This article is divided into two parts. Part I, presented here, deals with the elements that impact the magnitude of the relationship between logistics operators and their customers, that is, the factors necessary to achieve the collaborative relationship. Part II will deal with the results of the collaborative relationship that may come in the form of benefits or risks for the logistics operator.
One of the ways to achieve financial performance in a supply chain strategy is through collaboration. It consists of suppliers and customers working together to achieve mutual improvements. There are many benefits arising from the collaborative relationship between the logistics service provider and its customer, such as increased revenue, cost reduction and operational flexibility to deal with demand uncertainties. These benefits, however, are not immediately visible, but imply potential long-term rewards.
But what is collaboration? When is the relationship considered a partnership? Logistics outsourcing can take different forms and conditions, from a short-term transport contract to strategic alliance agreements covering all logistics activities for many years. To assess the strength or magnitude of the relationship between the service provider and the shipper, it is necessary to assess three characteristics: trust, commitment and dependence between the partners.
Trusted
For a partnership to work, it is necessary, among other things, to build trust between the organizations, that is, each partner needs to believe that the other is fully committed to its long-term success. Trust, therefore, is the willingness to rely on a partner who is believed to be honest and benevolent.
Commitment
Trust, however, is not enough for relationship management, commitment is also a fundamental component. Commitment is the desire to continue the relationship and to work to ensure its continuation. It implies that the parties are tolerant of each other's shortcomings, that each cooperates, and that they do not act opportunistically.
Dependency
The third factor that leads to greater collaboration is a high level of dependency. Power imbalance happens when one partner has the ability to provide the other with something that he would not normally have, that is, it is directly related to the degree to which one partner depends on the other. Dependence is the perception of the need to maintain the relationship to achieve the goals and is associated with the magnitude of the relationship.
The greater the trust, commitment, and dependence between partners, the greater the magnitude, strength, or quality of the relationship. But what are the factors that influence the trust, commitment and dependence of these partners? This article presents 14 factors that impact relationship magnitude. These factors will be called elements of the collaborative relationship.
Elements of the collaborative relationship
Collaborative relationship elements are partnership management components such as joint activities and processes used to build and sustain a partnership. How the partners put the components into practice and how they are managed will determine how the partnership operates. Partnerships can fail if components are not implemented properly. Next, a list of 14 elements involved in the development of a collaborative relationship will be presented, this list, however, is not exhausted and new variables can be added by executives or other researchers.
- Alignment of strategic objectives
Alignment and sharing of common strategic objectives, providing focus for the relationship and a strong reason for continuing the relationship.
- Jointly defined performance measures
Definition of performance measures or critical success factors in cooperation between the shipper and the logistics operator, which must be expressed, measured, monitored and agreed by both parties to avoid disagreements.
- Risk and benefit sharing
Incentive program involving the sharing of benefits and risks between supplier and customer in any cooperative effort. Both scarcity and surplus must be shared to reinforce the long-term sense of fairness, impacting on the partners' level of commitment.
- information sharing
Sharing relevant information, that is, information that can help or affect the other party, in both directions of the relationship, formally or informally, in real time or on demand, through information systems, procedures and meetings.
- Flexibility
Degree of adjustment that each partner makes in their own behavior to meet the needs of the other in the face of the new situation. In practice, flexibility can be understood as the partners' reaction to requests for last-minute adjustments.
- dedicated investments
Sustainable collaborations are supported by investments such as facilities, human resources, time, training, technology upgrades, equipment. Dedicated assets demonstrate commitment. A company will only invest in the relationship, through dedicated assets, if it is convinced that the partnership will be long-term, that both partners will have advantages and that the customer will not act opportunistically.
- Expectation of continuity
It is the belief that the relationship will continue into the future with no end date, with long-term expectations and generating repeat business. Long-term relationships aren't necessarily permanent, which keeps each partner motivated to do what's best for the other and confirms that each partner has more to gain from the relationship than its end.
- Specification of functions and rules
Formalization of ground rules and responsibilities, which define expectations and establish procedures for dealing with the routine and the unexpected, helping to avoid or resolve conflicts.
- joint planning
Joint planning must define how logistical activities will be integrated and must specify how capacity and service level requirements will be met, being necessary to co-align operations.
- Troubleshooting together
Solving problems together can improve the idea development process and break down barriers between partners. The emergence of problems is an opportunity to explore issues such as trust, shared success and long-term expectations.
- joint team
Formation of cross-functional and cross-organizational teams responsible for identifying problems and making decisions to solve them.
- Top management involvement
Top management commitment, approval and attention to the relationship with regard to planning, investments and decisions.
- Interaction frequency
Frequency of communication and volume of business carried out that lead to expectations of future interactions.
- Knowledge about the partner
Understanding the capabilities, limitations, difficulties and strategies that each party has, including technical views of the facilities.
Figure 1 - Elements and Characteristics that increase the strength of the relationship
The search
A survey was carried out with 83 Brazilian logistics operators to identify whether the elements of the collaborative relationship were found in these organizations. The profile of the respondents was basically composed of Managers and Directors (76%) from the Operations/Logistics and Commercial/Sales areas (82%), considered the most qualified to answer questions about the collaborative relationship with the client.
Figure 2 - Profile of Respondents
Right at the beginning of the questionnaire, the logistics operator was invited to choose a customer considered important for the company's business, as a partner customer or a customer with high representation in revenue. Most of the questions referred to the chosen customer and the operator should answer them based on the relationship with this customer.
