successful partnerships requires visionary leadership, understanding of supply chain roles, and interpersonal and legal skills. Partners should consult with an attorney to avoid violating laws against restricting competition. Creativity and sensitivity to relationship issues are critical skills for overcoming problems that arise in intimately coupled, highly integrated supply chains. Only a constructive attitude, visionary leadership, and a strong commitment to mutual success can enable the highest levels of supply chain integration.

CONTRACTS

The underlying mechanism of supply chain integration is the development of strong customer and supplier relationships based on mutually agreed-upon performance standards. These relationships are usually defined by means of a contract, the proper structure of which is important for successful integration. Integrated supply chain relationships are often defined by additional agreements regarding product and financial flows, channel (product distribution) policies, price protection, contingencies, and capacity reservations (i.e., the guaranteed availability of specified levels of production capacity). Unlike purchase orders, which tend to be one-sided and generally ignore the issues of risk sharing and common goals, contracts are structured to meet the needs of the partners. Before an appropriate contract can be crafted, the partners should agree on a shared vision, objectives, and process framework. (It should also be noted that although contracts are recommended, they are not required and it is possible to achieve effective supply chain integration without them.)

Several aspects of contract development should be considered: (1) the difference between a myopic and a farsighted view of contracting; (2) the distinction between a contract structured as a set of legal rules and a contract that serves as a framework for the relationship among partners; (3) conflict avoidance and resolution, mutuality, creation and maintenance of order, and alignment of risks and rewards; and (4) different ways of structuring relationships among supply chain participants.

Farsighted Contracting

Some contracts are simple, such as those for the procurement of standard items, like office supplies, which are usually kept in stock and for which there are many suppliers. Unless large orders must be filled, these procurements do not require advanced planning or the creation of custom contracts. If specialty items, nonstandard tolerances, or special deliveries are involved, the nature of the contract and its capacity to serve the needs of the parties becomes more important. Each party will



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement