Meshing multiple alliances

Martha C Cooper

The logistics function is often called upon to spearhead the coordination of the movement of goods, services, and information both up and down the channel of distribution. As logistics has become a corporate-wide integrated activity over the past two decades, the ability of the logistics coordinators to look simultaneously up and down the channel has positioned logisticians to be the integrating factor in building multilevel coordinated delivery systems.' As firms coordinate across multiple levels of the channel, supply chain management has risen in importance.2 Supply chains are defined as three or more organizationally distinct handlers of products, where products include physical goods, services, and information. Concurrently, the logistics function has played a leading role for industry in building and defining partnership-style relationships. Marketing has followed along, studying the partnering process and introducing the term relationship marketing.3 Thus, the confluence of these two recent changes, the emergence of logistics as one of the most cross-functional of corporate entities, and the new marketing emphasis on the style of the relationship combine to place logistics managers in the position with the best view for vertical channel integration across multiple channel levels.

The goal of this paper is to integrate the supply chain viewpoint and the partnership building process, along with the introduction of the value tree analogy. What we hope to show is the need to extend both partnership and the supply chain in light of the value tree. The first section will examine the current state of the supply chain paradigm. The next section will review the status of partnership building in logistics relationships and illustrate the bow-tie versus the diamond approaches to the buyer-seller interface. The final section will explore the value tree analogy and its implications for logistics.

SUPPLY CHAIN MANAGEMENT

The term supply chain management (SCM) has risen to prominence in the past ten years. The most recent annual conference of the Council of Logistics Management had approximately thirty percent of its sessions devoted to some aspect of supply chain management.' This section first discusses what supply chain management is and why it is important. Four approaches to how SCM integration develops are then presented.

What?

Supply chain management has been broadly defined as an integrative philosophy to manage the total flow of a channel from earliest supplier of raw materials to the ultimate customer, and beyond, including the disposal process! The key concept is that the channel is viewed as an integrated whole, with the goal of understanding the channel as a true system. Each player in the channel directly or indirectly affects all the other channel members, as well as the ultimate, overall channel performance.

Thus, supply chain management in its purest form focuses on the total supply chain system. This is a lofty and difficult goal to achieve. Few organizations, if any, even have a good understanding of how the various functions, teams, and other units within their own organization interact. Thus, in application, supply chain management practices exist along a continuum, from more traditional approaches, where the organization focuses only on the direct affects upon itself, to the more expansive, supply chain, channel-wide perspective. These two approaches are contrasted in Table 1, which lists some of the elements that distinguish traditional channel approaches from SCM. SCM may take on many forms, and follow multiple approaches. Four of these are presented after an overview of why organizations choose to focus on SCM.

Why?

Clearly, SCM requires much more effort, coordination, and analysis than traditional channel management approaches. So why would an organization endeavor to pursue a SCM approach? A number of important benefits can be forthcoming. These are briefly summarized in Table 2, classified according to economic, managerial, and strategic benefits.

While many reasons for pursuing SCM are listed in Table 2, the bottom line is this: SCM helps to improve the competitiveness of a channel, which should translate into improved competitiveness for all channel members. SCM is truly a synergistic situation, where the entire outcome of the channel is improved by supply chain management; each channel member should also benefit. An example of this would be the coordination of the suppliers and the warehousing and transportation providers by Compaq. Compaq has worked to improve significantly its forecasting and information sharing with upstream suppliers. As a result, suppliers can be more efficient in their production and inventory management. Compaq now requires its key suppliers to maintain a certain level of raw materials inventory in a third-party warehouse near Compaq's Houston facilities. This allows Compaq to better coordinate shipping, storage, and handling and respond more rapidly to production changes. In turn, Compaq can have lower finished goods inventory, which is more costly and risky to hold than raw materials inventory, while still providing its customers with improved service.6

How?

There are many ways that SCM may be an evolutionary approach, one that builds and expands over time. The approaches discussed here are: dyadic management, channel integrator, analytic optimization, and keiretsu/vertical integration. They are portrayed in Figure 1. These approaches are not pure forms; an organization may combine several approaches in order to achieve a hybrid SCM style that best fits its situation. For example, Anheuser-Busch is vertically integrated in using eleven company-owned wholesale operations.7 It takes an analytical optimizer approach in working with wholesalers to improve receiving practices for retail stores,8 and a dyadic approach working with its technology provider to improve UPC technology.9

Dyadic Management

A dyadic approach to SCM may exist at numerous levels in the chain. Many organizations, in their early attempts to "manage" the supply chain, will focus only on those channel members with whom they have immediate contact. For example, an organization might try to improve coordination and communication among its first tier suppliers, carriers, and distributors. It may even develop some partnerships with key channel members.

As the organization that is initiating a SCM approach works closely with its immediate channel members, those members may find that they need to work more closely with each other. This may spread throughout the supply chain, so that the supply chain is very well integrated and managed, dyad by dyad. Channel members may intervene from time to time with a nonimmediate channel member in order to help solve a problem, gain leverage, or improve communication but the firm's effort is concentrated on the adjacent firm.

