Relationship marketing (RM), Customer Relationship Marketing (CRM), e-CRM for online businesses and Collaborative Planning, Forecasting and Replenishment (CPFR) are only some of the acronyms to appear in the academic literature in the last 10 to 15
years
. This represents a major paradigm shift in marketing and logistics away from a traditional transactional view of exchange between
buyers
and sellers to a more proactive, collaborative relationship approach. The purpose of this chapter is to discuss the conceptual framework of supply chain relationships and their applications to
retailing
through Quick Response (QR) and Efficient Consumer Response (ECR) initiatives. Finally, the role of
logistical
service providers in supply chain relationships will be reviewed.
Changing Buyer–Seller Relationships
The origins of the relationship approach to understanding buyer–seller interaction at different
parts
of the supply chain goes back several decades, when the conventional marketing mix paradigm
began
to be challenged. The growth of the service sector, the move from mass marketing to micro marketing to mass customization, with the associated database infrastructure, allowed companies to target customers more effectively. While consumer marketing embraced a relationship approach to improve customer retention, these trends were particularly prominent in industrial markets where the Industrial Marketing and Purchasing Group (IMP) initiated much of the business to business research in this area.
In parallel with these developments was a growing literature in logistics and supply chain management embodying similar
paradigms
and constructs. The fourth P of the marketing mix, Place, was traditionally centred on the wholesale and retail trade and how suppliers would channel their products to market. By the 1980s two key factors would begin to elevate logistics to greater prominence in the literature: the rise in power of the multiple retailers, thereby changing power relationships, and the need to eliminate inventory and non-value added activities in getting products to market. Thus, to
compete
with Japanese manufacturing, European and US companies embraced Just-In-Time (JIT) techniques, reduced their supply base and worked more closely with the remaining suppliers. So throughout the 1990s debates emerged on the lean compared with the agile supply chain, the latter more relevant to the fast-moving consumer goods (FMCG) market.
Interestingly, with a few exceptions such as Martin Christopher, the academic literature on relationships tends to be published in discrete camps as evidenced by readers on marketing (Hart, 2003) and logistics (Waters, 2003) which exhibit similar constructs when discussing relationships but very rarely cross-reference between ‘marketing’ and ‘supply chain’ literatures. Nevertheless, key themes are common – power and dependence, trust and commitment, co-operation and co-opetition, which will be discussed in
turn
.
Power and Dependence
‘Power in the supply chain can be defined operationally as the ability of one entity in the chain to control the decision of another entity’ (Daparin and Hogarth-Scott, 2003: 259). It is
generally
agreed that the power base has shifted over time from supplier to retailer. When French and Raven (1959) produced their seminal work, the suppliers controlled the supply chain. The five power bases that they identified – reward power, coercive power, referent power,
legitimate
power and expert power – would lead to dependency of the retailer on the supplier,
especially
with regard to expert power in that the supplier had the marketing/logistics expertise in the channel. Clearly this has changed in 45
years
in that retailers can delist (coercive), reward, joint promote (
referent
) and
dictate
terms (legitimate) to suppliers because of their dominant market position (expert power).
The nature of such relationships between manufacturers and retailers was discussed by Kumar (1996) in a study of 400 relationships. He categorized them into different levels of dependence (Figure 2.1). The ‘win–win’ quadrant is the top right category where there is a high level of
interdependence
between parties. The ‘hostage’ and ‘drunk with power’ categories could lead to a breakdown in the relationship.
Figure 2.1:
Effects of Interdependence
Trust and Commitment
According to Kumar (1996) trust is the
antithesis
of power, and it is trust that leads to co-operation. However, trust can easily be heralded as ‘the glue that holds a relationship’ (O’Malley, 2003: 130), but it is difficult to measure because this involves social networks which are
inherently
fluid in a retail buying context. At an organizational level trust, and therefore commitment, can be
related
to the relationship lifecycle. Many UK private label suppliers have grown with the retailers which they supplied, especially in the area of chilled fresh food where the category was developed by the retailer in partnership with these companies. This does not guarantee stability as evidenced by Marks and Spencer’s breakdown in relationship with some UK clothing suppliers when it decided to source products offshore and thereby sever links which had been fostered for generations. Similarly, the introduction of factory gate pricing by grocery retailers is
viewed
by many suppliers in the UK as
opportunistic
behaviour which impacts upon trust in the relationship.
