Building High Performance Business Relationships
to Co-Create Value
Douglas M. Lambert, Ph.D.
Raymond E. Mason Chaired Professor
Director of The Global Supply Chain Forum
Fisher College of Business, The Ohio State University
What is a Supply Chain?
A. A business function
B. A network of companies
A Supply Chain is a Network of Companies
Tier 2
Suppliers
Tier 2
Customers
1
1
2
2
n
Initial Suppliers
Tier 1
Customers
Tier 1
Suppliers
n
1
1
1
n
2
2
1
2
3
3
1
3
n
Tier 3 to
Consumers/
End-users
n
n
1
1
n
n
Managed Process Links
Monitored Process Links
Not-Managed Process Links
Non-Member Process Links
1
n
Consumers/End-users
Tier 3 to
Initial
suppliers
n
1
2
n
Focal Company
Members of the Focal Company’s Supply Chain
Non-members of the Focal Company’s Supply Chain
Source: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Performance, Fourth Edition, Ponte Vedra Beach , FL:
Supply Chain Management Institute, 2014, p. 264.
The competition is no longer between
companies but between supply chains.
A. True
B. False
Typically Competitors Buy from the Same Suppliers and
Sell to the Same Customers
Tier 2
Suppliers
Tier 1
Customers
Tier 1
Suppliers
1
1
2
2
n
n
1
2
2
1
2
3
3
n
1
n
1
1
n
n
Managed Process Links
Monitored Process Links
Not-Managed Process Links
Non-Member Process Links
1
n
3
n
Tier 3 to
Consumers/
End-users
n
1
1
Initial Suppliers
Tier 2
Customers
2
n
Colgate
P&G
Unilever
Source: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Performance, Fourth Edition, Ponte Vedra Beach , FL:
Supply Chain Management Institute, 2014, p. 7.
Consumers/End-users
Tier 3 to
Initial
suppliers
CRM and SRM Form the Links
in the Supply Chain
CRM
Customer Service Management
Demand Management
Supplier
Order Fulfillment
Customer
Manufacturing Flow Management
Product Development and Commercialization
Returns Management
SRM
© Copyright, 2010, Douglas M. Lambert
Building High Performance
Business Relationships
• Partnership Model
• Collaboration Framework
Why do partnerships fail?
A. Unrealistic expectations on the part of one or both
organizations
B. Expectations are not disclosed by the parties
involved
C. Lack of common vision within each organization
D. All of the above
Partnership - Definition
A partnership is a tailored business
relationship based on mutual trust,
openness, shared risk and shared
rewards that results in business
performance greater than would be
achieved by two firms working
together in the absence of
partnership.
© The Global Supply Chain Forum, 2000
Source: Douglas M. Lambert, Editor, Supply Chain Management: Processes,
Partnerships, Performance, Fourth Edition, Ponte Vedra Beach , FL:
Supply Chain Management Institute, 2014, p. 277.
Types of Relationships
Partnerships
Arm’s Length
Type I
Type II
Type III
Joint
Ventures
Vertical
Integration
Source: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Performance, Fourth Edition, Ponte Vedra Beach , FL:
Supply Chain Management Institute, 2014, p. 277.
Partnership Strategy
• Partnerships are costly to implement
• Not all relationships should be
partnerships
• Partnership strategy should be driven by
overall corporate strategy
• The Partnership Model developed by
The Global Supply Chain Forum is a tool
for developing and managing
partnerships
 The Supply Chain Management Institute, 2008.
The Partnership Model
Drivers
Compelling reasons to
partner
Drivers set
expectations
of outcomes
Decision to
create or adjust
partnership
Facilitators
Supportive environmental
factors that enhance
partnership growth
Components
Joint activities and processes that build
and sustain the partnership
Feedback to:
Outcomes
• Components
• Drivers
• Facilitators
The extent to which
performance
meets expectations
Source: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Performance, Fourth Edition, Ponte Vedra Beach , FL: Supply
Chain Management Institute, 2014, p. 280.
The Collaboration Framework
Assessment of Drivers
Drivers are business reasons for expanding the resource commitment to the relationship. For each item,
develop specific goals and identify the priority. Priority is: 1=Critical, 2=Very Important, 3=Important.
ASSET/COST EFFICIENCY
1. What are the initiatives that will reduce cost or improve asset utilization?
Driver
• Product costs savings
• Distribution costs savings, handling costs savings
• Packaging costs savings and green initiatives
• Reduce order-to-cash cycle time
• No management time devoted to conference call to key customers explaining
service failures due to supplier problems
• Assets utilization (reduce plant over-time due to surprise orders)
• Integrate planning across business and plants (visibility of capacity available
across plants)
Goal
Priority
2% per year
1
7% during 1st year
1
Satisfy Wal-Mart’s requirements
3
By 10 days
2
Zero within 3 months
1
No surprise orders by quarter-end
2
Within 12 months
3
 The Supply Chain Management Institute, 2010
Assessment of Drivers
Drivers are business reasons for expanding the resource commitment to the relationship. For each item,
develop specific goals and identify the priority. Priority is: 1=Critical, 2=Very Important, 3=Important.
ASSET/COST EFFICIENCY
1. What are the initiatives that will reduce cost or improve asset utilization?
Driver
Goal
Priority
Align Expectations
• Each team presents their drivers
• Rationale for each driver given
• Agreement by both teams that the
driver can become a joint goal
• Drivers will not necessarily match
Develop Action Plan
• The teams jointly determine and prioritize initiatives
• The set of initiatives should be relatively small
• There should be a balance of short-term and longterm initiatives
• The action plan needs to include clear statements of
what is to be done, who is responsible, and a
timeline for results
Does your organization use
cross-functional teams to engage
key customers and suppliers?