This approach to SCM is popular today because it does not require total central coordination and control, which can be both difficult and costly. Examples of organizations that follow this approach are Honda of America Manufacturing and Xerox Corporation. Both of these organizations form close working relationships with their immediate channel partners, and encourage these players to do the same. To further encourage synergy among channel members at the same level, Xerox invites noncompetitive suppliers into product development meetings, and encourages them to work together and to coordinate their efforts.

Channel Integrator

The channel integrator is an approach where one party, a channel leader, plays the key role in setting the overall strategy for the channel and in getting channel members involved in and committed to the channel strategy. Unlike the dyadic approach, where the communication is more indirect, the leader in the channel integrator approach has purposeful, direct contact with many key players throughout the supply chain.

This approach is embodied by the clothing manufacturer and retailer Benetton, which coordinates the entire channel for its apparel, from contracting with the wool growers through capturing sales data at the retail level.' Another example of this is Chrysler, with its new model platform approach. Chrysler uses the extended enterprise concept, encompassing all tiers within the supply chain. Suppliers are an integral part of the Chrysler's teams. Chrysler encourages noncompeting suppliers to benchmark with each other and to share best practices. In its efforts to manage the total supply chain, Chrysler works with various levels in the supply chain to ensure that each knows its role, and is working closely with other links."

Analytic Optimization

In the analytic optimization approach, an organization, the channel leader, uses some sort of computerized modeling to determine the best supply chain configuration for its operations. Because of the many variables and interactions among factors, the result is a near optimal approach rather than true optimization. The key to this approach is that many supply chain cost and performance factors are quantified, and the supply chain is purposefully designed to best support a specific objective function. The objective function generally has multiple criteria, such as maximizing customer service, minimizing inventory, and so on. There may also be multiple constraints in terms of locations to be considered, capacity, tariffs and trade restrictions, and so on. Thus, the model may be very complex. Hewlett-Packard uses this type of approach"2 in designing its supply chains. It has an internal consulting group, strategic planning and modeling, which develops and runs the supply chain models. Digital equipment has used a computer model to reconfigure its worldwide supply chain and save $100 million.13

This analytical approach can be used to support decision making regardless of the managerial approach followed by the organization. For example, a firm could analytically design its desired supply chain configuration then attempt to manage it using an integrator style or a dyadic style.

KEIRETSU

A final approach to SCM is Keiretsu/vertical integration. Like the channel integrator approach, this approach has a clear, centralized channel leader. However, the control/leadership is greatly empowered by partial ownership of the other channel members. Keiretsu is a Japanese "society of businesses" that relies on cooperation, coordination, ownership, and control to create a competitive upstream and down stream supply chain. In supply/manufacturing Keiretsu, there is a central manufacturer who manages and controls the channel through ownership interest in many of the channel members and interlocking directorates. Mitsubishi and Toyota are examples of this kind of keiretsu. Thus, Keiretsu has many of the benefits of vertical integration, without complete control.'4

Vertical Integration

Vertical integration also achieves coordination of the flows but does not fit our definition of supply chains since there is ownership of most of the channel. Therefore, there is no coordination of the actions of independent firms. Vertical integration is an approach whereby there is common ownership of many supply chain members. An example of an organization with a high degree of vertical integration is General Motors. While Chrysler and Ford buy most of their parts from outside suppliers, GM buys the majority of the value of its components from such wholly-owned subsidiaries as Delco and Fischer.15 Vertical integration may offer greater control and market visibility. However, as noted by GM in its current attempt to use more outside parts suppliers, vertical integration may also create complacency among captive members of the supply chain.

Summary of SCM

The information presented above illustrates that there are many reasons for attempting to take a more proactive approach to managing the supply chain. The degree of supply chain management may vary from focusing on improving performance of one or two dyadic relationships within the supply chain to looking at the entire supply chain. The methods used to manage the supply chain, from direct intervention, to indirect control, to ownership, also vary. The best approach will depend upon the benefits sought in SCM as well as the nature of the organization's supply chain. However, it is not enough to know how supply chains are formed or managed. Managers also need to know how to build the relationships among members and what style of relationship to build.

PARTNERSHIP (RELATIONSHIP) BUILDING PROCESS

The supply chain discussion describes possible structures of the channel. The partnership building process addresses the means of forging relationships between channel members, how to assess the closeness of these relationships, and how to work at making them work. The section examines what the partnership building process is, why partnerships are formed, and how they are formed. The bow-tie and diamond images exemplify the differences between nonpartnership and partnership relationships. This section presents the partnership-relationship building process from a single dyadic perspective of one buyer and seller and then explores means of meshing a firm's multiple alliances.

What

A popular view of partnership is that partnership involves close, highly interactive relationships between business organizations. With all the press, managers may conclude that these partnerships are desirable relationships in all situations. 16 There is a continuum of possible relationship styles from pure arms-length to extremely close business-to-business relationships. Those relationships towards the intensive end of the continuum require a large degree of managerial attention. It is this more difficult-to-quantify cost that precludes partnership from being the norm in business-to-business relationships.

