judith m. whipple, ph.d. department of marketing and supply chain management michigan state...

Judith M. Whipple, Ph.D.Department of Marketing and Supply Chain

ManagementMichigan State University

325 North Business Complexwhipple@bus.msu.edu

517-432-6407

Collaboration: When, Why and HowCollaboration: When, Why and How

July 31, 2007 – Foundation For Strategic Sourcing

Whipple, 2007- 2 -

Spectrum of Customer-Supplier Relationships

Transactional Arm’s LengthRelationship

Acceptance ofMutual Goals

Relationship/Alliance

Traditional Role

ConfrontationSuspicionExplicit Knowledge

New Relationship

Cooperation/TrustCollaborative ValueTacit Knowledge

Whipple, 2007- 3 -

Why Collaborate?Why Collaborate?

• Strategic decisions are bigger and more complex– Globalization– Consolidation– Increase competition from old/new players– New forms of competition

• Time is the critical factor – first mover advantages• Environment is less certain• Preventable “glitches” are excessive and costly

No one individual or company has the information, time, credibility, and/or capability needed to make and implement this level of decision-making successfully

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Current ResearchCurrent Research

• On-line survey sent to customers and suppliers• Asked to evaluate various constructs for both

collaborative and transactional relationships– Relationship management– Communication and information sharing– Satisfaction– Performance

• Objective: to compare how relationships are managed and to determine if collaboration is a worthwhile endeavor

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Survey DefinitionsSurvey Definitions

• A collaborative relationship is a long-term relationship where participants generally cooperate, share information, and work together to plan and even modify their business practices to improve joint performance (may also be considered as an alliance, partnership or focus on a specific program such as VMI, JIT, CPFR).

• A transactional relationship is a buying-selling agreement where participants conduct business for a specific time period according to terms generally outlined in a standard contract (may also be considered as an “arm’s length” or “transactional” relationship).

This research was supported by the Innovation and Organizational Change (IOC) Program of the National Science Foundation, Grant Number 0122173

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Who Participated in the Research?

• Customers– 544 completed surveys (13% response rate)

• F4SS – 38 of 71 completed (54% response rate)

– Majority worked for a manufacturer/distributor (73%)– 462 collaborative responses (85%)– 418 transactional responses (77%)

• Suppliers– 256 completed surveys (7% response rate)

• F4SS – 62 of 100 completed (62% response rate)

– 56% manufacturer/distributor and 30% 3PL/transportation provider

– 219 collaborative responses (86%)– 203 transactional responses (80%)

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Do Respondents Manage Collaborative and Do Respondents Manage Collaborative and Transactional Relationships Differently?Transactional Relationships Differently?

• Relationship activities• Long-term commitment• Trust• Dedicated investments

Mean responses comparing collaborative and transactional relationships were statistically different from each other for both customers and suppliers.

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Customer Responses: Relationship ManagementCustomer Responses: Relationship Management

Relationship Activities Collaborative Transactional

My firm and this supplier:

… interact on a real time basis. 5.98 4.38

…achieve goals collectively. 5.69 3.82

…develop a mutual understanding of responsibilities. 6.02 4.36

…informally work together. 5.98 4.32

…share ideas, information, and/or resources. 6.01 3.95

…have joint teams. 5.56 3.37

…conduct joint planning to anticipate and resolve operational problems. 5.73 3.65

…make joint decisions about ways to improve overall cost efficiency. 5.70 3.51

Long-Term Commitment

We expect this relationship to continue for a long time. 6.13 4.41

We are committed to this supplier. 6.01 4.11

We expect this relationship to strengthen over time. 6.04 4.17

Considerable effort and investment has been undertaken in building this relationship. 6.17 4.17

Scale: 1 = strongly disagree; 7 = strongly agree

Whipple, 2007- 9 -

Customer Responses: Relationship ManagementCustomer Responses: Relationship Management

Trust Collaborative Transactional

This supplier keeps the promises it makes. 5.83 4.66

We believe the information this supplier provides us. 5.96 4.76

This supplier is genuinely concerned that we succeed. 6.02 4.61

We trust this supplier keeps our best interests in mind. 5.64 4.11

This supplier considers our welfare as well as its own. 5.49 3.88

This supplier is trustworthy. 5.96 4.73

Dedicated Investments

We have invested substantially in personnel dedicated to this relationship. 5.03 3.43

We have provided proprietary expertise and/or technology to this relationship. 5.04 3.31

We have dedicated significant investments (e.g., equipment or support systems) to this relationship.

