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Managing Supply Chain Relationships
By Professor Colin Coulson-Thomas

How effective are you at working with other businesses? Should you be learning to collaborate as well as compete? Early industrial tycoons used to grow their firms by ‘integrating along the supply chain’ or grabbing more of what other companies did. Some verged on megalomania and aspired to take over just about anything that moved.

Today’s commercial world is very different. Customers and investors look for ‘focus’. They expect businesses to concentrate upon what they do best. Non-core activities are outsourced. Firms that spread themselves too thinly risk becoming ‘Jack of all trades and master of none’.

Customers are also more demanding. They want the best. The emphasis has switched to differentiation and specialisation, doing a smaller number of things supremely well and developing a reputation for excellence in a particular field.

In business, sport and the arts an ever-higher share of the available rewards accrue to those who are outstanding. Average performers are marginalized while the super-stars clean up. As markets become more complex and competitive there are just not enough hours in the day to keep up with everything.

Inevitably these developments mean we have to change how we operate. We can no longer afford to keep to ourselves or go it alone. A greater proportion of the value consumed by end customers is now delivered by collective endeavours.

Co-operation with other firms enables businesses to broaden offerings with complementary products, add services to justify premium prices or reach new customers. Like it or not, companies have to work ever more closely with business partners. In many markets good supply chain relationships are a critical success factor.

The reputations of brands reflect customers’ total experience. A failing at one point can undermine excellence elsewhere. Hence, the importance of working together to ensure consistency of service and create a positive spiral of mutual re-enforcement.

Managing supply chain relationships should be high on the entrepreneur’s agenda. An investigation* reveals that visionaries use them to create new business opportunities while competitors wedded to existing practices go under. They reshape their organisations, introduce new channels and establish new markets through more intimate relationships with customers, suppliers and business partners.

Despite the opportunities many businesses lack ambition. They tinker with existing processes and adopt me-too practices rather than innovate. The creativity displayed when crafting new offerings is not matched by similar imagination when they consider how to get these into the hands of customers.

Of course change for its own sake should be avoided. It can be disruptive of existing relationships while new ones take time and effort to establish. Significant change should be for a strategic purpose, and one that can be shared by supply chain partners. The focus should be upon the customer, for example offering them additional choice or more tailored products and services.

Providing alternatives to existing provision can help to differentiate a business from its competitors. If more customers demand distinct or bespoke offerings supply chain partners must deliver greater variety at lower costs and more quickly. Ways of reducing waiting time might range from joint R&D and taskforces to seamless processes and direct electronic links.

On-line ordering, just-in-time responses, the ability to track orders and ‘help-desk’ support can all help to lock customers in. Maybe invoices and reports could be delivered electronically in formats to suit individual customers. Contracted in experts might be able to provide additional specialist services.

Collaboration can speed up international expansion. For example, it is difficult to become a global software player without a strong market position in North America. A local presence may be required. This might involve giving further percentages to yet more partners, but the smaller proportion retained may be of much larger income streams.

Micro-businesses - even individual craft workers in the jungle – can reach a global clientele via the Internet. Working with website management, transaction processing, fulfilment and debt collection partners frees them from the distractions of hiring people, finding premises and putting support processes in place. Instead, they concentrate upon their individual passions and play to their particular strengths.

Innovators create new ways of doing businesses and additional routes to potential customers. Maybe airline passengers and travellers on intercity train could order goods from an electronic catalogue and pick them up on arrival at their destinations. People could collect items selected on an office PC from reception when they leave to go home.

A particular role within a supply chain may both create a new source of competitive advantage and represent a wider business opportunity. For example, a service such as handling warranty repairs could be opened up to suppliers of non-competing products. A further partner could be brought in to run an interest group or offer end customers discounts on related items.

So long as rewards exceed costs and image and reputation are enhanced rather than compromised additional service providers can improve the competitive positioning of a supply chain. Yet few such groupings manage their affairs as a whole and actively seek new members, even though competition is increasingly between networks of collaborating partners rather than individual companies.

Some companies develop multiple supply chains as they further segment their customers and diversify their channels to market. Each additional relationship can complicate the task of securing agreement. Supply chains can fragment as well as coalesce. Participants need to be alert to potential fissures and forces for fragmentation.

Particular partners may seek to cut out intermediaries and secure a more direct route to an end-customer, perhaps via e-business over the Internet. Others may review their core competencies and consolidate their relationships. A whole network might be made redundant by the replacement of a physical market place by an electronic market space.

Supply chains do not obviate the search for advantage and profit. Today’s collaborator may become tomorrow’s competitor. Relationships should be regularly reviewed. Are they meeting end customer needs? Do they enable participants to specialise and build up their core skills?

