RelationshipDevelopment and

Management

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

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Overview of relationship development and management

• Development and management of internal logistics relationships

• Development and management of supply chain relationships

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Development and management of internal logistics relationships

• Functional aggregation• Shift from function to

process• Virtual organization• Leading organization

change

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Sample historical view of dispersed and fragmented logistics responsibility

Figure 15.1 Traditional Organization of Logistically Related Functions

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Illustration of high functional aggregation in logistics organization

Figure 15.2 Logistics Functional Aggregation

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Functional aggregation is the combination of logistics functions into a single managerial group

• Motivated by belief that grouping logistics into a single organization would– Increase likelihood of integration– Improve knowledge of how operational changes impacts

performance in other areas• Comprehensive aggregation in organizations is still rare,

but– Trend is towards strategic management of all forms of inventory

movement and storage for maximum benefit of the enterprise• Development of logistics information systems enabled

functional integration of organizations

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Aspects of functional aggregation illustrated in Figure 15.2

• Purchasing, Manufacturing Support and Customer Accommodation are separate line operations

• Five capabilities under Logistical Support are positioned as shared services

• Logistical Resource Planning embraces the full potential of management information to plan and coordinate operations

• Overall Planning and Control exist at the highest level of the organization to facilitate integration

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From function to process

• Process organization structure

• Barriers to process integration

• The great divide

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Illustration of process-orientated supply chain organization

Figure 15.4 Process Organization

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Factors enabling the process structure

• Development of a highly involved work environment with self-directed teams

• Improved productivity results found in organizations that started managing processes rather than function

• Ability to rapidly share accurate information

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Challenges of managing from a process perspective

• All effort must be focused on value added to the customer

• All skills necessary to complete the work must be available to the process owner– Critical skills not shared can

disrupt workflow and create “bottlenecks”

• Work performed by processes should stimulate synergism in the organization

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Barriers to process integration

• Functional organization structure– Department budgets

• Measurement & reward systems– Functional performance

• Inventory use– Traditional positioning supports

functional performance• Infocratic structure

– Information content and flow follow traditional functions

• Limits to sharing knowledge– Functional experts hoard power

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The great divide reflects an organizational gap in achieving end-to-end integration

Figure 15.3 The Great Divide: The Challenge of Managing across Functional Boundaries

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Virtual organization provides integrated performance but is not on the organization chart

• How can an organization be structured so that it can manage a complex global logistics process without becoming too bureaucratic?– Focus on work flow rather than

structure– Link remote teams through

information networks– Push authority down to teams

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Disaggregation as an organizing principle

• Power of information technology facilitates performing and managing logistics work without combining functions into a formal organization unit

• Belief that logistical functionality need not be grouped as a special organization– Performance can still be

efficiently and effectively coordinated using information networks

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Leading organizational change

• General types of change– Strategic change involves

implementation of new and improved ways to service customers

– Modifications in a firm’s operational structure

– Changes in human resource and organization structure

• Critical to avoid a quick-fix mentality about change

• Consider organization’s capacity to absorb new operational practices– Typically less than most

change managers estimate• Actual change takes longer

than anticipated

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Development and management of supply chain relationships

• Risk, power and leadership• Range of extended supply

chain relationships• Supply chain integrative

framework• Developing trust

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Supply chain perspective places more emphasis on external relationships

• Multi-enterprise coordinated effort focused on supply chain efficiency improvement

• Belief that cooperative behavior will reduce risk and greatly improve efficiency

• Belief that opportunity exists to eliminate waste and work effort

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Essential concepts to understanding dependency

• Risk– Disproportionate risk among channel members– Collaborative role of member is based on risk within a specific supply chain

• Power– Retailers have increased in power over the last decade– Powerful firms tend to link together into supply chain arrangements– Category dominance vs. brand power

• Leadership– No dominate model for how firms gain leadership responsibility– Greater commitment to the relationship when leaders use rewards and

expertise to exercise power

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Range of extended supply chain relationships

Figure 15.5 Relationship Classification Framework

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Highlights of basic forms of collaboration

• Contracting– Adds time dimension to traditional

buying/selling• e.g. price, service and performance

expectations over specific period• Outsourcing

– Shifts focus from buying materials to performing a specific service or activity

