Supplier collaboration in the mining industry

Author: John Stoltz; Co-Author Prof Ad Sparrius

In partial fulfilment for the qualification MBL from UNISA

Keywords: Collaboration; Supply chain; Relationship

Abstract The study explores if suppliers use collaboration as a relationship type to conduct business with a mine (the client) and to what extent the collaboration affects the suppliers effectiveness and efficiency, and whether collaboration in the supply chain adds value for the client. Further, the study investigated if the size of the supplier affected the relationship type, and if that relationship type impacts on their collaboration efforts. The research was partly based on the model by Shuman and Twombly (2006), which postulates that relationships drive value through conversation and transparency (i.e. trust), and Frey et al.s (2009) levels of collaboration. The data were gathered through structured interviews and a questionnaire, and the results were analysed quantitatively and qualitatively.

The importance of the research lies in its useful for industry to become more aware of the value of monitoring relationships within their supply chain to create more supplier effeciencies.

Keywords: Supplier, supply chain, collaboration, relationship type

Introduction

The sustainability of company profits and the quest for increased efficiencies emphasises that people need to collaborate in all aspects of business, thus it is vital

that smaller companies are able to collaborate with other suppliers in order to stay competitive, especially when facing competition from larger companies providing similar services (IBM, 2005).

The process of determining the availability of supplies, and securing those supplies, within a company lies in the supply chain of the company. Suppliers need to provide the most suitable goods to the various departments of the company, based on the requirements of the departments, within the specified time, and at the lowest possible cost to the client whilst still ensuring profitability for the supplier.

The supply chain is all about cost efficiency and effective ways to present the final required goods and services to the customer and dealing through collaboration (a means of working together) with supply chain partners to efficiently to satisfy needs (Martin, 2007).

The following figure graphically explains the complexities of the supply chain.

Figure 1: Supply chain complexities (Drake & Mawhinney, n.d.)

Fawcett et al. (2007) refer to the process of supply chain management as essentially the economic theory of comparative advantage applied at company level, and argue that supply chain management is a collaborative specialisation. The alignment of goals, sharing of resources, and collaboration across company boundaries is the essence of supply chain management (Fawcett et al., 2007).

Fawcett et al., (2006) posit that there are different levels of collaboration:

Level one Networking relationship Level two Cooperation relationship Level three Coordination relationship

Level four Coalition relationship Level five Full collaborative relationship

These degrees (or levels) of collaboration differ in intensity according to purpose, task, organisational strategy, leadership and decision-making, and type and frequency of communication (Fawcett et al., 2006). Further, the relationship type is guided by the importance of the services or goods required by the client; e.g. either strategic or general. How the relationship is managed depends on the extent of collaboration required to realise its potential value (Cohen & Roussel, 2005; Boquiren & Ivan, 2008).

In order to truly collaborate, suppliers need to move away from any type of command and control relationship, and nuture trust, openness in sharing future expectations, transparency in transactions, and be committed and loyal to the organisations that they are dealing with (Schuman & Twombly, 2006). For successful collaborative relationships, these authors note the following prerequisites:, purposes and objectives must be clear; there needs to be a common benefit that can be shared by the stakeholders; and stakeholders need to share data and information in order to capacitate them towards the common objectives (Shuman & Twombly, 2006). This is depicted in the following model:

Figure Error! No text of specified style in document.-2 The collaboration model (adapted from Shuman & Twombly, 2006)

Shuman and Twombly (2006) note that conversation and transparency (trust) are the core drivers of successful collaboration, with the key compo nents being mindset, skillset and toolset.

Frost and Sullivan (2006) show a distinct positive impact of collaboration on business performance, as they state that collaboration is the key driver for success on profitability and sales growth. Collaboration also reflects positively on tangible

success with regards to labour productivity, customer satisfaction, product development, innovation and quality, concluding hat the more collaborative enterprises are, the better they perform (Frost & Sullivan, 2006).

The research subjects

Thus the research sought to discover the type and extent of collaboration between the client (a large multi-national mine) situated in a small town where only 49 organisations (involved in various industries) exist.

A significant challenge for the mine exists, whereby according to the Mining Charter (Republic of South Africa, 2010), 40% of its capital, 70% of its services and 50% of its consumer goods must be procured from Black Economic Empowered entities (BEE) by March 2015. Further, multinational companies must contribute 0.5% of the income generated from local mining into a social development fund from 2010 to be used for the socioeconomic development of local communities.

A final sample of four local suppliers and one multinational supplier was selected based on their willingness to participate.

Research instruments

The structured interview was designed, which included the administration of the questionnaire, to analyse the concept of collaboration between supplier and client (i.e. the mine) and to determine if value is derived from a collaborative relationship.

The researcher also developed a checklist to establish the respondents perception of level of collaboration. This was based on the work of Frey et al.s (2006) Levels of Community Linkage model. To ensure that the supplier was not confused by Frey et al.s (2006) terminology in the Levels of Community Linkage model, the researcher used the following terminology:

Information [Networking] - This category was to determine if there is an information exchange between the mine and the supplier.

Resources [Cooperation] - To determine if the supplier shares any resources with the mine.

Roles [Coordination] - Intended to discover the level of accountability of the supplier.

Communication [Coalition] - How structured the communication is; i.e. are meetings conducted or is there a standard periodical report?

Decision making [Collaboration] - To indicate if the supplier is in an adversarial position regarding decision making.

The words in brackets are Frey et al.s (2006) terminology.

Further, In order to

corroborate and validate the respondents views on their relationship type, a matrix was designed for self-assessment to indicate the respondents expectations of each collaboration type. This matrix plotted both the checklist (down the left-hand side) and Frey et al.s (2009) Levels of Community Linkage model across the top of the matrix.

Data analysis

The data were then transcribed, coded and co-coded by a professional reseaarch company, analysed and interpreted. In order to ensure stability of the coding

process, the coders used Nvivo software package developed to analyse qualitative data (QSR International, 2011). The strategies of Morse et al. (2002) for reliability and validity were used; including investigator responsiveness, methodological coherence, theoretical sampling and sampling adequacy, an active analytical stance and sarturation.

Research findings

The 24 prepared questions presented during the interviews were coded and categorised to reflect three main themes; namely, Category A: Supplier information, Category B: The relationship type, and Category C: Communication.

Category A: Supplier information:

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Supplier Information
Interviewees Age of Business

Interview Supplier 1 Owner 16 Years

Interview Supplier 2 Owner and Manager 2 years

Interview Supplier 3 Account manager Since 1998 established in 1862

Interview Supplier 4 Owner Family business over 30 years

Interview Supplier 5 Account manager 60 Years

Business Environment Industry Products List Retail Engineering tools Hoses and fittings Generators Safety clothing Cleaning material Business size: Net asset value Business process < R5million Receive request from official Issue quote If ok get order Food and beverages Functions Catering Cafeteria Equipment Accommodation Conferencing Net asset value >R5million Receive request from official Issue quote If ok get order Discuss detail with official > R5million Contractually defined < R5million Receive request from official Issue quote If ok get order > R5million Contractually defined Mining equipment Equipment Labour Skills Engineering Engineering tools Vehicle repairs Spares Mining materials Aggregate Concrete Skills

Category B: The relationship type

Relationship
Relationship Status Interview Supplier 1 No Contract Do Business New relationship Initiate the relationship Interview Supplier 2 No Contract Do Business New relationship Initiate the relationship Existing relationship Initiate the relationship Interview Supplier 3 Contract Interview Supplier 4 No Contract Do Business New relationship Mine Initiate the relationship Limited creativity Limited creativity Creativity Trust based Limited entrepreneurial ship Business strategy Expand business Resources available Strategic intent Business model General mining supplies on demand Expand business Resources require Strategic intent Supply as and when Expand business Resources available Strategic intent Specialised transport Mining vehicles continual supply Expand business Resources available Strategic intent Engineering services in general transport environment supply on demand Skills available Sufficient Supplier yes Not sufficient Supplier yes Obliged to ensure Supplier yes Sufficient Supplier yes Obliged to ensure Supplier yes Expand business Resources available Strategic intent Exclusive supply of material continual supply Limited creativity Creativity Trust based Existing relationship Initiate the relationship Interview Supplier 5 Contract

