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Best Practice Report

Building Relationships that Create Value

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TABLE OF CONTENTS

1. WELCOME 3

2. COLLABORATION AND PARTNERSHIPS IN THE SUPPLY CHAIN 4

From Functions to Processes 4

Supply Chain Management 5

3. CREATING WIN-WIN RELATIONSHIPS 7

4. THE SUPPLY CHAIN COLLABORATING INDEX (SCCI) 11

What is SCCI? 11

What are the benefits of using SCCI? 11

When is SCCI used? 12

What does SCCI measure? 13

How is SCCI applied? 14

What are the outcomes? 15

5. BUSINESS COLLABORATION FAILURES FACTORS 21

6. BUSINESS COLLABORATION SUCCESS FACTORS 24

7. CHECKLIST FOR MANAGING COLLABORATIVE BUSINESS RELATIONSHIPS 27

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1. Welcome

Competitive food businesses have increasingly started to look

“outward” seeing if by understanding their suppliers and customers

better they can increase value but also identify new ways of

reducing cost. This drive within the supply chain has resulted in

the recognition that effective collaboration is a key to opening the

door to success.

The success of the supply chain is dependant on the strength and

success of the relationships of organisations within that supply chain.

Lord Kelvin stated “If you can not measure it, you can not improve

it” so if we want to improve relationships we need to measure them.

This document introduces the concepts of Collaboration and Supply

Chain management, how to create win-win relationships.

It is my hope that this document will provoke discussion within

organisations and also prompt people to challenge some traditional

ways of working and subsequently improve the competitiveness of

the sector. This can be a long journey but it is a journey worth

making and I wish you every success.

Professor Richard Wilding, Professor of Supply Chain Management,

Cranfield School of Management.

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2. Collaboration and Partnerships in the Supply Chain

Collaboration in the supply chain means:

“working together to bring resources into a required

relationship to achieve effective operations in harmony with

the strategies and objectives of the parties involved thus

resulting in mutual benefits.”

The word collaboration generates many emotions, in certain parts of

Europe for example “Collaboration” is seen as a negative concept

due to war time experiences of collaborators, where as in the USA it

is seen as a positive term. Partnership is sometimes used to

describe relationships, however this is viewed negatively within

certain sectors of the USA due to legislation that stops

“partnerships” due to their perceived anti-competitive nature.

In summary whatever word is used may provoke an emotional

response but in this case what we are discussing refers to business

relationships that generate a win-win outcome, benefiting both

parties. Collaboration is the action of working with someone to

produce or create something that neither organisation could do

alone.

From Functions to Processes

The way we traditionally structure our businesses and organisations

can result in an environment where collaboration is difficult to

create and maintain. Generally, for large organisations we have

specialist departments which are managed independently, for

example, marketing, production and distribution. Command and

control structures are put in place with perhaps a functional director

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at its head. However when we consider what a business does in

order to fulfil a customer order, every department becomes involved.

Businesses undertake processes and processes are rarely done in a

single function within an organisation, therefore, how each

department works with each other to manage the process is critical

to the success of the organisation.

The supply chain, which includes all the organisations involved

supplying a product or a service is a process. It refers to the entire

process from the extraction of material out of the ground and back

into it, so the supply chain encompasses all the processes involved

in planning, purchasing, making, delivering and perhaps returning

and recycling the product after use. For this process to work

effectively individuals and organisations must work together and

collaborate to make this happen.

Supply Chain Management

“Supply chain management is the management of upstream

and downstream relationships with suppliers, distributors and

customers to achieve greater customer value-added at less

total cost.”

So for effective supply chain management, the management of

relationships is critical, but often those within the organisation

become focused on “hard” issues and ignore the softer relationship

elements. Relationships are the glue that holds the supply chain

together.