"Partnership" as used here refers to an area on a continuum of possible relationships. As the relationship moves from arm's length toward more integrated operations, there are greater degrees of partnership elements in the overall relationship." The language used in this paper focuses on relationship style and adding partnership components to the relationship style. The components of partnership include joint planning, sharing of benefits and burdens, extendedness and trust, systematic operational information exchange, operating controls across firms, and corporate culture bridge-building." Companies can concentrate on one or more of these elements or add some of each to a relationship. For example, extendedness involves the concepts of trust, loyalty, and a long-term perspective to the relationship. However, a very long-term horizon may not be needed for all relationships. Corporate cultures do not need to be highly compatible for more short-term relationships. Moving toward integrated operations, however, probably implies that the relationship exhibit some aspect of each of the partnership elements. It would be difficult to have integrated operating controls and systematic sharing of information without some

Why?

Another important question is why there should be a particular style of relationship at any point in the supply chain? Oliver19 suggests reasons why relationships would be established with either more or fewer interorganizational linkages, which we call degree of partnership. Oliver reviews possible reasons for forming relationships which include necessity, asymmetry, reciprocity, efficiency, stability, and legitimacy. Necessity results from some outside authority, such as government mandates or trade association requirements, and is generally beyond the manager's immediate control. Asymmetry is the ability to exert power, influence, or control over another organization or its resources. The ability of large retailers to influence channel behavior is an example of asymmetry. Reciprocity implies cooperation, collaboration, and coordination among the parties, such as electronic transfer of freight payments and claims between shippers and carriers. Efficiency has an internal focus to improve the firm's own operations. Stability is the effort to reduce uncertainty in the firm's environment, while legitimacy is justifying the firm's activities, often through associations with firms commanding respect in the marketplace, such as serving Fortune 500 clients.

Williamson2 suggests reasons for establishing stronger relationships from an economics standpoint. Williamson indicates three primary determinants of transaction cost: specific assets deployed, environmental uncertainty, and frequency. Firms that invest in specific logistics assets, such as customized trailers or special warehouse materials handling equipment, would want more partnership components in the relationship. Macneil presented a framework for how specific components would work in building closer business relationships." For instance, longer contract periods permit time to amortize the investment.22 Environmental uncertainty can be divided into uncertainty surrounding the exchange process and uncertainty about the relationship itself. Variation in demand for products creates exchange uncertainty in terms of estimating shipment volumes or warehouse space required. Relationship uncertainty addresses how one party will act or react to actions by the other party. Reducing one kind of uncertainty may increase the other. For example, exchange uncertainty can be reduced either through spreading risks across many accounts or by building partnership components into a few relationships, such as using planning and cooperation to anticipate environmental changes. However, as exchange uncertainty is reduced through partnership building, uncertainty about maintaining and growing the relationship becomes more important.

Frequency refers to how often transactions occur. In logistics, frequency would be the number of shipments or number of market transactions. More transactions suggest greater routinization of interaction and a closer relationship to make sure that transactions run smoothly. The interaction of highly-specific assets, high uncertainty, and high frequency of transactions provide the strongest environment for closer relationships.

How?

The factors described above, which motivate the need for partnership, lead to a manageable process of partnership building. There are specific behaviors related to partnership building that may be added to a custom mix to yield the degree of partnership appropriate to the situation. We can add planning across organizational boundaries, according to the goals for the relationship. Trust can be managed by a cyclical process of making commitments, following through on them, and communicating the results, then repeating the process. The more complete cycles, the more impressive the commitment, the greater the trust. Initial information sharing may be only orders placed electronically. However, as the relationship grows, additional information is shared. Some firms provide their suppliers with production forecasts to assist the supplier with planning its production runs and resource requirements. We would say there is greater partnership with increased trust and/or information sharing.

Risk and reward sharing can be built into the relationship at the beginning so that the details of sharing of savings is specified. SunService Americas Logistics states up front how the sharing will occur. Control and monitoring of operations across firm boundaries requires planning for timely sharing of information to make the coordination more effective.

Should all relationships be partnerships? Intuitively, more coordination across the supply chain levels seems to imply more partnership in the relationships. However, there are examples of successful channels of distribution which utilize different kinds of relationships. Mast Industries offers a good example of the variability of useful SCM relationships. Mast supplies The Limited stores. The relationship was critical enough that The Limited bought Mast, using vertical integration to harmonize their relationship. Up the channel, Mast has examined its supplier base and chooses primarily arm's length relationships and partnerships with only a limited set of partnerships elements.23

From the above, it appears that not all relationships a firm has should be strong partnerships. There are issues of time commitment, management experience, and market characteristics to be considered. The firm must assess which relationships are key and need closer ties and which can be managed from another perspective or not managed except through allocation of purchase dollars. From The Bow Tie to the Diamond

In an analogy attributed to the late Sam Walton, firms can choose between the bowtie and the diamond approaches to interfirm relationships. (See Figure 2.) The bow tie is made up of two triangles meeting at a point. The traditional, often adversarial relationship, uses a bow-tie approach where the primary or only interaction between firms is the buyer of one firm and the seller of the other firm. All information is transmitted through these two filters. In one firm the national account manager (salesperson) for a key customer would not allow any communication with the customer unless the account manager was on the phone or in the negotiations.

