Chopra4 Tif 17

Chapter 17
Coordination in a Supply Chain

True/False
1. Supply chain coordination improves if all stages of the chain take actions that
together decrease total supply chain profits.
Answer: False
Difficulty: asy
!. Supply chain coordination re"uires each stage of the supply chain to take into
account the impact its actions have on other stages.
Answer: #rue
Difficulty: asy
$. A lack of coordination occurs either %ecause different stages of the supply chain
have o%&ectives that conflict or %ecause information moving %etween stages gets
delayed and distorted.
Answer: #rue
Difficulty: 'oderate
(. )nformation is distorted as it moves within the supply chain %ecause complete
information is not shared %etween stages.
Answer: #rue
Difficulty: asy
*. #he %ullwhip effect ena%les different stages of the supply chain to have a
consistent estimate of what demand looks like.
Answer: False
+. #he %ullwhip effect results in improved supply chain coordination.
Answer: False
Difficulty: asy
7. #he %ullwhip effect negatively impacts performance at every stage and thus hurts
the relationships %etween different stages of the supply chain.
Answer: #rue
,. #he %ullwhip effect leads to increased trust %etween different stages of the
supply chain and enhances any potential coordination efforts.
Answer: False
-. #he %ullwhip effect moves a supply chain away from the efficient frontier %y
increasing cost and decreasing responsiveness.
Answer: #rue
Difficulty: asy
1.. #he %ullwhip effect reduces the profita%ility of a supply chain %y making it simpler
to provide a given level of product availa%ility.
Answer: False
Difficulty: asy
11. )ncentive o%stacles refer to situations where incentives offered to different stages
or participants in a supply chain lead to actions that increase varia%ility and
reduce total supply chain profits.
Answer: #rue
Difficulty: easy
1!. )ncentives that focus only on the local impact of an action result in decisions that
minimi/e total supply chain profits.
Answer: False
Difficulty: 0ard
1$. )mproperly structured sales force incentives are a significant o%stacle to
coordination in the supply chain.
Answer: #rue
1(. 'easuring performance %ased on sell1through is often &ustified on the grounds
that the manufacturer2s sales force does not control sell1in.
Answer: False
Difficulty: 0ard
1*. )nformation processing o%stacles refer to situations where demand information is
distorted as it moves %etween different stages of the supply chain3 leading to
increased varia%ility in orders within the supply chain.
Answer: #rue
Difficulty: asy
1+. #he fact that each stage in a supply chain forecasts demand %ased on the
stream of orders received from the downstream stage results in an increase in
forecast accuracy as we move up the supply chain from the retailer to the
manufacturer.
Answer: False
17. #he lack of information sharing %etween the retailer and manufacturer leads to a
large fluctuation in manufacturer orders.
Answer: #rue
Difficulty: asy
1,. )nformation processing o%stacles refer to actions taken in the course of placing
and filling orders that lead to an increase in varia%ility.
Answer: False
1-. 4ricing o%stacles refer to situations in which the pricing policies for a product lead
to an increase in varia%ility of orders placed.
Answer: #rue
Difficulty: asy
!.. 5ot si/e %ased "uantity discounts reduce the %ullwhip effect within the supply
chain.
Answer: False
!1. #rade promotions and other short1term discounts offered %y a manufacturer
result in large orders during the promotion period followed %y very small orders
after that.
Answer: #rue
Difficulty: asy
!!. 6ehavioral o%stacles are often related to the way the supply chain is structured
and reduce the %ullwhip effect.
Answer: False
!$. 'anagers can improve coordination within the supply chain %y aligning goals and
incentives such that every participant in supply chain activities works to ma7imi/e
total supply chain profits.
Answer: #rue
!(. Sharing of 48S data helps reduce the %ullwhip effect %ecause it allows each
stage of the supply chain to use orders from the previous stage to forecast future
demand.
Answer: False
!*. 9ithout colla%orative planning3 sharing of 48S data does not guarantee
coordination.
Answer: #rue
!+. 9hen a single stage controls replenishment decisions for the entire chain3 the
pro%lem of multiple forecasts is magnified and coordination within the supply
chain follows.
