Supply chain coordination between competing retailers and shared suppliers

coordination of the relationship between suppliers and buyers and how to outperform the competitor when sharing the same supplier: coordination and competition in supply chain management

The purpose of the study proposed herein is to determine how to coordinate the relationship between suppliers and buyers in the specific supply chain situation of one manufacturer and duopoly common retailers in order to gain managerial implications that could be useful to build the competition strategy for the manufacturers.

Collaboration and coordination within the supply chain in the process of 'supply chain management' (SCM) has recently become to be understood as involving all players both internal and external to the company-specific supply chain. Reductions in costs are clearly associated with this type of coordination of the relationship between suppliers and buyers and as well the realization of a competitive edge through this type of coordination is plausible and a practical consideration in supply chain management initiatives.

SIGNIFICANCE of the STUDY

The significance of the proposed study is the information that will be added to the already existing base of knowledge in this area of study.

LITERATURE REVIEW

The work entitled: "Unchaining Value: Innovative Approaches to Sustainable Supply" states that today's "modern global supply chains have the delivery of value at their heart. The supply chain manager's challenge is typically to make the suppliers of components and services work as effectively, efficiently and economically as possible to meet customer demand." (United Nations Environment Program, 2008, p. 4) Also stated by UNEP is that the capture of opportunities for the creation of sustainable value that is long-term and 'shared across different tiers of suppliers, customers, consumers and shareholders, through innovative thinking and collaboration, remains significantly underdeveloped. A creative, proactive, empowered supply chain can help drive down costs, mitigate risks and uncover innovative new approaches to developing products and services, sharing the risk -- and indeed the rewards -- across many different players." (United Nations Environment Program, 2008, p.4)

Mark Lee is noted as stating as follows:

"A defining element of our ever more global economy is the intricate web of supply chains being woven by multinational business, stretching across the world's political, economic and cultural boundaries. In many instances they prove transformational -- creating economic growth and fostering development and helping to manage scarce resources sustainably while creating business value and contributing to long-term resilience. Together with UNEP and UNGC, we see supply chain sustainability as an area of growing importance, and we urge companies and their suppliers everywhere to grasp the opportunity to transform their approach -- to the great profit of all." (2008, cited in United Nations Environment Program, 2008, p. 4)

According to the United Nations Environment Program document the supply chain managers that are successful in today's market are required to "focus on costs and benefits across an entire supply chain and think beyond short-term financial considerations to ensure reliable supply -- in terms of quality, quantity, reliability and cost. They achieve this by managing trade-offs, aligning incentives, sharing information, and coordinating relationships across functions to achieve a lower 'total cost of ownership'." (United Nations Environment Program, 2008, p.5)

UNEP states in regards to opportunity that a "strategic approach to sustainability enables the development of far stronger supplier relationships to deliver added-value, ensure reliability, enable innovation and provide sustainable 'stories' for communication to consumers to help build brand trust and loyalty." (United Nations Environment Program, 2008, p. 5) a strategic approach enables the securitization of the license "to operate within communities, legal systems and government that might otherwise be antagonistic. It gives permission for experimentation, exchange of ideas and the essential ingredients for innovation." (United Nations Environment Program, 2008, p. 5)

In regards to risk are the "reputational challenges of underestimating consequences of failing to anticipate local community and opinion-former perceptions of environmental and social impacts and of not realizing the potential for mass media to mobilize global opposition and opprobrium with extreme speed." (UNEP, 2008, p.5) Benefits associated with responsible supply chain management are stated by UNEP to include those as follows: (1) better working conditions result in the reduction of turnover and improve both quality and reliability; (2) environmental responsibility improves efficiency and profitability; (3) risk are anticipated and managed, costs reduced and productivity enhanced; (5) communities, consumers and shareholders benefit; and (6) personal, community and corporate values of respect and equity are empowered.

UNEP states as a key requirement for the "embedding [of] sustainability within a supply chain" is the collaboration with suppliers in developing and implementing "effective sustainability standards." (p. 6) Additionally UNEP states: "Many companies in different industries engage with their suppliers to build capacity." (United Nations Environment Program, 2008, p.7) the example stated is that Ford has developed and made provision of ISO 14001 Awareness Training in the auto industry so that its suppliers are able to benefit from the experience of Ford in certification at Ford plants. In the auto industry, for example,

Stated as corporate functions and related sustainability considerations for the supply chain are the following categories and accompanying considerations for sustainability in the supply chain:

(1) R&D (Product design and development)

Reduce material use

Substitute materials (to lower resource-intensiveness, cost or impact)

Use more sustainable inputs (e.g. recycled, etc.)

(2) Procurement -- Planning and managing inventories pricing and margins

Include social and environmental criteria in procurement contracts;

Provide advice and support on sustainability issues;

Develop enforcement mechanisms (consider collaborative enforcement solutions such as joint onsite evaluations and training);

Share information with supply chain partners and set up supplier networks

(to increase efficiency, avoid unnecessary transport or resource use and prevent discontinuities of supply and demand).

Provide incentives to avoid unnecessary competition (e.g. between dealers, between marketing and sales).

Promote transparency in economic arrangements.

Set prices and margins to promote efficiency and profitability across the chain.

(3) Logistics - Designing the chain network

Choose lower-carbon transport modes.

Consolidate distribution (e.g. batch sizing) to enable efficient economies of scale.

Foster collaboration among suppliers.

Plan distribution and delivery to improve efficiency.

