Justice and Supply Chain Relationships

Have you thought about Justice recently?  I don’t mean justice in terms of villains getting away with their crimes or the innocent being punished.  When it comes to supply chain relationships, justice is an important concept.  While justice has similarities to ‘fairness’, it is more complex.  It is also of great importance when the relationship is between a powerful and weaker entity.

As covered in previous blogs the importance of trust is well recognised as contributing to effective and continuing supply chain relationships.  We have also discussed the corrosive effect that opportunism has on trust and the continuance of relationships.  Another aspect that is closely related is justice, which has two faces.  Firstly there is ‘Procedural Justice’, which refers to the fairness and transparency of the processes that one party, usually the powerful, uses to manage the relationship and interact with the other party.  The other face is ‘Distributed Justice’ which relates to the outcomes that are experienced by the parties as a result of the application of the policies and procedures.  The lack of either procedural or distributed justice will lead towards dissatisfaction, a reduction in trust and perhaps a move towards passive opportunism by the injured party.  This can easily escalate into a full relationship failure spiral which is hard to reverse once underway.

One of the most common examples of failing to deliver both procedural and distributed justice revolves around the creation and application of invoice payment processes by large corporations.  In the first instance the powerful party may negotiate (demand) extended payment terms and impose stringent and complex processes for submitting invoices.  This situation leads the suppliers to feel there is a lack of fairness and procedural justice in place.  If the powerful party then goes on to further delay payments by rejecting invoices for minor errors, losing invoices or failing to meet their own guidelines, then this delivers feelings that there is a lack of distributed justice.  In both cases one form of justice can be in place but the other missing.  For example, the processes and procedures may be designed to be fair but are not followed or are abused by staff which leads to a lack of distributed justice even though procedural justice can be seen to be in place.  Likewise, a firm may have developed a tough process which is seen to be unfair but suppliers recognise that at least the customer follows the process.  This situation is not confined to powerful buyers dealing with suppliers.  A powerful customer may impose stringent goods return processes for example.

Given that the benefits of good relationships are superior to the results gained when relationships are poor, all organisations should strive to maintain the former.  That by no means indicates that firms need to be soft on trading partners or give up benefits they should be entitled to.  The value that can be released by good relationships is generated by growing the pie through innovation and speed, not through reassessing how the pie is to be cut.

So how should organisations handle this issue of justice?  The first thing to consider is the design of the processes, policies and procedures they apply to dealing with trading partners.  The simple design rule is “Treat others as you would like to be treated yourself”.  Note that the phrase “like to be treated” was used; not how you are actually treated!  Too many industries, such as automotive manufacturing, pass on unfair processes not because they are needed, but because it is the way they are treated.  This ends up poisoning an industry rather than a single relationship.  Added to this approach is a second important step; discuss the proposed process with representative trading partners.  It is well recognised that governance structures that are ‘imposed’ lead to reductions in performance whereas ones arrived at mutually deliver improved performance.

To deliver ‘distributed justice’ is similar to developing trust.  Firstly the other party must believe you intend to follow your procedures and policies.  Secondly you must actually follow them.  When they come to see you are following your own rules, this will add to the atmosphere of certainty which will aid in the development of a good relationship.

It has been said that we get the supply chain relationships we deserve!  To get better and enduring relationships, organisations should consider the issue of Justice as it relates to their dealings with trading partners.  Designing systems that have fairness embedded into them will pay dividends if you then go on to follow these procedures.

 

If you need help to review and develop policies, processes and procedures that deliver Justice and fairness to trading partners then don’t hesitate to contact us at andrew.downard@adsupplychain.com.au or call +61(0)419 581 705.

 

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