A portfolio of relationships

A Portfolio of Relationships
Student’s name
Institution
Abstract
Due to the competitive nature of business today, it is becoming increasingly important to manage and select the most appropriate relationship through a portfolio approach. The latter may assist in the interpretation and understanding of some of the attributes that characterize individual; relationship. This research paper attempt to extend the understanding of “portfolio relationships” the paper reviews the theory of supply chain management, the theory of the firm as well as inter-firm relationships. Effective management of supply chain involves management of a number of inter-firm relationships such include; collaborative partnerships, strategic alliance, as well as cooperative agreement. All these relationships are paramount for an organization in the development of competitive position in the market. In a complex and dynamic industry, the members of supply chain realize the strategic importance of inter-firm relationships. Furthermore, the paper also discusses different types of relationships alongside their nature and finally proposes a conceptual model.
Introduction
Today, in the wake of a swiftly changing world the supply chains are more and more managing numerous diverse inter-firm relationships. This implies that businesses are facing an increasing challenge in deciding the kind of inter-organizational relationship that best suit the business needs as well as how to manage the complexity of these relationships, how they are interrelated and what are their attributes.

To remedy such challenges “a portfolio of relationships” is presented in this paper alongside, it’s components. Besides, the paper also discusses why organizations behave the way they behave. Furthermore, the paper also discusses different types of relationships alongside their nature and finally proposes a conceptual model.
Effective management of supply chain involves management of a number of inter-firm relationships such include; collaborative partnerships, strategic alliance, as well as cooperative agreement. All these relationships are paramount for an organization in the development of competitive position in the market. In a complex and dynamic industry, the members of supply chain realize the strategic importance of inter-firm relationships. Regardless of their importance, a challenge comes in when making the decision regarding the best choice of relationships that suits a specific circumstance. This is because there exists a spectrum of possible relationship from close-term alliance to arms-length. Each of these relationships demands a certain level of managerial attention.
The attention required include effective and efficient management of “a portfolio relationship”. The management may become complex as the network of the supply chain grows. With effective management of close relationships, a firm is likely to benefit from essential outcomes that may include a combination of a variety of skills to gain knowledge as well as learning. Thus, establishing sustainable competencies via continues inter-firm learning. Alongside improvement of financial and survival performance. Due to the competitive nature of business today, it is becoming increasingly important to manage and select the most appropriate relationship through a portfolio approach. The latter may assist in the interpretation and understanding of some of the attributes that characterize individual; relationship. This research paper attempt to extend the understanding of “portfolio relationships” the paper reviews the theory of supply chain management, the theory of the firm as well as inter-firm relationships. Based on the review presented in this paper a framework that assist the discussion of the nature of the relationship is presented. There exist numerous relationships along the supply chain and these relationships have varying levels of complexity. An organization with large supply chain network need to have better management of “portfolio relationships”.
Literature review
Before discussing inter-firm relationships it is paramount to understand why firms attempt have inter-organizational linkages. Resources dependence, transactional cost economics as well as resources based perspective of a firm will aid in the understanding of this kind of firm behavior.
Cost economic transaction
According to the theory of transaction cost, there are three types of the governance structure. The three can be placed in a range with ‘market” on either extreme or the firm on the other end. In between the firm and the market is the hybrid i.e. joint venture, network as well as alliance (Ghoshal, & Moran, 1996). The theory argues that for a transaction to take place in the market the transaction must have a lower level of uncertainty, in frequency as well as asset specificity. Equally, all transaction with unreliable results happens frequently and at the sometime, they demand high-level asset specificity from an organization. According to the transactional theory, in the event, a transaction demand investment in specific asset and at the same time there exists uncertainty in regards to the future. An opportunistic behavior is likely to prevail in such situations, and as a result behaviors such as improper use of resources as well as reduced effort in performance enhancement have a higher likelihood of increasing. Some critiques the theory that majorly focuses on market failure as the only justification for activities to happen within an organization. There are other authors who have also concentrated on market failure as a justification for activity within the organization even though there might be some benefits. Such authors include Connor (1919) and Foss (1998). The theory further argues that resources based and resources dependence points of view of individual organizations, are well positioned to explain the resultant benefits.