The bow-tie approach has the majority of the two firms' functions far from each other in terms of communication and interaction. The diamond occurs when the triangles are rotated so that two sides are together. Now all of the functions can talk with each other across firms. Engineering can talk with engineering, manufacturing with manufacturing, management information systems with management information systems, etc. The salesperson and the buyer are at the farthest points and may essentially disappear in some instances. Both expected and serendipitous efficiencies can occur from these closer, partnership-style relationships across other functions. For example, concurrent engineering can develop new components and products faster. In a bow-tie scenario, where the sales manager for the supplier permits no communication with the customer except through the manager, the functional areas cannot work directly together to manage inventory more smoothly and to improve customer service. At one point in a diamond style relationship, a sales person for a supplier had not been able to get a buyer's attention for a new line of products. The logistics manager was able to help the salesperson gain access to the buyer to show the new products because of the personal relationship and trust built with the logistics counterpart at the customer's firm. The result of multiple access points across the organizational divide was more sales for both companies.

Another example of partnership would be exemplified in JIT II.24 The in-plant representative may take the place of the customer's buyer and place orders as needed to meet production schedules. The representative serves as a liaison between the supplier and the customer, bringing in expertise as needed to design new components or to work through production issues. An example is BOSE's relationship with Roadway Express. Roadway has an in-plant person, not a salesperson. He/she actually arranges all of the LTL traffic, provides performance reporting, and monitors shipments. This manager from the supplier's operations is treated as a full-time team member of the customer's firm; thus, there is greater communication among the functions of the two firms.

Multiple Relationships or Alliances

Many papers have reviewed the formation of individual relationships.25 However, every firm has a myriad of relationships to manage simultaneously. At issue is what kind of relationship to build with each supplier or buyer. There appears to be a learning curve to partnership management. The more partnerships a firm builds, the more efficient and effective the managers will be at the process. The amount of management time required from both firms is still significant. DuPont has followed a partnership strategy for transportation services that begins with a limited number of partnerships before expanding.26 Firms were selected as potential partners in each mode. One mode served as the pilot test for this approach.

As a firm successfully builds a few partnerships, additional partnerships are more easily established. The countervailing force is that each partnership uses more managerial effort than a simple transaction based approach. For example, a typical manager in a buying firm has to understand more aspects of one supplier's business in a partnership rather than relying on the bidding process of product specifications and price quotations and concessions. The same is true in reverse for the supplier.

Another issue in SCM integration is what parts of the product and information flows and management processes should be integrated. We suggest a four-stage progression. First, firms often start with information sharing only and continue to manage their internal processes separately. The next stage is to coordinate some processes across firms as well as share information. The third stage includes these features plus creativity. As firms work with one another, they begin to jointly explore creative means of building new systems, processes, and products. The most advanced stage puts everything on the table for re-examination. In this stage, the whole supply chain could be re-engineered. New approaches to delivering value to the customer are considered. The turmoil in the publishing area where on-line publishing is an emerging reality provides an example. Books can be customized for professors' specific courses. Materials are immediately available world wide via internet and the world-wide web. This presents a new playing field for publishers and authors who must consider creative ways to deliver their "products" and maintain some semblance of copyrights to the materials.

Thus, for the firm's many relationships, how to manage each one, how to proceed within each one, even how to proceed across each one has been explored separately Now we will try to pull these together in the value tree.

THE VALUE TREE

The image that is evoked in the supply chain analogy may lead to some one-dimensional thinking. If the image that a chain brings to mind is a single company linked to a supplier and a customer as a chain would be linked to only one link above and one below, then the image is limited. A company is typically involved with multiple suppliers above and multiple customers below. A search for a better analogy is in order.

If the image of a tree is substituted, then the multitude of relationships should be better represented (see Figure 3). The trunk represents the firm. Porter's27 value chain concepts of functional value added and the need to focus on those areas where competitive advantage can be maintained are pertinent here. This view of the firm is popular with just cause. The crucial difference is that the value tree approach acknowledges that there are multiple inputs to the firm's value added processes. The firm should discriminate among the branches above and must build tailored styles of relationships with a large number of branches at varying levels. The thickness of the branch would indicate the degree of partnership present in each linkage. The length of the branch is proportional to the amount of value added to the firm's product. A very thick branch could indicate that the relationship is very partnership oriented, while a thin branch could indicate a more tenuous arm's-length relationship. These relationships should be tailored to provide specific advantages to the participating organizations, should assist in maximizing the value adding activities of the firm, and should ensure the sustainable nature of the resultant advantage, where possible. The diameter of the branch would indicate the amount of value added input the supplier provides.