4.56 3.13

Scale: 1 = strongly disagree; 7 = strongly agree

Whipple, 2007- 10 -

Supplier Responses: Relationship ManagementSupplier Responses: Relationship Management

Relationship Activities Collaborative Transactional

My firm and this customer:

… interact on a real time basis. 5.86 4.50

…achieve goals collectively. 5.35 3.54

…develop a mutual understanding of responsibilities. 5.74 4.18

…informally work together. 5.84 4.02

…share ideas, information, and/or resources. 5.77 3.81

…have joint teams. 5.58 3.34

…conduct joint planning to anticipate and resolve operational problems. 5.60 3.53

…make joint decisions about ways to improve overall cost efficiency. 5.33 3.26

Long-Term Commitment

We expect this relationship to continue for a long time. 6.26 4.62

We are committed to this customer. 6.43 5.12

We expect this relationship to strengthen over time. 6.27 4.76

Considerable effort and investment has been undertaken in building this relationship. 6.38 4.90

Scale: 1 = strongly disagree; 7 = strongly agree

Whipple, 2007- 11 -

Supplier Responses: Relationship ManagementSupplier Responses: Relationship Management

Trust Collaborative Transactional

This customer keeps the promises it makes. 5.52 3.97

We believe the information this customer provides us. 5.79 4.40

This customer is genuinely concerned that we succeed. 5.40 3.56

We trust this customer keeps our best interests in mind. 4.78 3.20

This customer considers our welfare as well as its own. 4.85 3.08

This customer is trustworthy. 5.59 4.07

Dedicated Investments

We have invested substantially in personnel dedicated to this relationship. 5.77 4.02

We have provided proprietary expertise and/or technology to this relationship. 5.57 3.95

We have dedicated significant investments (e.g., equipment or support systems) to this relationship.

5.78 3.91

Scale: 1 = strongly disagree; 7 = strongly agree

Whipple, 2007- 12 -

Do Respondents Communicate Differently in Do Respondents Communicate Differently in Collaborative and Transactional Relationships?Collaborative and Transactional Relationships?

• Communication• Information sharing

Mean responses comparing collaborative and transactional relationships were statistically different from each other for both customers and suppliers.

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Customer Responses: CommunicationCustomer Responses: Communication

Communication Collaborative Transactional

This supplier keeps us informed of new developments (e.g., R&D, new products/services).

5.77 4.08

This supplier’s sales personnel frequently visit our place of business.

5.51 3.81

This supplier devotes a lot of time in getting to know our staff.

5.84 3.73

This supplier gives us opportunities to participate in goal setting to enhance performance.

5.20 3.29

Information Sharing

We inform this supplier in advance of changing needs. 5.98 4.71

In this relationship, it is expected that any information which might help the other party will be provided.

6.17 4.57

The parties are expected to keep each other informed about events or changes that may affect the other party.

6.34 4.97

The information shared in this relationship is more detailed than what is shared in other relationships

6.09 4.97

Scale: 1 = strongly disagree; 7 = strongly agree

Whipple, 2007- 14 -

Supplier Responses: CommunicationSupplier Responses: Communication

Scale: 1 = strongly disagree; 7 = strongly agree

Communication Collaborative Transactional

This customer keeps us informed of new developments (e.g., R&D, new products/services).

5.39 3.59

The customer’s personnel frequently visit our place of business.

4.94 3.11

This customer devotes a lot of time in getting to know our staff.

5.16 3.21

This customer gives us opportunities to participate in goal setting to enhance performance.

5.09 3.01

Information Sharing

We inform this customer in advance of changing needs. 5.87 4.66

In this relationship, it is expected that any information which might help the other party will be provided.

5.87 4.20

The parties are expected to keep each other informed about events or changes that may affect the other party.

6.00 4.49

The information shared in this relationship is more detailed than what is shared in other relationships

5.83 3.49

Whipple, 2007- 15 -

Do Respondents Evaluate Collaborative and Do Respondents Evaluate Collaborative and Transactional Relationships Differently?Transactional Relationships Differently?

• Performance• Satisfaction

Mean responses comparing collaborative and transactional relationships were statistically different from each other for both customers and suppliers.

Whipple, 2007- 16 -

Customer Reponses: EvaluationCustomer Reponses: Evaluation

Performance Collaborative Transactional

This relationship has:

… reduced our order cycle times. 5.36 4.21

… reduced our inventory. 5.22 4.12

… achieved cost reductions. 5.67 4.46

… provided us more specialized expertise. 5.83 4.14

… improved our order processing accuracy. 5.06 4.15

… improved our on-time delivery. 5.47 4.44

… improved our fill rate. 5.22 4.20

… increased our profitability. 5.46 4.26

… increased our forecast accuracy. 4.46 3.71

Scale: 1 = strongly disagree; 7 = strongly agree

Whipple, 2007- 17 -

Customer Responses: EvaluationCustomer Responses: Evaluation

Satisfaction With Relationship Collaborative Transactional

My firm is satisfied with this relationship in terms of:

…coordination of activities. 5.64 4.45

…participation in decision making. 5.62 4.20

…level of commitment. 5.87 4.39

…level of information sharing. 5.64 4.10

…management of activities. 5.61 4.30

Satisfaction With Results

My firm is satisfied with this relationship in terms of:

…profitability. 5.23 4.23

…market share. 5.29 4.21

…sales growth. 5.32 4.17

Scale: 1 = strongly disagree; 7 = strongly agree

Whipple, 2007- 18 -

Supplier Responses: EvaluationSupplier Responses: Evaluation

Performance Collaborative Transactional

This relationship has:

… reduced our order cycle times. 4.76 3.67

… reduced our inventory. 4.25 3.40

… achieved cost reductions. 4.72 3.59

… provided us with more specialized expertise. 5.23 3.54

… improved our order processing accuracy. 4.60 3.63

… improved our on-time delivery. 4.98 3.88

… improved our fill rate. 4.85 3.77

… increased our profitability. 4.90 3.70

… increased our forecast accuracy. 4.75 3.45

Scale: 1 = strongly disagree; 7 = strongly agree

Whipple, 2007- 19 -

Supplier Responses: EvaluationSupplier Responses: Evaluation

Scale: 1 = strongly disagree; 7 = strongly agree

Satisfaction With Relationship Collaborative Transactional

My firm is satisfied with this relationship in terms of:

…coordination of activities. 5.48 4.05

…participation in decision making. 5.40 3.70

…level of commitment. 5.63 3.72

…level of information sharing. 5.43 3.54

…management of activities. 5.36 3.93

Satisfaction With Results

My firm is satisfied with this relationship in terms of:

…profitability. 5.10 3.93

…market share. 5.13 3.83

…sales growth. 5.21 3.69

Whipple, 2007- 20 -

F4SS Responses – Comparing Customers and F4SS Responses – Comparing Customers and SuppliersSuppliers

Construct Collaboration Customer

Collaboration Supplier

Transactional Customer

Transactional Supplier

Relationship Activities 5.68 5.77 3.53 3.67

Commitment 6.03* 6.50* 3.54* 4.79*

Trust 5.72 5.46 4.47* 3.70*

Dedicated Investment 5.13* 5.08* 2.65* 3.67*

Communication 5.21 5.45 3.13 3.09

Information Sharing 5.93 5.89 4.06 4.22

Performance 5.01 4.68 3.77 3.40

Satisfaction with Relationship

5.58 4.68 3.77 3.40

Satisfaction with Results 5.17 5.07 3.86 3.72

* Indicated statistically significant difference in mean response

Whipple, 2007- 21 -

Which Factors Contribute Most to Performance?Which Factors Contribute Most to Performance?

Predictors of Performance - Customers

Trust

Communication

Performance

Collaborative Relationships Transactional Relationships

Trust

Communication

Long-term Commitment

Relationship Activities

DedicatedInvestments

DedicatedInvestments (negative)

Relationship Activities

Information(negative)

Whipple, 2007- 22 -

Which Factors Contribute Most to Performance?Which Factors Contribute Most to Performance?

Predictors of Performance - Suppliers

Trust

Commitment(negative)

Performance

Collaborative Relationships Transactional Relationships

TrustRelationship Activities

DedicatedInvestments

DedicatedInvestments

Relationship Activities

Whipple, 2007- 23 -

Which Factors Contribute Most to Satisfaction?Which Factors Contribute Most to Satisfaction?

Predictors of Satisfaction with Relationship - Customers

Trust

Performance

Satisfaction with Relationship

Collaborative Relationships Transactional Relationships

Trust

PerformanceRelationship Activities

CommitmentDedicated

Investments (negative)

Relationship Activities

Whipple, 2007- 24 -

Which Factors Contribute Most to Satisfaction?Which Factors Contribute Most to Satisfaction?

Predictors of Satisfaction with Relationship - Suppliers

Trust

Performance

Satisfaction with Relationship

Collaborative Relationships Transactional Relationships

Trust

Relationship Activities

Commitment

Relationship Activities

Performance

Whipple, 2007- 25 -

Which Factors Contribute Most to Satisfaction?Which Factors Contribute Most to Satisfaction?

Predictors of Satisfaction with Results - Customers

Trust

Commitment

Satisfaction with Results

Collaborative Relationships Transactional Relationships

Trust

Performance

Performance

Whipple, 2007- 26 -

Which Factors Contribute Most to Satisfaction?Which Factors Contribute Most to Satisfaction?

