Meeting consumer demands through effective supply chain linkages

 

 

Rachel Duffy

Kent Business School, University of Kent, Canterbury, Kent CT2 7PE, United Kingdom

 

 

Abstract

Purpose of review: The purpose of this review is to highlight the relevance of developing supply chain linkages in post harvest industry sectors such as fresh produce and review the key developments in the field of SCM and buyer supplier relationships.

Main findings: SCM initiatives that reduce costs and add value for consumers though more efficient and effective supply chain linkages are increasing in strategic importance across a range of industries including the food industry. The review found that supply chain partnerships are being implemented but progress is generally slow with firms only integrating a limited number of inter-organisational activities and processes. Progress is often hindered by a lack of trust resulting from conflicting strategic agendas and organisational cultures, which has led several researchers to suggest that partnerships are not suitable for all exchange relationships. While research indicates that supply chain partnerships can reduce operating costs, less evidence exists regarding the value created for supply chain members and consumers.

Limitations: Research into SCM and supply chain partnerships is conducted by researchers in a wide range of subject areas. To make the review manageable, attention has focused on reviewing research published in a selected number of marketing, SCM, purchasing and logistics journals. While this review is not exhaustive it does enable key themes in supply chain research to be identified.

Directions for future research: Theory development is still needed, particularly for the relatively new discipline of SCM where overlapping terminologies and definitions of key concepts have caused confusion amongst researchers and make comparison of studies difficult. It is also evident that most research on implementing SCM and investigating its benefits has focused on single dyadic links. Therefore, frameworks and instruments are needed that enable researchers to better measure the integration of activities and processes along the length of the supply chain and its benefits, particularly in terms of added value for consumers. Research would also benefit from longitudinal studies to better capture the implementation process and model the relationship development process to provide a diagnostic tool for why some relationships succeed and why some are discontinued.

 

Keywords: Buyer-supplier relationships, SCM

 

Stewart Postharvest Review 2005, 1:3

Published online 01 June 2005

doi: 10.2212/spr.2005.1.3

Introduction

To provide readers with a background to this review, an overview of the shift in emphasis away from the traditional model of exchange based on arms-length and adversarial relationships towards a model of exchange based on closer more collaborative relat-ionships will be provided. Key developments in the UK food retailing industry will be presented to highlight the relevance of these developments to firms in post harvest industries such as UK grown fruit and vegetables.

 

Traditional and contemporary views of exchange relationships

Traditionally, inter-organisational linkages between firms have been arm’s-length and often adversarial with individual firms seeking to achieve cost reductions or profit improvements at the expense of their buyers or suppliers. However, the transfer of costs up and down the supply chain does not make firms any more competitive as ultimately all costs will make their way back to the final marketplace [1-3].

 

Researchers, such as Christopher [1], state that    successful companies recognise the limitations of the adversarial model of exchange and instead work with other firms by engaging in co-operative long-term partnerships that help to improve the efficiency of the supply chain as a whole for the mutual benefit of all parties involved. Successful firms therefore realise that customer value is created by business systems consisting of many firms working together for common aims and not created by firms working in isolation [1, 4].

 

This contemporary view of strategy, commonly termed supply chain management (SCM), is broadly defined as an integrative philosophy to manage the total flow of a channel from the earliest supplier of raw materials to the ultimate consumer [5]. SCM is based on the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole. As the focus of SCM is on vertical collaboration attention is directed towards diminishing non value-adding and increasing value adding activities between supply chain partners [6]. Thus, the focus of SCM is upon the management of vertical relationships in order to achieve a more profitable outcome for all parties in the chain. As such it is widely acknowledged that partnerships are the foundation on which an effective supply chain can be built [1, 3, 7, 8, 9].

Supply chain partnerships in the food industry

The UK food retail market is mature and extremely competitive with the top four retailers (Tesco, Sainsbury, Asda and Safeway/Morrison) accounting for over 62% of the total grocery market [10]. The industry is thus dominated by a few powerful retailers that can exert considerable buying power over suppliers and manufacturers.

