Issues Of Trust in SC

7/31/2019 Issues Of Trust in SC

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REPORT on ISSUES OF TRUST IN SC

NAME: MEHWISH ALI AKBER

ID NO# 18893

SUBJECT: SCM SAT (3-6)

SUBMITTED TO: SIR MASOOD SUBZWARI

DATE: 21ST APRIL 2012


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SNO.CONTENT

Pg. No

1.Letter of Transmittal

3

2. Executive Summary 4

3. Introduction & History of Issues of trust in SC 6

4.Logistics and Supply Chain Relationship Literature And

Suggested Research Agenda

8

5. Supply Chain Trust is Within Your Grasp 10

6.Model for Supply Chain Collaboration

12

7.Suppliers Affective Trust and Trust In Competency In

Buyers 13

8. Importance of Trust In Supply Chain Management 14

9. Conclusion 15

10. References16


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21ST

APRIL2012

MR: Masood Subzwari

Course Instructor, Supply Chain Management

Iqra University,

Karachi.

Respected Teacher:

As you requested, here is my report of SCM. In the preparation of this report I have strictly

followed all your instructions and requirements.

The completion of this report are the results of my efforts, assistance of Almighty Allah, andlastly all the help that you provided by assigning us this task and assisting us throughout our

report.

This report includes all the necessary details. I have a wonderful Experience and gained so much

from this project.

I hope that this report will fulfill your desired expectations. I am grateful to you for assigning us

this task of responsibility. If you have any query regarding the report than please let me know. I

would be glad to further assist you.

Sincerely,

Mehwish Ali Akber ( I.D NO# 18893)

IQRA UNIVERSITY


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EXECUTIVE SUMMARY:

Trust is the basis of agility, of flexibility. Yet its an incredible challenge to establish trust and

maybe even harder to maintain it. Underlying the challenge is the question of how to

institutionalize trust between buyer and supplier.

One of the most misunderstood and ripe areas for development in the area of supply chainrelationships is in the area of trust. Trust (and its cousin, Collaboration) seems to be the single

most discussed element in making supply chains function effectively and efficiently.

This observation is corroborated by the evolution of trust in the fields of industrial economics,

organizational behavior, marketing, and organizational theory. Of all the elements critical to

managing supply chains, trust is one of the most commonly cited elements, yet one of the most

difficult to measure.

Many different paradigms exist regarding trust. In paradigm one, researchers posit that trust is a

cognitive predictability or reliability of another party. The second paradigm addresses thecompetence of a party as a component of trust. In the third paradigm, a recognition of trust as an

altruistic faith or goodwill felt toward another party is proposed. The fourth paradigm relates the

concept of vulnerability to trust.

Lets review some of these concepts.

ReliabilityReliability can be broken down into several elements. Reliability is dependent on prior contact

with a party or experience. Repeated interaction and time leads to levels of confidence,consistency and finally trust. Reliability then leads to predictability which is confidence in future

actions. While reliability is important, what motivates reliability is often more important.Reliability must be based on integrity or honesty to be effective. Reliability based coercion orstress eventually creates a suboptimal relationship or total breakdown.

Reliability can often be confused with predictability. Reliability primarily addresses a partyspast behavior while predictability actually takes past behavior and other information to address

probabilities of future performance. Reliability and predictability are closely related terms and

definitions addressing either term fall into this body of theory. Firms or people who meet athreshold level of predictability can by definition be trusted.

What this means in simple terms is that trust is not something that occurs overnight, but is built

up over time through repeated interactions and acts of good faith. For example, a long-termcustomer relationship may be based on a continuous discussion of problems that occur and are

resolved over time. I recall at a meeting between a senior VP of purchasing and a senior VP of

marketing from two companies with a ten year history of a solid business relationship. The VP ofmarketing noted that the reason the relationship worked, is that Whenever there was a problemor conflict, I was able to march over to his office, shut the door, lay it out on the table, and work

it out! Sometimes it took a few hours, but when I came out, we both felt better about the

situation.


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CompetenceCompetence is ones perception of the ability of a party to meet commitments and can be viewed

in three contexts. First, specific competence which is trust in the others specific function or area.

Second, interpersonal competence is the ability of a person to work with people or people skills.Finally, business sense which addresses a persons experience, wisdom, and common sense. A

key takeaway from this research is that to trust a supply chain partner, you have to have someconfidence that they are able to do the work effectively. For a supply chain manager, this might

mean visiting a supplier and evaluating them, to ensure that they have the facilities, people, and

knowledge to carry out the contract.

