Insight: Co-create value
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26. January 2017
Relations-based approach improves collaboration in the supply chain
In the Stram Kæden (Tighten the Chain) project, several companies have received help to establish closer relations in their supply chain through a series of optimisation processes in collaboration with their suppliers. Through more than 100 initiatives with different companies, participants can expect to achieve financial gains of more than DKK 100 million altogether. These gains are realised through, among other things, increased productivity, improved quality, new and smarter products, better logistics and by freeing up working capital.
During each optimisation process, the company worked closely with its selected suppliers. It proved crucial for the optimisation process that both parties were willing to enter into an open and honest dialogue. Both parties were required to enter into an interaction process that had previously been characterised by friction and conflict. Some companies had no problems establishing new forms of collaboration and creating common goals for improvements, while other companies struggled with multiple challenges.
Why does it work?
But what determines the success of a change process and its results? Which mechanisms are the decisive factors when it comes to establishing a mutually rewarding supplier collaboration? One key element in a successful collaboration is relations-based coordination.
In the majority of bureaucratic organisational forms based on a clear hierarchy, chain of command, administrative systems and processes, coordination is carried out by managers from silo functions. This can create challenges when it comes to cross-functional and cross-organisational coordination. In company-supplier collaborations, these are the kinds of challenges that crop up, because it is necessary to coordinate across these frameworks – both within the individual organisation and across companies.
Relations-based coordination entails building relations through direct (work-related) contact between employees on both sides of the table in the supply chain. They are based on social networks and transcend functional and organisational boundaries. This approach to coordination is often more efficient, because both the company’s and the supplier’s representatives have more leeway to make decisions and achieve results. This can both minimise waste and ensure a more productive use of resources.
Improving the working relationship between the various employees can also improve communication. There are three characteristics that play a role when it comes to optimising coordination and performance between the involved parties:
- Shared goals which supersedes the participants’ own specific functional goals.
- Shared knowledge which allows the participants to understand how the individual tasks relate to the process as a whole.
- Mutual respect which makes it possible for the participants to overcome status barriers that might otherwise prevent them from recognising and trusting the work of others.
These characteristics should be supported by communicative practices that promote coordination and performance. Frequency, punctuality and precision are particularly important for avoiding problems. In addition, the focus should be on problem-solving rather than on placing blame.
Example: A bumpy start
A company and one of its suppliers met each other from day one with crossed arms and a reproachful tone, with both parties on the defensive regarding existing challenges in their collaboration. The blame game actually got so bad that one party began looking for evidence from past email correspondence to prove their point. As a result, all discussion about improving their collaboration came to a halt. This is a good example of how a lack of mutual respect can lead to placing blame rather than to a solution-oriented approach to the problems. And the ultimate outcome is relations and the optimisation process itself break down. Mutual respect increases the chances of maintaining an open communication, which subsequently increases the likelihood of sharing knowledge and problem-solving. This mutual strengthening of the supplier relationship and communication makes up the foundation of coordinated collective action. One way these companies managed to overcome their differences and regain mutual respect for each other was by focusing on shared task-based goals. This enabled them to concentrate on finding solutions to challenges and moving forward in their collaboration.
Example: A strong foundation
A company already had a fruitful and well-functioning collaboration with its supplier. The two companies had multiple personal relations, and some employees from the anchor company used to work for the supplier. Communication was open and trusting, and both companies were open about what they wanted to optimise in the collaboration. Both parties weren’t shy about admitting a lack of knowledge about the other’s processes, inviting explanations and clarifications, and making it possible to explore the potential for optimisation across both organisations. Both parties were well-represented at the meetings with competences from all functions in the production chain, and representatives with decision-making powers were also present, allowing the process to progress quickly, because decisions and compromises could be reached immediately. The result was punctual and efficient communication across functions, elimination of the bureaucratic blind spots, and a holistic understanding of the company’s overall workflow, providing insights into how the individual functions contribute to each other and to the overall workflow within the organisation.
What do we do now?
As a company, there are some concrete initiatives you can integrate into your supplier collaboration to improve coordination and performance:
- Plan a series of regular meetings that have nothing to do with price or agreement negotiations, but instead focus solely on the collaboration.
- Don’t be afraid to lower your guard and try to avoid becoming defensive during the discussions. It is important to open up and show your business and your production flow, so that you can gain a better understanding of each other’s strengths and challenges.
- Work together to identify any potential for optimisation by examining the overall flow across the supply chain.
- Drop all assumptions and stop thinking that you know what your customer or supplier can and will do. Have you tried asking them?