To illustrate the tree analogy, consider an auto company. The twigs would represent the initial value-producing steps in each component of an auto-the mining of the ore for instance. The sale of the ore to the smelter might represent the first convergence of branches. The smelter in turn might represent one of many suppliers to the steel company, another convergence of larger branches. The steel company in turn would sell to the parts supplier, another convergence on the way to the trunk. The auto company would be directly connected only to the auto parts branch of this system, potentially. The auto seats would come from a wholly different branching system that would include thread, cotton farmers, spring makers, chemical suppliers, etc. Below the trunk is the source of nourishment for the firm, the roots. The roots would be successive branchings below to the eventual consumer. The rootlets, the smallest elements of the roots, could represent the complexities of the individual consumers. Thus the image can accommodate the entire flow from first steps to the consumer's closure with the product.

The limitations of the analogy include the inability to depict an entire forest, in that the branches from one tree might be the trunk from another firm's perspective. Also we may have to think of the tree as one of the varieties in which branches may split yet converge at a higher level by growing together (the auto parts maker and the auto manufacturer both linked to the same steel maker). These concerns notwithstanding, the tree analogy does offer some recommendations for revised thinking.

BEYOND THE SUPPLY CHAIN

The chain looks like a chain only when viewed down the channel toward a specific customer or consumer. Looking up or down the channel more generally looks like a massive set of tangled branchings, many difficult to see from our perch on the trunk. The segments between branchings represent individual firms or divisions of firms. The length of the segment is proportional to how arm's length the relationship is.

The correct analogy will depend on the perspective of the viewer. From the participant's holistic viewpoint, the tree looks like a good choice to visualize the system. From a bird's eye view (outside researcher's perspective) the same linkages across many firms would look like a business network. From a gopher's (manager's) viewpoint the value chain or supply chain would be the appropriate metaphor if the manager was interested only in the single most critical component at each level of the channel. Additionally, the value tree reflects the advantage of looking at the system as value flows, not discrete chain links.28

Clearly, the tree looks different from each perspective. Different firms all see themselves as the trunk, for instance. This is important in trying to integrate the flow of value adding processes because the coordination across firm boundaries will work only if it makes sense from both perspectives. If a customer firm looks like a taproot to a producer, but the producer looks like a small branch from the other direction, then there will likely be severe limitations to the amount of partnership which is possible. So each side of a dyad must see both the tree as they would draw it and the tree as the opposite party would draw it. In this way, the many indirect links and reconnects that make up the web of relationships become clearer. The tree analogy is superior to an unstructured web by virtue of its clear perspective of the firm as the trunk. While an entire web is interesting, the firm must organize its world view to focus on itself as the prime concern.

Distinguishing the strongest branches and roots from the twigs and rootlets should give direction to value tree integration. Value tree integration is quite analogous to supply chain integration, but the need to choose which branches and roots to more closely integrate emphasizes the complexity of the problem. A supply chain would follow a single path up a tree, likely the largest branch path upward. A supply tree forces focus on the many paths of the value adding process.

Should the integration efforts be focused on the branching points or on the limbs? Attention to the branching points would be analogous to focusing on the inbound and outbound logistics part of Porter's value chain, the outside interface of the firm. To focus on the limbs, on the other hand, would imply an emphasis on meshing production processes or marketing efforts. These two approaches may not be mutually exclusive for those branching systems that are of sufficient importance to the firm.29

As value added inputs increase from a supplier, the supplier's branch would be depicted as longer. As more partnership or integration is present the branch would be thicker. Thus, it is easier to prune a thin branch than a thick one, as dropping a supplier with only an arm's length relationship is easier than dropping a strategic partner.

There is a snowball effect in the number of potential relationships that could diffuse and overwhelm managerial attention if the entire tree is to be coordinated. Each level of branching multiplies the number of limbs or roots to be considered. This snowball effect is what creates the demand for selective partnership building.30

Implications for supply chain management

All relationships will likely not be full partnerships, but all significant coordination requires some degree of partnership. Supply chain members farther from the firm may be more arm's length relationships. Markets of suppliers with consistent quality and service abilities may not require close relationships with a few suppliers. Having a single supplier per product may not always be the best policy."

Firms should be sensitive to the perspectives from other branches. A major supplier to a small manufacturer may be represented by a thick branch by the buyer but for the supplier, the buyer may be seen as a tiny root. While the manufacturer sees a partnership, it may only be with the local unit of the supplier's large organization.

What about the forest? The value tree takes a perspective from a single firm as the trunk. Looking at an industry would yield a forest of value trees. Each tree is strongly influenced in its shape and size by its neighbors. For instance, when the automakers started to align with the rental companies, those who came late to the party had to choose from the smaller share car rental companies. Thus, the view of the forest matters also.

Implications for partnership management

Firms need to evaluate the advantages of integration across a large number of potential branches. Assessments of management time constraints and the ability to manage multiple relationships across suppliers of various products must be analyzed. The DuPont method of starting with one partnership relationship and building as experience is gained has merit.

Firms need to be selective in implementing components of partnership for non contiguous branches/trunks. Each amount of each partnership component added to a relationship requires management time and financial commitment. These limited resources need to be managed carefully, especially as these relationships are farther from the firm in the channel of distribution.