A. Yes
B. No
Research Questions
•
Does cross-functional involvement in business-to-
business relationships lead to the co-creation of value?
•
Are perceptual measurements of value co-creation
good enough in business-to-business contexts?
Understanding the Enablers of Value Co-Creation
Bob Evans is a full-service restaurant chain.
Owns and operates more than 700 restaurants in 29 states of USA.
The BEF group also sells branded products to major grocery retailers.
Revenues are in excess of $1.5 billion.
Purchases from A: $16.7 million
The relationship was cross-functional
Purchases from B: $18.5 million
The relationship was NOT cross-functional
Supplier
A
Supplier
B
Global food company
Revenues in excess of $40 billion
Global food company
Revenues in excess of $40 billion
Initial Perceptions of the Value
of Each Relationship
• All managers at the Restaurant Company perceived that Supplier A was
creating more value (compared to Supplier B).
• Managers attributed the higher value created with Supplier A to the
existence of cross-functional teams.
• Cross-functional involvement enabled a better understanding of the other
company’s needs and competences (manifest and latent).
• Managers did not understand the magnitude of the difference in
profitability because they could not quantify the value created in financial
terms.
Importance of Measuring Value Co-creation
in Financial Terms
Restaurant Company purchases from Supplier A and Supplier B
for the Years 2008 to 2011
Supplier A
Supplier B
2008
$16,682,275
$18,471,595
2009
$15,641,571
$14,226,747
2010
$15,618,038
$11,164,415
2011
$18,232,230
$5,143,524
Research started
Financial results of value cocreation given to managers
Financial results *
Projected value co-creation for 2010 for Restaurant Company :
• From the relationship with A: $25.87 million
(*) measured as the contribution towards the joint costs and fixed
costs of Company As of the initiatives conducted in the relationships.
• From the relationship with B: $0.36 million
“Any supplier who wants to be viewed as strategic
must have the willingness and capability
to work in cross-functional teams
and think in terms of value co-creation.”
Richard Hall
EVP of Supply Chain Management
Bob Evans Farms
Bob Evans
Old Distribution Network
A
B
C
B and C
A and B
A and C
A, B and C
Focus for RFP Evaluation
Evaluate the capabilities of the participating
distributors in terms of:










Food Safety Programs
IT Capabilities
East/West Distribution Options
Recovery in the event of a DC disaster
Utilization of the same DCs for both restaurant formats
Their financial stability
Co-Creation of Value
Costs to be incurred
Savings to be generated
Savings Over the Old Distributor Network
TOTAL
SELECTED
DISTRIBUTOR
A
B
C
$2,600,000
$1,200,000
$5,300,000
$3,200,000
$2,700,000
The Collaboration Framework
Outcomes of One-day
Collaboration Meeting
• The BEF team identified 18 drivers
• The GFS team identified 22 drivers
• 10 of the total of 40 drivers were similar
for both companies
• 38 drivers were accepted as joint goals
Co-Creation of Value Results: First Year
Company
Restaurant
Company
Driver
Asset / cost efficiency
Asset / cost efficiency
Asset / cost efficiency
Asset / cost efficiency
Asset / cost efficiency
Asset / cost efficiency
Asset / cost efficiency
Marketing Advantage
Profit stability / growth
New initiative
New initiative
New initiative
New initiative
Initiative
First Year Results
Reduce proprietary vendors and SKUs
Existing Vendor Evaluation
Vendor Freight Management
Fuel Contracting
Increase backhauling
Early pay discount
Simplify courier services
Sale of obsolete inventory
Pricing for a specific region
Chemical Program
Consolidation of low volume retail items
Storage of items of previous seasons at no cost
Waffle Maker Return
Sub-total
Distributor
Asset / cost efficiency
Asset / cost efficiency
Asset / cost efficiency
New initiative
New initiative
Reduce proprietary vendors and SKUs
Vendor Freight Management
Simplify courier services
Chemical Program
Restaurant purchases from Distributor’s retail stores
Sub-total
Source: Douglas M. Lambert and Matias G. Enz, "Managing and Measuring Value
Co-creation in Business-to-Business Relationships," Journal of Marketing
Management, Vol. 28, Issue 13-14 (2012), p. 1600.
TOTAL
$ 234,546
180,613
31,820
592,001
576,609
288,003
5,393
9,526
225,522
1,008,447
72,826
94,549
14,535
$3,334,390
$ 72,750
24,866
8,088
850,000
75,705
$1,031,409
$4,365,799
Total for Year 2: $7.3 million
Biggest Opportunities Are Still
to be Implemented
• Increased sales for restaurant company’s Food Products
Division through distributor’s retail outlets
• Support for Food Products Division presentations to
Distributor’s other customers
• Increased use of the distributor's main produce supplier
• Distributor team makes culinary presentations to the
restaurant company’s product development team
Summary
• Supply chain management is about relationship
management
• There are 2 tools that provide management with a
structure to develop collaborative, cross-functional
business relationships
• Collaboration leads to value co-creation
For more information see:
http://fisher.osu.edu/centers/scm/
http://www.scm-institute.org/
http://www.thepartnershipmodel.com/
Questions??