Chain Relationships Introductory comments

The development of relationships as commercial assets and the basis for future growth is the essence of the value chain approach. This asset building begins with collaboration at the horizontal and vertical levels and involves the commitment of personal and financial resources, the exchange of information and the development of trust. The discussion framework addressed the relationship foundation and development, both at the vertical and horizontal level, the shared vision for the chain, the perceptions of trust, and the delivery of value through these relationships. The five categories identified to explore

the Chain Relationships dimension were; chain foundation, trust, strategic vision, potential asset and horizontal relationships. Relationship development supports other chain outcomes such as chain efficiency and effectiveness.

Proposition 4: A value chain model involves the development of strong relationships with chain partners.

Specific responses

The interview responses demonstrated the developmental nature of the chain. The supply of wool to WoolConnect at the time of interview had been limited to one-third of the member woolgrowers. There is limited development of the horizontal relationships, the woolgrowers provide the only horizontal relationships in this chain, with no demonstrable experience of partnering at the horizontal level. Attendance at WoolConnect Ltd meetings is limited to about one third of wool producers, suggesting the chain development is not a strategic priority for most businesses. This could be a concern for future supply management and commitment as the number of customers expands, but this does not seem a current concern for the effective operation of the chain. The focus of WoolConnect management has been on the demand side of the chain rather than the supply side while recognising the differing roles of woolgrowers as suppliers on side and shareholders on the other. The executive demonstrated a difference of view in regard to the treatment of suppliers, who are also WoolConnect shareholders, as purely suppliers or owners of WoolConnect Ltd. A number of interviewees professed ignorance of the broader membership, again demonstrating the lack of horizontal network development.

Relationship development at the vertical level has been limited with some members participating in visits to the topmaker, Riverina Wool Combers, and feedback from manufacturer Humphrey Law at a workshop with woolgrowers. This experience is reflected in the interview results. As indicated previously, the effective vertical relationship development has been between the WoolConnect chain manager and the Humphrey Law principal, Rob Law. This would appear to be the key chain relationship where there is a developing appreciation of the respective business cultures of

woolgrower and hosiery manufacturer and the factors that are important to each. Consequently mutual trust is slowly developing but with continuing sensitivities over supply commitments. There is no disagreement on the quality of the product.

Effective working relationships were developed with the topmaker and spinner in Australia. Relationships have now been developed with the two intermediate processors, the topmaker and spinner, in China. The chain manager has revisited China recently to further build relationships. The relatively small quantities processed limit opportunities for strong commercial or chain relationships at these levels, although interview reports demonstrate the interest in chain innovation at the topmaker level. These relationships do not appear, on the evidence, to involve any substantial chain commitment.

The common vision among horizontal partners is largely on improved returns rather than any clear articulation of a vision which provides the basis for WoolConnect to differentiate itself in the market. The issue of trust is shared horizontally mainly because it is recognised that the demand for wool by WoolConnect to date has been small and the opportunity for all members to participate in the supply of wool has been limited. The Executive, almost all of whom have supplied wool, are sensitive to any concerns about benefits being shared among the broader membership. Retailer David Jones is not in any sense currently a chain partner.

Discussion: Proposition 4

The development of chain relationships is largely limited to the relationship between the vertical partners, WoolConnect Ltd and Humphrey Law. Initial engagement with early stage processors were largely transactional, although Riverina Wool Combers took a strong interest in the development of WoolConnect and that led to improved relationships for them with other potential customers. The move of early stage processing to China has again been largely on a transactional basis although an ongoing relationship is slowly developing involving the operational activities of the chain manager. The chain relationship at the horizontal level among growers is comparatively undeveloped. This area requires substantial improvement if the chain is to develop innovative new product

offerings. Vertical relationships through the chain are well developed, particularly between WoolConnect Ltd, which is the “focal’ company in this chain, and hosiery manufacturer Humphrey Law. The longer term success of the chain requires continuing development of chain skills and capabilities, including relationship skills. Significant chain learning at the producer level is required along the lines demonstrated with the New Zealand Merino Company in Chapters 2 and 3. Results of interviews on the relationship dimension which are shown in Table 6.1:

 Woolgrowers demonstrated low to medium development on the categories discussed.

 WoolConnect Ltd has demonstrated medium to high priority to relationship development through the chain, particularly through the activities of the chain manager.

 Intermediate processors relationship development is largely transactional (medium)

 There are strong relationships with Humphrey Law, particularly at the management level (high)

 There is no chain relationship development with the retailer (not applicable) Proposition 4 is supported by the case study but there is much potential for continued relationship development.

6.1.4 Chain Skills and Capabilities