Introduction

Supply chain Supply chain management (SCM) capabilities

collaboration: the key are already delivering major economic benefits
to value creation to businesses as diverse as manufacturers,
retailers, and service providers. Benefits
include such classic supply chain functions as
B.S. Sahay inventory control, purchasing, and order
fulfillment. But it is a mistake for businesses to
think of SCM as limited to these functions
alone. Enhanced SCM capabilities can create
efficiencies and cost savings across a wide
range of business processes. Properly
implemented, SCM is a strategic activity that
The author must be conducted across the entire
B.S. Sahay is Professor of Operations Management at the enterprise, from marketing and product
Management Development Institute, Gurgaon, India. design groups all the way through to the
accounts receivable department. Ultimately,
Keywords SCM must be conducted between enterprises,
since optimizing entire supply chains will
Demand management, Inventory control,
require a level of information sharing and
Product development, Partnering,
collaboration among enterprises previously
Supply chain management, Collaboration
unknown in most businesses.
Traditionally, the focus of companies has
Abstract
been on the flows within the organisation or
As global markets grow increasingly efficient, competition flows over which the organisation has direct
no longer takes place between individual businesses, but control. But, successful supply chain
between entire supply chains. Collaboration can provide management requires the recognition that the
the competitive edge that enables all the business firm is simply one player in the long chain that
partners in a supply chain to prevail and grow. This paper starts with suppliers and includes
presents a framework for customer-supplier collaboration transporters, distributors and customers.
that facilitates effective and efficient supply chain Close relationships between suppliers,
operation. The paper reveals that the level of involvement manufacturers, transporters, distributors and
of customers and suppliers differs across different supply customers are going to be the key to success in
chain processes and also across different sectors. While times to come. Organisations must interact
the involvement of customers is high in demand co-operatively with their channel partners for
management and product development, the involvement the mutual benefit of the channel as well as
of suppliers is high in transportation and inventory the gain of each player. In order to adopt this
management processes. The paper also reveals that about external perspective, organisations should not
50 percent of the organizations surveyed indicate that only consider the impact of any business
suppliers and customers have little or virtually no role in decision on their own performance but also
the demand management, inventory management, and on the bottom line of their suppliers,
product development processes. distributors and transporters. Companies are
recognising that supply chain innovations can
Electronic access be not only a driver of cost reduction, but
The Emerald Research Register for this journal is importantly, a catalyst for revenue growth by
available at achieving greater levels of customer
http://www.emeraldinsight.com/researchregister satisfaction. Anderson and Lee (1999) call the
new generation of supply chain strategy a
The current issue and full text archive of this journal is
``synchronised supply chain''.
available at
There is increasing interest in inter-firm
http://www.emeraldinsight.com/0043-8022.htm
relationships as more firms rely on resources
outside their own firm to compete
Work Study
successfully (Harland, 1996). Companies
Volume 52 . Number 2 . 2003 . pp. 76-83
# MCB UP Limited . ISSN 0043-8022 look at their supply chains the upstream part
DOI 10.1108/00438020310462872 of the value-chain from the company's
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B.S. Sahay Volume 52 . Number 2 . 2003 . 76-83

perspective as a means of focusing on their (Fenn, 1997). The involvement of customers