 

In recent years there has been a concerted move towards fewer and more co-operative relationships as retailers attempt to gain more control over their supply chains to ensure the safety and quality of their own label products. Key drivers for the development of closer relationships have included the need for retailers to reduce risk in response to the requirements of the Food Safety Act (1990), the need to develop quality own-label products in an effort to differentiate themselves from their competitors and the need to reduce costs to remain competitive in a highly concentrated market [11].

 

However, the most notable driver in recent years has been the introduction of the industry initiative Efficient Consumer Response (ECR), which provided the catalyst for the paradigm shift that we now see in the management of the food supply chain; adversarial trading relationships slowly being replaced by co-operation and co-ordination, facilitated by a willingness to exchange information of both strategic and operational importance.

 

Like SCM, ECR is based on the premise that many business practices and attitudes within the food industry are counter productive; firms seek to maximise their own efficiency and profitability by passing problems and costs along the supply chain to their trading partners. Therefore, the fundamental aim of ECR is to apply a total systems view and encourage firms to work together to remove unnecessary costs from the supply chain and to add value to products by identifying and responding to consumer needs more effectively [2, 12].

 

In order to respond more effectively to consumer demand a number of retailers have introduced the concept of category management, which is focused on the total profitability of product categories based on an understanding of end-consumer needs, to their suppliers [13]. This requires suppliers to have a greater understanding of the final consumer and the market situation so that they supply retailers with products that consumers want and introduce more value added and innovative products for which consumers will pay a price premium. In this way retailers can achieve the greatest return on selling space, and sales and profits in the category can be maximised.

 

Supply chain structures and partnerships in the fresh produce sector

Supermarket retailers account for over 80% of all fresh produce sales at retail [14]. As such, expenditure on UK grown fruit and vegetables outside the supermarket channel is generally low as multiple retailers have taken substantial market share from traditional greengrocers and independent retailers. Therefore, viable alternatives to supplying the multiple retailers are limited. In particular most growers do not view the wholesale market as a viable outlet for their fruit and vegetables as prices received at the markets tend to be low due to the demise of the high-street greengrocer and the on-going decline of the wholesale trade.

 

The importance of retailer dominated marketing channels to the postharvest industry for UK grown fruit and vegetables means that an understanding of the requirements and the way retailers manage their supply chains and relationships is vital for upstream growers, marketing organisations and packers. An understanding of consumers is also needed as while most initial ECR and category management activity was carried out between the multiple retailers and large branded manufacturers the concepts have now been extended to commodity sectors such as fresh produce.

 

The fresh produce category, a product category for which shoppers will switch stores, is almost exclusively own-label and is one of the most important image making and profit making departments within the supermarket environment [15-18].

 

The establishment of strong own-label products requires retailers to gain increased control over the supply chain to ensure that product quality and availability reflect the desired positioning of the retail brand. To gain control and reduce purchasing costs the major retailers have rationalised their supply base dramatically in recent years and now deal with just a handful of suppliers in key product areas [14, 16]. These suppliers are typically large pre-packers or processors that have invested heavily in facilities to prepare and pack the produce ready for sale in store to meet the growing needs of the multiple retailers and the burgeoning supermarket trade.

 

The importance of the retailer-supplier link is highlighted by the fact that supermarkets have little or no direct contact with their grower or farmer base. Therefore, it is in the interests of the retailers to     develop closer relationships with the suppliers of these products, as retailers increasingly rely on these first-tier suppliers for sourcing year round supplies and ensuring compliance with food safety and quality assurance specifications [16]. 

 

However, although the effect of supplier rationalisation means that retailers have become increasingly dependent upon a few key suppliers who have geared up to meet their needs, most retailers are still able to switch volumes between suppliers. Therefore suppliers of commodity items are often forced to accept low prices to get volume growth which does little to improve their immediate and long term financial performance [10].