GoodwillBeyond reliability or predictability, trust can also be defined in terms of a faith in the goodwill of

others. This faith or goodwill recognizes the importance of interpersonal relations as animportant element of trust, with a heavy dependence on openness between people and emotional

investment in the relationship. Affect based trust could almost be confused with interpersonal orpersonal trust because personal issues creep into the relationship in terms of problem solving,listening, and sharing. A key distinction between cognitive and affect-based trust is that while

cognitive based trust may or may not exist at the interpersonal level, affect-based trust almost

always exists only at the interpersonal level.

VulnerabilityA key breakthrough in the use of the term trust is the relationship between vulnerability andtrust. Vulnerability is a key issue, because trust without some kind of vulnerability simply cannot

exist. If a party chooses a course of action that involves no vulnerability then the firm has simply

made a rational decision. If there is no uncertainty or risk, then the party is freely giving the other

party something. If there is no exposure by both sides, then the firms are simply making arational decision based on probabilities.

One of the greatest deterrents to trust is power. Many industry stories detail the havoc wreakedon supply chains by powerful retailers, automotive OEMs, and other power brokers who drive

bullwhip effects, vendor managed inventories, and other forms of power exertion. How should

supply chain researchers treat power? What do we know about power? Perhaps the judicious useof power or even restraint from power can lead to the various types of trust discussed.

Clearly, the interplay of trust, dependence, and power is an issue that companies in all walks of

life will have to manage for some time into the future. If companies are serious about deploying

supply chain management, skills in managing relationships and forming bonds that go beyond

the traditional boundaries, managing this interplay will be key to success.


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INTRODUCTION & HISTORY OF ISSUES OF TRUST INSUPPLY CHAIN

Almost all societies need measures of trust in order forthe individualsagents or humanswithin them to establishsuccessful relationships with their partners. In SupplyChainManagement (SCM), establishing trust improves thechances of a successful supply chainrelationship, and increases the overall benefit to the agents involved.

The topic of trust is not new and has been extensively studied in the fields of psychology,

sociology and even economics. Its study, however, has largely been focused at the individual

level. Supply chain research on trust, however, extends the domain of applicability to that of the

firm and this represents fertile ground for research that is relevant to todays businessenvironment. While economists such as Williamson (1985) and Arrow (1974) lead the

discussion on the impact of trust on firm behavior, research in a supply chain context only beganin earnest about 15 years ago.

Early in his academic career, Gulati (1995) empirically demonstrates that a repetitive allianceformation between two firms generates trust and that subsequent alliances are more likely to

involve less formal and less complex contracts such as nonequity-based contracts. A more recent

study by Gulati and Nickerson (2008) weighs in on the debate of whether trust serves as a

substitute for contracts or whether it acts as a complement to contracts. The two authors find that

both can be true and provide empirical support to this point.

One of the challenges faced by researchers in this field is agreeing on a common definition andmeasurement system of trust. Two of the articles in this special issue deal with this topic: Jones

et.al. (2010) and Laeequddin et.al. (2010). While Jones et.al. focus on the two most relevant

dimensions of trust to supply chain management (trust in competence and goodwill), Laeequddinet.al. provide a more broad overview of trust research as found in the fields of not only business,

but also of psychology and sociology. These two papers are solid reference articles for those

embarking on supply chain trust research.

Building on the Jones et.al. (2010) study, Ha et.al. (2011) explore the two dimensions of

affective trust (goodwill) and competency trust and empirically show its impact on logisticsefficiency. A more refined categorization scheme is presented by Fawcett et.al. (2004) whereinthe authors suggest five dimensions of supply chain trust.

While few would argue that supply chain trust yields positive results, the reality observed by

empirical analysis confirms that this concept remains elusive for most firms. The question thenbecomes, why is it elusive? Why are firms struggling with the implementation of increased trust-

based relationships?


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In their seminal 2008 paper, Fawcett et.al. (2008) present a framework that highlights themanagement change process that is required for firms to embrace supply chain collaboration. A

key point in this article is the role that top management plays in moving such a transformation

forward. This topic of supply chain leadership is further discussed in Fawcett et.al. (2010).

Summarizing the state of supply chain relationship research over the past few decades,Daugherty (2011) highlights not only what has been done, but what ripe opportunities exist for

further research in this area, including test-based research.

More specifically, Riddalls, et. al. (2002) identify five trust components in supply chains:

1. Integrity (honesty)

2. Fairness

3. Loyalty

4. Openness / frankness in dealing with the partnership

5. Competence (supply chain partners reliability, dependability, quality of product, meetingdeadlines, requirement fulfillment, accurate demand forecasts, etc.)