• Administered– Dominate firm governs by command

and control– Limited sharing of strategic

information and limited joint planning– Relationship has no specific

termination or rebid time frame

• Alliance (e.g. Walmart-Procter & Gamble, Dell & suppliers, H.E. Butt & suppliers)

– Governed by desire to voluntarily work together both intellectually and operationally

– Voluntary integration of human, financial, operational and technical resources

– Extensive joint planning and expectations of ongoing relationship

• Enterprise extension– Extreme form of Alliance

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Value creation from supply chain integration is focused on flows

Figure 15.6 Supply Chain Flows

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Description of supply chain flows

• Product/service value flow is the value-added movement of products and services from raw material source to end customers

• Market accommodation flow provides a structure to achieve post sales service administration– E.g. product customization, POS data, end-customer consumption

• Information flow is bidirectional exchange of transactional data, inventory status and strategic plans– E.g. forecasts, promotional sales plans, purchase orders, invoices, etc.

• Cash flow typically follows the reverse direction of value-added activities– Cash flows to facilitate product and service movement using promotion and

rebate

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Integrative framework showing supply chain flows, competencies and context

Figure 15.7 Supply Chain Framework

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Competencies are a fused set of capabilities

• Capability is the knowledge and achievement level essential to developing integrated performance– E.g. identify and accommodate specific customer needs, measure

and understand overall supply chain performance– Reflects value contribution of work– Why is the work performed rather than how

• Work is the most visible part of logistical operations– E.g. order picking, truck driving– Traditionally organized by function– Functional work is driver of logistical best practice

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Relationship of capabilities to competencies and context of the supply chain

Table 15.1 Supply Chain Context, Competencies, and Supportive Capabilities

Set of capabilities that defines the Customer Integration competency

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Competencies needed for the operational context

• Operational context involves processes that facilitate order fulfillment and replenishment– Customer integration builds on the activities that

develop intimacy– Internal operations integration are joint activities

within a firm that coordinate functions related to procurement, manufacture and customer accommodation

– Supplier integration creates operational linkages with material and service providers

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Competencies needed for the planning and control context

• Planning and control context involves monitoring, controlling and facilitating overall supply chain performance– Technology and planning integration involves the

design, application and coordination of information– Measurement integration is the ability to monitor and

benchmark functional and process performance• Both within the firm and across the supply chain

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Competency needed for the behavioral context

• Behavioral context involves the quality of basic business relationships between supply chain partners– Relationship integration involves the commitment

needed by people to build and develop successful long-term collaborative relationships

• Managers are often far more experienced in competition than they are in collaboration

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Initiating relationships

• Alliances are often initiated by the firm that was the customer in the relationship

• The initiating firm should perform an in-depth assessment of its internal practices, policies and culture– Will key alliance contacts be empowered to manage the

relationship?– Does alliance involve a number of facilities that operate

under different conditions, capabilities or competitive requirements?

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Implementing relationships

• Partners should have– Compatible cultures– A common strategic vision– Supportive operating philosophies

• Start small to foster early wins– Acknowledge early wins

• To motivate key contacts • To build confidence about alliance performance

• Implement the alliance in its simplest form– Fine tune arrangement when improvement will add substantial

value

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Maintaining relationships is dependent on three key activities

• Mutual strategic and operational goals

• Two-way performance measurements

• Formal and informal feedback mechanisms

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Developing trust

• Real collaboration requires meaningful trust

• Power arrangements are often temporary and create resistance to deeper collaboration

• How can trust be developed?

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Reliability and character are two aspects of trust

• Reliability-based trust is grounded in perception of actual behavior and operating performance– Firms perceived as incapable of delivering as promised are

perceived as unreliable– Unreliable firms are unworthy of trust in a relationship

• Character-based trust is based on culture and philosophy– Perception that partners are interested in each other’s welfare– Trusting partners believe that each other will protect the other’s

interest

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Building trust in relationships

• Trust develops over time and repeated interactions among organizations

• First step is to demonstrate reliability in its operations

• Second step is a full and frank sharing of all information necessary for the effective functioning of the relationship– Firms that hoard information are not likely to

be trusted

• Trust can be maintained by sharing explanations and business rationale for key decisions