 

This highlights the importance of finding ways to add value to the product or service so that they can differentiate themselves from their competitors and appropriate value for themselves rather than passing all value on to the retailer. Value creation is achieved through innovation and while a lack of product    innovation is a feature of commodity markets,    consumers demand for greater convenience offers significant opportunities for growth in certain areas, such as ready prepared vegetables [16]. However, product innovation is difficult to achieve and exploit in commodity sectors as margins are low and the rewards for first movers on new products are often limited, easy to copy and short lived [10].

 

A major way in which suppliers can add value is to innovate in the service they provide to retailers. One area suggested by Fearne and Hughes [16] is product and market knowledge; one of the few areas where suppliers can and should have an advantage over their customers. By adopting a customer emphasis and learning extensively about its customers and supply chain, suppliers have the opportunity to translate this intelligence into the key processes of superior value creation and value appropriation. The strategic importance of category management, which is driven by consumer and market knowledge, also means that it should offer one of the few remaining sources of countervailing power in commodity sectors [10].

 

Superior product and market knowledge also offers suppliers a sustainable source of competitive advantage as knowledge is a source of value that is difficult for other firms to imitate [19]. If suppliers can develop unique and defendable product or service capabilities they will be able to use those assets to better serve retailers needs and differentiate their service from competitors [20, 21].

 

In summary, it is in the long term interests of food retailers to find and work with the best partners with whom to take on the competition. In the fresh produce industry there has been a movement towards supply chain collaboration as retailers attempt to tie up the best suppliers in dedicated supply arrangements in order to deny their competitors the best quality produce and service. As a result competition between trading partners within the food chain is being replaced by intense competition between retail supply chains [16].

Review of supply chain management and relationship literature

 

 

Research in the areas of SCM and buyer-supplier relationships is published in numerous journals and therefore an exhaustive review of this research is beyond the scope of this article. Therefore, in order to carry out a manageable review of recent research in the areas of SCM and buyer-supplier relationships, a selected sample of purchasing, supply management and marketing journals were reviewed from 2000-2005. Attention was also directed at key articles mentioned in the reviewed articles. While the review is not exhaustive it does provide an overview of key research themes and developments in the areas of SCM and buyer-supplier relationships.

 

To conduct the review journals were chosen that had full text articles or abstract available in an electronic format. These were; (1) SCM: An International Journal, (2) European Journal of Pur-chasing and Supply Management, (3) International Journal of Logistics Management; (4) International Journal of Physical Distribution and Logistics Man-agement; (5) Industrial Marketing Management; (6) Journal of Business and Industrial Marketing and (7) the European Journal of Marketing. Journals in which research related to the food retail industry is commonly published were also examined. These included (8) The British Food Journal, (9) The Inter-national Journal of Retail and Distribution Man-agement and (10) the International Food and Agri-business Management Review.

 

SCM: key research themes.

The review of the SCM literature is organised around three recurring research themes under which the majority of recent and ongoing supply chain research can be categorised. These are the theoretical domain and scope of SCM, the implementation of SCM and the benefits of SCM.

 

 

The theoretical domain and scope of SCM

The term SCM was first introduced by consultants in the early 1980's [22] and later used by academics who introduced SCM as a discipline in the literature in the mid 1980's [22, 23]. However, because of the heavy managerial focus in SCM several authors argue that the SCM area lacks sufficient theoretical underpinning as the ultimate purpose of research has been to generate useful information for managers rather than generate theory [22, 24]. 

 

This lack of theoretical underpinning has meant that although the concept is now widely used   researchers state that there is not much consistency in its use or in its exact meaning [22, 24-26]. As a result, resear-chers have highlighted a need for clear definitional constructs and conceptual models and frameworks to map out the domain and aid understanding of SCM [27, 28].

 

While SCM draws from multiple disciplines most of the theory appears to be rooted in purchasing and logistics literature. Several researchers have reviewed this literature to show how these functions have evolved into a broader strategic approach to mat-erials and distribution management known as SCM [26, 27].

