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Power in Supply Chain Relationships (The Concept of Power (As…
Power in Supply Chain Relationships
Trends and development in stakeholder relationships
The need for a shift from transactional to adversarial relationships
Transactional - Focus on low prices, discounts, bonuses, little or no commitment
Adversarial - Focus on openness, sharing info, joint programmes i.e.quality management and product development, partnership
The benefits of working together in the relationship far outweigh those of the traditional "arms-length" nature of transactional
However there can also be a darker side to adversarial relationships, in the fact that some organisations will be driven by self-interest and will behave in an opportunistic manner - this is where the concept of power comes into play
The Concept of Power
As organisations get larger and they gain more economies of scale, it allows them to demand better deals with discounts from suppliers. Market share also increases and allows them to hold a dominant position over their respective market sectors.
Information can lead to power positions - the adoption of IT and other databases, the information that is captured can leverage pressure on other parties to comply with their requirements
Questions to be asked when it comes to relationships with suppliers - who calls the shots, who is most dominant, what way does that partner influence behaviour of the other party, should we assume every party carries equal weight, is there evidence of inequality and how does this emerge?
Doubts as to whether healthy partnerships are as frequent as many commentators suggest - might appear to be close in public but not necessarily represent reality
Power can exist due to an organisations reputation or historical influence in the market. E.g. Guinness wielded power for many years in the beer market and put pressure on pubs to fall in line with their strategy
Can be used in a coercive and aggressive manner - often evidenced in one party putting pressure on a supplier to introduce a cost reduction programme, carry certain products, accept reduced margins etc. If party fails to do so, contracts are cancelled and other party will select another supplier (win-lose situation)
Can be used in a more subtle way, with one party providing incentives so that the other parter adheres to their requests. This may take form of a long-term contract (ensuring some form of consistency for the other party) or larger more lucrative contracts.
Power in the context of the retail sector
Greater concentration of power resting in the hands of a small number of very large retailers, their importance being highlighted as far back as 1999
Concentration market share among so few retailers indicates the extent of the bargaining power that resides with these large retailers in respect of their dealings with supply base
Suggested that retail concentration and supplier dependency are two critical variables when it comes to power
When retailer concentration is high, there is low retail dependence on the supplier, thus retailers are more likely to use coercive methods to drive their strategy
When both variables are high, retailers will then resort to expert power, through initiatives such as category management, which can encourage trust and co-operation
Radaev (2013) research into context of power in Russian grocery and home appliances sector
Slotting allowances
Pricing requirements
Unpaid services to retailers and penalties
Compensation for retailer's services
Retailer-Supplier Relationships - An Asian Perspective
Japanese culture = endorses loyalty, harmony and long-term focus on the business relationship
Once a relationship is created (might take some time) trustworthiness is seen as an obligation towards partners in equation
If suppliers are seen to infringe these values, then retailers employ social sanctions and refuse to become involved again
Influence of culture is critical in understanding how relationships are established, develop and evolve over time, and what may work somewhere may not somewhere else
Retailer-Supplier Relationships - An Industry Perspective
Many commentators are critical of the way powerful retailers such as Tesco, Carrefour, and Wal-Mart have created major problems for suppliers
Many suppliers from markets such as lamb, pork and beef did not wish to comment on some topics due to fear of reprisal, suggesting retailers tended to use their power dependency to drive initiatives
Evidence of regulatory bodies and governments becoming more protective in Europe - focus of initiatives = breaches of competition law in such areas as supplier pricing and collusion
Pressure can be put on suppliers due to retailer ability to leverage their expertise in the industry, and can in turn translate into pressure being placed on suppliers to deliver on certain product categories deemed strategic to the retailer
Relationships not totally based on expectation of punishment - retailers can grant special status to supplier who confers potential competitive benefits, reflecting one of the positive outcomes to emerge
Impact on the shopper
Argued that customers are offered a wide range of products at great value because they address cost issues with suppliers and set high demands, and they put together a value proposition that addresses the needs of the shopper
"Every Little Helps" - better value for customers communicated by this slogan
Counter argument put forward by suppliers of grocery sector that the unceasing pressure on them to reduce costs to the bare minimum restricts their opportunity to grow their business and invest in new product and development - can lead, in the worst case scenario, to suppliers going out of business, creating high levels of unemployment, and damaging the overall economy