What Psychology Tells Us about Effective Supply Chain Relationships
Estimated reading time: 5 minutes
The supply chain industry is all about relationships, right? We hear companies touting this in their sales and marketing pitches all the time, yet there are still far too many instances where communication is weak, transparency is non-existent, and trust is fragile.
One-sided, power-based business relationships don’t work. As LoadDelivered CEO Robert Nathan mentioned in his FSA Conference recap in March, “it’s only when you’ve established a foundation of trust and transparency that you can start to build meaningful relationships and work toward common goals.”
But what is trust? According to one definition, “trust is a range of observable behaviors and a cognitive state that encompasses predictability.” Whether this involves a carrier predictably delivering on time, a broker predictably sending out location and temperature updates, or a shipper predictably loading trailers in under two hours—it’s through repeated, positive interactions that trust its built.
So how do you get to that state of trust with your business partners? Let’s go back to Psychology 101 and see what behavioral science teaches us about relationship building.
The Power of Win-Win
In all relationships, there are challenges and disagreements. When a conflict arises, it’s imperative to find a resolution that doesn’t leave one partner feeling like they got burned. Psychology tells us that there are four possible outcomes to conflict resolution (Psychology Today):
- Win-Lose: Resolution is beneficial to you, but not your partner.
- Lose-Win: Resolution is beneficial to your partner, but not to you.
- Lose-Lose: Resolution does not benefit either partner.
- Win-Win: Resolution benefits both partners.
A Win-Win outcome ensures that the resolution works for everyone involved. When both partners feel that they have something to gain, no one is left harboring resentment.
Let’s apply that concept to logistics sourcing, something that’s highly price-based. In the typical RFP process, capacity is purchased through competitive bidding, with specific volumes and other parameters spelled out in advance. When shippers focus purely on driving down costs, top carriers may lose incentive to work with the shipper. As a result, shippers are left with unreliable coverage from sub-par carriers (as low cost rarely leads to high-quality service). In this scenario, both sides lose and mutual resentment ensues.
Imagine a different situation in which both partners collaborate openly on lowering costs and improving performance. Through sophisticated rating technology and industry data, they work together to set prices that include a reasonable profit margin for the carrier as well as incentives for lowering costs, improving service, and expanding innovation over time to benefit the shipper. This is often easier with existing relationships. There’s value in incumbency, as both shipper and carrier can draw from experience and focus on continuous improvement.
In a recent Talking Logistics video about relationships, analyst Adrian Gonzalez asked “if you changed the concept of an RFP from ‘request for proposal’ to ‘request for partnership,’ what would you look for?” Deploying the Win-Win mindset helps strengthen relationships by turning providers into partners.
Reciprocity: Give Before You Take
In psychology, the principle of reciprocity states that we pay back what we receive from others. Take this example: one case study found that a restaurant server’s tips increased by 3 percent when diners were given a mint, 14 percent when diners were given two mints, and a surprising 23 percent when the server left one mint with the bill and quickly returned with a second mint (Sensei Marketing).
In business, reciprocity can be a powerful tool for both customer acquisition and relationship building. When customers are singled out in a way that makes them feel special—maybe they receive an unexpected discount, a sneak peek at a new product or service, or simply a phone call to congratulate them on a new position—it can change their perception of you. It’s important to be authentic. When a customer feels that the gesture is a sincere attempt to thank them or brighten their day, the reciprocity principle kicks in and they’re likely to return the favor.
When was the last time you bought breakfast for a driver that regularly stops at your facility? Or sent flowers to your logistics contact after she had a baby? Or offered a tour of your new manufacturing plant to your closest suppliers and partners? Or simply sent a potential buyer a hand-written thank you note for their business? A relationship is a two-way street, and you get back what you put into it.
A Positive Discipline Approach
In child psychology, the concept of positive discipline suggests using non-punitive parenting techniques that are centered around the following concepts.
- Mutual respect
- Effective communication and problem solving skills
- Discipline that teaches
- A focus on solutions over punishment
Research indicates that disciplinary punishment rarely prevents repeat behavior (Forbes).
Unfortunately, the business world could stand to follow child psychology principles. We see punitive measures taken time and time again to keep customers and vendors in line. Examples include a retailer imposing fines for late deliveries with zero input from their shippers, or a receiver dropping a carrier from a lane when something goes wrong with no room for discussion or opportunity for contingency. One party forces the other to cooperate, and eliminates the option to collaborate. It’s important to recognize that cooperation and collaboration are two very different things.
While punishment may work as it’s intended in the short term, it is essentially a Win-Lose approach (see above). Businesses that leverage positive discipline—those who work to understand what their partners need and take a more positive approach to solving problems—will be the ones that drive innovation and increase their long-term competitive advantage (Talking Logistics).
Why it Matters
At the end of the day, any seasoned supply chain industry veteran will tell you that this is in fact a relationship business. Cultivating and nurturing strong relationships takes time and effort, but it pays off. While price is important, working with a service provider you trust can help reduce risk and the total cost of doing business with one another in the long run.