Resources-based and resource-dependence view of organizations
The theory of resources dependence majorly focuses on the strategic moves that an organization undertakes in order to enable the organization to manage interdependence with other firms in their respective task environment. The resources dependence theory attempt to explain how organizations establish relationships with other organization. Primarily to obtain the required resources that facilitate the accomplishment of the organization goals. And at the sometimes avoid any relationship that poses a threat to the organization independence and autonomy. According to the resources dependence theory, loss of control over the organization resources and goals significantly limit the firm decision in engaging with inter-firm relationships. But, it is also argued that with shared goals between organizations there is a high possibility of the establishing concerted arrangements. According to Payan (2007). when organizations cooperate they all act independently for them to achieve their respective independent goal. On the other hand, when organization coordinate in the achievement of shared goal by use of their joint resources such organizations collaborate. For them to achieve independent goal losses of both goals and resources may occur. On the other hand, the cost that a firm has to inquire in regards to shared goals is only the autonomy of its resources.
The resources based perspectives complement the resources dependence and transaction cost theories and at the same time provides an avenue for another view in regards to the reasons why an organization may opt to get in an inter-firm relationship. According to the resources based perspectives, the behavior of an organization can be perceived as a search for prosperity as well as a differentiation strategy. And therefore it is difficult to duplicate the inputs that should account for quality resources that are unique, rare and non-substitutable. Thus allowing an organization in achievement competitiveness as well as efficiencies. A given resources strategic value significantly depends on how a firm coordinate, organize and combine these resources with other specific firm resources. This implies that with the establishment of external linkage the cost associated with duplication of a firm attributes are exchange is somewhat efficient manner as compared to when each and every organization acquires the resources independently with objectives of establishing superior value. As discussed above it is evident that firms begin making choices in regard to the types of the inter-firm relationships based on the individual firm need to provide a balance between resources interdependence, cost and the potential to establish value. The type of a relationship that an organization may choose to get into varies from one organization to the other based on their attributes and nature.
Relationships Portfolios
According to the behavioral, economics as well as strategic schools of thoughts, inter-firm relationships often follows a continuum ranging from collaborative to adversarial. The choice of “portfolio of relationships” approach depends significantly on the respective outcomes desired by the involved parties. According to Cooper, Ellram, Gardner, & Hanks (1997), it is not a must that all supply chain relationships to be either cooperative or collaborative. There are determiners and attributes of relationships that a firm must consider before deciding on which inter-firm relationship to get into. Strategic alliances, collaborative arrangements as well as partnerships are terms related to inter-organizational relationships that are used interchangeably. And in most cases attempt to establish a practical definition poses challenges. As a result, it is paramount to understand the differences between the different kinds of inter-organizational relationships. As well as their attributes as presented in the table one below. The framework below reflects and draw from previous studies, theories as well as observations on how businesses are conducted. The table shows a set of six attributes all of them reveals the nature of the “portfolio of relationships” which enable a firm to make choice on the most appropriate relationships.
Arm-length relationships
This relationship provides an inter-organizational linkage that is characterized with independence and mainly focusses contractual details as well as strong price competition, reduced commitment in regards resources that are delicate, short-term horizon, little risk sharing as well as lack of trust among involved parties. Trust in such kind of relationship majorly depends on how the involved parties adhere to the clause of their contract also known as contractual trust.
Qualities of a “portfolio of relationships”
categories of Relationships Trust Longevity Risk Sharing Interdependence Information sharing Conflict resolution
Strategic alliances High Long term High High Strategic complex
Collaboration Good/ Long term Much sharing Stronger dependence Strategic Constructive
Cooperation Moderate Continuous even with contract termination Moderated Moderated Tactical Arbitration
Arms-Length Low Only during the contract Little Low Minimum Legal dispute

With arms-length relationships, there is a limited flow of information and at the same time, there is an expectation of short-term links amongst the involved parties. According to studies the arms-length relationships between the suppliers and the buyers contributes to low response in regards to demand changes as the involved parties perceive each other as a rival. Such occurrence hinders the firms from sharing information. Arms-Length relationships often involve elaborate and complex legal contracts and in most cases, they are difficult to implement, negotiate and arrange. And as a result, they lead to relatively high transaction costs. A contract that is made complex by an increase in asset specificity is often expensive as compared to classical contracts since they involve contingency clause.
Cooperative relationships
To counter the pressures of the swiftly changing world in regards to technological advancement, competitive environment as well as organizational strategies. Considerable firms are being urged to opt for cooperative arrangements. According to Cousin (2002), the rationale behind the urge mainly focusses on arrangements, on how to share resources both the intangible and tangible alongside the pursuit of other core business goals through products and process redesign. Even though the relevant information in regards organization processes may be shared due to the non-exclusionary nature of the agreement each of the involved parties operates separately.