Value added

Supply approach

Diverse products

Diverse products

Specific services as a total

Diverse products

Specific services as a total

Commercial relationship No Personal relationship Final view on relationship type Networking

Commercial relationship Personal relationship

Commercial relationship Healthy Personal relationships

Commercial relationship No Personal relationship Coalition

Commercial relationship Healthy Personal relationships Collaboration

Coordination

Collaboration

Category C: Communication

Communication
Communication information

Interview Supplier 1 Product driven

Interview Supplier 2 Service driven

Interview Supplier 3 Driven by Outcome required

Interview Supplier 4 Product / service driven

Interview Supplier 5 Driven by Outcome required Formal process

Type Reason Attitude

Informal Supply and deliver Communicates positively

Informal Supply and deliver Communicates positively

Formal process Informal as and when Communicates with all Supply and deliver Communicates negatively

Communicates with all

Summary of findings

Organisations open themselves to other organisations as they commit towards specialising in delivering goods and services according to their core competencies.

Thus they develop relationships with other organisations that complement and exend their core competencies.

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A successful relationship must involve the delivery of goods and services that meet agreed requirements acceptable by both supplier and client. The relationship must offer value for money for the client, and adequate profits for the supplier.

Regardless of the contractual deliverables, a successesful relationship is also influenced by the way the parties regard each other; both individually and in an organisational context, and in the way their relationship operates.

This study indentified various levels of collaborative relationship types; i.e. network, cooperation, coordination, coalition collaboration types (according to Frey et al., 2006), all of which are based around the value-add constructs of a mindset, a skill set and a toolset (according to Shuman & Twombly, 2006). These value-add constructs have various impacts on the relationship type and influence collaborative relationships in a variety of ways.

In Category A: Supplier information, it was noticed that irrespective of potential business, the supplier companies in rural areas tender to be very conservative. This is possibly due to their limited market availability; i.e. doing business only in a small town. The suppliers attitude towards business has a great influence in how the sustainability of their business is viewed. Local suppliers view opportunities with the utmost caution, and do not display a willingness to engage in business immediately.

Three suppliers of the original 10 selected indicated an unwillingness to participate, giving reasons such as, I do not have time, or simply did not respond on the authors requests. One can interpret this in the light that the suppliers feel

intimidated by the size of the mine as an organisation and feel they do not have the experience or confidence to deal with large scale transactions or volumes. This lack of business acumen is a concern as this research study was conducted four years after the mine started, with investment capital for development of approximately R 2.6 billion.

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This attitude around business conduct lends the perception that the mine has not established it self as a reliable source of business. Note that two of the local

companies display an attitude of resistance towards growth as all suppliers indicated in the interviews that they want to grow their business; a clear reflection of some suppliers negative business experiences in conducting business with the mine.

This view is a clear demonstration of a supplier in a collaboration type of relationship agreement (Frey et al., 2006). Relationships and communication formed the

cornerstone of the research analysis, and the constructs are integrated to such an extent that they cannot be separated - all relationships need communication and all communication requires engagement of some type of a relationship. This forms the heart of the research, as all organisations are the result of some form of collaborative arrangement between the various stakeholders. As noted, organisations employ people to collaborate in achieving shared goals and objectives. Further, inter alia, both Frey et al. (2006) and Shuman and Twombly (2006) express the view that organisations must collaborate in order to achieve what an organisation could not achieve on it own.

