Supply Chain Relationship management

Question 1

What are the three main types of business relationship models?

Answer 1

1. Transaction based
2. Outcome based
3. Investment based

Question 2

What are key features of transaction based approach? also provide and example

Answer 2

1. Short-term
2. Focuses on individual transactions or discrete activities
3. Success is measured based on the completion or profitability of individual transactions.

Ex. sales commissions, stock trading etc.

Question 3

What are key features of outcome based approach? also provide and example

Answer 3

1. Centers around achieving specific outcomes or results.
2. Emphasizes the end goals or desired results rather than the process or individual transactions.
3. Success is measured by the accomplishment of predefined outcomes, which may require multiple transactions or activities.
4. Often used in project management

Ex. Contract Manufacturer implementing NPI (new product introduction) to ramp-up
to full-scale commercial production. So as a food business if the product put into supermarket performs good then the supermarket is inclined to increase the length of the contract.

Question 4

What are key features of investment based approach? also provide and example

Answer 4

1. Involves making investments of resources (such as time, money, or effort) with the expectation of future returns or benefits.
2. Emphasizes long-term growth, sustainability, and strategic planning.
3. Success is measured based on the return on investment (ROI) or the achievement of long-term objectives.

In the food industry this could be investing in R&D with the hope to have a return in the future.

Question 5

What are the five rules for a win-win business relationship?

Answer 5

1. Focus on outcomes not transactions
2. Focus on the what not the how
3. Have clearly defined measurable outcomes
4. Use an innovative pricing model with incentives
5. Employ a governance structure based on insight, not oversight.

Question 6

What is meant by ‘Perverse Incentives’?

Answer 6

An unintended and undesirable
result that is contrary to the
intentions of its designers.

Question 7

Describe the outsourcing paradox as an example of ‘Perverse Incentive’.

Answer 7

Scenario: Company B is supplier of Company A.

Company A has experts creating very detailed and specific document with requirement of product from Company B. Because this document is too ‘perfect’ it can make people at Company B have difficulty to satisfy demands as there is no room for innovation or flexibility and thus resulting in partnership failing.

Question 8

Describe the honeymoon effect as an example of ‘Perverse Incentive’.

Answer 8

The “honeymoon effect” refers to an initial period of enthusiasm or success at the start of a new venture or relationship. When this effect is viewed as a perverse incentive, it means that early success or positive outcomes during this honeymoon phase can lead to complacency or distorted incentives, potentially masking underlying issues or risks.

Question 9

Describe the sandbagging effect as an example of ‘Perverse Incentive’.

Answer 9

The sandbagging effect occurs when individuals or entities deliberately understate their capabilities or performance in order to exceed expectations later, often to gain a strategic advantage or to manipulate perceptions.

Example:
A salesperson might intentionally downplay their product’s features or the potential benefits it offers during initial discussions with a customer. By doing so, they create lower expectations. Then, when it comes time to close the deal, they reveal additional features or benefits that were initially understated, making the product seem more impressive and increasing the likelihood of a successful sale. This tactic can create a sense of surprise or delight in the customer, potentially leading to a more favorable outcome for the salesperson, but it also risks eroding trust in the long term.

Question 10

Describe the ‘Zero-sum game’ as an example of ‘Perverse Incentive’.

Answer 10

Companies that play this game believe that if something is good for the trading
partner, then it’s automatically bad for them.

Example:
Zero-sum game could be illustrated by a scenario where employees are rewarded based on individual performance metrics without considering team collaboration. For example, if a sales team is incentivized solely based on individual sales numbers, it may create a competitive environment where team members are motivated to sabotage each other’s efforts in order to outperform their colleagues and secure higher rewards, ultimately undermining overall team success and cohesion.