Meshing relationships is different from dictating coordination. Meshing implies working toward a win-win relationship. Dictating coordination may work for the most powerful in the channel as long as they remain the most powerful in the channel. Impressed servants will take the first opportunity to flee tyranny. In the dynamically competitive world market emerging, the ability to remain the powerful firm in the channel or industry in the long term is limited.

SUMMARY AND PROPOSITIONS

It has been said that you can't see something until you have the right metaphor to understand it-Pacific islanders' view of cargo planes in WWII highlight this difficulty. The primitive tribe in New Guinea could only see the crashed cargo plane as a god who brought goods; thus was born the cargo cult. For years the islanders maintained a shrine in hopes of attracting another cargo plane. They needed more information to properly interpret their situation. The supply chain provides an image of connectedness and order of process through the channel. The value tree may offer additional insights and point out the managerial difficulties of multiple relationships. If a firm enters into a partnership relationship or a supply chain integration scheme based on a first-come first-served basis, the wrong long-term relationships-both in terms of relationship style and in terms of firm choices-may develop.

Future research

The value tree metaphor leads to some interesting research propositions. While these propositions could be approached from a different perspective, the value tree more clearly communicates the need to understand the variety of paths to potentially be integrated, and to visualize the players' positions in the overall value adding system.

The first order of business would be empirical studies that would reliably identify and distinguish both the various approaches to SCM (Figure 1) and the various potential categories of value trees. Once these typologies can be reliably measured, there are a wide variety of questions that would be worthwhile to explore.

Pla. Distinct forms of value trees can be distinguished by looking at the relative amount of value added by each supplier crossed with the strength of the competitive market in providing the products needed. Thus, a producer of precast concrete structural components, for whom the concrete is the major component, paired with a concrete supplier that deals with a local quarry for key raw materials, might yield a lodgepole pine type of value tree. On the other hand, the tree for a small restaurant that uses many food suppliers and many supply sources might look more like an apple tree. The number and appearance of the various trees in the typology must be empirically derived.

In order to identify different types of trees, some measures would be needed-the number of levels, the number of branches per level, the ratio of value added per branch, and the average value added per branch by level would all be possible. Computer graphics that could highlight similarities or groupings with color could also be a useful typologic tool.

Plb. Various forms of SCM can be reliably distinguished. There are key behaviors and structures present in each of the types of SCM. For example, in the analytic optimization model, the parties should all be aware of and compliant with the program that calculates the system optimum. Additionally, all parties must supply data to the program. On the other hand, the degree of partnership needed is constrained by the commitment to and support of the optimization program. Each of the other types should have a clear set of defining characteristics. Choosing among the potential variables which could differentiate the types of SCM would thus require a taxonomic study.

P2. The number of relationships needed to fully integrate a value tree grows at a varying rate across contexts. In some cases, the number of additional potential parties at a further removed level in the branching is manageable, as for the lodgepole pine. In others, such as the apple tree, it snowballs too quickly.

P3. The four different paths to SCM integration (Figure 1), are each appropriate to different value tree configurations. The lodgepole pine will yield more easily to optimization techniques. The apple tree may only be able to support dyadic relationships because there are so many possibilities close at hand.

P4. Maintaining a SCM focus (linear up and down the channel) is useful in contexts of having a single supplier or a few major suppliers. Adopting a value tree focus (branching up and down the channel) is useful in other contexts where there are many suppliers of more nearly equal importance.

P5. Understanding the root system increases the number of integrated relationships in the branch system. An accurate view of a firm's customers' customers increases a firm's sensitivity to the suppliers' suppliers. A better understanding of the more removed branching system in the roots improves a firm's ability to see the complexity and importance of the branch system above. An important covariate here would be a firm's status in the drive to tear down functional silos.

P6. Pruning and grafting guidelines should match the tree type. A certified vendor program, a pruning and grafting rule book, helps eliminate noncritical twigs and identify new branches to graft. A corporate partnering policy that identifies potential new partnership opportunities could guide the thickening of branches. Different tree types could require either simple or complex partnering guidelines. Lodgepole pine style trees might use simple rules of seeking for the highest value added supplier as a partner. An apple tree would likely require much more complex guidelines and thinking in the area of partnership development. Conclusions

The extensive use of terms such as partnership and alliance in the trade and academic press can lead to an inference that all firms should seek close relationships with all suppliers. However, extensive management time and commitment is required to strengthen and maintain these closer relationships. It is important for firms to identify those relationships that should be moved into a more partnership style from those that should remain more arm's length or vertically integrated into the firm. The value tree provides a means of describing the firm's various relationships with suppliers and customers that can help management decide which branches to prune and which to grow.

NOTES

1Donald Bowersox, "The Strategic Benefits of Logistics Alliances," Harvard Business Review, 68, no. 46 (July-August 1990): 3645; John T. Gardner, Martha C. Cooper, and Thomas G. Noordewier, "Understanding Shipper-Carrier and ShipperWarehouser Relationships: Partnerships Revisited," Journal of Business Logistics, 15, no. 2, (1994): 30-32; Bernard J. La Londe and Martha C. Cooper, Partnerships in Providing Customer Service: A Third Party Perspective, (Oak Brook, Ill.: Council of Logistics Management, 1989); James M. Masters and Bernard J. La Londe, Evolution Status and Future of the Corporate Transportation Function, (Louisville, Kentucky: American Society of Transportation and Logistics, 1991); and John C. Langley and Mary C. Holcomb "Creating Logistics Customer Value," Journal of Business Logistics, 13, no. 2, ( 1992): 1-27.