Inevitably differences will arise. The trick is not to avoid or ignore them. Frustration, misunderstanding and resentment may build to a level that alienates one or more business partners. The whole chain is only as effective as it weakest link. A low-level dispute resolution process should be put in place to tackle issues before they escalate and entrenched positions are taken.

Companies should be realistic about the value of their own contribution within a supply chain. Is it visible to end customers? How might their changing requirements, emerging trends and new technologies affect it? New attitudes, skills and capabilities may be required to deal with future challenges.

Particular attention should be paid to the likely impact of economic cycles and technological developments with the potential to change the shape of markets and create new ones. Businesses need to think about the implications for their relationships with supply chain partners and any new ground rules that are likely to apply.

Smart entrepreneurs build partnering relationships with both customers and suppliers. They start with requirements, what end-customers would really like. They identify gaps in their own capabilities and their partners’ collective capacity to deliver. While acknowledging their deficiencies they do not loose sleep over them. Instead they cooperate with complementary providers of whatever they lack.

Cooperation with others may involve letting go of certain activities and possibilities. This can be difficult for entrepreneurs who feel they are losing part of ‘their’ opportunity.

In reality, many business founders soon face pressure from investors to be ‘true to themselves’. They are asked to focus upon their unique qualities and personal strengths and bring in people with complementary skills, or even hand over the reigns to professional managers. In essence, putting new supply chain relationships in place is specialisation at the enterprise level.

When they negotiate effective collaborators flush out the key business objectives of the various parties involved and agree ‘win-win’ outcomes that are mutually beneficial to all concerned. Relationships that are too one-sided do not stand the test of time.

If cost savings and productivity gains are shared business partners have more of an incentive to work together. It is usually to everyone’s advantage to act in the best interests of a supply chain as a whole. It may be helpful for the parties to formally contract to achieve certain targeted improvements over time.

Resilient relationships are based upon openness and trust. This may extend to open book accounting to dispel suspicions of ‘excess profits’. Everybody usually benefits if all business partners do well. The attention of parties that secure inadequate returns may wander. Collective success can generate the funds to invest in technology upgrades and other means of securing continuing competitive advantage.

© Colin Coulson-Thomas, 2005


Professor Colin Coulson-Thomas
Professor Colin Coulson-Thomas
About the Author:

Prof. Colin Coulson-Thomas, an experienced company chairman, has advised over 90 boards and management teams on director, board and corporate development. Formerly the world’s first Professor of Corporate Transformation and Process Vision Holder of major transformation projects, he is the UK’s first Professor of Competitiveness and can be contacted:

Tel: 01733 361 149
Fax: 01733 361 459
Email: colinct@tiscali.co.uk
Web: www.ntwkfirm.com/colin.coulson-thomas

*‘Transforming the Company, Manage Change, Compete and Win’ by Colin Coulson-Thomas and published by Kogan Page can be ordered by Tel. 01903 828800; Fax. 020 7837 6348; E-mail: orders@lbsltd.co.uk or on-line at www.kogan-page.co.uk or www.ntwkfirm.com/bookshop

Transforming the Company: Manage Change, Compete & Win
Colin Coulson-Thomas shows that to bridge the gap between rhetoric and reality, business people must make far-reaching decisions about the value to them and their companies of particular theories, past assumptions and traditional approaches. Based on original research, the first edition of this was ahead of its time and predicted many of the current management trends. The author now brings the text bang up-to-date for the 21st century. This second edition of Transforming The Company shows how to turn theory into practice by highlighting the obstacles and barriers that confront companies when trying to bring about change. For management at all levels faced with this task, this thought-provoking book will inspire and enlighten.

The Knowledge Entrepreneur: How Your Business Can Create, Manage and Profit from Intellectual Capital  by Colin Coulson-Thomas

Buy UK   Buy US

The Knowledge Entrepreneur: How Your Business Can Create, Manage and Profit from Intellectual Capital
In many companies knowledge management has focused almost exclusively upon the packaging of existing knowledge. This book is designed to help readers boost revenues and profit by significantly improving the performance of existing activities and also creating new offerings that generate additional income. It shows how practical knowledge-based job-support tools can transform work group productivity, and reveals the enormous scope for addressing contemporary problems such as "information overload" with imaginative responses. Additional information includes: a list of possible commercial ventures; detailed checklists that can be used for identifying and analysing opportunities for knowledge entrepreneurship; and exercises for assessing entrepreneurial potential and "scoping" possible products and services. The free CD-ROM packaged with the book gives examples of particular knowledge-based job support tools that have dramatically improved desired results in crucial areas such as winning more business.



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