own core competencies, of leveraging those of and suppliers is on the rise; however, failure
vendors, of lowering their costs, and, thus, rates also seem to remain high (Arino and
becoming more responsive to customers. Doz, 2000).
Each link in the chain must add competitive
advantage. However, this is not adequate
enough. The basis of competition between Supply chain collaboration
organizations is shifting to how effectively
these supply chains are managed. Opportunities for collaboration among
As a supply chain perspective entails business partners will vary depending upon
looking at the supply chain partners, it is the organisations' prospective role in the
important to have a trusting relationship supply chain. Collaboration enables partners
between them, where each party has mutual to jointly gain a better understanding of future
confidence in the other members' capabilities product demand and implement more
and actions (Handfield and Nichols, 1999). realistic programmes to satisfy that demand.
As organizations enter the era of network The three major types of collaborative
competition, the winners will be those relationships are depicted in Figure 1 and
organizations who can better structure, discussed below (Lapide, 1999).
coordinate and manage the relationships with
their partners in a network committed to Manufacturing/supplier collaboration
better, faster and closer relationships with Close collaboration among supply chain
their final customers (Christopher, 1999). partners can be to align the parties and then
The relationship between the partners, enhance the value of the network's combined
instead of being restricted to coordination activities. Collaborating with suppliers,
only, should transform to a more manufacturers will derive benefits in such key
collaborative one. Failing to collaborate
activities as new product development, order
would result in the distortion of information
fulfilment, and capacity planning.
(bullwhip effect) as it moves through the
Collaborative product development enabled
supply chain, which, in turn, can lead to
by sharing and modifying design documents
costly inefficiencies, excess inventories, slow
will help manufacturers develop products
response, and lost profits (Lee et al., 1997).
better and faster. Similarly, co-ordinating all
As organizations look beyond their own
tier-supplier production schedules will help
firms, it becomes important for them to
ensure that future material needs are satisfied.
involve their suppliers and customers in the
This, in turn, results in improved order
various processes. Successful involvement
yields major benefits: increased market share, fulfilment and increased capacity utilisation.
inventory reductions, improved delivery
Manufacturer/customer collaboration
service, improved quality, and shorter product
The collaborative opportunities between
development cycles (Corbett et al., 1999).
manufacturers and customers (such as
Proper management of customer-supplier
involvement offers significant opportunities for wholesale-distributors and retailers) center on
firms to create strategic advantage and achieve demand planning and inventory
extraordinary financial performance. In other replenishment. The focus is on jointly
words, a collaborative process of creating developing an understanding of demand at
mutually beneficial strategic outcomes results the point of consumption, followed by
in ``pie expansion'' (Jap, 1999). creation of a mutually agreed replenishment
It is important to use this alliance plan. This approach helps to ensure that
strategically. Earlier, large organizations consumer requirements are met efficiently.
experimented with customer-supplier To collaborate on demand planning
alliances as a cost-cutting device. But successfully, business partners need to share
recently, companies have been using and modify each other's demand plans and
partnerships, not as a money saver, but as a forecasts electronically. Importantly, each
sales strategy also (Useem, 1997). partner needs to understand and
Although it has numerous benefits, electronically share its promotional plans.
involving and maintaining involvement of Once demand plans and forecasts are in
supply chain partners is a tricky business place, replenishment plans designed to
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B.S. Sahay Volume 52 . Number 2 . 2003 . 76-83

Figure 1 Supply chain collaboration opportunities

assume adequate product availability would provide assets and expertise for ongoing
be jointly developed. operations (Gattorna, 1998).
In view of the growing importance of
Collaboration with third party and fourth collaboration, of increased level of
party logistics providers involvement, and of the associated risks, this
Collaboration between companies and third research paper is an attempt to understand
party logistics (3PL) providers will focus on three aspects of customer-supplier
joint planning of logistics activities. With involvement in Indian organizations:
regard to transportation services, (1) Does the involvement vary across
collaboration will improve equipment different supply chain processes. Is this
utilisation by enabling the consolidation of involvement a function of the sector?
inbound, interfacility, and outbound (2) How do Indian organizations compare
shipments among business partners. This can with the rest of the world in terms of
be accomplished through electronic sharing of customer-supplier involvement?
information on shipment plans and (3) How do organizations decide on the
availability of transportation resources. degree of involvement of the partners?
Packaging is another potential area for In an attempt to understand the above, this
logistics collaboration. Collaboration with paper focuses on examining the customer-
3PLs providing distribution centre (DC) supplier involvement existing in the different
services would focus on the productive use of organizations with respect to two variables
facilities, labour and equipment. This process and sector.
involves electronic sharing of inventory
replenishment plan so that receipts do not
overload a DC's receiving function or storage
The research: customer-supplier
capacity. Electronic visibility into the collaboration
availability of distribution centre resources
would support this type of collaboration. This paper is based on the feedback received
While outsourcing 3PL is now accepted from over 160 organizations spread across the
business practice, fourth party logistics (4PL) geography of India and including
is emerging as a breakthrough solution to organizations from sectors that were as varied
modern supply chain challenges. The 4PL as FMCG (fast moving consumer goods) to
organisation is one of the intermediate stages automotive to chemical to engineering.
along the logistics spectrum that combines the Instead of viewing the supply chain
benefits of outsourcing and insourcing. It is collaboration at a macro level, it was broken
usually established as a joint venture or long- down into 12 different processes. The
term contract between at least two parties, respondents were asked to indicate the
consisting of the primary client(s) and at least involvement of both customers and suppliers,
one other partner, which contributes the in different processes on a scale of 1 to 5, with
start-up capital for the venture and also 1 indicating low involvement and 5 high. This
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B.S. Sahay Volume 52 . Number 2 . 2003 . 76-83

gave comprehensive information about the order despatch efficiency.