2John B. Houlihan, "International Supply Chains: A New Approach," Management Decision, 26, no. 3 (1988): 13-19; Cooper, Martha C., and Lisa M. Ellram, "Characteristics of Supply Chain Management and the Implications for Purchasing and Logistics

Strategy," International Journal of Logistics Management 4, no. 2 (1993): 13-24. Lisa M. Ellram, 'A Managerial Guideline for the Development and Implementation of Purchasing Partnerships," Journal of Purchasing and Materials Management 27, no. 3 (Summer 1991): 2-8. Lisa M. Ellram and Martha C. Cooper, "Supply Chain Management, Partnerships, and the Shipper-Third Party Relationship, International Journal of Logistics Management 1, no. 2 (1990): 1-10.

3Federick E.Webster, Jr. "The Changing Role of Marketing in the Corporation," Journal of Marketing, 56 (October): 1-17; Atul Parvatiyar and Jagdish N. Sheth, in Relationship Marketing: Theory, Methods, and Applications, Jagdish N. Sheth and Atul Parvatiyar, eds. (Atlanta: Emory University Center for Relationship Marketing, 1994).

4Donald Bowersox, presentation at the Council of Logistics Management Annual Meeting, 10 October 1995.

5Cooper and Ellram reference in Note 2.

6Richard H. Gramble, "Curse of Consignment Sales: Carrying Customer's Inventory Weighs Down Cash Flow," Corporate Cashflow Magazine 15, no. 10 (September, 1994): 30; Jack Sweeney, "Sets Five-Day Shipping Goal: Compaq Fires Back at Critics," Computer Reseller News, 13 March 1995, p. 33. "The Computer Industry Survey," The Economist, 17 September 1994, p. 6; and Craig Zarley and Kelley DaMore, "Compaq to launch Build-toOrder Fulfillment System," Computer Reseller News, 20 February 1995, p. 3.

7John N. Frank, "Join the Inventory Revolution," Beverage Industry, June, 1993, pp. 59-66.

8Terry Hennessey, "Reaping the Rewards of DSD: Direct Store Delivery," Business Journal-Sacremento, 15 June 1987, Sec. 1, pp. 17-19.

9Michael Gary, "How's Your Data Scan?" Progressive Grocer, October, 1992, pp. 83-89.

10Peter Daprian, "Benetton: Global Logistics in Action," International Journal of Physical Distribution and Logistics Management 22, no. 6 (1992): 7-12; and "Global Logistics, Benetton Style:' Distribution 92, no. 2 (Oct. 1,1993): 62+.

11Thomas T. Stallkamp, "Beyond Reengineering: Developing the Extended Enterprise," NAPM Insights, Feb. 1995, p. 76.

12Hau L. Lee, Corey Billington and Brent Carter, "Hewlett-Packard Gains Control of Inventory and Service Through Design for Localization," Interfaces 23, no. 4 (July 1993): pp. 1-15; Tom Davis, "Effective Supply Chain Management," Sloan Management Review 34, no. 4 (Summer 1993): 35-46.

'13Bruce C. Arntzen, Gerald G. Brown, Terry P Harrison, and Linda L. Trafton, "Global Supply Chain Management at Digital Equipment Corporation," Interfaces 25, no. 1 (January-February 1995): 69-93.

14Lisa M. Ellram, and Martha C. Cooper, "The Relationship Between Supply Chain

Management and Keiretsu," International Journal of Logistics Management 4, no. 1 (1993): 1-12.

15"Status Report: GM's ACG;' Chilton's Automotive Industries 174, no. 11 (Nov. 1994): 58+.

'16Martha C. Cooper and John T Gardner, "Good Business Relationships: More than just Partnerships or Strategic Alliances?" International Journal of Physical Distribution and Logistics Management 23, no. 6 (1993): 14-26; Kathryn Rudie Harrigan, "Strategic Alliances and Partnership Asymmetries," Management International Review 28 (Special Issue, 1988): 53-72; Rosabeth Moss Kanter, When Giants Learn to Dance (New York: Simon dc Schuster, 1989); Luis B. Dominguez and Walter Zinn, "International Supplier Characteristics Associated with Successful Long-Term Buyer / Seller Relationships:' Journal of Business Logistics 15, no. 2 (1994): 63-88; Dales S. Rogers and Patricia J. Daugherty, "Warehousing Firms: The Impact of Alliance Involvement," Journal of Business Logistics 16 no. 2 ( 1995): 249-269; and Robert C. Lieb, " The Use of Third-Party Logistics Services by Large American Manufacturers," Journal of Business Logistics 13, no. 2 (1992): 29-42.

17?Cooper and Gardner reference in Note 16.

