Page 166 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 8: Supply Chain Management

8.4.2 Collaborative Relationships Notes

The awareness of the interdependence and necessity of cooperation is the key difference between
collaborative relationships and transactional ones. Organizations perform a series of value-
adding activities working together by recognizing the interdependency and need of cooperation,
to provide benefits to both parties. These include cost reduction, improved quality, reduced
time to market, and the leveraging of supplier technology.
The three most important factors required for a successful collaborative relationship between a
buyer and a supplier are:

1. Two-way communication,
2. Responsiveness to supply management’s needs, and
3. Clear product specifications.

Collaboration happens because both parties are aware that money enters their supply chain (or
supply network) only if the chain’s end products are cost competitive. When collaborative
relations replace the market forces employed by transactional procurement, there is overall
improvement in many areas. There is controlled competition, benchmarking, and advanced
supply management pricing practices. The end results are lower total costs, higher quality,
reduced time to market, and reduced risk of supply disruptions.

Example: Collaborative relationship is between Tata Motors and Mahindra Ugine. Tata
Motors has a large requirement of alloy steel billets for its Forge Division at Jamshedpur. Of the
large number of possible suppliers, Tata Motors chose Mahindra Ugine as one of the three
suppliers with whom they negotiate prices and quantities for their different requirements,
based on quality, R&D, timeliness of supply, process capability, and after sales service ability.
The criterion was not price, but the value delivery of the seller. Based on their past performance,
Tata Motors would reward its strategic partners with a larger proportion of the total orders. This
acts as an incentive to perform better than the others.

As both parties recognize their relationship is long-term, their interdependence and the need
for cooperation, this is reflected in their continual effort to mutually work together towards cost
reduction and improved quality.

Example: Mahindra Ugine offers new alloy developments to Tata Motors to develop
components with improved specifications and lower costs. Such acts extend the relationship
between the two parties.

Advantages of Collaborative Relationships

Continuous improvement is far easier to implement and manage with recognized
interdependence and cooperation. The end objective with continuous improvement is a reduction
in total costs.

Improved quality and timeliness also result. The likelihood of supply disruptions is greatly
reduced.
With a high level of certainty and continuity of demand, sellers are prone to explore improving
processes and adopting technical innovations. They are also willing to work with their buyers
on new ideas. This often results in cost reduction for both the buying and supplying organizations.

Cost reductions resulting from value engineering and value analysis (VENA) are much more
likely with collaborative relationships. Suppliers are more likely to take the initiative to reduce

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