Predictors of Satisfaction with Results - Suppliers

Trust

Satisfaction with Results

Collaborative Relationships Transactional Relationships

Trust

Performance

Performance

Relationship Activities

Information Sharing

(negative)

Commitment

Whipple, 2007- 27 -

Which Factors Contribute Most to Performance for Which Factors Contribute Most to Performance for F4SS Only?F4SS Only?

Predictors of Performance - Customers

Trust Performance

Collaborative Relationships Transactional Relationships

Trust

Long-term Commitment

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Which Factors Contribute Most to Performance for Which Factors Contribute Most to Performance for F4SS Only?F4SS Only?

Predictors of Performance - Suppliers

Trust

Performance

Collaborative Relationships Transactional Relationships

TrustRelationship Activities

DedicatedInvestments

Whipple, 2007- 29 -

Which Factors Contribute Most to Satisfaction for Which Factors Contribute Most to Satisfaction for F4SS Only?F4SS Only?

Predictors of Satisfaction with Relationship - Customers

Trust

Satisfaction with Relationship

Collaborative Relationships Transactional Relationships

Performance

Relationship Activities

Whipple, 2007- 30 -

Which Factors Contribute Most to Satisfaction for Which Factors Contribute Most to Satisfaction for F4SS Only?F4SS Only?

Predictors of Satisfaction with Relationship - Suppliers

Trust

Satisfaction with Relationship

Collaborative Relationships Transactional Relationships

TrustRelationship Activities

DedicatedInvestments (negative)

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Which Factors Contribute Most to Satisfaction for Which Factors Contribute Most to Satisfaction for F4SS Only?F4SS Only?

Predictors of Satisfaction with Results - Customers

Trust

Commitment

Satisfaction with Results

Collaborative Relationships Transactional Relationships

Performance

DedicatedInvestments (negative)

DedicatedInvestments (negative)

Commitment

Whipple, 2007- 32 -

Which Factors Contribute Most to Satisfaction?Which Factors Contribute Most to Satisfaction?

Predictors of Satisfaction with Results - Suppliers

Collaborative Relationships Transactional Relationships

Performance

Relationship Activities

Satisfaction with Results

Trust

Performance

Communication (negative)

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Initial Research ConclusionsInitial Research Conclusions

• Collaborative relationship offer more value than transactional relationships

• Collaborative relationships provide higher levels of performance and satisfaction than transactional relationships

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Customer Conclusions: F4SSCustomer Conclusions: F4SS

• Customers who want to improve performance– Collaborative Relationships

• Focus on improving trust

– Transactional Relationships• Focus on long-term commitment and trust

• Customers who want to improve satisfaction– Collaborative Relationships

• Focus on improving trust, relationship activities, and commitment

– Transactional Relationships• Focus on performance and commitment

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Supplier Conclusions: F4SSSupplier Conclusions: F4SS

• Suppliers who want to improve performance– Collaborative Relationships

• Focus on improving relationship activities and trust

– Transactional Relationships• Focus on trust and dedicated investments

• Suppliers who want to improve satisfaction– Collaborative Relationships

• Focus on improving trust, relationship activities, and performance

– Transactional Relationships• Focus on improving trust, relationship activities, and

performance

Whipple, 2007- 36 -

F4SS Additional ConsiderationsF4SS Additional Considerations

– Dedicated investments• Customers perceive the dedicated investments they make to

have a negative impact on satisfaction with results for both collaborative and transactional relationships

• Suppliers perceive the dedicated investments they make to have a negative impact on satisfaction with the relationship for collaborative relationships

– Communication • Suppliers perceive the relatively weak level of

communication in transactional relationships to negatively impact satisfaction with results

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ConclusionsConclusions

• Collaboration offers the potential for creating a sustainable value chain

• It’s not always going to be easy, but it pays to be a collaborator

• Step ZERO – internal buy-in is often overlooked and underestimated

• Early and consistent wins provide momentum for larger, more important wins

• TRUST

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Dimensions of TrustDimensions of Trust

Competence-Based Trust: Examines specific operational behavior and performance

• Specific competence in knowledge/skills• Interpersonal competence• Competence in business sense• Judgment

Gabarro (1978, 1987)

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Dimensions of Trust (continued)Dimensions of Trust (continued)

Character-Based Trust: Examines the qualities or characteristics inherent in philosophies/culture

• Integrity• Identification of motives• Consistency of behavior• Openness• Discreteness

Gabarro (1978, 1987)

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Trust – How it LooksTrust – How it Looks

Elements of Trust

Lev

els

of T

rust

Character-Based Competence-Based

Inte

rper

sona

l

Inte

rorg

aniz

atio

nal

InterorganizationalCharacter-Based Trust

InterpersonalCharacter-Based Trust

InterorganizationalCompetence-Based Trust

InterpersonalCompetence-Based Trust