Figure 3 – Importance of the Chosen Customer
The first questions in the questionnaire referred to the first 12 elements of the collaborative relationship listed above. The other two items that complete the list of 14 elements that characterize the collaborative relationship were questioned in additional questions.
In the first 12 questions, the logistics operator answered at what level, from 1 to 5, he agreed with the presence of that element in the relationship with the chosen customer. The graph below shows the average of the responses.
Figure 4 – Does this item exist in your relationship with your client? (average of responses from logistics operators)
It is observed that the most present elements in the collaborative relationships between logistics operators and shippers in Brazil are joint performance measures, top management involvement and dedicated investments. On the other hand, sharing information and sharing risks and benefits were the least found in partnership relationships in logistics outsourcing. This result is a consequence of the low level of trust existing between operators and customers, even among those who consider themselves partners.
To evaluate the thirteenth element of relationship, the operator was asked about the frequency of interaction with his client. This is an important indicator of the magnitude of the relationship, as a high frequency of contact leads to a greater expectation of future interactions, so it is to be expected that the frequency of interaction has a positive effect on cooperation. Success in the customer-supplier relationship is based on the relative frequency with which the parties interact and the volume of business carried out. The graph below shows that 80% of respondents interact with their chosen customer at least once a day.
Figure 5 – Frequency of interaction between the Logistics Operator and its Customer
Finally, the fourteenth element deals with the logistics operator's knowledge of the customer's operations and vice versa, which is a determining factor for the success of the relationship. Knowledge about the partner's difficulties and strategies, in addition to technical visits to plants and distribution centers, are essential to clarify each one about policies, cultures, systems and standards, being one of the elements of strategic integration. In the survey carried out, the logistics operator answered at what level, from 1 to 5, he knew the strategy, limitations/difficulties, capacity and facilities of the customer, as well as what level of knowledge the operator considered that the customer had about him .
Figure 6 – Knowledge about partners (average of responses from logistics operators)
On average, logistics operators have the perception that they know little about customer strategies and their limitations/difficulties compared to knowledge about their facilities and capabilities. He has a similar perception about the knowledge that the shipper has about the operator, that is, knowledge about operational issues is greater than knowledge about strategies and difficulties. This is a key indicator for a partnership, as the more the operator knows about the customer, the more he entrusts strategic information to that shipper. Therefore, if the logistics operator and the customer want to reach high levels of collaboration, first of all it is necessary to know or let the partner know its facilities, capacities, limitations and strategies.
Conclusions
Collaboration between logistics operators and their customers brings mutual benefits to both parties. Therefore, the relationship needs to be based on trust, commitment and dependence.
Some elements are important to achieve high levels of trust, commitment and dependence between the logistics operator and the shipper. In this context, the presence of 14 elements in the relationship between logistics service providers and their main customers was investigated.
In the investigated relationships, the most present elements were performance measures together, dedicated investments, function specifications and rules e top management involvement. These elements are often also present in relationships of lesser magnitude. That is, the relationship does not need to be long-term or collaborative in order to specify functions and rules or dedicated investments.
The elements least found in Brazilian relationships are exactly the most important to characterize a collaboration, they are the risk and benefit sharing, knowledge of the client's limitations and strategies by the operator e knowledge of the operator's limitations and strategies by the customer.
Thus, the results found show evidence that the closest Brazilian relationships do not reach levels of full collaboration that involve the sharing of risks and strategic information. This indicates that the existing relationship between logistics operators and their customers in Brazil is closer to being a common service provision, and less a collaborative partnership.
References
Daugherty, Patricia J. Review of logistics and supply chain relationship literature and suggested research agenda. International Journal of Physical Distribution & Logistics Management, v. 41, no. 1, p. 16-31, 2011.
HUBER, b. Collaborative relationship in logistics outsourcing. A study with logistics operators in Brazil. Dissertation (Master in Administration) – COPPEAD, Federal University of Rio de Janeiro, Rio de Janeiro, 2012.
NYAGA, Gilbert N.; WHIPPLE, Judith M.; LYNCH, Daniel F. Examining supply chain relationships: Do buyer and supplier perspectives on collaborative relationships differ? Journal of Operations Management, v. 28, no. , P. 101-114, 2010.
SLACK, Nigel; LEWIS, Michael. operations strategy. Porto Alegre: Bookman, 2009.
To reference the article in your publication, use:
HUBER, b. Collaborative relationship between logistics operators and their customers in Brazil – Part 1. Tecnologística Magazine, São Paulo, Year XXI, n. 235, p. 154-158, Jun. 2015.
Beatris Huber
https://ilos.com.brManaging Partner of ILOS, Master in Business Administration from COPPEAD/UFRJ with extension at the European Business School – EBS, Germany and Business Administration from UFRJ. More than 10 years of experience in training and consulting projects, focusing on Logistics and Supply Chain. In the training area, he developed company games and online courses and today teaches classes in Data Analysis, Inventory Management, Warehousing Management, in addition to applying business games such as Beer Game in open and in-company programs in companies from different segments, such as Coca -Cola, Nestlé, ThyssenKrupp, Votorantim, Carrefour, Mallinkrodt, Souza Cruz, Via Varejo, Monsanto, Itaú, Renner, Ipiranga, among others. In consultancy, he carried out projects such as Redefinition of the Logistics Network, Inventory Management, S&OP Process Structuring and Diagnosis of Storage and Transport Operations in companies such as Coca-Cola, Souza Cruz, Editora Moderna, Petrobras, Ducoco, Ultragaz, Silimed, Eudora among others.