Answer: False
!7. A reduction in replenishment lead time helps dampen the %ullwhip effect %y
reducing the underlying uncertainty of demand.
Answer: #rue
!,. A reduction of lot si/es increases the amount of fluctuation that can accumulate
%etween any pair of stages of a supply chain3 thus increasing the %ullwhip effect.
Answer: False
!-. #ying allocation to past sales removes any incentive a retailer may have to inflate
orders3 as a result dampening the %ullwhip effect.
Answer: #rue
Difficulty: asy
$.. 'anagers can encourage the %ullwhip effect %y devising pricing strategies that
encourage retailers to order in smaller lots and reduce forward %uying.
Answer: False
Difficulty: asy
$1. Cooperation and trust within the supply chain help improve performance for a
variety of reasons.
Answer: #rue
Difficulty: asy
Multiple Choice
1. Supply chain coordination
a. improves if all stages of the chain take actions that together increase total
supply chain profits.
%. re"uires each stage of the supply chain to take into account the impact its
actions have on other stages.
c. cannot %e achieved in real world applications.
d. all of the a%ove
e. a and % only
Answer: e
Difficulty: asy
!. A lack of coordination occurs either %ecause
a. different stages of the supply chain have o%&ectives that conflict.
%. the policies of most firms are contrary to cooperation.
c. information moving %etween stages gets delayed and distorted.
d. all of the a%ove
e. a and c only
Answer: e
Difficulty: 0ard
$. )nformation is distorted as it moves within the supply chain %ecause
a. complete information is shared %etween stages.
%. complete information is not shared %etween stages.
c. firms try to %e too accurate.
d. all of the a%ove
e. % and c only
Answer: e
(. )nformation distortion is e7aggerated %y the fact that
a. supply chains today produce a large amount of product variety.
%. supply chains today produce a small amount of product variety.
c. the telephone effect is e7treme in situations where technology is in use.
d. different stages of supply chains send e7cessive data.
e. none of the a%ove
Answer: a
*. #he situation in which fluctuations in orders increase as they move up the supply
chain from retailers to wholesalers to manufacturers to suppliers is known as
a. market fluctuations.
%. the whiplash effect.
c. the %ullwhip effect.
d. lack of visi%ility.
Answer: c
+. #he %ullwhip effect causes
a. a loss of supply chain coordination.
%. distortion of demand information within the supply chain.
c. different stages of the supply chain to have a very different estimate of what
demand looks like.
d. all of the a%ove
e. a and % only
Answer: d
7. #he lack of coordination within a supply chain will result in a decrease in
a. manufacturing cost.
%. inventory cost.
c. replenishment lead time.
d. level of product availa%ility.
e. transportation cost.
Answer: d
,. #he lack of coordination within a supply chain will result in an increase in
a. profita%ility.
%. inventory accuracy.
c. replenishment lead time.
d. level of product availa%ility.
e. transportation cost.
Answer: c
-. #he %ullwhip effect
a. positively impacts performance at every stage.
%. hurts the relationships %etween different stages of the supply chain.
c. enhances the relationships %etween different stages of the supply chain.
d. none of the a%ove
e. %oth a and c
Answer: %
1.. #he %ullwhip effect moves a supply chain
a. away from the efficient frontier %y increasing cost and decreasing
responsiveness.
%. away from the efficient frontier %y decreasing cost and increasing
responsiveness.
c. toward the efficient frontier %y increasing cost and decreasing
responsiveness.
d. toward the efficient frontier %y increasing cost and increasing responsiveness.
Answer: a
Difficulty: asy
11. Situations where incentives offered to different stages or participants in a supply
chain lead to actions that increase varia%ility and reduce total supply chain profits
are referred to as
a. incentive o%stacles.
%. information processing o%stacles.
c. operational o%stacles.
d. pricing o%stacles.
e. %ehavioral o%stacles.
Answer: a
Difficulty: asy
1!. )ncentives that focus only on the local impact of an action result in decisions that
a. do not ma7imi/e total supply chain profits.
