1. Judith M. Whipple, Ph.D. Department of Marketing and Supply Chain Management Michigan State University 325 North Business Complex whipple@bus.msu.edu 517-432-6407 Collaboration: When, Why and How July 31, 2007 – Foundation For Strategic Sourcing

2.  Whipple, 2007 - 2 - Spectrum of Customer-Supplier Relationships Transactional Arm’s Length Relationship Acceptance of Mutual Goals Relationship/ Alliance Traditional Role Confrontation Suspicion Explicit Knowledge New Relationship Cooperation/Trust Collaborative Value Tacit Knowledge

3.  Whipple, 2007 - 3 - 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

4.  Whipple, 2007 - 4 - Current 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

5.  Whipple, 2007 - 5 - Survey 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

6.  Whipple, 2007 - 6 - 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%)

7.  Whipple, 2007 - 7 - Do Respondents Manage Collaborative and 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.

8.  Whipple, 2007 - 8 - Customer Responses: Relationship Management Relationship ActivitiesCollaborativeTransactional My firm and this supplier: … interact on a real time basis. 5.984.38 …achieve goals collectively. 5.693.82 …develop a mutual understanding of responsibilities. 6.024.36 …informally work together. 5.984.32 …share ideas, information, and/or resources. 6.013.95 …have joint teams. 5.563.37 …conduct joint planning to anticipate and resolve operational problems. 5.733.65 …make joint decisions about ways to improve overall cost efficiency. 5.703.51 Long-Term Commitment We expect this relationship to continue for a long time. 6.134.41 We are committed to this supplier. 6.014.11 We expect this relationship to strengthen over time. 6.044.17 Considerable effort and investment has been undertaken in building this relationship. 6.174.17 Scale: 1 = strongly disagree; 7 = strongly agree

9.  Whipple, 2007 - 9 - Customer Responses: Relationship Management Trust CollaborativeTransactional This supplier keeps the promises it makes. 5.834.66 We believe the information this supplier provides us. 5.964.76 This supplier is genuinely concerned that we succeed. 6.024.61 We trust this supplier keeps our best interests in mind. 5.644.11 This supplier considers our welfare as well as its own. 5.493.88 This supplier is trustworthy. 5.964.73 Dedicated Investments We have invested substantially in personnel dedicated to this relationship. 5.033.43 We have provided proprietary expertise and/or technology to this relationship. 5.043.31 We have dedicated significant investments (e.g., equipment or support systems) to this relationship. 4.563.13 Scale: 1 = strongly disagree; 7 = strongly agree

10.  Whipple, 2007 - 10 - Supplier Responses: Relationship Management Relationship ActivitiesCollaborativeTransactional My firm and this customer: … interact on a real time basis. 5.864.50 …achieve goals collectively. 5.353.54 …develop a mutual understanding of responsibilities. 5.744.18 …informally work together. 5.844.02 …share ideas, information, and/or resources. 5.773.81 …have joint teams. 5.583.34 …conduct joint planning to anticipate and resolve operational problems. 5.603.53 …make joint decisions about ways to improve overall cost efficiency. 5.333.26 Long-Term Commitment We expect this relationship to continue for a long time. 6.264.62 We are committed to this customer. 6.435.12 We expect this relationship to strengthen over time. 6.274.76 Considerable effort and investment has been undertaken in building this relationship. 6.384.90 Scale: 1 = strongly disagree; 7 = strongly agree

11.  Whipple, 2007 - 11 - Supplier Responses: Relationship Management Trust CollaborativeTransactional This customer keeps the promises it makes. 5.523.97 We believe the information this customer provides us. 5.794.40 This customer is genuinely concerned that we succeed. 5.403.56 We trust this customer keeps our best interests in mind. 4.783.20 This customer considers our welfare as well as its own. 4.853.08 This customer is trustworthy. 5.594.07 Dedicated Investments We have invested substantially in personnel dedicated to this relationship. 5.774.02 We have provided proprietary expertise and/or technology to this relationship. 5.573.95 We have dedicated significant investments (e.g., equipment or support systems) to this relationship. 5.783.91 Scale: 1 = strongly disagree; 7 = strongly agree

12.  Whipple, 2007 - 12 - Do Respondents Communicate Differently in 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.