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Logistics and Supply Chain Relationship Literature And

Suggested Research Agenda

A general review of relationship-focused research in logistics and supply chain management

areas is provided followed by suggested areas for further research. The author makes it clear thatthe review is not comprehensive, but tries to be chronological and thematic in addition tofocusing on relationally governed situations (Rinehart et al. 2004).

In the 1980s and 90s, partnerships and alliances began to be more prominent in supply chainresearch. Early research examined what contributes to successful alliances and partnerships.

The focus on alliances and partnerships gradually evolved into the more general topic of

collaboration. Initial research sought to define collaboration and establish its benefits. Empirical

research followed that identified antecedents to collaboration and also the three constructs ofbehaviors, culture and relationship interaction. Though much has been done, Daugherty outlines

numerous opportunities for further research. General ideas on the following topics are discussed

below.

1. Partnerships/alliances/collaborative relationshipsThough many of these work, many

others fail or fall short. Research needs to be done to identify if this is due to current models or

external effects such as the economic downturn. It might be productive to look at more than justa one buyer-one seller relationship. Another potential topic is how relationships are maintained

over time to ensure that they remain healthy and worthwhile.

2. Improving chances of successSelective matching is already known to be an important

factor, but if personal relationships are important, how is this managed to ensure success? Is it

better to make purposeful decisions regarding personnel or to create cross-firm teams? How do

cultural differences influence success?

3. Has the issue of power gone away?Are there principles that can be used to safeguard the

smaller partner and still encourage good relationships?

4. Metrics and monitoringWhat are the most important metrics in measuring trust? Are these

static or variable over time? Monitoring requires accountability. Is it possible to develop astandard approach to monitoring relationships? If not, are there certain elements that contribute

to success?

5. InnovationThere is a surprising lack of literature on logistics-focused innovation. One area

of potential interest is the science of service and service innovation (Ostrom et al 2010).


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6. TechnologyThis includes research into how to prepare for future technologies and how to

best use current ones in terms of increasing efficiency and cross-firm integration. It also involvesinvestigating which technologies are the best in terms of improving performance.

7. Focus on serviceMany current models focus on products rather than services, yet manyeconomies depend more on service related industries. Research could examine the pricing and

valuing of service, service branding, creating a service culture, and all of the relationships

involved in these processes. This area invites collaboration with researchers outside of thebusiness department.

Although much has been documented regarding relationships, there are clearly many moreopportunities to do more.


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Supply Chain Trust is within Your Grasp

Trust is recognized as a key factor in improving supply chain collaboration. This paper argues

that the gap between this recognition and its application is wide as evidenced by the consistent

complexity of contracts between collaborators. Surveys and case studies provided the data forthis research. The case studies were based on interviews with managers from various industries

that represented all points along a supply chain. Through this process, the researchers sought to

extract the participants views on trust and collaboration. From the responses, five dimensions oftrust are explained offering a pathway to developing and strengthening trust in collaborations.

The Performance DimensionFor trust to exist, there must be performance. This means thatcompanies must consistently fulfill commitments. Survey responses revealed that promises made

by another company are often doubted and routinely reduced by a set amount before decisions

are made whether or not to proceed in order to compensate for the tendency to overpromise. It is

clear that keeping promises will increase trust.

The Information-Sharing DimensionAll information pertinent to a relationship or project

must be openly shared for true trust to exist. This includes sharing sales data, forecasts,production plans and new product information. Some companies use quarterly business reviews

or other opportunities to ensure that this happens regularly. The joint use of computer systems is

not necessarily indicative of trust and can backfire if it is seen as an attempt to gain anadvantage.

The Behavioral DimensionBehaviors that foster trust include the sharing risks and benefits

and investment in a partners capabilities, In fact, how well risks and benefits are shared is one ofthe most powerful indicators of trust. It is important that buyers treat suppliers well and assume

some of the risk when certain expectations are laid out. Investing in supply chain partners

demonstrates that the relationship is important.

The Personal DimensionTrust inherently relies on personal relationships. Buyers and

suppliers may not trust each others respective companies, but they must trust each other. These

types of relationships can be encouraged through more one-on-one interaction, customer andsupplier visits, and stable account management teams.

The Two-Worlds DimensionThis dimension describes the fact that suppliers are generallymore dissatisfied with the level of trust than buyers. The reason? Power. When power is skewed,

trust is harder to establish.