%. ma7imi/e total supply chain profits.
c. minimi/e total supply chain profits.
d. minimi/e total supply chain cost.
Answer: a
1$. )mproperly structured sales force incentives
a. help create sta%le demand.
%. have very little effect on the timing of customer orders.
c. tend to create spikes in customer orders.
d. ensure that orders are "uickly and accurately entered and communicated to
other affected supply chain processes.
Answer: c
Difficulty: asy
1(. #he sales typically measured %y a manufacturer are
a. the "uantity sold to final customers :sell-through;.
%. the "uantity sold to distri%utors or retailers :sell1in;.
c. the "uantity reported %y the salesperson.
d. all of the a%ove
Answer: %
1*. Situations where demand information is distorted as it moves %etween different
stages of the supply chain3 leading to increased varia%ility in orders within the
supply chain are referred to as
Answer: %
Difficulty: asy
1+. #he fact that each stage in a supply chain forecasts demand %ased on the
stream of orders received from the downstream stage results in
a. forecasts %ased on actual consumer demand patterns.
%. a reduction in demand as we move up the supply chain from the retailer to
the manufacturer.
c. a magnification of fluctuations in demand as we move up the supply chain
from the retailer to the manufacturer.
d. an increase in forecast accuracy.
Answer: c
17. #he lack of information sharing %etween the retailer and manufacturer
a. magnifies the %ullwhip effect.
%. minimi/es the fluctuation in manufacturer orders.
c. leads to a large fluctuation in manufacturer orders.
d. all of the a%ove
e. a and c only
Answer: e
1,. Actions taken in the course of placing and filling orders that lead to an increase in
varia%ility are referred to as
Answer: c
1-. 9hen a firm places orders in lot si/es that are much larger than the lot si/es in
which demand arises3
a. varia%ility of orders is minimi/ed up the supply chain.
%. varia%ility of orders is magnified up the supply chain.
c. suppliers gain %etter visi%ility of consumer demand.
d. suppliers gain a more sta%le demand pattern.
Answer: %
Difficulty: asy
!.. <ationing schemes that allocate limited production in proportion to the orders
placed %y retailers
a. result in a game in which retailers try to increase the si/e of their orders to
increase the amount supplied to them.
%. lead to a magnification of the %ullwhip effect.
c. lead to the manufacturer %eing left with a surplus of product and capacity.
d. all of the a%ove
e. % and c only
Answer: d
!1. Situations in which the pricing policies for a product lead to an increase in
varia%ility of orders placed are referred to as
Answer: d
Difficulty: asy
!!. 5ot si/e %ased "uantity discounts
a. decrease the lot si/e of orders placed within the supply chain.
%. increase the lot si/e of orders placed within the supply chain.
c. magnify the %ullwhip effect.
d. a and c only
e. % and c only
Answer: e
Difficulty: asy
!$. Forward %uying results in
a. a sta%ili/ed %uying pattern.
%. small orders during the promotion period followed %y very small orders after
that.
c. small orders during the promotion period followed %y large orders after that.
d. large orders during the promotion period followed %y very small orders after
that.
Answer: d
!(. 4ro%lems in learning within organi/ations that contri%ute to the %ullwhip effect are
referred to as
Answer: e
!*. 6ehavioral o%stacles to supply chain coordination are often related to
a. the communication %etween different stages.
%. pricing and operational decisions.
c. the way the supply chain is structured.
d. all of the a%ove
e. a and c only
Answer: e
Difficulty: 0ard
!+. 9hich of the following managerial actions in the supply chain will not increase
total supply chain profits and moderate the %ullwhip effect=
a. aligning of goals and incentives
%. increasing information inaccuracy
c. improving operational performance
d. designing pricing strategies to sta%ili/e orders
e. %uilding partnerships and trust
Answer: %
!7. Aligning goals and incentives within the supply chain will
a. improve coordination within the supply chain.
