JimMakuwa.jpgWhen does a collaborative supply relationship become unethical? When parties are driven by the objective of creating a mutual gain, is it fair that a single supplier is privy to information about the buyer’s operations – information that is excluded from the open market for every other supplier to have a fair chance to do business with the buying organisation?

The line between creating a nurturing supply relationship and unethical supplier selection is very thin, argues Jim Makuwa (MCIPS), a lecturer at Commerce Edge, in this month’s SmartProcurement.

In a collaborative relationship organisations need to create an atmosphere of openness, commitment and trust with selected suppliers. This kind of relationship creates a bond that is difficult to break and closes doors to other potential suppliers.

“As buyers we need to worry about this,” says Makuwa. “When a collaborative relationship develops to the point where it resembles an extension of your business it becomes difficult to view issues with an open mind. Openness and transparency may suffer, allowing possible substitute suppliers to cry corruption and bribery.

Do we not cling or align ourselves to tested and proven suppliers?
What is a preferred list of suppliers if every supplier is equal?

 

What begins as collaboration…

Crocker et al, in The Relationship Driven Supply Chain (2008), says collaboration in supply chains means managing the chain beyond traditional or transactional methods.

The key distinguishing characteristic of a high-performing supply chain is the presence of strategic trust, which demands a stable, robust and long-lasting relationship with value adding suppliers as business partners.

A collaborative relationship is considered successful when it is meaningful, compatible with each partner’s business and yields positive gains to the partners.

In order to add value to each other’s business, partners must understand each others’ requirements through trust, openness and sharing of sensitive information, often with only a few suppliers.

The relationship is nurtured over a long term and, often, the collaborating team becomes a seamless organisation.

…could turn into unethical actions

Contemporary organisations are partnering with suppliers as the foundation of their supply strategies, says Minaham in Is Partnering a Shame? (1998).

It is widely accepted that supplier relationships are a powerful competitive advantage for organisations. Relationship exchanges have proven to contribute to product innovation and differentiation.

However, to profit from supplier collaboration, buyers must make informed decisions about the choices of partner, governance, capitalisation, intellectual property rights and the protection of brands and corporate reputation.

Consequently, organisations make deliberate supplier choices, meaning that suppliers falling short of prescribed criteria will be excluded from preferred supplier lists.

Once chosen as a supplier, the mutuality of purpose that arises from collaboration often leads to interpersonal relationships between organisations at personal and organisation level.

These relationships create barriers against switching suppliers owed to the bond that is created over the period of the relationship lifecycle, says Ford in The Development of Buyer-Supplier Relationships in Industrial Markets (1980).

Furthermore, think of all the information exchanged between the parties where interrelationships have become an extension of each other’s businesses?

If a collaborative relationship fails, how safe is the intellectual property and data integrity? How easily can you move to another supplier to avert the possibility of your operations collapsing?

Owed to this dependence on survival, such bonds may be difficult to break – in fact, it can be considered as a barrier against new entrants.

There are gains in a collaborative relationship, but isn’t this a case of creating a ‘class of the elite’, especially if the deals involved are lucrative and spread over a long period?

Will equal opportunity prevail if a preferred supplier bids against other potential suppliers on the open market? Is transparency not blinded by past experience?

Drawing the line between unethical supplier selection and a nurturing relationship is difficult when the relationship is entrenched or you are pursuing a relationship that will ensure innovation and product development.

An ethical method of collaboration is not prescribed. It depends on what you are trying to achieve with the relationship. “I guess parties have to set their own rules through service level agreements, meaning that business ethics rests with the individual buyer,” concludes Makuwa.