 

The development of the theoretical base shows that the domain of SCM has extended in scope from discussing the benefits of integrating the internal business functions within firms to discussing the benefits of integrating business functions with upstream production chains and downstream distri-bution channels [1, 3, 22, 25, 29]. It has also incre-ased in scope from a focus on integrating the logistics function to smooth material flow within the supply chain to include the integration of all key inter-organisational processes and functions [22, 26, 30].

 

This has led to a change in emphasis from simply looking at the benefits of managing the firm's supply chain to also examining the benefits that can result from managing the firms demand chain. This is because in order to add the most value for cus-tomers, firms must consider the supply chain and the demand chain processes together as the notions of supply and demand fundamentally overlap and interact [23, 31, 32].

As SCM seeks integration with supply chain partners across all of a business's processes and functions, rather than just the logistics function, researchers are questioning the emphasis of the term supply chain in the SCM discipline. For example, Christopher [1] suggests that the concept of SCM has changed so much that it should be termed demand chain management to reflect the fact that the chain should be driven by the market, not by suppliers. Rainbird [23] also suggests that research should seek to harmonise the two distinct concepts of the supply chain and demand chain within the context of what he terms the organisation's overall value chain.

 

As the scope of SCM broadens the term chain is also being questioned. In particular, Christopher [1] states that the word chain should be replaced by the word network since normally there are multiple levels of suppliers as well as multiple customers and customers' customers to be included in the total system. Therefore in developing the scope of SCM research a number of studies have examined how one firms supply chain interacts with another firms supply chain and developed the concept of supply networks or netchains. In order to develop the concept of networks and netchains, researchers have identified a need for an expansion of the theoretical boundaries of SCM towards the incorporation of horizontal dependencies between marketing channels [22, 28]. Therefore attention will increasingly focus on extending the scope of SCM so that supply structure is viewed as a network with firms competing as extended enterprises against other extended enterprises in other networks [33].

 

Implementing SCM

 

 

In discussing supply chain implementation res-earchers have identified different levels of supply chain integration or collaboration that can be achieved. Research has also been conducted to investigate and benchmark the progress firms are making towards supply chain integration as well as identifying factors that facilitate or act as a barrier to the implementation of SCM.

 

Researchers suggest that firms engage in different levels of collaboration as they progress and move away from an internal focus to an inter-organisational focus and typologies have been developed to identify different levels and      approaches to supply chain integration [32, 34].  Because SCM can be implemented in varying degrees researchers state that instruments are needed to measure relative levels of collaborative practices as these will enable supply chain members to benchmark their current levels of practice against the best-in-class performers [34-36].

 

Research that has investigated how collaborative supply chain initiatives such as Collaborative Planning, Forecasting and Replenishment (CPFR) and ECR are being implemented indicates that progress is slow with firms focusing on just a few relationships and inter-organisational processes. In particular, most attention appears to be focused on supply side initiatives as it is the area that offers the quickest and most obvious benefits to trading partners in terms of reduced costs [37-42].  

 

Demand side initiatives, such as category mana-gement that focus on the consumer, require a much higher level of joint working and due to the vast resource requirements of these activities, researchers suggest that these types of relationships will remain the exception rather than the rule [2, 12].  Research by Borchert [43] supports this view; the study found that companies implementing ECR were most satisfied with supply side components of ECR, while the strategic marketing orientated instruments had a tendency towards failure. Therefore, it appears that the design and implementation of demand driven supply chain activities are still poorly understood and more research in the area is needed [32].

 

As firms continue to struggle to implement SCM principles research has focused on investigating the key factors that contribute to success and those which act as a barrier to adoption. A key barrier is the way firms manage their own internal relationships as many companies continue to operate in functional silos with performance measures aligned to functional activities rather than supply chain processes [40,42]. Inappropriate incentive structures based on easily quantifiable short term performance metrics such as price also act as a barrier to strategic supply chain relationships because these encourage purchasing managers and buyers to take a short term view of the relationship [33]. Another barrier is that many firms still do not fully understand what SCM initiatives truly entail or appreciate the advantages of a well managed supply chain. As a result they do not have a clear understanding and vision of how and what to achieve [35, 39, 42-44].