%. encourage every participant in supply chain activities to ma7imi/e total supply
chain profits.
c. reduce demand uncertainty.
d. all of the a%ove
e. a and % only
Answer: e
!,. 9hich of the following is not an approach to improve coordination within the
supply chain %y aligning goals and incentives=
a. aligning incentives across functions
%. sharing point of sales :48S; data
c. pricing for coordination
d. altering sales force incentives from sell1in to sell1through
Answer: %
!-. 9hich of the following is not an approach to achieve coordination %y improving
the accuracy of information availa%le to different stages in the supply chain=
a. sharing point of sales :48S; data
%. implementing colla%orative forecasting and planning
c. designing single stage control of replenishment
d. pricing for coordination
Answer: d
$.. Sharing point of sales :48S; data across the supply chain can help reduce the
%ullwhip effect %ecause
a. each stage of the supply chain uses orders from the previous stage to
forecast future demand.
%. all supply chain stages can forecast future demand %ased on final customer
demand.
c. all stages can respond to the same change in customer demand.
d. all of the a%ove
e. % and c only
Answer: d
Difficulty: 0ard
$1. Different stages of the supply chain must forecast and plan &ointly if complete
coordination is to %e achieved3 %ecause
a. &ust the sharing of 48S data does not guarantee coordination.
%. the manufacturer must %e aware of the retailer2s promotion plans to achieve
coordination.
c. successful coordination re"uires that the entire supply chain is operating to a
common forecast.
d. all of the a%ove
e. a and % only
Answer: d
Difficulty: 0ard
$!. 9hen a single stage controls replenishment decisions for the entire chain3
coordination is achieved %ecause
a. the pro%lem of multiple forecasts is eliminated.
%. each stage views its role as one of replenishing orders placed %y the ne7t
stage.
c. the manufacturer is aware of the retailer2s promotion plans to achieve
coordination.
d. all of the a%ove
e. a and % only
Answer: a
Difficulty: 0ard
$$. <educing the replenishment lead time can help dampen the %ullwhip effect
%ecause
a. it will decrease the uncertainty of demand during the lead time.
%. the manufacturer is aware of the retailer2s promotion plans to achieve
coordination.
c. it discourages retailers from artificially inflating their orders in the case of a
shortage.
d. all of the a%ove
Answer: a
Difficulty: asy
$(. 8perational improvements that reduce lot si/es can dampen the %ullwhip effect
%y
a. decreasing the uncertainty of demand during the lead time.
%. decreasing the amount of fluctuation that can accumulate %etween any pair of
stages of a supply chain.
c. discouraging retailers from artificially inflating their orders in the case of a
shortage.
d. allocating the availa%le supply %ased on past retailer sales.
Answer: %
$*. #o diminish the %ullwhip effect3 managers can design rationing schemes that
a. decrease the uncertainty of demand during the lead time.
%. discourage retailers from artificially inflating their orders in the case of a
shortage.
c. allocate the availa%le supply %ased on past retailer sales.
d. all of the a%ove
e. % and c only
Answer: e
Difficulty: asy
$+. 4ricing strategies that dampen the %ullwhip effect include
a. offering volume1%ased "uantity discounts instead of lot1%ased "uantity
discounts.
%. elimination of promotions that encourage forward %uying %y retailers.
c. promotion dollars paid to the retailer %ased on the amount of sell1through
rather than the amount purchased %y the retailer.
d. all of the a%ove
e. a and % only
Answer: d
Difficulty: asy
$7. 9hich of the following is not a reason cooperation and trust within the supply
chain help improve performance=
a. A more natural aligning of incentives and o%&ectives is achieved.
%. Action1oriented managerial levers to achieve coordination %ecome easier to
implement.
c. An increase in supply chain productivity results3 either %y elimination of
duplicated effort or %y allocating effort to the appropriate stage.
d. Appropriate pricing schemes are harder to achieve if %oth parties are aiming
for the common good.
e. A greater sharing of detailed sales and production information results.
Answer: d
Difficulty: asy
$,. 9hich of the following is not a reason negative conse"uences are felt in a
power1%ased supply chain partnership=
a. 7ploiting power results in one stage of the supply chain ma7imi/ing its
profits3 often at the e7pense of other stages.