various aspects of customer-supplier . Higher involvement of the customers is a
involvement. Unique to this study was the necessary but not a sufficient condition
administering of the same set of 12 processes for effective management of the demand
for both the customer as well as the supplier. variabilities. Knowledge of changing
An analysis of the data revealed some very customer preferences definitely helps, but
interesting insights into this collaborative to enhance the flexibility of the chain, it is
relationship. Not all the processes were essential that the suppliers also be made
viewed of equal involvement for the customer aware of these variabilities. This would
and supplier they sometimes varied quite increase the preparedness of the chain to
significantly. For the data collected, a respond to customizations.
weighted score was calculated for each of the Overall, the involvement is low for both
processes. These processes were then ranked customers and suppliers in the case of 58
on the basis of the weighted scores. The percent of the respondents (Figure 3). This is
results are shown in Figure 2. a big impediment in the successful
. The processes that were important to the implementation of supply chain management,
suppliers were not necessarily important which calls for strategic partnerships between
to the customers. For instance, consider the different players in the chain. It is
the process of inventory management. interesting to note that the next bigger group
This process is ranked as high as 2 as far of respondents belongs to the category of high
as supplier involvement is concerned but involvement of both the entities. Thus, the
as low as 10 for customer involvement. involvement is either very high or very low.
Manufacturing, planning and scheduling This implies that the organizations either do
is ranked 3 for the suppliers, but a lowly 8 not attach or attach considerable significance
for the customers. to these entities.
. The poor involvement of both customers A study of the collaboration between
and suppliers in the extremely important suppliers and customers across different
activity of warehouse management is a sectors and processes brings to light some
cause of great concern. By increasing very interesting results (Figures 4 and 5).
their involvement, firms can plan their
location effectively and can even share Automobile
warehouse space with suppliers, making Although 40 percent of the respondents
effective usage of space according to within the automobile sector have indicated a
customer requirements and improving low level of involvement in their processes,
the other 60 percent is divided equally
Figure 2 Customer-supplier involvement matrix between the other three quadrants. This
shows that within this sector, not much
differentiation is made as regards the level of
involvement. However, a careful analysis of
the data reveals that the involvement is higher
in the case of demand management (64
percent) and order fulfilment (54 percent)
and the involvement of supplier is higher but
that of customer is lower in the case of
inventory management (50 percent). The

Figure 3 Overall customer-supplier involvement

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Figure 4 Sector-based customer supplier involvement

Figure 5 Process-related customer supplier inolvement

total capital blocked in raw material and suppliers, with over three-quarters of the total
finished goods inventory is Rs.15,000 crore, respondents indicating a low level of supplier
which can be reduced by having greater involvement. Here, however, the customer is
customer involvement. more involved in 64 percent of the cases, and
the supplier more involved in 55 percent of
FMCG the cases. Only in 27 percent of the cases is
Within this sector, the level of customer there a higher involvement by both the
involvement is higher than that of the entities. This sector is characterised by
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intense competition and such a low level of . There is a higher degree of customer
participation by the suppliers and customers involvement (65 percent) as compared to
is bound to be catastrophic. As expected, the that of the suppliers (42 percent) in the
customer is more involved in distribution demand management process. However,
management (60 percent), and product there is no clear division between the
development (64 percent) and has no different quadrants, indicating that more
involvement in export-import. or less, there is an equal participation of
customers and suppliers.
Consumer durables . The customers are relatively less involved
Very interesting results have been observed in in the process of manufacturing
this sector. The participation is either very management 61 percent have low
low (50 percent) or very high (50 percent). involvement and 39 percent have high
This sector is characterised by cut-throat involvement. As against this, the
competition. In the recent past, there is a suppliers' involvement is equally spread
growing dominance of the MNCs, and the out.
input costs in general are on the rise. In such a . A total of 69 percent of the respondents
situation, it is important for organizations to have indicated a high level of customer
realise that participation is dependent on the involvement in the product development
complexity and criticality of the various process.
processes. Using the portfolio approach to . Inventory management is seen more as an
decide this would not only result in internal process with little customer
considerable savings, but also improve sales. participation. However, in their attempt
to lower their inventories, organizations
Engineering have involved more suppliers (57
This sector is characterised by heavy basic percent).
industries, which are more into engineer to It is evident that the success of customer-
order type of products. This calls for a great supplier relationships depends on the
degree of flexibility of operations. However, frequency of interaction between the partners.
only 26 percent of the respondents have Once firms realise the importance of involving
indicated that there is a high customer their customers and suppliers, the level of
involvement in different processes. This is commitment can also be determined. This
even lower than that of the suppliers (32 involves the level of dependence that one
percent). Also, the low involvement of party perceives that they have on other, and
suppliers in demand management (63 the amount of investment that they make in
percent) is difficult to fathom. Since these the relationship in time and resources.
industries are either located close to the However, it is difficult for firms to determine
source of inputs or consumption, how frequently they should interact. There is
transportation becomes a very critical aspect no ``one-size-fits-all'' rule applicable to
of the supply chain. However, it is surprising determine this.
to note that transportation is a low priority Figure 6 proposes a matrix-based
process for supplier involvement (61 percent). framework, on the two dimensions of