'18John T. Gardner, Martha C. Cooper, and Thomas G. Noordewier, " Understanding Shipper-Carrier and Shipper-Warehouser Relationships: Partnerships Revisited," Journal of Business Logistics 15, no 2, (1994): 30-32.

l9Christine Oliver, "Determinants of Inter-organizational Relationships: Integration and Future Directions," Academy of Management Review 15, no. 2 (1990): 241-265.

20Williamson, Oliver E., Markets and Hierarchies: Analysis and Antitrust Implications, (New York: Free Press, 1975).

21Ian R Macneil, The New Social Contract, an Inquiry into Modern Contractual Relations (New Haven, Conn., Yale University Press, 1980).

22.F. Robert Dwyer, Paul H. Schurr, and Sejo Oh, "Developing Buyer-Seller Relationships," Journal of Marketing 51 (April 1987): 11-27; Gardner et al. reference in Note 18.

23Johnson, C. Lee and Martin Trust, "1000 Hours to Market," in W Wayne Talarzyk, ed., Manufacturing Excellence: Strategies for the 21st Century (Columbus, Ohio): Proceedings of the Sixth Biennial W Arthur Cullman Symposium, Ohio State University, 20 May 1992, pp. 16-18.

24Lance Dixon and Anne Millen Porter, JIT Il: Revolution in Buying and Selling, (Newton, Mass.: Cahners Publishing Co., 1994), pp. 55-66.

25Gary L. Frazier, Robert E. Spekman, and Charles R O'Neal, "Just-in-Time

Exchange Relationships in Industrial Markets," Journal of Marketing 52 (October 1988): 52-67; Jan B. Heide and George John, "The Role of Dependence Balancing in Safeguarding Transaction-Specific Assets in Conventional Channels," Journal of Marketing, 52 (January 1988): 20-35; "Alliances in Industrial Purchasing": The Determinants of Joint Action in Buyer Supplier Relationships," Journal of Marketing Research 27 (February 1988): 24-36; Oliver reference in Note 18; Kenichi Ohmae, "The Global Logic of Strategic Alliances," Harvard Business Review 67 (March-April 1989): 143-154; Thomas Palay, "Comparative Institutional Economics: The Governance of Rail Freight Contracting," Journal of Legal Studies 13 (1984): 6-17; Dwyer et al reference in Note 22; Cooper and Gardner reference in Note 16; and Lisa M. Ellram, "The Supplier Selection Decision in Strategic Partnerships," Journal of Purchasing and Materials Management 26, no. 4 (Fall 1990): 8-14.

26Albert Hanks, presentation at the Council of Logistics Management Annual Meeting, 1994.

27Michael E. Porter, "Competition in Global Industries: A Conceptual Framework," in Competition in Global Industries, Michael E. Porter, ed. (Boston: Harvard Business School Press, 1986), pp. 15-60.

28Bernard J. La Londe, Kee-Hian Tan, Mike Standing, "Forget Value Chains, Think Value Flows," Transformation, Summer 1994.

29In Porter's competitive advantage framework, a firm's logistics and customer service functions are at the ends, while production and marketing are more central. From the value tree perspective, a total branch focus would include the integration efforts involving a near total meshing of two or more firms' operations (a partnership or strategic alliance).

30Martha C. Cooper, Lisa M. Ellram, and John T. Gardner, "Building Effective Supply Chains: Challenge for the 21 st Century, " Logistique & Management (France) 3, no. 2 (1995): 3546.

31Ramsey, John, "The Myth of the Cooperative Single Source," Journal of Purchasing and Materials Management 26, no. 1 (Winter 1990): 2-5.

ABOUT THE AUTHORS

Martha C. Cooper is professor of logistics at Ohio State University. She received a B.S. in math/computer science and a masters degree in industrial administration from Purdue University. Her doctorate is from Ohio State. Her research interests include the role of customer service in corporate strategy, supply chain management and partnership dimensions, and the role of information technology in logistics practice and education.

Lisa M. Ellram is associate professor of purchasing and logistics management at Arizona State University. She received her B.S.B. and M.B.A. from the University of Minnesota, and her Ph.D. from Ohio State University. She was a 1989/1990 recipient of a National Association of Purchasing Management Doctoral Dissertation Grant. Her current research interests include international and domestic supply chain management, buyer-seller relationships, and purchasing strategy.

John T. Gardner is an assistant professor of marketing at SUNY College at Brockport. He received his B.S. in environmental health and an MBA from East Carolina University. His doctorate is from Ohio State University. He received the Council of Logistics Management Doctoral Dissertation Award. His research interests include partnership formation in marketing channels, industrial distribution relationship, and ethical business practices.

Albert M. Hanks is manager, supplier quality, at DuPont, where he has 28 years of experience. He started in research and development, spent 17 years in manufacturing and marketing, and has spent the past 11 years in DuPont Sourcing, dealing primarily with raw materials and transportation procurement. He helped to develop and deploy DuPont's supply chain management process, an activity that has evolved to include "supplier linking" which is implemented through the DuPont Supplier Quality Improvement Process (DSQIP). In his current position, he has global responsibility for supplier quality activities.

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