Everything we do within the supply chain should be focused on

enhancing relationships, so investment in IT should enhance

relationships. This may be from a perspective of being able to

lower costs and then pass on a benefit to a customer which

therefore enhances the relationship. In order to manage we need

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data, so to manage relationships we need data on how the

relationship is performing and the techniques described in this

report demonstrate one approach to do this.

For effective supply chain management, Collaboration is therefore a

key success factor.

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3. Creating Win-Win Relationships

To create a win-win relationships there are two key dimensions that

need to develop. The first behaviour is C3 behaviour, a combination

of Co-operation, Co-ordination and Collaboration (C3 behaviour)

and the second is trust. It has been recognised that for successful

collaborative relationships to thrive trust and C3 behaviour are key.

C3 Behaviour is seen as being essential to maintain a successful

business partnership especially when it is linked with commitment

to the achievement of shared, realistic goals. There is generally an

evolution that needs to take place. Co-operations is initially

required, this is often in the form of short duration low risk

interaction, this then builds to co-ordinating activity requiring longer

commitment and greater working together and finally collaboration

is achieved were both parties may jointly plan and define operations

and strategy. This is very similar to any personal relationship

initially you may go on a short low risk “date” for example a trip to

the cinema this then may progress to both parties spending more

time together co-ordinating there activities and finally marriage

may occur where both parties collaborate!

Trust is a keystone of business-to-business relationships. There

appears to be a consensus that trust integrates micro level

psychological processes and group dynamics with macro level

institutional arrangements or more simply that it encapsulates

dispositions, decisions, behaviours, social networks and institutions.

Trust enables co-operative behaviour, promotes improved

relationships, reduces harmful conflict and allows effective response

in a crisis.

Trust requires risk (a perceived probability of loss), uncertainty

(over the intentions of the other party), interdependence (where

the interests of one party cannot be achieved without reliance on

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the other) and choice (alternative options are available) as essential

conditions.

Others see trust as being ‘caused’ (e.g. by previous good

experience, institutional reputation, and commitment) and affecting

factors such as openness, reliability and honesty. A more general

assessment suggests a combination of all these elements in a richer

interaction between parties which sometimes requires a leap in faith

to achieve but, the result is the creation of a reservoir of goodwill

and the incentive to go the extra mile.

In conclusion, there is little doubt that repeated cycles of exchange,

risk-taking and successful fulfilment of expectations strengthen the

willingness of parties to rely upon each other and, as a result

expand the relationship, in effect producing a virtuous circle that

can be developed and promoted. The alternative,

untrustworthiness, may precipitate a downward spiral of conflict

leading to diminished operations or failure.

It has been found that over time, trust supported by credible

actions is likely to establish a virtuous circle of ever-improving

business-to-business relationship performance. Three generic

levels of contribution of trust and C3 Behaviour to a business

relationship have been identified:

• Win/Lose or Lose/Win: defensiveness, protectiveness,

legalistic language, contracts that attempt to cover all the bases,

are full of qualifiers and escape clauses and, where the

atmosphere promotes further reasons to defend and protect.

• Compromise: mutual respect and confrontation avoidance,

polite but not emphatic communication, creativity suppressed.

• Win/Win: synergy, high trust and sincerity produce solutions

better than the sum of the contributions, participants enjoy a

creative enterprise.

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The following diagram shows the correlation between these factors.

If organisations work together on small projects (co-operation) trust

is developed which enables organisations to feel comfortable about

working more closely in other areas (co-ordination) and then finally

having the confidence as high levels of trust are developed to

“collaborate” and jointly plan both strategy and operations.

Furthermore, research has found that when high levels of trust and

C3 behaviour are present a spiral of success is generated (see spiral

of success diagram). One can then measure how well a relationship

performs on each of the five dimensions within the Spiral of

Success. By doing this, organisations can then develop approaches

to collaborate more effectively.

Trust

C3 Behaviour Failure Success

Success

Failure

WIN/WIN

COMPROMISE

WIN/LOSE or LOSE/WIN

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In the following section will me describing a methodology that can

help organisations enter this spiral of success and achieve the

benefits of supply chain collaboration.