13.  Whipple, 2007 - 13 - Customer Responses: Communication CommunicationCollaborativeTransactional This supplier keeps us informed of new developments (e.g., R&D, new products/services). 5.774.08 This supplier’s sales personnel frequently visit our place of business. 5.513.81 This supplier devotes a lot of time in getting to know our staff. 5.843.73 This supplier gives us opportunities to participate in goal setting to enhance performance. 5.203.29 Information Sharing We inform this supplier in advance of changing needs. 5.984.71 In this relationship, it is expected that any information which might help the other party will be provided. 6.174.57 The parties are expected to keep each other informed about events or changes that may affect the other party. 6.344.97 The information shared in this relationship is more detailed than what is shared in other relationships 6.094.97 Scale: 1 = strongly disagree; 7 = strongly agree

14.  Whipple, 2007 - 14 - Supplier Responses: Communication Scale: 1 = strongly disagree; 7 = strongly agree CommunicationCollaborativeTransactional This customer keeps us informed of new developments (e.g., R&D, new products/services). 5.393.59 The customer’s personnel frequently visit our place of business. 4.943.11 This customer devotes a lot of time in getting to know our staff. 5.163.21 This customer gives us opportunities to participate in goal setting to enhance performance. 5.093.01 Information Sharing We inform this customer in advance of changing needs. 5.874.66 In this relationship, it is expected that any information which might help the other party will be provided. 5.874.20 The parties are expected to keep each other informed about events or changes that may affect the other party. 6.004.49 The information shared in this relationship is more detailed than what is shared in other relationships 5.833.49

15.  Whipple, 2007 - 15 - Do Respondents Evaluate Collaborative and Transactional Relationships Differently? Performance Satisfaction Mean responses comparing collaborative and transactional relationships were statistically different from each other for both customers and suppliers.

16.  Whipple, 2007 - 16 - Customer Reponses: Evaluation PerformanceCollaborativeTransactional This relationship has: … reduced our order cycle times. 5.364.21 … reduced our inventory. 5.224.12 … achieved cost reductions. 5.674.46 … provided us more specialized expertise. 5.834.14 … improved our order processing accuracy. 5.064.15 … improved our on-time delivery. 5.474.44 … improved our fill rate. 5.224.20 … increased our profitability. 5.464.26 … increased our forecast accuracy. 4.463.71 Scale: 1 = strongly disagree; 7 = strongly agree

17.  Whipple, 2007 - 17 - Customer Responses: Evaluation Satisfaction With Relationship CollaborativeTransactional My firm is satisfied with this relationship in terms of: …coordination of activities. 5.644.45 …participation in decision making. 5.624.20 …level of commitment. 5.874.39 …level of information sharing. 5.644.10 …management of activities. 5.614.30 Satisfaction With Results My firm is satisfied with this relationship in terms of: …profitability. 5.234.23 …market share. 5.294.21 …sales growth. 5.324.17 Scale: 1 = strongly disagree; 7 = strongly agree

18.  Whipple, 2007 - 18 - Supplier Responses: Evaluation PerformanceCollaborativeTransactional This relationship has: … reduced our order cycle times. 4.763.67 … reduced our inventory. 4.253.40 … achieved cost reductions. 4.723.59 … provided us with more specialized expertise. 5.233.54 … improved our order processing accuracy. 4.603.63 … improved our on-time delivery. 4.983.88 … improved our fill rate. 4.853.77 … increased our profitability. 4.903.70 … increased our forecast accuracy. 4.753.45 Scale: 1 = strongly disagree; 7 = strongly agree

19.  Whipple, 2007 - 19 - Supplier Responses: Evaluation Scale: 1 = strongly disagree; 7 = strongly agree Satisfaction With Relationship CollaborativeTransactional My firm is satisfied with this relationship in terms of: …coordination of activities. 5.484.05 …participation in decision making. 5.403.70 …level of commitment. 5.633.72 …level of information sharing. 5.433.54 …management of activities. 5.363.93 Satisfaction With Results My firm is satisfied with this relationship in terms of: …profitability. 5.103.93 …market share. 5.133.83 …sales growth. 5.213.69

