on each issue Plan the negotiation strategy Select appropriate tactics Practice the negotiation
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Common Negotiation Tactics
Argue Based on Facts. Arguments that cannot be factually supported damage credibility.
Answer Questions Carefully. Experienced negotiators know that the proper answer to a question is truthful, advances the negotiator’s tactical plan, and helps discern the supplier’s objectives.
Be Considerate. Treating counterparts with respect and dignity almost never costs a well-prepared negotiator much in terms of position or outcome, but it does build good will.
Be Wary of Deadlines. An effective negotiator does not let deadlines force bad decisions. The use of arbitrary or meaningless deadlines diminishes credibility.
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Common Negotiation Tactics
Best and Final Offer. The take-it-or-leave-it approach signals the need for a decision on a specific point. If the negotiator is not prepared to end the negotiation and the “bluff” is called, credibility is lost.
Do Not be Afraid to Say No. It is better to say no than to agree to an unsatisfactory position. Being candid has merit.
Foot in the Door. Whenever an exceptional quote is received a negotiator should examine both motivation and capabilities to determine whether the offer represents a real long-term benefit.
High Ball. Win-lose negotiators sometimes begin a negotiation at an extreme position, expecting to make concessions.
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Common Negotiation Tactics
Honesty and Openness. Win-win negotiations emphasize honest, and open sharing of information.
Keep the Initiative. Some negotiators believe that the “best defense is a good offense.” They establish initiative early and maintain it by probing the other side’s position, asking for justifications and requiring supporting documentation.
Listen Effectively. Great listeners focus on not only the words but also the tone of voice and the pauses. Careful observation provides insight into the other side’s position and real objectives.
The Missing Person. The deliberate absence of the person with the decision-making authority gives the negotiator extra time or an opportunity to escape negotiations that are not going well.
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Common Negotiation Tactics
Never Give Anything Away. Win-lose negotiators often believe that the other side should make more and larger concessions. For every concession made, equal or greater concessions are expected from the other side.
Phantom Quote/Offer. Deliberately attempting to mislead the other side into believing that “a better quote (or offer) is waiting from another supplier (or buyer)” is unethical and risky.
Prioritise Issues. Two basic philosophies exist: 1) discuss the most difficult issues first and 2) discuss the “easy” issues first to establish the trust that will help resolve more difficult issues.
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Common Negotiation Tactics
Schedule Breaks. Scheduled breaks provide an opportunity to evaluate how things are going, discuss any surprises, gather additional information, and discuss strategies or tactics. The routine use of unscheduled breaks makes it difficult for the other party to draw meaning from a team’s decision to call for an unscheduled break.
Security. Occasionally, unethical behavior ranging from the use of hidden microphones to the copying of work notes occurs. If in doubt, the negotiation should be conducted on-site at the negotiator’s location.
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Common Negotiation Tactics
Site Selection. Most negotiators prefer to host the negotiation to avoid travel and have access to needed information. The primary advantage of holding the negotiation at the other party’s site is the option to “walk away” from negotiations that are not going well. Informal and comfortable settings are best for win-win negotiations.
Strong Initial Offer. Making a strong initial offer signals a desire to do business with the counterpart.
The Threat. A tactic often used in win-lose negotiations is the threat—“If you don’t decide now, I can’t promise that we will have the material when you need it.” Frequent threats reduce credibility.
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Common Negotiation Tactics
Use Diversions. Experienced negotiators divert attention away from the problematic issues using a joke, an anecdote, or a well-timed break.
Use Positive Statements. Sometimes it is important to respond with a simple, “I see your point” or “Your point is well taken.”
Use Questions Effectively. The right question can undermine an unacceptable position or deflect criticism.
Use Silence. Silence can be effectively used to avoid difficult questions, make the other side nervous, seek concessions without specifically asking for them, and redirect the discussion tactfully.
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Conducting Successful Negotiations
1. Fact-finding – used to develop rapport; facts are those items which agreement is expected
2. Recess – used to reassess strikes and weaknesses; revise objectives; reevaluate key issues
3. Narrowing the differences – brainstorming, problem- solving, and compromise used to find a mutually agreeable position
4. Hard bargaining – employs win-lose tactics when offered of efforts have failed
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Characteristics of Effective Negotiators
Ability to gain respect Ability to listen Analytical ability Competitiveness Decisiveness
Desire to achieve
Flexibility
Intelligence
Knowledge of human nature
Personal integrity
Planning ability
Problem solving ability
Quick, agile thinking ability Self-control
Tolerance for ambiguity
Verbal clarity and language skill Willingness to listen to other’s ideas Will
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