Recent developments have it that supplier networks form a critical aspect of enablement towards compliance and competitiveness, strongly reliant on competent suppliers that can support organisations in meeting their increasing competitive challenges (Shuman & Twombly, 2006). Suppliers need to share processes and competencies (Shuman & Twombly, 2006), and the lack of this regarding this research studys respondents is sorely evident. Although the mine categorises their suppliers according to the mines strategic intent, the cycle of categorisation has not completed, thus creating challenges in communication with the suppliers. This adds to the negativity detected with some suppliers and their arms length approach towards the mine.

Suppliers would more easily form stable and closer relationships if the mine showed enthusiasm for creating supplier relationships that are sustainable in the long-term. The mines current laissez-faire approach influences how rural suppliers approach the possibility of forming strong, collaborative relationships with the mine. Interesting
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to note is that the big suppliers, experienced in conducting business on large scale internationally, have more confidence in their business abilities than those suppliers exposed to servicing only the local environment.

The

communication

aspect,

especially

regarding

the

establishment

of

communication, is at a very uncertain point as the local suppliers seem not to know how to engage in communication in order to offer their services to the mine. The mine, on the other hand, seems not to show any sensitivity towards the inexperience of the local suppliers in their attempts to establish contact with the mine. The mine expects an experienced and trained business approach, but it is obvious that local suppliers seem to be lacking in knowledge on how to effect this.

The closer the collaboration, the better the smaller business will understand the needs of the mine, and thus will allow integration at the various stages of the supply chain. Thus having a collaboration type of relationship will open the doors for further business. Perhaps they could consider the benefits of being involved in macro

business alignment initiatives, such as the South African Supplier Development Agency (SASDA). SASDA is state-funded as government realises the necessity for such an organisation. Another recent initiative from the private sector initiative is the South African Supplier Diversity Council (SASDC) focusing on supplier diversity to bring small businesses into contact with big business.

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References

Cohen, S., Roussel, J. (2005). Strategic Supply Chain Management: The 5 disciplines for top performance. Chicago: McGraw-Hill Conpanies Inc.

Drake, M. J., Mawhinney, J. R. (n.d.). The Building Blocks of Supply Chain Management. INFORMS Transaction on Education, 6:3, pp. 28-37.

Fawcett, S.E., Ellram, L.M., & Ogden, J.A. (2007). Supply Chain Management From Vision to Implementation (International ed.). (M. Pfaltzgraff, J. Shelstad, & B. Witmer, Eds.) Upper Saddle River: Pearson Education, Inc.

Fawcett, S.E., Magnan, G.M., & McCarter, M.W. (2008). Benefits, barriers, and bridges to effective supply chain management. Supply Chain Management: An International Journal, Volume 13 (Number 1), pp. 35-48.

Frey et al.s (2009) Frey, B.B., Lohmeier, J.H., Lee, S.W., Tollefson, N. (2006). Measuring Collaboration Among Grant Partners. American Journal of Evaluation, Vol. 27 (No. 3), pp. 383-392.

Frost & Sullivan. (2006). Meetings Around the World: The Impact of Collaboration on Business performance. Sponsored by Verizon Business and Microsoft Corp. Chicago: Frost & Sullivan.

IBM. (2005). Industry Directions - Executive brief. [Online] Available at http://www304.ibm.com/businesscenter/cpe/download5/30625/Mar05_JFraser_SCMExecBrief.p df. Accessed on 19 March, 2011.

Martin, R. (2007). Stages of Transformation: The demand-driven journey begins with the end. Boston: AMR Research Inc.

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Morse, J.M., Barret, M., Mayan, M., Olson, K., Spiers, J. (2002). Verification strategies for establishing reliability and validity in qualitative research. International Journal of Qualitative Methods, 1 (2).

Republic

of

South

Africa.

(2010)

Mining

Charter.

[Online]

Available Accessed

at 12

www.cliffedekkerhofmeyr.com/.../CDH-The_Revised_Mining_Chart. May, 2011.

Shuman, J., Twombly, J. (2006). Collaborative networks are the organization. The Rhythm of Business. Waltham: The Rhythm of Business Inc.

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