%. 7ploiting power leads to an increase in overall supply chain profita%ility.
c. 7ploiting power to e7tract unfair concessions can hurt a company once the
%alance of power changes.
d. 9hen a stage of a supply chain systematically e7ploits its power advantage3
the other stages seek ways to resist.
Answer: %
$-. 9hen the parties involved in a supply chain partnership %uild trust and
cooperation over time as a result of a series of interactions %etween them3 they
are taking a
a. su%&ective view.
%. process1%ased view.
c. deterrence1%ased view.
d. pro&ect1%ased view.
Answer: %
(.. 9hen the parties involved in a supply chain partnership use a variety of formal
contracts to ensure cooperation3 they are taking a
a. su%&ective view.
%. process1%ased view.
c. deterrence1%ased view.
d. pro&ect1%ased view.
e. none of the a%ove.
Answer: c
(1. 9hich of the following is not a key step in designing effective supply chain
partnerships=
a. devoting resources to coordination
%. assessing the value of the relationship
c. identifying operational roles and decision rights for each party
d. creating effective contracts
e. designing effective conflict resolution mechanisms
Answer: a
(!. 9hich of the following activities occur during the step in design of a supply chain
partnership where the parties assess the value of the relationship=
a. clearly identifying the mutual %enefit that the relationship provides
%. determining how the total profits will %e divided %etween the parties
c. clarifying the contri%ution of each party
d. all of the a%ove
e. % and c only
Answer: d
($. 9hen identifying operational roles and decision rights for different parties in a
supply chain relationship3 managers must
a. divide the tasks in a way that makes one party more dependent on the other.
%. divide the tasks in a way that neither party is dependent on the other.
c. consider the resulting interdependence %etween the parties.
d. all of the a%ove
e. % and c only
Answer: c
Difficulty: 0ard
((. )f the activities of one partner precede the other3 the allocation of tasks has
resulted in
a. a reciprocal interdependence.
%. a se"uential interdependence.
c. a supplier interdependence.
d. an unplanned interdependence.
Answer: %
(*. )f the parties come together and e7change information and inputs in %oth
directions3 they have
a. a reciprocal interdependence.
%. a se"uential interdependence.
c. a supplier interdependence.
d. an unplanned interdependence.
Answer: a
Essay/Problems
1. 9hat is the %ullwhip effect and how does it relate to lack of coordination in the
supply chain=
Answer: 'any firms have o%served the %ullwhip effect in which fluctuations in
orders increase as they move up the supply chain from retailers to wholesalers to
manufacturers to suppliers. #he %ullwhip effect distorts demand information
within the supply chain3 with different stages having a very different estimate of
what demand looks like. #he result is a loss of supply chain coordination. #his
leads to increased inventories3 poorer product availa%ility3 and a drop in profits.
#he %ullwhip effect negatively impacts performance at every stage and thus hurts
the relationships %etween different stages of the supply chain. #here is the
tendency to assign %lame to other stages of the supply chain %ecause each
stage feels it is doing the %est it can. #he %ullwhip effect thus leads to a loss of
trust %etween different stages of the supply chain and makes any potential
coordination efforts more difficult. )t follows that the %ullwhip effect and the
resulting lack of coordination have a significant negative impact on the supply
chain2s performance. #he %ullwhip effect moves a supply chain away from the
efficient frontier %y increasing cost and decreasing responsiveness. #he %ullwhip
effect reduces the profita%ility of a supply chain %y making it more e7pensive to
provide a given level of product availa%ility.
!. 9hat is the impact of lack of coordination on the performance of the supply
chain=
Answer: A lack of coordination occurs either %ecause different stages of the
supply chain have o%&ectives that conflict or %ecause information moving
%etween stages gets delayed and distorted. Different stages of a supply chain
may have o%&ectives that conflict if each stage has a different owner. As a result3
each stage tries to ma7imi/e its own profits3 resulting in actions that often
diminish total supply chain. )nformation is distorted as it moves within the supply
chain %ecause complete information is not shared %etween stages. #his
distortion is e7aggerated %y the fact that supply chains today produce a large
amount of product variety. #he lack of supply chain coordination leads to
increased inventories3 poorer product availa%ility3 and a drop in profits.
