The Importance of Relationships in Supply Chain Management

Relationships are key to SCM performance

Relationships are key when it comes to supply chain management performance.  Without relationships it is possible for supply chains to be successful, however, when you have strong personal and professional relationships with decision makers along the supply chain, you increase the likelihood of success.

When it comes to business, “it is important to maintain high-trust, high communication, mutually beneficial relationships” (Ackerman, 2007).  This means that the financial conditions of the contract need to be beneficial, however the relationship should go further so that, “in an ideal supply chain relationship, both customers and suppliers get connected in ways that allow them to easily exchange information, demand data, and the visibility of status” (Ackerman, 2007).

If you have a good personal and professional relationship with a supplier it is not only easier to get information and status updates on an order, but they are more likely to expedite or reroute an order for your benefit if you get into trouble and need something quickly. In addition, “A collaborative relationship will also facilitate innovation” leading to potential improvements to the customers business (Achilles, 2021).  I have personally seen this in my business, although it was not through a physical supply chain.

As a financial advisor, I regularly meet with mutual fund sales reps, and I have found that as I build relationships with them, they are more willing to share more of their ideas that generally do not come up in early meetings. They share these because they learn more about my business and needs that my clients have.  Without these strong relationships they would never know the more specific needs that we have.

While supply chains can be successful without developing relationship, they are both more likely to be successful and more likely to bring added benefits when you do build strong relationships. The example that I gave fits this well, without the relationships that I have built with representatives of our “suppliers” we would still get the bare minimum of what we need, access to their public mutual funds.

However, since I have built these relationships, and we have been able to talk more about specifics of my clients and their needs, these representatives are able to offer more specific and tailored solutions for our specific problems. Additionally, what happens if a supplier has two customers in a crisis at the same time?  Let’s say for example two companies have run out of a product leading up to the holiday shopping season and call their supplier for a shipment that they need in three days, when it usually takes two weeks.

The role of relationships in SCM efficiency and transparency

If one of these customers has taken the time to build a relationship with the supplier past just ordering inventory from them, they are significantly more likely to get what they need.  It is human nature for people to want to help those that they have a personal relationship with and may feel like they have a vested interest in helping them to succeed.

In conclusion, supply chains can work without relationships, however they are likely to be inefficient, lack transparency, and be unable to respond in crisis.  While if relationships are built, they are more likely to be efficient since needs are more well known, transparency will increase with additional communication, and a relationship is more likely to help you convince a supplier to help you when you are in crisis.

Relationships are an integral part of every effective supply chain management system. In fact, relationships are at the very heart of what drives the supply chain. A supply chain is made up of a group, or chain, of companies and people that share information and work closely together to create value for the consumer. By this, it is almost required that whoever is involved in the supply chain network be fluent in the art of building relationships.

There are many ways in which strong relationships play a key role in the management of supply chains. For example, when an automotive supplier is attempting to forecast the demand its customer will have for a specific part it is much easier to make an accurate estimate by utilizing connections and relationships with the customer than by blindly relying on analytics. It is so much easier to pick up the phone and call your golfing buddy at the automotive plant and ask for an estimate of future orders than to get hung up on by a stranger there who is having a bad day and because you haven't taken the time to build a bond doesn't care one sliver about your success.

This brings up another important aspect of relationships in the supply chain, minimizing bad relationships. Not all relationships are good and no relationship at all is often better than a sour one when it comes to supply chain management. If you have built bad rapport with a supplier or customer within your supply chain it could make life very difficult and potentially even damage your profitability.

In all, relationships are at the essence of quality supply chain management programs. Whoever is in charge of the supply chain at a firm needs to be extremely sociable and friendly in order for the firm to realize their full potential on the income statement. Supply chain management relies so much on man's social nature that it could almost be called relationship management. In that line, with strong relationships great success will follow; however, with poor relationships failure is unavoidable..

Supply chain management (SCM) focuses on integrating and managing the flow of goods and services and information through the supply chain in order to make it responsive to customer needs while lowering total costs (Russell, 2016). Because the supply chain has to be so responsive, there must be a constant flow of information exchanged between clients and suppliers.

Supply chains require close collaboration, cooperation, and communication among members to be effective (Russell, 2016). In fact, the single most important ingredient for successful SCM may be trusting relationships among partners in the supply chain, where each party has confidence in the other members’ capabilities and actions (Sme, 2017). Furthermore, trust-building must be an ongoing process that is continually managed (Sme, 2017).

An example of a successful supply chain management relationship would include the relationship between Dell and Microsoft. The two companies collaborate to ensure that the technology road map for Dell computers is aligned with Microsoft’s software requirements (Sme, 2017). The ending result of this relationship is added value for their customers.

The average consumer does not know that Dell and Microsoft have a strategic partnership in place but does see the value when they purchase a Dell computer and their programs function properly. If there are any changes to Microsoft’s technology, Dell would be privy to that information and their computers will be aligned to the newer software. This alliance allows both companies to succeed while adding value for the customer.