Co-operation and co-opetition
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Much of the literature from ECR conferences and trade bodies implies greater collaboration between supply chain
partners
. This is discussed in more depth in the
next
section. In the academic literature, most attention has been focused upon collaborative advantage rather than competitive advantage (Christopher and Peck, 2003) and co-opetition (Brandenburger and Nalebff, 1996) rather than competition. The
thrust
of this argument is that in sectors such as the FMCG industry where demand is stable, it is more appropriate for companies to ‘grow the cake’ in specific categories by
boosting
demand and compete on conventional marketing criteria. Similarly, companies have reviewed their logistics operations and are now willing to collaborate with
competitors
on ‘invisible’ shared resources but not on promotion or ‘visible’ marketing efforts. This mirrors the well established approach by Japanese manufacturing companies which cooperate on R&D but compete on the branded consumer goods in the
marketplace
.
The creation of value added partnerships within industrial sectors is based on the tenets of resource-based theory, transaction cost analysis and network theory. In essence, the key decisions that have to be taken by companies within the supply chain relate to their
core
competencies, the allocation of resources and the network of organizations with which they interact. The best examples of such a division of labour is in the clothing ‘fast fashion’ sector which is discussed in much length elsewhere in the book. Benetton is the classical example of the network organization, with its international poles throughout the world. Here Benetton keeps the capital-intensive parts of the operation ‘in house’, contracting out to small and medium
sized
enterprises
(SMEs) the labour-
intensive
phase of production (tailoring, knitting, ironing). Likewise, Zara has developed its production pole at La Coruna with its integrated network of SMEs in Galicia and N. Portugal.
In other parts of the retail sector, the rosy picture of collaboration and co-operation is less evident from published empirical research. The previous edition of this volume cited work by Hogarth-Scott and Parkinson (1993) and Ogbonna and Wilkinson (1996) in the food sector of a more adversarial approach than the ‘partnership’ dialogue promulgated at the time. In the basic clothing sector similar trends were evident (Fernie, 1998) and the downward pressure in prices with the
intense
competition in the UK clothing market has done little to redress the emphasis on tough price negotiations. Indeed, Philip Green’s takeovers of BHS and Arcadia have been
marked
by his public pronouncements on the renegotiating of supplier contracts.
The Competition Commission (2000) investigation of the nature of competition in the UK
supermarket
sector was generally supportive of the status quo except for the need for a supplier code of practice to eliminate the worst excesses of retailer power on suppliers. Anecdotal evidence would appear to suggest that prices were being driven down to unacceptable levels, plus retailers required other ‘contributions’ for slotting allowances and other
discounts
for volume purchases. In a more recent study of buyer–seller relationships in the UK and Australian markets, Daparin and Hogarth-Scott (2003) challenge many of the conventional views on co-operation, trust and power. They claim that much of the literature argues that power is a negative construct and is invariably viewed as a
distinctive
independent construct divorced from the construct of co-operation. From their research, they would maintain that co-operation occurs as a result of compliant behaviour brought about by the application of power.
Using the results from their survey, Daparin and Hogarth-Scott (2003) discuss dependence and power in relation to retail concentration and supplier dependency. Therefore, where retail concentration is high and there is low retailer dependence on the supplier, retailers will be more likely to use coercive power. Where concentration levels are high but dependence on suppliers is also high, retailers are more likely to use expert power, probably through the use of category management. The use of such expert power leads to co-
operative
behaviour which in turns leads to greater trust within the relationship. This model is
illustrated
in Figure 2.2, which shows that the use of coercive/reward power can lead to capitulation in the relationship even if trust is broken within the context of category management and the referent/expert power in the right hand quadrant disintegrates into coercive power.
Figure 2.2:
Power Strategies of Retailers