The difference between arms-length and cooperative relationships is that cooperative efforts rely mostly on attributes such as commitment, high trust levels, vision as well as support from the seniors. The main characteristics of co-operating include exchange of information, joint problem solving, joint adjustment based on the condition in the market as well a credible commitment. Primarily cooperative efforts aimed at shifting from the contractual arrangement to trust-based relationships. It is such shift that encourages reliance between the involved parties and thus developing a long-term perspective in regards to the relationship while constructively dealing with any possible conflict that may arise. For good performance of cooperative efforts trust is essential. As it encourages firms to freely exchange ideas besides, seeking a different course of action while making commitments to overcome problems. To establish a successful long-term cooperation commitment forms a vital component of the agreement. This implies that firms have to make short-term sacrifices in order to attain benefits in long-term. Conversely, committed partners have no problem in investing valuable assets that are specific to a certain exchange. This demonstrates that they are reliable in the execution of important functions in return in the future. Besides, trust supposedly plays a vital role in overcoming the imbalances in power. Lower profitability and conflict.
For instance, Japanese automotive supplier industry uses an OCR (Obligational Contractual Relations) as a sign of strong logistical and technological interdependence. This type of cooperative buyer-supplier method is characterized by numerous effort of the buyers in regards significant learning process as well as the technical know-how support and it involves both parties.
Collaborative relationships
Collaboration relationship is a type of relationship that involves the interdependence of partners who are eager to share vision and goals. Besides, the partners are often ready to exchange resources and activities such as information and technology. That act of sharing information between the buyers and the suppliers forms the basis of collaboration between partners in the supply chain. This type of relationship elevates numerous negative effects associated with arms-length relationships. Sharing information enables a supply chain member next to the customers to respond to customers demand rapidly. Besides, it enables them to establish a better response from suppliers who are far away from the customers. Sharing information is a collaborative structure that enhances the robustness amid partners. This because it enables partners to dedicate their collective efforts toward a shared objective.
A collaborative relationship is perceived to be durable as the involved parties bring firm in different structure with a commitment to working closely as they have shared vision, mission as well as trust. For such relationship to be established there is a need to have a comprehensive planning as well as seamless linkages. Moreover, there is need of establishing a well-structured communication network and the involved firms should combine effort to seek goals and synergies. Effective collaboration structure requires the establishment of joint processes by a higher degree of commitment and trust. N a collaborative processes thrust is indispensable as it can lead to easier conflict management, low transaction cost as well as a low possibility of implementing formal contracting. In a collaborative relationships trust also motivate the participants to undertake if need be, activities not previously agreed upon. According to Sako (1992), such activities can be termed as goodwill trust. However, the collaborative relationship also poses some risks such as one partner becoming dependent on the other as well as loss of information to a partner. Such risk have high possibilities as every partner commits their respective resources yet, they can have unequal power. Risks and gain sharing capacity emerge from the willingness of the involved parties, to set penalties and rewards. Any organization that attempts to succeed in projects that are collaborative must formulate mission, vision as well as measurement structures with objectives of enabling partners in the supply chain to innovatively reward and share responsibilities and risk.
In supply chain collaboration help the different members of the chain to effectively match the demand with supply as compared to when they could do it independently. Despite the fact that collaboration guarantees mutual benefits to its members it becomes quite difficult to realize those benefits due to the difference in interest amongst the involved parties. Today, businesses are facing intense competition and as a result, the firm must respond rapidly to the needs of customers’ through shorter delivery time as well as faster product development. With the increased use of emerging technology in marketing there is an increase in preference and customers awareness. Thus, there is an unprecedented development in regards to product variety. Most often end customers are satisfied by firms that are able to deliver excellent quality products on time. Yet, customer demand for a variety of products mostly short life cycle products makes it hard for retailers and manufacturers to predict the exact variety of a product that is likely to be accepted in the market. For effectiveness to exist in matching supply with demand it is paramount for retailers and manufacturers to collaborate in the supply chain.
For instance, Wal-mart is known to be a heavyweight champion in regards to management of supply chain. For Wal-Mart to transmit updated inventory and sales information to its suppliers it uses checkout scanners. This help in reduction of order cycle time while at the same time enabling the stocking decision to be founded on sales as observed in early sales as opposed educated guesses. The main objective of Wal-Mart is to create non-price benefits and customers’ services while collaborating with its suppliers in replenishing and forecasting. In such situation, both the involved parties get a mutual benefit. On its side, Wal-Mart attains competitive prices in regards to retail, reduced stock cost and loss of sales. The suppliers, on the other hand, replenishes good as they get out of stock through sales. In this way the suppliers minimize stock outs thus, improving brand loyalty.