Creativity

Promoting quality, innovation and long-term

approach by encouraging high

performance

Synchronisation of objectives and

confidence-building

Stability

Communication

Frequent, open dialogue and

information-sharing

Reliability

Concentrating on service and product

delivery, lowering joint costs and risks, building up trust

Creating a win-win relationship in which each

side is delighted to be a part

Success Spiral

Value

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4. The Supply Chain Collaborating Index (SCCI)

What is SCCI?

The Supply Chain Collaboration Index (SCCI) is a method to analyse

and diagnose collaborative business relationships, both between

organisations or within a single organisation. The purpose of the

analysis is to identify opportunities for improvement. Some of the

main characteristics of this method are:

• An objective, independent performance evaluation of

collaborative relationships

• A diagnostic tool that reveals important relationship efficiency

issues and allows improvement targets to be set

• A strategic relationship portfolio management tool

• Two reports: a high-level Barometer and an in-depth

diagnostic Partnership

• Tried and tested in a large number of public and commercial

organisations, including the food grocery and retail industries

What are the benefits of using SCCI?

• Map of important relationships’ performance identify good and

bad practice areas that facilitates strategic management

• In-depth diagnostics pinpoint and benchmark key

performance issues allowing reversal of negative, costly

trends

• Recommendations specify the joint business improvement

measures needed which reduce time to get change

programmes underway

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• Process mobilizes joint support for change

• Allows strategic high ground to be taken to strengthen

relationships so that:

o Fire fighting becomes unnecessary

o Continuous improvements in effectiveness including

meeting standards are achieved

o Partners can concentrate on long term value for money

rather than satisfying contract ‘small print’

When is SCCI used?

• As part of an ongoing business improvement programme

• To establish the baseline for improvement initiatives at

individual relationship and portfolio levels

• To measure progress over time

• To satisfy stakeholders

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What does SCCI measure?

SCCI measures perspectives, from both sides of the collaborative

relationship on the 5 key relationship drivers:

• Creativity – promoting quality, innovation and long-term

approach by encouraging high performance

• Stability – synchronising objectives and confidence-building.

• Communication – partaking in frequent, open dialogue and

information-sharing

• Reliability – concentrating on service and product delivery,

lowering joint costs and risks, building up trust

• Value – creating a win-win relationship in which each side is

delighted to be a part

Additionally, information on 7 further crucial relationship

characteristics is provided:

• Long-term orientation - promoting continuity and joint

gains

• Interdependence - encouraging joint responsibility

• C3 behaviour - collaboration, co-operation, co-ordination

• Trust - creating good will and the incentive to go the extra

mile

• Commitment - belief that maximum effort should be

expended to maintain the partnership

• Adaption - willingness to adapt products, processes, goals

and values to sustain the relationship

• Personal relationships - generation trust and openness by

personal interactions

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How is SCCI applied?

SCCI is conducted through a series of short questionnaires and

interviews with knowledgeable people. The results are given in a

business-friendly format and show both problem areas and

suggested courses of action.

The SCCI process takes a minimum of 5 weeks. The main stages

with estimated timings are as follows.

Stage Description Estimated Time

1. Appoint Relationship Manager

• On each side, a senior executive who is very knowledgeable about the relationship is appointed to sponsor the exercise in his/her organisation

WEEK 1

2. Collect Company Data

• details of the type and size of the businesses,

• details about the complexity and length of relationship

WEEK 1

3. Planning Meeting

• attended by both Relationship Managers and SCCI staff

• agree SCCI project milestones

WEEK 1

4. Apply Questionnaire

• on-line 15 minute questionnaire checks Key Performance Measures

• completed by as many people as possible involved in the relationship

• anyone from the shop floor all the way to senior management gets involved

WEEK 2-3

5. Prepare and Present Initial Report (High-level Barometer)

• prepare report describing the key characteristics of the relationship (based on the results of the questionnaires)