 

However, several researchers suggest that the single most important prerequisite for successful SCM is a change in corporate culture, particularly in the way they manage interfirm relationships [21, 26, 45].  Commitment to common goals, mutual support and trust are frequently cited as the cornerstones of implementing SCM; effective linkages rely on the ability for information to flow freely throughout the length of the supply chain, which is dependent on a move away from traditional confrontational relationships to relationships based on co-operation and trust [2, 12, 38, 39, 41, 44, 46-48].

 

A lack of trust, the fear of opportunistic behavior and the exploitation of power are frequently cited as stumbling blocks in SCM initiatives, particularly in demand side initiatives such as category management [39, 40, 43]. The historical lack of trust at any level of the food chain has undoubtedly been a major barrier to the adoption of SCM within supermarket supply chains as supermarket buyers have abused their dominant position of power [10, 49].

 

The benefits of SCM

Effective SCM requires collaboration among all participants in the value chain, which includes participants in both a firms upstream supply chain and downstream demand chain [31]. Researchers generally agree that supply chain members who become involved in collaborative efforts with up-stream and downstream members outperform those who do not collaborate [34, 35, 50].

 

Horvath [31] states this is because strategic SCM can deliver sustainable cost savings through increased productivity, accelerated product delivery times, more efficient product development efforts, lower manufacturing costs and streamlined business pro-cesses. However, benefits such as improved cust-omer responsiveness, increased flexibility for chan-ging market conditions and improved customer service and satisfaction will only be achieved in the long run by firms with advanced SCM capabilities [31]. For firms to make it to this stage collaborative linkages must be sustained, but this will only happen if they result in the creation of new and unique value that benefits all parties concerned [51].

 

Evidence of the benefits arising from supply chain initiatives such as ECR and CPFR in the grocery industry remains limited, although it is recognised that some of the expected benefits may take several years to be realised. It is also recognised that the sharing of costs and benefits is likely to be a major issue and that manufacturers will have to balance the potential benefits of closer relationships with the downsides [21, 52-55].

 

A study by Stank, Crum and Arango [56] investigated the effects of CPFR on key logistics       performance indicators in the grocery industry. The study found that supply chain co-ordination was only significantly related to three out of nine logistics per-formance measures, which were service indicators. Most significantly the findings indicated that cost variables were not significantly affected by supply chain co-ordination. They suggest that it is possible that firms chose to forego potential cost impro-vements in order to increase service levels. This reflects a redistribution of the benefits to the customer as it is the customer, rather than the supplier, that realises reduced costs from interfirm co-ordination.

 

Kurnia and Johnston [38, 39] also investigated whether efficiencies can be improved and cost savings gained from the implementation of supply side initiatives proposed by ECR. However, the studies reveal that the benefits, costs and risks involved in implementing the process were not equally distributed with retailers experiencing more benefits of ECR and less of the costs than manufacturers. Tensions caused by inequality in the distribution of costs and benefits of ECR could therefore act as a major barrier to the adoption of ECR.

 

Recent research in other industries suggests that most attention is focused on the cost reductions that result from improved operational performance rather than measuring the value that is added through collaboration. Researchers such as Rainbird [23] highlight that firms that stop at this level of collaboration therefore have a short-term emphasis on cost reduction at the expense of contribution to broader goals and will fall short in their attempt to create sustainable consumer value.

 

In addition, despite the number of studies that claim to investigate the implementation and benefits of supply chain collaboration attempts to measure it have mainly focused on dyadic relationships and not on the extent of collaboration along the length of the chain [34, 35, 57, 58]. Therefore, performance measurement has not received adequate attention from a supply chain perspective and numerous researchers highlight the need for research that examines performance measurement for the supply chain as a whole [42, 51, 59]. Because of the focus of dyadic links much of the research on supply chain partnerships is discussed in the next section as the focus is on a single buyer-seller relationship.