Due to the differences in interest between partners, the benefits promised by supply chain partnership are rarely realized. By examining the managerial inertia of the respective chain members one can be able to single out the differences in interest. Due to these differences, each party seeks its own profits rather than the overall chain profit. Habitually, the chain members operate as an individual organization based on opportunistic behavior as well as local perspective. However, opportunistic behavior and local perspective of maximizing each party profit normally happen at an expense of the other partner and work against profitability. Due to such attributes services and products are unlikely to flow as they should be to the end users. And therefore, this results in a mismatch between supply and demand. For supply chain with product of short life cycle mismatch between demand and supply is costly
Strategic alliance
With strategic alliance firms involved share knowledge, resources, and capabilities with the aim of enhancing the competitive edge of respective firms. Such relationship plays an important role in the dissemination of emerging technologies. Besides it plays a vital role in avoidance of government control, to penetrate a new market and often used knowledge from the industrial leaders. Several attributes differentiate strategic alliance form the other form of inter-firm relationships. Numerous studies assert that commitment is a significant attribute that is essential for a strategic alliance. The commitment in such cases is demonstrated by the organization eagerness to allocate resources to the transaction belonging to the strategic alliance alongside, senior management support. Trust is another attribute of a strategic alliance. This involves the willingness of a firm to commit to a particular exchange with a partner who has demonstrated confidence.
A study conducted on managers by Karahannas and Jones (1991) indicated that high level of trust is perceived as an important aspect. In inter-firm coordination in event of turnover related issues and in times of potential consequential conflicts as well as during the times of high uncertainties. A strategic alliance is closely associated with opportunistic behavior and as a resulting trust automatically qualifies to be a pre-requisite during the initial establishment. As partners may be involved with a firm’s counterpart or a firm may be a competitor. Furthermore, it is believed that experience working with a given partner may or may not increase the perceived trustworthiness of the involved parties. A partner trust is often present in an event there is no ability to control the behavior of the other party. It is also argued the outcome of experience in combining control and trust is what is often defined as confidence by managers and should not be confused with a trust.
The structure of strategic alliances requires mutual dependence and control. Both of these attributes are related and their relationship forms the bases of research in strategic supplier alliance. According to studies conducted by Provan and Skinner (1989) and Handfield (1993). Some firms behave less opportunistic if they have to depend on the primary supplier. On the other hand, when the supplier has control over the decision of the dealer there is greater opportunism. Furthermore, according to Monczka, Petersen, Handfield, & Ragatz (1998) interdependence is an important attribute in the strategic supplier alliance as with coordination and trust. Monczka’s study reveals that effort in alliances like continuous improvement, joint solutions as well as cost containment needs a considerable degree of interdependence between the production staff of each firm. Such interdependency presents the increasing dependence of the buying firm on its corresponding partner. And thus it is argued that it has some positive orientation to a firm long-term relationship positioning. Finally, responsibility must be allocated clearly and control must be shared to ease the process of conflict resolution. Nevertheless, even though control and power might be defined clearly complexity surrounding conflict resolution exist when a strategic alliance is formed by competing firms.
Supply chain conflict
The supply chain is constituted by interdependent organizations which are involved in the transformation and flow of services, goods as well as related information. Besides, the fund in supply chain moves from the origin all the way to the end customers. For the purpose of conforming with the customers’ needs supply chain consist of chain members who are involved in the management of the supply chain to integrate planning, control as well as the implementation of effective flow of goods, services, and funds. With closed cooperation chain members attain effective match between supply and demand with ease thus contributing to the chain profitability. It is no doubt a substantial antagonism may exist amongst chain members due to relationships difficulties as well as mutual distrust during and before cooperation. The manifestation of this distrust and relationship problems in the supply chain is in most cases in the form of conflict. Conflict in supply chain imped chain members’ effort to improve the chain performance thus profitability. According to Rosenberg and Stern (1970), channel conflict can be defined as decision and actions of an individual chain member that can prevent the overall chain relationship from attaining its goals. This implies that to have an effective supply chain management it is important to understand the source and the level of conflict for effective management. Rosenberg and Stern further argue that the existence of conflict do not in any way determine dysfunctional outcomes rather, conflict resolution that in return manage conflict appropriately leads to functional outcomes. Participating members in a relationship may face conflicts in relations and thus, in event conflict occur it is important to manage it in a constructive manner. To effectively manage conflict the starting point is the identification of its source this is followed by deploying the appropriate intervention to yield functional outcomes.