• benchmark results against a large sample of measured supply chain relationships

• present the results

End of WEEK 3

6. Conduct and Analyse Interviews

• interview nominated staff – usually 2 per company

• no longer than 1 hour, usually by phone • analyse interviews

WEEKS 4 -5

7. Prepare final Report (In-depth Partnership diagnostic)

• prepare final report synthesising the findings from both questionnaire and interviews

• report highlights areas of improvement and suggests actions required to enhance collaboration in the relationship

End of WEEK 5

8. Conduct company workshops

• results are disseminated within the organisations through workshops

• workshops are led by the organisation Relationship Mangers, but may be supported by a consultant

THEREAFTER

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What are the outcomes?

1. The High-level Barometer

The High-level Barometer is a succinct report on the effectiveness of

a relationship. It is also an efficient way of quickly assessing and

revealing a performance benchmark for a number of key

relationships. The barometer report contains three elements the

traffic lights, the relationship overview and the industry ranking.

A) Traffic Lights

The following diagram shows percentage scores derived from the

survey for each important aspects of the relationship. It is instantly

apparent where the agreements, differences and aspects of concern

e. g. Supplier Trust and Personal Relationships, are located.

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B) Relationship overview

The 3 comparative graphics below show each firm's perceptions of

the other. This indicates where there is agreement as well as

difference. The joint results show the overall position and can be

useful in benchmarking with other relationships as well as providing

joint targets for improvement.

. I

It is noticeable from the diagram above that both customer and

supplier have similar views although uncertainty – higher white

‘insufficient knowledge’ scores – is more pronounced in the supplier

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team. Both sides agree that this is a good (green) relationship but

it is clear that they harbour significant misgivings (red).

C) SCCI Industry Ranking

Industry Ranking: The following diagram is a map that groups all

the relationships assessed by SCCI Ltd according to their similar

characteristics. Four distinct clusters have emerged and the

relationship in question with its satisfaction score of 78% just enters

the Successful Integrators group.

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2. The In-depth Partnership Diagnostic

The in-depth Partnership diagnostic assessment provides a

benchmark and statement of the effectiveness of the relationship.

As a joint process involving the knowledgeable people in each

organisation, it also concentrates minds in an unemotive manner on

improvement and can generate sufficiently detailed

recommendations necessary to initiate a change programme.

Comparative graphics show a more detailed view of the partner

company’s responses at individual question level for each of the 5

Dimensions. An example is shown in the following diagram.

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A glance at the red bars indicates an obvious divergence of views

between the Customer and the Supplier. Appropriate interview

quotations are used to explain and illustrate the important points

such as the following examples:

“When they have the competencies in their team things go really

well but when they are in unfamiliar territory, things become

very difficult.”

“Their explanations for delay were poor. This is the norm in the

industry but we are trying to change it.”

Further details about the dynamics of the relationship are revealed

through the Additional Characteristics charts. The report contains

seven charts, one for each additional characteristics; the following

diagram displays Trust as one example.

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Note the ‘industry’ comparison is provided by the large population

of relationships analysed using this tool. It can be seen that there

is a very high degree of trust and goodwill by the Customer towards

the Supplier while the latter has significant misgivings with much

more pessimistic scoring. Again, appropriate interview quotations

are used to explain and illustrate the situation such as the following

examples:

“I am surprised and shocked at their views on trust. I can

imagine this at the high level but at my level this does not reflect

my perception.”

“They are not perfect. They deliver about 80% of the time. They

are human. Generally when they say they will do something they

do it.”

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5. Business Collaboration Failures Factors

Based on extensive research into collaborative relationships in the

supply chain it has been possible to identify some critical failure

factors, which are described in this section. In order to exemplify

the issues involved we will use quotations from people involved in

managing relationships in a variety of industries.

o Poor Management of the Relationship: The prime cause of

poor performance in collaborative business relationships is the

underestimation of the management task. Companies often do

what they know best; run operations but, are usually either

ignorant of or, under-resource the ‘choreography’ of complex,

inter-organisational dealings.