Key research themes in buyer-supplier relationships

Three recurring research themes in the literature on buyer-supplier relationships were identified by Olsen and Ellram [60]. These themes, while not entirely mutually exclusive, will be used to structure a review of more recent research into buyer-supplier relationships. If the gaps that Olsen and Ellram [60] identify have been addressed, this should serve to highlight which themes of research are still active, and highlight areas where research is still scant.

 

Characteristics and benefits of buyer-supplier relationships.

A number of articles describe characteristics of buyer-supplier relationships and look at the benefits or outcomes of different types of buyer-supplier rel-ationships. Some articles that describe buyer-supplier relationships do so by providing a typology or continuum of relationship types ranging from adversarial market based relationships to colla-borative partnerships. They also identify key charac-teristics which distinguish between the two extreme forms of relationship types or describe the rel-ationship processes needed to move along the continuum [61-64].

 

Researchers have used a variety of different    theo-retical frameworks to explain the nature of supply chain relationships and identify relational processes and constructs that are most conducive to the development of closer relationships. These include constructs such as commitment, mutual depend-ency, trust, co-operative sentiments, relational norms, functional conflict resolution, long term orientation and communication [65-70]. The key focus of these types of studies is the development of theory [60]. In particular, these studies aim to identify the underlying dimensions of relationships and test how different relational constructs are related to each other to develop a basic under-standing of the dynamics of buyer-supplier rel-ationships.

 

Investigating what partnerships entail is still a fertile research area as the exact nature and strength of concepts such as partnerships and relational exchange is still poorly understood [21, 71-74]. Researchers are also combining relational dimen-sions such as trust, adaptation, communication and co-operation to create higher order constructs such as relationship quality and relationship strength [75-77]. Due to the inconsistency in conceptualising and defining these new constructs, research is likely to be ongoing.

 

As much of the literature assumes that partnership style relationships are more successful than arms-length relationships, partnership characteristics are posited to have a positive effect on firm perfor-mance and satisfaction. In particular, trust and commitment are consistently cited as the two most essential elements of successful relationships as their presence leads directly to co-operative behaviours directed towards collective as opposed to individual goals [67, 68, 74].

 

However, numerous researchers state that the actual benefits of buyer-supplier relationships are seldom mentioned and that there is a lack of a performance dimension in many of the main theoretical models of relationships [60, 78-80]. To address this gap research has been conducted that investigates and supports the positive influence of close relationships and supply chain partnerships on a firm's operational or financial performance (78, 81-87]. 

 

However, researchers are calling for more        research in the area as the relationship between partnerships and performance has been one of the least studied in the marketing theory. In particular, further research is needed as the definition and conceptualisation of the performance construct varies, which makes comparisons between studies difficult. In addition, O'Toole and Donaldson [80] note that a problem with performance meas-urement is the narrow way in which performance is defined to suit the purpose of their theoretical assumptions. As such they argue that there is a need to develop the performance construct to better capture performance outcomes for both parties in a relationship. Researchers are also now referring to performance as relationship value in terms of the value that the relationship generates for the firm. However, research on the measurement of relationship value is limited and researchers have identified a need for more research in this area [88, 89].

 

Establishment and development of buyer-supplier relationships

The studies that Olsen and Ellram [60] discuss under this theme tend to focus mainly on explaining the reason firms seek to establish long term rela-tionships. They also include studies which inves-tigate how relationships are established and devel-oped. Olsen and Ellram [60] found that in many studies transaction cost economics was used as the theoretical basis for explaining the existence of close relationships with researchers suggesting that it is the presence of factors such as transaction specific investments and perceived uncertainty that necessitates the development of closer relationships.