$. 0ow do improperly structured incentives lead to a lack of coordination in the
supply chain=
Answer: )ncentive o%stacles refer to situations where incentives offered to
different stages or participants in a supply chain lead to actions that increase
varia%ility and reduce total supply chain profits. )ncentives that focus only on the
local impact of an action result in decisions that do not ma7imi/e total supply
chain profits. 6uying decisions %ased on ma7imi/ing profits at a single stage of
the supply chain lead to ordering policies that do not ma7imi/e supply chain
profits.
)mproperly structured sales force incentives are a significant o%stacle to
coordination in the supply chain. )n many firms3 sales force incentives are %ased
on the amount the sales force sells during an evaluation period of a month or a
"uarter. #he sales typically measured %y a manufacturer are the "uantity sold to
distri%utors or retailers :sell1in;3 not the "uantity sold to final customers :sell-
through;. 'easuring performance %ased on sell1in is often &ustified on the
grounds that the manufacturer2s sales force does not control sell1through. #his
leads to spikes in orders that do not reflect actual customer needs.
(. Descri%e the impact of forecasts %ased on orders rather than actual customer
demand.
Answer: 9hen stages within a supply chain make forecasts that are %ased on
orders they receive3 any varia%ility in customer demand is magnified as orders
move up the supply chain to manufacturers and suppliers. )n supply chains that
e7hi%it the %ullwhip effect3 the fundamental means of communication %etween
different stages are the orders that are placed. ach stage views its primary role
within the supply chain as one of filling orders placed %y its downstream partner.
#hus3 each stage views its demand to %e the stream of orders received and
produces a forecast %ased on this information. )n such a scenario3 a small
change in customer demand %ecomes magnified as it moves up the supply chain
in the form of customer orders. Consider the impact of a random increase in
customer demand at the retailer. #he retailer may interpret part of this random
increase to %e a growth trend. #his interpretation will lead the retailer to order
more than the o%served increase in demand %ecause the retailer e7pects growth
to continue into the future and thus orders to cover for future anticipated growth.
#he increase in the order placed with the wholesaler is thus larger than the
o%served increase in demand at the retailer. 4art of the increase is a one1time
increase. #he wholesaler3 however3 has no way to interpret the order increase
correctly. #he wholesaler simply o%serves a &ump in the order si/e and infers a
growth trend. #he growth trend inferred %y the wholesaler will %e larger than that
inferred %y the retailer :recall that the retailer had increased the order si/e to
account for future growth;. #he wholesaler will thus place an even larger order
with the manufacturer. As we go further up the supply chain3 the order si/e will
%e magnified. >ow assume that periods of random increase are followed %y
periods of random decrease in demand. ?sing the same forecasting logic as
earlier3 the retailer will now anticipate a declining trend and reduce order si/e.
#his reduction will also %ecome magnified as we move up the supply chain.
#he fact that each stage in a supply chain forecasts demand %ased on the
stream of orders received from the downstream stage results in a magnification
of fluctuations in demand as we move up the supply chain from the retailer to the
manufacturer.
*. Descri%e the impact of %ehavioral o%stacles on supply chain coordination.
Answer: 6ehavioral o%stacles refer to pro%lems in learning within organi/ations
that contri%ute to the %ullwhip effect. #hese pro%lems are often related to the way
the supply chain is structured and the communication %etween different stages.
Some of the %ehavioral o%stacles are as follows:
1. ach stage of the supply chain views its actions locally and is una%le to
see the impact of its actions on other stages.
2. Different stages of the supply chain react to the current local situation
rather than trying to identify the root causes.
3. 6ased on local analysis3 different stages of the supply chain %lame
each other for the fluctuations3 with successive stages in the supply chain
%ecoming enemies rather than partners.
4. >o stage of the supply chain learns from its actions over time %ecause
the most significant conse"uences of the actions any one stage takes
occur elsewhere. #he result is a vicious cycle where actions taken %y a
stage create the very pro%lems that the stage %lames on others.
5. A lack of trust %etween supply chain partners causes them to %e
opportunistic at the e7pense of overall supply chain performance. #he
lack of trust also results in significant duplication of effort. 'ore important3
information availa%le at different stages is either not shared or is ignored
%ecause it is not trusted.
+. 0ow does cooperation and trust improve performance in a supply chain
partnership=
Answer: Cooperation and trust within the supply chain help improve performance
for the following reasons:
1. A more natural aligning of incentives and o%&ectives is achieved. 9hen
stages trust each other3 they are more likely to take the other party2s
o%&ective into consideration when making decisions.
2. Action1oriented managerial levers to achieve coordination %ecome
easier to implement. Sharing of information is natural %etween parties that
trust each other. Similarly3 operational improvements are easier to
implement and appropriate pricing schemes are easier to design if %oth
parties are aiming for the common good.
3. An increase in supply chain productivity results3 either %y elimination of
duplicated effort or %y allocating effort to the appropriate stage. For
e7ample3 a manufacturer receives material from a supplier without
inspecting it as long as the supplier shares process control charts.
4. A greater sharing of detailed sales and production information results.
#his sharing allows the supply chain to coordinate production and
distri%ution decisions. As a result3 the supply chain is %etter a%le to match
supply and demand3 resulting in %etter coordination.
7. Discuss the importance of managing supply chain relationships for cooperation
and trust.
Answer: ffectively managed supply chain relationships foster cooperation and
trust3 thus increasing supply chain coordination. )n contrast3 poorly managed
relationships lead to each party %eing opportunistic3 resulting in a loss of total
supply chain profits. #he management of a relationship is often seen as a tedious
and routine task. #op management3 in particular3 is often very involved in the
design of a new partnership %ut rarely involved in its management. #his has led
to a mi7ed record in running successful supply chain alliances and partnerships.
A supply chain partnership falters if the perceived %enefit from the relationship
diminishes or if one party is seen as %eing opportunistic. 4ro%lems arise when
communication %etween the two parties is weak and the mutual %enefit of the
relationship is not reiterated regularly. 9hen managing a supply chain
relationship3 managers should focus on the following factors to improve the
chances of success of a supply chain partnership:
1. #he presence of fle7i%ility3 trust3 and commitment in %oth parties helps
a supply chain relationship succeed. )n particular3 commitment of top
management on %oth sides is crucial for success. #he manager directly
responsi%le for the partnership can also facilitate the development of the
relationship %y clearly identifying the value of the partnership for each
party in terms of his own e7pectations.
2. @ood organi/ational arrangements3 especially for information sharing
and conflict resolution3 improve chances of success. 5ack of information
sharing and the ina%ility to resolve conflicts are the two ma&or factors that
lead to the %reakdown of supply chain partnerships.
3. 'echanisms that make the actions of each party and resulting
outcomes visi%le help avoid conflicts and resolve disputes. Such
mechanisms make it harder for either party to %e opportunistic and help
identify defective processes3 increasing the value of the relationship for
%oth parties.
4. #he more fairly the stronger partner treats the weaker3 vulnera%le
partner3 the stronger the supply chain relationship tends to %e.
#he issue of fairness is e7tremely important in the supply chain conte7t %ecause
most relationships will involve parties with une"ual power. ?nanticipated
situations that hurt one party more than the other often arise. #he more powerful
party often has greater control over how the resolution occurs. #he fairness of
the resolution influences the strength of the relationship in the future. Fairness
re"uires that the %enefits and costs of the relationship %e shared %etween the
two parties in a way that makes %oth winners. A relationship %ased on power
would ma7imi/e all %enefits on one side. )t is thus important that the weaker party
perceive the fairness of the stronger party2s procedures and policies for dealing
with its partners. #he stronger party is in control of its policies and procedures
and should not %ias the policies in a way that is opportunistic and does not
%enefit the entire supply chain. Fair procedures should encourage two1way
communication %etween the partners. #he procedures should %e impartial and
should allow the weaker party an opportunity to appeal the stronger party2s
decisions. Finally3 the stronger party should %e willing to e7plain all its decisions.

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Chapter 17

Coordination in a Supply Chain

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