“We often have great problems contacting the Customer's Project Managers”

“At the middle-management level of the supplier the message has not hit home and the same old culture and practices prevail”

“They seem unable to understand that one point of contact is inadequate to deal with the multi-level issues that occur.”

“We just don't have time to take a strategic view; we are too busy looking after 30 other contracts”

o Lack of Commitment: Lack of commitment is often manifested

by inadequate joint planning, investment, staffing and

management structures.

“We get more information about their future policy and plans from their web site that from them face-to-face”

“I hope the consultants will be able to implement some of the changes implied by your report. We don't have the time and resources; we are too busy fighting fires”

“They show no sign of wanting to do better; their management is self-satisfied”

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“We have tried hard to improve the relationship using in-house resources but now that we have run out we are getting no support from the corporate HQ”

o Adversarial Practices: Adversarial and bureaucratic

commercial practices which results in ‘them and us’ attitudes,

poor quality communications and selfish behaviours which cause

increased costs, delays and reduce trust.

“They have no 'faces'. They are known as 'they'. We have no shared view of what we are delivering. Even an annual review would be useful”

“Their view of sharing is they have the lion's share and we get what's left over”

“In one instance they billed us for defective packaging and then refused to help resolve the problem with the supplier”

“We fear and mistrust a shared data environment because it gives our customer the opportunity to 'hit us over the head'. They have demonstrated this in the past”

o Inadequate Joint Performance Measurement: Poor joint

performance measures and systems that result in incompatible

objectives, disjointed processes, poor quality, higher costs and

low customer service.

"I am concerned at our lack of touch with the end customers. We need seamless performance measurement throughout the logistics chain”

“We know our own targets and objectives well but those of our Supply Chain partners are not at all transparent”

“We don't have joint performance measures as such. We send them a monthly return of test yields but they never respond”

“Although we have notional joint, performance objectives, getting service out of our partner is like getting ‘poop’ from a rocking-horse”

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o Fear of Interdependency: Because in a collaborative business

relationship each party’s freedom of action is necessarily reduced

and, they may have feelings of uncertainty and risk because they

are dependent on each other. The danger of small issues

becoming bigger ones and the onset of an adversarial mind-set

which starts a downward spiral is very real.

"Over the last 5 years we have ticked along with one product. We are working jointly to release a new product next year. This will really put the relationship to the test because we are totally dependent on them for its success”

“Unfortunately the coherence of the programme lost its way over time. It lost touch with reality and became a monthly fire-fighting exercise”

“We trust them most of the time, but things can easily change”

“They want us to bend the rules all the time and our failure to do so may come across as inflexible and unfriendly”

“Their attitude is: 'we'll share whatever you have got'”

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6. Business Collaboration Success Factors

Research has also made possible to identify some critical success

factors, which are described in this section. The issues involved will

be exemplified using quotations from people involved in various

relationships in different industries.

o Joint Objectives: The commercial framework for the

collaboration must provide tough but achievable joint objectives

and, clear incentives for value creation.

“The key is to harmonise the main objectives. Others that are not important and act as obstructions must be identified and suppressed”

"The new partnering arrangement will run over 10 years and includes gain-share arrangements”

“We can now leave the contract behind us and concentrate together on the output to the customer”

“This constant development creates value, we don’t chase each other but we do challenge each other”

“We like to see each company grow. That’s special. You don’t see that in many relationships”

o Visibility of performance measures: The relationship parties

must have clear sight of the end-to-end, performance

requirements of all supply chain players including the end-

customers, so that overall efficiency is pursued.