20.  Whipple, 2007 - 20 - F4SS Responses – Comparing Customers and Suppliers ConstructCollaboration Customer Collaboration Supplier Transactional Customer Transactional Supplier Relationship Activities5.685.773.533.67 Commitment6.03*6.50*3.54*4.79* Trust5.725.464.47*3.70* Dedicated Investment5.13*5.08*2.65*3.67* Communication5.215.453.133.09 Information Sharing5.935.894.064.22 Performance5.014.683.773.40 Satisfaction with Relationship 5.584.683.773.40 Satisfaction with Results5.175.073.863.72 * Indicated statistically significant difference in mean response

21.  Whipple, 2007 - 21 - Which Factors Contribute Most to Performance? Predictors of Performance - Customers Trust Communication Performance Collaborative RelationshipsTransactional Relationships Trust Communication Long-term Commitment Relationship Activities Dedicated Investments Dedicated Investments (negative) Relationship Activities Information (negative)

22.  Whipple, 2007 - 22 - Which Factors Contribute Most to Performance? Predictors of Performance - Suppliers Trust Commitment (negative) Performance Collaborative RelationshipsTransactional Relationships TrustRelationship Activities Dedicated Investments Dedicated Investments Relationship Activities

23.  Whipple, 2007 - 23 - Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Relationship - Customers Trust Performance Satisfaction with Relationship Collaborative RelationshipsTransactional Relationships Trust PerformanceRelationship Activities Commitment Dedicated Investments (negative) Relationship Activities

24.  Whipple, 2007 - 24 - Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Relationship - Suppliers Trust Performance Satisfaction with Relationship Collaborative RelationshipsTransactional Relationships Trust Relationship Activities Commitment Relationship Activities Performance

25.  Whipple, 2007 - 25 - Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Results - Customers Trust Commitment Satisfaction with Results Collaborative RelationshipsTransactional Relationships Trust Performance

26.  Whipple, 2007 - 26 - Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Results - Suppliers Trust Satisfaction with Results Collaborative RelationshipsTransactional Relationships Trust Performance Relationship Activities Information Sharing (negative) Commitment

27.  Whipple, 2007 - 27 - Which Factors Contribute Most to Performance for F4SS Only? Predictors of Performance - Customers Trust Performance Collaborative RelationshipsTransactional Relationships Trust Long-term Commitment

28.  Whipple, 2007 - 28 - Which Factors Contribute Most to Performance for F4SS Only? Predictors of Performance - Suppliers Trust Performance Collaborative RelationshipsTransactional Relationships TrustRelationship Activities Dedicated Investments

29.  Whipple, 2007 - 29 - Which Factors Contribute Most to Satisfaction for F4SS Only? Predictors of Satisfaction with Relationship - Customers Trust Satisfaction with Relationship Collaborative RelationshipsTransactional Relationships Performance Relationship Activities

30.  Whipple, 2007 - 30 - Which Factors Contribute Most to Satisfaction for F4SS Only? Predictors of Satisfaction with Relationship - Suppliers Trust Satisfaction with Relationship Collaborative RelationshipsTransactional Relationships Trust Relationship Activities Dedicated Investments (negative)

31.  Whipple, 2007 - 31 - Which Factors Contribute Most to Satisfaction for F4SS Only? Predictors of Satisfaction with Results - Customers Trust Commitment Satisfaction with Results Collaborative RelationshipsTransactional Relationships Performance Dedicated Investments (negative) Dedicated Investments (negative) Commitment

32.  Whipple, 2007 - 32 - Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Results - Suppliers Collaborative RelationshipsTransactional Relationships Performance Relationship Activities Satisfaction with Results Trust Performance Communication (negative)

33.  Whipple, 2007 - 33 - Initial Research Conclusions Collaborative relationship offer more value than transactional relationships Collaborative relationships provide higher levels of performance and satisfaction than transactional relationships

34.  Whipple, 2007 - 34 - Customer 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

35.  Whipple, 2007 - 35 - Supplier 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

36.  Whipple, 2007 - 36 - F4SS 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

37.  Whipple, 2007 - 37 -Conclusions 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

38.  Whipple, 2007 - 38 - Dimensions 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)

39.  Whipple, 2007 - 39 - 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)

40.  Whipple, 2007 - 40 - Trust – How it Looks Elements of Trust Levels of Trust Character-Based Competence-Based Interpersonal Interorganizational Interorganizational Character-Based Trust Interpersonal Character-Based Trust Interorganizational Competence-Based Trust Interpersonal Competence-Based Trust