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For companies wanting to build trust these five dimensions can be applied using the following

five behaviors:

1. Keep promises made.

2. Rely on open, not selective communication.

3. Employ behaviors that show the other party is valued.4. Build personal relationships.

5. Ensure that relationships are fair and mutually beneficial.


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A Three-Stage Implementation

Model for Supply Chain Collaboration

This object explores the key question of how a firm can successfully undergo the

transformational process towards a supply chain orientation. Building on Lewins force theory,

authors Fawcett et.al. depict a three-stage transformational process by which firms can achievesuch transformation. The first stage is called unfreeze this includes the initial awareness ofthe need for change and a conscious willingness to do so. Often such awareness arises out of

crises or leadership change. The second stage is called movement and is the unsteady,

transformational state where a firm begins its initial foray into the change. Pilot projects are oftenused to vet out the pros and cons of the change and also generate the needed evidence so that

management can more effectively evangelize the virtues of the proposed change. The third and

final phase is called refreeze and is the process by which the change becomes institutionalized

and refined.

The authors conducted 51 in-depth interviews of firms across four different supply chain

positions: retailers, finished-goods assemblers, direct material suppliers, and logistics serviceproviders. The purpose of the interviews was to explore what practices firms used in pursuing

successful collaborative relationships with their supply chain partners. A list of 25 of the top

practices and requirements is published in the paper. The list is broken down into six key

categories and include: management commitment, supply chain mapping and role definition,information sharing and system integration, people management and development, supply chain

performance measurement and relationship management/trust building. While many of the firms

were found to be engaged in implementing a number of the listed practices, most found the

change management process challenging. The interviews suggested that the lack ofcollaboration is not a result of inadequate initiative, but rather a lack of maturity in managing the

change process.

The findings of this paper hint that the key to success lies perhaps in better understanding the

underlying corporate culture that drives the attitudes and perceptions of employees in

implementing supply chain collaboration in their firms. A study of best practices alone may notyield the necessary explanations of what leads to success and what leads to failure in this

endeavor.

One key example related to this Ontario Institute special issue is the implementation of trust in

business relationships. Any transformational efforts to increase the use of trust in business

relationships is most likely going to require a cultural transformation as opposed to a more

concerted effort to implement any specific practice. This article lays the groundwork for follow-

on studies that may want to take a more focused approach on the role of culture in achievingsupply chain collaboration transformation.


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Suppliers Affective Trust and

Trust In Competency In Buyers

This study examines trust and its effect on supply chain collaboration and logistics efficiency. It

differs from previous studies in two ways. First, trust is examined from the viewpoint of suppliernot buyers. Second, trust is divided into two categories: affective trust and trust in competency.Affective trust encompasses the emotional aspects of a long-term, inter-personal relationship

such as openness, positive mutual understanding, honesty, and respect. Trust in competency

refers to the expectation of certain behaviors based on the knowledge, and expertise of the other

party. This includes business capability, a willingness to accept partners expertise, and uniqueknowledge/skills. The construct of logistics efficiency was used to measure overall performance

and collaboration based on five categories: order fill rate, order fulfillment lead time, operations

flexibility, inventory turnover, and total logistics cost.

Data was collected using surveys of supply chain managers within Korean companies that

functioned as suppliers. These companies represented many different industries. Path analysis,using PROC CALIS was applied to examine the effects of affective trust and trust in competency

on the three dimensions of supply chain collaboration, which are joint decision-making,

information sharing, and benefit/risk sharing. Then, the effect of these three dimensions on

logistics efficiency was investigated. All constructs satisfied the condition of the standardizedCronbach alpha value being greater than or close to 0.7 thus showing them to be reliable.

Confirmatory factor analysis indicated that the proposed model was valid.

Data analysis showed that affective trust had a significant impact on supply chain collaboration

with respect to information sharing. Trust in competency had an effect on joint decision-making.

Both types of trust influenced benefit/risk sharing. Joint decision making and information

sharing in turn affected logistics efficiency. The three relationships between affective trust andjoint decision-making, trust in competency and information sharing, and benefit/risk sharing and

logistics efficiency were shown to be insignificant. These results are not general since the scope

of the study was limited to a particular region. Further analysis is required to see if the modelapplies generally. Other potential areas of research would take into account cultural effects and

power relationships between suppliers and buyers.


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Importance of Trust in Supply Chain Management

One of the most critical factors in a committed and collaborative relationship between supply chain

partners is trust. If trust is present, it can improve the chances of a successful supply chain relationship; if

not, transaction costs can rise through poor performance.

Organizations need trust in order to be flexible and agile. However, establishing trust can be elusive and

even harder to maintain. It is also true that trust is both individual and institutional. Trust in a supply chain

evolves based upon commonalities among the partners and can take patience and time to develop.