Everybody has a good understanding of the performance measures. We all participated in setting them up

"We jointly work to a clear programme plan to where we regularly review our achievements and plan ahead”

“Information flows are very well established and regimented. This ensures there are no ambiguities over performance expectations”

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o Open communication: Frequent, interactive, open

communications across all levels of the customer/supplier

interface especially on performance reviews and continuous

improvement of products/services and business processes is

essential, especially when dealing with unexpected problems.

"Every month a project meeting is held where red flag issues on health and safety, costs and quality are raised. These are minuted dates for remedial action are specified”

“We have simple, obvious, open performance measures. Every week the Supplier sends us a statement of work achieved, problems and forecasts and we pass them consumption data. The achievements are open for all to see”

“We are very innovative and have lots of ideas about how we can do things better. For example we built test into the product and achieved a 98% pass rate compared to 30% previously. As a team we worked really well”

“There were good joint discussions on successes and failures to learn from, and, then come up with solutions to fix problems”

o No-blame culture and trust: An open, no-blame culture aimed

at customer and relationship satisfaction which depend upon

personal, trusting relationships will ensure that the parties focus

on the main, joint objectives and do not get bogged-down in

trivial, but often emotive, self-interested issues.

"The trust that has built-up over the years is a result of working together to achieve the desired end”

“If our partners fall down I want to know why, however if it’s a genuine problem we will make every effort to help them resolve it including asking the client for extra money”

“Our relationship is very open, frank and understanding with lots of mutual respect. We learn from each other”

“Time and time again they have ‘pulled out the stops’ to help us solve unexpected snags. We will certainly ‘go the extra mile’ for them”

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o Joint planning: Joint planning and business systems supported

by free-flowing information will provide a flexible, efficient

collaborative operation to meet market demands.

“Quarterly review meetings where outstanding orders are discussed have led to improved availability”

“By having a member of staff in their team we are able to communicate much better, reduce misunderstandings, and gain a much clearer idea of the plans for the business”

“All support chain parties, including the end customer, attend planning meetings to discuss requirements, pool knowledge and resolve problems”

“I tell the Supplier honestly my budget for the coming year so he can plan ahead”

“We get as much forward planning information as they can give us. There is a lot of 'out of the blue' work and we must be flexible”

o High-level Commitment: A constant focus on high-level

objectives will result in success that reinforces success; in effect

countering any negative behavioural tendencies and generating

an upward, success spiral.

"Now that we have a partnering arrangement around a good framework contract we just concentrate on the customer - we no longer refer to the small print”

“The partnership has gone from strength to strength as we have overcome problems, met our milestones and achieved success”

“With some trepidation we asked our parts supplier to help us design the new product. We have been amazed. The product is now cheaper, more reliable and contains more features and is loved by our customers. Our relationship has blossomed as a result”

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7. Checklist for Managing Collaborative Business Relationships

o The senior management of each collaborating organisation must

agree the objectives and importance of the relationship and must

communicate this together with unequivocal expectations to their

staff.

o Each partner needs to appoint a Relationship Manager who has

the authority to champion the needs of the relationship across

the departments within his own firm and, who is empowered to

agree the collaboration tactics and solve relationship problems

with his opposite number.

o A regular review meeting of the Relationship Managers and the

appropriate senior managers from each firm must meet regularly

to consider the following:

• Review performance targets in last period and issue statistics

• Review work/orders in progress

• Review forecasted sales and orders in next period

• Consider and solve problems.

• Actively seek out and initiate process improvements

• Review future plans (including new products) and initiate

preparation

• Examine and discuss industry and technology updates

• Identify policy issues to refer to senior management

• Involve other supply chain partners

• Prepare joint communications, information and team-building

events for the collaborating firms

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o A collaborative business relationship is a key part of both

company’s strategies and will receive investment and represent

value on their balance sheets and to shareholders. For this

compelling reason the SCCI relationship assessment tools should

be used to regularly measure relationship performance and allow

targets to be set to drive continuous improvement.