 

Researchers have also suggested that the power structure determines the type of relationship that can develop or is most appropriate to develop [4, 90-92]. For example, researchers suggest that SCM works best in circumstances where dominant buyers exist as these have the power to gain vertical co-operation from suppliers. It also works best where inter-dependence exists between supply chain partners as a symmetrical dependence structure fosters trust and long-term commitment [91, 93, 94].

 

In terms of establishing relationships considerable attention has focused on how firms identify and select appropriate supply chain partners as these decisions affect how well the firm performs [95-97]. Research has been traditionally conducted into how to establish relationships with new customers and how to improve existing ones by examining key motivations, success factors and reasons for rela-tionship unrest or failure [98, 99, 100]. Researchers have also investigated how relationships move through different stages as they develop [101, 102]. Several studies suggest that this development process should be investigated in more detail through longitudinal studies as this would uncover the dynamics of inter-organisational relationships so that the evolution of relationships can be better understood [60, 103, 104].

 

The evolutionary process of relationships is important as it would help to explain why many relationships fail to achieve their goals or live up to initial expectations. An increasing number of res-earchers are now investigating the reasons   behind relationship dissolution and are examining the relationship dissolution process in terms of how, why and when relationships end [105-108]. However, as the subject received little attention until the mid 1990's, Tahtinen and Havila [98] state that more research in the area is needed.

 

Managing buyer-supplier relationships

The third theme that Olsen and Ellram [60]     identified was a trend for research trying to      estab-lish how to manage different types of rela-tionships. However, several researchers suggest that there is still only a limited amount of empirically derived empirical research on how supply chain rela-tionships are best managed [103, 109-111].

 

This is a deficiency which needs to be rectified across a range of industrial sectors as there has been a tendency to consider partnerships with fewer suppliers as the most appropriate strategy without considering the difficulty of managing these closer relationships. In particular, managers need to know exactly how and when fewer suppliers can mean more effective management as firms do not appear to understand the total costs of managing fewer but closer relationships [45, 112, 113].

 

Olsen and Ellram [60] emphasise that research is needed to investigate when to develop closer   relationships as the presence of opportunistic    behaviour might mean that partnerships are not always appropriate. This is a topic which has   become the focus of a number of recent articles with researchers suggesting that firms should not assume that partnerships are the ideal type of relationship to pursue [91, 93, 102, 113].

 

In many instances researchers suggest that a firm's self interest can actually be best served by having arms-length, competitive relationships with exchange partners. This is due mainly to the uncertainty and variability of supply and demand conditions in different market sectors or the fact that the market mechanism may be sufficient to satisfy both parties to the exchange [91, 112, 113, 114]. In addition Cousins [45] states that partnerships and close long term relationships may not be the best approach as they can lead to insulation from market forces and some suppliers may be able to increase prices more easily within such relationships over time.

 

Because of the ability of long term relationships to insulate from market forces it has been suggested that the use of e-procurement tools, such as online auctions that improve price transparency, will incr-ease the attractiveness of short-term, arms-length relationships in some procurement situations [112]. However, recent research suggests that this new generation of internet auction markets does not signal the end of relationships, particularly for perishable goods, as it is the intangible assets such as relationships that are the most difficult for competitors to copy and that are the foundation for long term success [20]. 

 

Similarly, e-marketplaces are thought to impede the implementation of key supply chain issues such as collaborative planning, forecasting and replenishment due to the short-term focus of transaction based activities in e-marketplaces [53, 115]. Therefore, because of the weakness of traditional transactional exchanges it is likely that the relational elements of exchange will not be abandoned and that online auctions will be used mainly as a tool to verify market prices and check on the success of collaborative arrangements in adding overall value [112, 116, 117].

 

Researchers also suggest that a reason firms should not seek partnership style relationships with all exchange partners is that there is a limit to the extent to which multiple supplier relationships can be effectively managed [109, 110, 112]. Therefore, they suggest that companies maintain a portfolio of different relationships as not all exchange partners warrant high levels of investment in the relationship [89, 118, 119].