(4) Manufacturing Locating activities and selecting suppliers

Analyze social and environmental standards prevalent in suppliers' locale

(for improving the likelihood that supply will meet social and environmental expectations).

When making consolidation decisions, consider a broader range of environmental and social issues, such as increased fuel usage and carbon emissions and impact on local employment.

When selecting suppliers and developing management systems, consider the increasing importance of traceability for managing and communicating sustainability performance.

(5) Marketing Products, services and post-sale service

Influence consumer choice by providing consumers with information on product sustainability impacts.

Strengthen information on sustainable consumption to users (product information, labels, online forums, events).

Consider product service systems to improve resource efficiency and reduce impact.

Establish product take-back schemes.

Provide maintenance services to encourage customers to repair rather than discard.

(6) Public affairs - External engagement

Collaborate with competitors to develop common approaches to monitoring suppliers.

Work with government to drive regulation.

Engage with civil society organization to develop best practice solutions. (United

Nations Environment Program, 2008, p.7)

Stated as commodity specific initiatives are those in the areas of: (1) Knowledge sharing; (2) standards and guidelines; (3) monitoring verification or certification; (3) supplier capacity building and training; (4) supplier capacity building and training; (5) buyer capacity building and training; (6) project piloting; (7) public and stakeholder awareness raising; (8) research; and (9) research clearinghouse. (United Nations Environment Program, 2008, p. 8)

The work of Aydinliyim (2007) entitled: "Coordination and Competition in Outsourcing Operations" reports a study which states that in the business world of today, supply chains "create a complex business environment that is hard to control. Huge networks are made up of competing suppliers, manufacturers and distributors" this results in situations in which "individual decisions are affected by the decisions of other parties involved in the network." ( p.1) the decision quality is dependent upon the amount of information available to decision makers about other parties in the supply chain. To answer the need for such information many industry sectors are stated by Aydinliyim (2007) to have "created portals where key information is shared amongst the members of the network." (p.1) This enables the members of the supply chain to work in a manner of cooperation geared toward reduction of not only their individual costs but the costs of the entire supply chain as well. The following diagram illustrates this concept as cited in the work of Aydinliyim (2007).

Figure 1

Total Online Supply Chain Portal

Source: Aydinliyim (2007)

The work of Griffin, Keskinocak and Savasaneril (nd) entitled: "Improving Supply Chain Performance Through Buyer Collaboration" states that in many companies today purchasing is conducted by "multiple functional divisions which either act independently or have minimal interaction with each other." (p.3)

Griffin, Keskinocak and Savasaneril states that there are three collaboration models: (1) no collaboration in which buyer divisions and suppliers trade through traditional sales channels in one-to-one transactions with no existing information flow; (2) internal collaboration in which functions divisions of a buyer collaborate internally; and (3) full collaboration in which a third party intermediary enables collaboration among different buyers and allows the participants to achieve benefits from both economies of scale and scope due to reduced fixed production and transportation costs. (nd, p. 3) These three models are shown in the following illustration labeled Figure 2.

Figure 2

Three Models of Collaboration Among Buyers and Buyers Divisions

Source: Griffin, Keskinocak and Savasaneril (nd)

The work of Xu and Beamon entitled: "Supply Chain Coordination and Cooperation Mechanisms: An Attribute-Based Approach" states that the importance of coordination in supply chain management (CSM) "cannot be overemphasized." (p. 4) Supply chain management is defined as "the planning and coordination of activities, from procurement to production, through...distribution." (Xu and Beamon, 2006, p.4) According to Xu and Beamon "Coordination mechanisms may be differentiated on the bases of four attributes as follows: (1) resource sharing structure, (2) decision style, (3) level of control, and (4) risk/reward sharing. (Xu and Beamon, 2006, p.5)

Given that the selection of a coordination mechanism is often based on minimizing relative costs, transaction cost theory (TCT) can be used to classify the three types of costs associated with coordination: coordination cost, operational risk cost, and opportunistic risk cost. This facilitates relating each coordination mechanism attribute to a type of cost." (p. 5) the resource sharing structure is stated to include the following: (1) No resource sharing; (2) Operational resource sharing; (3) tactical resource sharing; and (4) strategic resource sharing. (Xu and Beamon, 2006, p. 6)

Stated as two primary sources of operational risk cost are: (1) shirking of the cost that arise; and (2) refusal to adapt. (Xu and Beamon, 2006, p.6) Opportunistic risk cost is identified as the "cost associated with a lack of bargaining power or a loss of bargaining power stemming directly from the execution of a relationship." (Xu and Beamon, 2006, p.6)

There are stated to be two primary sources of opportunistic risk cost which are the two of: (1) power asymmetries -- when a small supplier enters negotiation with a more powerful firm; and (2) loss of resource control -- when new partners acquire new technology resulting in a threat being posed of a competitive nature to the original partner. (Xu and Beamon, 2006, p. 6) Xu and Beamon state that the selection of a coordination mechanism is a "tactical-strategic decision. As such, it is intended to govern the medium to long-term coordination structure between organizations. As operating environments change, so too much the corresponding coordination mechanism." ( p.11)

SUMMARY

It is clear from the brief review of literature in this work that supply chain management coordination between suppliers and buyers offers a great many advantages and that among these advantages reduction of cost of goods is of primary importance along with reductions in costs associated with shipping of supplies and inventory.

RECOMMENDATIONS

Arising from the brief review of literature in this research proposal is a recommendation that the study as proposed herein be conducted and specifically that the coordination of the suppliers and buyers in the supply chain be analyzed through use of the differential game theory methodology.