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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Letter of Transmittal Executive Summary Introduction & History of Issues of trust in SC Logistics and Supply Chain Relationship Literature And Suggested Research Agenda Supply Chain Trust is Within Your Grasp Model for Supply Chain Collaboration Suppliers Affective Trust and Trust In Competency In Buyers Importance of Trust In Supply Chain Management Conclusion References

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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, and lastly 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

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 chain relationships 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 the competence 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. Reliability Reliability 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 or stress eventually creates a suboptimal relationship or total breakdown. Reliability can often be confused with predictability. Reliability primarily addresses a partys past 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 a threshold 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-term customer 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 of marketing noted that the reason the relationship worked, is that Whenever there was a problem or 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.

Competence Competence 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 some confidence 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. Goodwill Beyond 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 an important 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 or personal 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. Vulnerability A key breakthrough in the use of the term trust is the relationship between vulnerability and trust. 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 a rational decision based on probabilities. One of the greatest deterrents to trust is power. Many industry stories detail the havoc wreaked on 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 use of 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.

INTRODUCTION & HISTORY OF ISSUES OF TRUST IN SUPPLY CHAIN

Almost all societies need measures of trust in order for the individuals agents or humans within them to establish successful relationships with their partners. In Supply Chain Management (SCM), establishing trust improves the chances of a successful supply chain relationship, 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 business environment. 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 began in earnest about 15 years ago.

Early in his academic career, Gulati (1995) empirically demonstrates that a repetitive alliance formation 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 and measurement 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), Laeequddin et.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 logistics efficiency. A more refined categorization scheme is presented by Fawcett et.al. (2004) wherein the 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 then becomes, why is it elusive? Why are firms struggling with the implementation of increased trustbased relationships?

In their seminal 2008 paper, Fawcett et.al. (2008) present a framework that highlights the management 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, meeting deadlines, requirement fulfillment, accurate demand forecasts, etc.)

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 that the review is not comprehensive, but tries to be chronological and thematic in addition to focusing on relationally governed situations (Rinehart et al. 2004). In the 1980s and 90s, partnerships and alliances began to be more prominent in supply chain research. 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 of behaviors, 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 relationships Though 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 just a 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 success Selective 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 monitoring What are the most important metrics in measuring trust? Are these static or variable over time? Monitoring requires accountability. Is it possible to develop a standard approach to monitoring relationships? If not, are there certain elements that contribute to success? 5. Innovation There 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).

6. Technology This 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 involves investigating which technologies are the best in terms of improving performance. 7. Focus on service Many current models focus on products rather than services, yet many economies 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 the business department. Although much has been documented regarding relationships, there are clearly many more opportunities to do more.

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 for this 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 of trust are explained offering a pathway to developing and strengthening trust in collaborations. The Performance Dimension For trust to exist, there must be performance. This means that companies 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 Dimension All 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 an advantage. The Behavioral Dimension Behaviors 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 of the 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 Dimension Trust 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 and supplier visits, and stable account management teams. The Two-Worlds Dimension This dimension describes the fact that suppliers are generally more dissatisfied with the level of trust than buyers. The reason? Power. When power is skewed, trust is harder to establish.

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.

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 achieve such transformation. The first stage is called unfreeze this includes the initial awareness of the 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 often used 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 service providers. 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 of collaboration 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 not yield 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 followon studies that may want to take a more focused approach on the role of culture in achieving supply chain collaboration transformation.

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 supplier not 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 unique knowledge/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 standardized Cronbach 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 and joint 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 model applies generally. Other potential areas of research would take into account cultural effects and power relationships between suppliers and buyers.

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.

CONCLUSION
Almost all societies need measures of trust in order for the individuals agents or humans within them to establish successful relationships with their partners. In Supply Chain Management (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 traditional baggage, 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 important that 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 for us and at what you charge us. We value what 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 the supplier. Share information openly put all of the cards on the table. Strategic alliances usually require organizations to invest in each others capabilities and to go the extra mile to help each other achieve higher levels of success mutual 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 factor of trust. A consistent pattern of keeping promises on both sides is absolutely essential to the initiation and preservation of genuine trust.

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

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: 21 APRIL 2012
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