 

However, Christopher and Juttner 109] found that in spite of recommendations in the literature to apply portfolio techniques to classify relationships and optimise the return on relationship investments few firms are adopting the principle. This is likely due to the fact that the measurement of value creation in buyer-supplier relationships is still in its infancy and as such many firms do not know how to define value or measure it [89, 120]. More managerial tools are therefore needed to provide managers with a simple and effective way to assess the value created in buyer-seller relationships.

 

In summary, despite the increase in studies which suggest that partnerships should not be pursued over and above all other types of exchange relationship there is agreement that in the right situation supply chain partnerships are the optimal exchange rela-tionships to use to manage the supply chain effectively [33, 91, 121].

Conclusions

A key finding of the review was that despite the emphasis of collaborative supply chain initiatives on the integration of activities and processes throughout the length of the supply chain  researchers are only investigating supply chain implementation and its benefits in single dyadic links. This is due to the fact that while the concept of SCM has become popular, in practice few examples of truly integrated supply chains exist because it is often not feasible or appropriate for a firm to develop close linkages with all firms throughout the length of the supply chain [83, 122].

 

Instead, as the supply chain consists of a series of vertical inter-organisational relationships of a dyadic nature, a common approach to SCM is dyadic management where firms focus only on developing close linkages with those channel members with whom they have immediate  contact. [5, 40, 123].

 

This is the way in which supply chain partnerships have evolved in the retail food chain, with retailers focusing on their relationship with suppliers and the latter developing their relationship(s) with raw material and ingredient suppliers [10]. As dyadic exchanges are the building blocks in supply networks it is therefore the dyad rather than the extended network that will remain the basic unit of analysis for an understanding of business transactions [91, 93].

 

The review also found that the successful         establishment of supply chain partnerships and the realisation of their benefits are largely dependent upon the existence of co-operative sentiments and attitudes in relationships as these facilitate firms to share information and work together to achieve mutual goals. The importance of the nature of dominant sentiments and attitudes adopted by UK supermarket buyers in their dealings with suppliers has been recognised in recent years with the introduction of a voluntary code of practice in March 2002 that applies to the four largest UK supermarkets [49]. This is designed to improve relationships with their suppliers and establish a relationship climate of trust and mutual commitment and upon which greater collaboration might be established. 

 

This clearly signals recognition that sustainable competitive advantage requires all firms within the supply chain to consider the implications of their own decisions on other supply chain stakeholders, both upstream suppliers and downstream customers [10].  Indeed if retailers are going to deploy supply chain relationships in their quest for sustainable competitive advantage they must recognise that collaborative linkages will only be sustained if they result in the creation of new and unique value which benefits all parties concerned [51]. As more value will be created if both parties invest in the relationship, retailers must refrain from opportunistic behaviour and act in ways that encourage investment by suppliers that grow category sales.

 

In summary firms are increasingly recognising that the abuse of power is not in their long term interests and although the development of effective partnerships based on trust and commitment takes time it is likely that retailers will continue to move progressively towards more collaborative trading partnerships with their suppliers. This is because the resources and capabilities developed in these relationships are difficult for competitors to copy. Therefore supplier relationships are an intangible asset that offer retailers a source of long term competitive advantage and as such are viewed as the foundation for long term success [20].

 

References

 

Papers of interest have been highlighted as:

* Marginal importance

** Essential reading

 

1 Christopher M. Logistics and SCM: Strategies for reducing cost and improving service. 2nd Ed. London: Financial Times, Pitman Publishing; 1998.

2 Mitchell A. Efficient Consumer Response: A new paradigm for the European FMCG sector. London: Financial Times Retail and Consumer Publishing; 1997.

3 Lamming R. Beyond Partnership: Strategies for innovation and lean supply. Prentice Hall; 1993

4 Cox A. Power, value and SCM. SCM: An International Journal 1999; 4(4):167-175.

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