Chemical Figure 6 Portfolio matrix

This sector has the highest percentage of
respondents (75 percent) in the low
involvement category, and just about 19
percent fall in the high involvement category.
Transportation is the only process that has a
slightly greater number of respondents (30
percent) in the high involvement category.
An analysis of the responses according to
the different processes gives useful insights
into what processes are perceived to be critical
by the organizations. Some of the interesting
results have been highlighted below.
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criticality and complexity of processes. firms can better utilize their resources. This
Criticality and complexity exist on a calls for a higher involvement of suppliers.
continuum in varying degrees. Since all the The involvement of customers need not be as
processes are not of equal significance, the high as the products are functional products.
involvement level should also not be equal for
all the processes. In-house involvement
This kind of involvement is suitable for
processes that are high on criticality but low
Portfolio matrix on complexity. With the lower degree of
complexity, the supplier involvement need
This matrix divides the supply chain not be high, as the process is performed in-
processes/activities into different categories house. However, since this process is critical,
based on complexity and criticality. the customer preferences should be taken care
Complexity refers to the difficulty in of. This calls for higher customer
performing the operations because of involvement.
interlinkages with the other processes.
Criticality is the importance of the particular Convenience involvement
process to the overall supply chain. For a less critical and complex process, the
Based on these two parameters, four involvement should be ``convenient''. This is
customer-supplier involvement zones have applicable to secondary processes, which do
been identified. These are: not directly affect the supply chain
(1) strategic involvement; performance. These processes are mostly
(2) outsourcing involvement; internal to the organization and hence,
(3) in-house involvement; and require little involvement from the customer
(4) convenience involvement. or supplier.
Each of these zones has a different level of A drawback of this framework is the
customer-supplier involvement in the various subjectivity involved in determining the
activities. criticality and complexity of the processes.
However, to deal with this, a list of processes
Strategic involvement with priorities can be made, which can then
For activities which involve a higher degree of be standardized across the organization. This
complexity of operations and are critical for would, however, be specific to the
the attainment of supply chain objectives, organization only.
there should be strategic involvement. The
suppliers with whom the strategic
partnerships are to be formed should be Conclusion
chosen after careful consideration. These
suppliers would provide the requisite Although there has been a growing awareness
flexibility to the operations so that the supply about the importance of supply chain
chain becomes more responsive to changing collaboration as a strategic tool, and
customer preferences. By involving organizations have already made some
customers, trends can be studied and used to progress, a lot of work remains to be done.
help the organization in focusing on what The driving force of effective SCM is
products to continue and what additional collaboration. Strategic SCM demands
features to incorporate. collaboration among all participants in the
value chain, whatever their size, function, or
Outsourcing involvement relative position. Suppliers and customers are
This kind of involvement is advised when the two very crucial components of the chain.
complexity of the operations makes it Customer-supplier involvement calls for
unprofitable for the organization to carry commitment and trust over an extended time
them out on its own. This leaves the period and includes the sharing of
organization to focus on its core processes, information, risks and rewards. Their
leaving the complex supply chain activities to effective involvement in the supply chain is a
firms which specialize in those processes. must. However, not all the processes require
Since the criticality is low, by outsourcing, the same amount of involvement.
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The survey results suggest that the degree References

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