There is both risk and interdependence in a supply chain relationship and there must be an implicit

agreement not to exploit the partners vulnerabilities. This takes development, honesty and openness to

be successful.

In fact, the main components in trust in supply chains are honesty, loyalty, fairness, openness and

competence.

Companies must be careful to optimize this trust as it can take resources from other aspects of the

supply chain (and risks) to develop this. So they must be careful not to over or under invest in developing

trust. The value of the specific relationship must first be made clear so that it can be determined what

effort will be put forth in developing this trust.

It is apparent that trust only exists when both parties think it exists, that it is critical to treat supply chain

partners like they are important, information needs to be shared freely, and that partners need to follow

through with promises made.


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CONCLUSION

Almost all societies need measures of trust in order for the individualsagents or humans

within them to establish successful relationships with their partners. In Supply ChainManagement (SCM), establishing trust improves the chances of a successful supply chain

relationship, and increases the overall benefit to the agents involved.

Trust exists only when both sides feel that it does both sides bring to the table their traditionalbaggage, perceptions, mindsets, and expectations. When the parties to the exchange process have

a meeting of the minds, trust is more likely to ensue. As expected, suppliers and purchasers see

the same phenomena from totally different perspectives.

Treat supply partners like they are really importantthat they really do matter. Supply partners

should be treated like extensions of the buying/supplying organization. Partners should behave

in a manner that underscores their mutual interdependency. This perspective is typified in the

following scenario: Weve looked at what you do forus and at what you charge us. We valuewhat you do for us and think that you need to charge us more. You need to raise your rates

because we want you to be successful over the long haul. This action is truly rare. It is not often

that a purchaser will request an increase in rates just to ensure the long-term welfare of thesupplier.

Share information openlyput all of the cards on the table. Strategic alliances usually requireorganizations to invest in each others capabilities and to go the extra mile to help each other

achieve higher levels of successmutual trust is essential. Information sharing is a highly valued

bridge to supply chain success. Trust is established on the foundation of aligned goals and

compatible competencies and is supported by open, frequent, and honest communication.

Doing what you say you are going to do - every time. Keeping promises is one of the main factorof trust. A consistent pattern of keeping promises on both sides is absolutelyessential to theinitiation and preservation of genuine trust.


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REFRENCES:

www.google.com

http://www.emeraldinsight.com/journals.htm?articleid=850156

http://scm.ncsu.edu/scm-articles/article/can-you-trust-the-trust-in-supply-chain-relationships

http://www.psiplanner.com/supply-chain-trust.html

http://www.aamas-conference.org/Proceedings/aamas2011/papers/DC23.pdf

http://www.ism.ws/files/Pubs/Proceedings/DEAWilliamsFawcett.pdf
http://www.google.com/http://www.google.com/http://www.emeraldinsight.com/journals.htm?articleid=850156http://www.emeraldinsight.com/journals.htm?articleid=850156http://scm.ncsu.edu/scm-articles/article/can-you-trust-the-trust-in-supply-chain-relationshipshttp://scm.ncsu.edu/scm-articles/article/can-you-trust-the-trust-in-supply-chain-relationshipshttp://www.psiplanner.com/supply-chain-trust.htmlhttp://www.psiplanner.com/supply-chain-trust.htmlhttp://www.aamas-conference.org/Proceedings/aamas2011/papers/DC23.pdfhttp://www.aamas-conference.org/Proceedings/aamas2011/papers/DC23.pdfhttp://www.ism.ws/files/Pubs/Proceedings/DEAWilliamsFawcett.pdfhttp://www.ism.ws/files/Pubs/Proceedings/DEAWilliamsFawcett.pdfhttp://www.ism.ws/files/Pubs/Proceedings/DEAWilliamsFawcett.pdfhttp://www.aamas-conference.org/Proceedings/aamas2011/papers/DC23.pdfhttp://www.psiplanner.com/supply-chain-trust.htmlhttp://scm.ncsu.edu/scm-articles/article/can-you-trust-the-trust-in-supply-chain-relationshipshttp://www.emeraldinsight.com/journals.htm?articleid=850156http://www.google.com/


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NAME: MEHWISH ALI AKBER

ASSIGNMENT 3, 4, 5

AND

REPOT ON ISSUES OF TRUST IN SC AND ITS

PRESENTATION

ID NO# 18893

SUBJECT: SCM SAT (3-6)

SUBMITTED TO:

SIR MASOOD SUBZWARI

DATE: 21ST APRIL 2012

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Issues Of Trust in SC