Various studies have been conducted in regards to causes of conflict according Wilkinson (1996) there are three types of conflict causes namely; goal conflict, this kind of conflict occurs when there is a difference between the chain members in regards to objectives and goals. The other type of conflict is domain conflict, this is as a result of disagreement over the domain of actions and decisions. And lastly is the perceptual conflict, this type of conflict occurs when there are differences in the perception of reality as used in mutual decision making. The differences between structural and altitudinal causes of conflict are clearly demonstrated by Etgar (1979). The differences stem from how the chain members processes and acquire information concerning their chain such include communication, roles, perception as well as expectations. The later shows a clash of conflicting interests in regards to drive for autonomy, goal divergence, as well as competition for limited resources. According to Gaski (1984), both the non-coercive and coercive power sources are used to influence the occurrence of disagreement among the involved parties in the relationship.
Collaborative supply chain
With collaborative supply chain, two or even more self-governing firms work cooperatively to strategies and execute operations in the supply chain with superior capacity as compared to what an individual firm could when operating in isolation. There are several other authors who support the concept of collaborative supply chain, such include; Michon, & Miemczyk (2014) they propose a certain degree of relationship amidst the parties involved in the chain as a way of sharing rewards and risks which in return leads to higher performance than the firms would attain if each operated in isolation. Further, according to Bowersox (1990) logistics alliance amidst different organizations offers the involved parties an opportunity to improve customer services dramatically, besides, it helps the firms in lowering of storage and distribution operating costs. According to Narus and Anderson (1997) collaborative supply chain is cooperation amidst self-governed yet, related organizations to share capabilities and resources to meet the most extraordinary needs of their customers.
Despite the fact that collaborative effort is often based on mutual goals, collaboration is, however, a self-interested process. This because a firm will choose to engage in a collaboration if only the collaboration contributes to its individual survival. Each of the involved parties strives to achieve their own benefits such as transaction reduction, elimination of redundant functions, increasing responsiveness, attainment of low inventory among many others. Despite all this, the main focus of the joint objective should be on experience and outcome shared offers to their customers’. Through the collaborative effort of sharing capabilities and resources, the involved parties have potentials of exploiting profit-making opportunities that an individual firm cannot create single-handedly. For instance, the logistic capabilities that collaboration effort facilitates include post-sale customer services, services, and product delivery reliability, increased distribution coverage area and at the same time lower the distribution cost. As a reward of their individual input, each member of the collaboration shares the resultant increase in sales and thus profit. Due to the extensive studies conducted in regards to collaborative supply chain has yielded different breadth of its application. Thus, there are different types of collaborations. Such include; horizontal, vertical as well as lateral collaboration.
Portfolio management
The capability of a firm to manage a portfolio refers to the competencies in the management of customers and suppliers portfolio. Such include an analytical feature such as conduction customers and suppliers’ evaluation, competencies in using and establishing databases. Some of the organizational aspects include the firm’s capacity to develop firm’s solutions to handle exchange relationships. Since the early 1980s, the management of customers’ suppliers’ portfolio has attracted numerous studies.
Suggested conception model
The relationship topology highlighted in table one shows the most important premise namely longevity, trust, interdependence, conflict resolution, risk sharing as well as sharing of information. All these attributes play an important role in the determination of the appropriate nature of inter-firm relationships. When implemented the topology suggests that power, longevity and trust convergence establishes organizational context. Under this context process sharing of the different variety is encountered. Process sharing is proposed to proceed the relationships between the establishment of a portfolio of inter-firm relationships and the firms’ interdependency. As illustrated below the model frame the relationships patterns and the attributes. In a way, that manger has the capacity to explore the likelihood of survival followed value creation and growth within specific relationships. Besides, the model links the processes of management that are required to maintain performance in them.
1047757620Power
Longevity
Trust
Portfolios of relationships
Interdependency level
Sharing
Information
Resources
Risk
Cost
Power
Longevity
Trust
Portfolios of relationships
Interdependency level
Sharing
Information
Resources
Risk
Cost

Conclusion
Portfolio relationship in the supply chain must not be of the same complexity and type. An organization requires effective evaluation via portfolio approach. Furthermore, an organization needs to evaluate the nature of the relationship as this will help such organization in understanding why relationships vary and how they can be successfully and effectively joined to achieve individual firm’s desired outcomes. To investigate the nature of inter-firms relationship under a portfolio approach more empirical research is required. Today the available model has proved inefficiency in regard to these issues. The proposed model identifies the major attributes that may help in understanding a “portfolio of relationships” method as well as the nature of the relationships and how the proper combination of the identified attribute would facilitate long-term relationships.
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