QUT Digital Repository: http://eprints.qut.edu.au/27002

Ferrer, Mario and Hyland, Paul and Bretherton, Phil (2009) The role of relational capabilities in developing the capacity for supply chain innovation. In: Proceedings of the 7th ANZAM Operations, Supply Chain and Services Management Symposium, 8 10 June, Adelaide, Australia.

Copyright 2007 the authors.

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THE ROLE OF RELATIONAL CAPABILITIES IN DEVELOPING THE CAPACITY FOR SUPPLY CHAIN INNOVATION

Mario Ferrer, Faculty of Business and Informatics Central Queensland University, Rockhampton, Australia, Email: m.ferrer@cqu.edu.au, Phone: (07) 49309510

Paul Hyland, Faculty of Business, Queensland University of Technology, Brisbane, Australia, Email: paul.hyland@qut.edu.au, Phone: (07) 3138 2938

Phil Bretherton, School of Law and Business, Charles Darwin University, Darwin, Australia,

Email: Philip.Bretherton@cdu.edu.au, Phone: (08) 8946 6108

ABSTRACT

The purpose of this paper is to gain a better understanding of the types of relational capabilities supply chain participants develop to enable ongoing supply chain innovation capacity building that produces improved business outcomes. This is exploratory research using qualitative data gathered by using five interviews, with the Australian road freight industry as the context. Two key relational capabilities and the improvement of four key business outcomes were identified as being present in the interaction of freight transport service providers with members of their supply chain. The data also demonstrates that by entering into competence building relationships with customers and suppliers firms can build capabilities that will increase their capacity for supply chain innovation. Even in short term arms length relationships firms can acquire improved skills behaviours and practices that enhance their operation effectiveness and the efficiency of the supply chain relationships. Keywords: Capabilities, Supply Chain Innovation, Supply Chain, Relational Capabilities, and Freight Transport.

INTRODUCTION

Firms develop relational capabilities not only to react to economic pressure but also to proactively become more strategic. Supply chain literature suggests that in many instances, not all relational capabilities, that is inter-firm relationships, need to be either cooperative or collaborative [1] [16] so they need to be formed according to specific circumstances [3] and market driven priorities [21]. These also indicate that organisations need to participate in different types of relationships that foster the interaction between external sources and the development of the innovation capacity of firms. There is a range of possible inter-firm relationships, from arms length to complex, long-term alliances and each of them demands a particular degree of managerial attention [25] [34]. Hence, it is increasingly important to select and manage appropriate relational capabilities, understanding the characteristics of each type of relationship and what the expected benefits are. This paper examines the role of inter-firm relationships in developing the capacity for supply chain innovation with particular emphasis on

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freight transport. Specifically this research seeks to identify the type of interactions that are occurring between freight transport service providers and retailers, and to determine the outcomes achieved through the interaction. Todays emphasis on innovation is not only on production processes but also on other processes in the supply chain [56]. Using a case study with a triadic approach, encompassing a customer, a subcontractor and a logistics service provider, this research attempts to explore how business outcomes are improved by building supply chain innovation capacity though the development of the appropriate relational capabilities.

RELATIONAL CAPABILITIES

Research on inter-organisational relationships is abundant and mainly addresses the importance of inter-organisational relationships in assisting organisations to create value by combining assets, sharing knowledge, boosting speed to market, and accessing global markets [14]. In other words the literature focuses primarily on the formation of inter-firm relationships to create competitive advantage. Hence, understanding the role relational capabilities play in supply chain relationships engagement [28] and what outcomes are achieved through these relationships is of utmost importance. Inter-organisational relationships develop from interactions between two or more firms, when they establish linkages and exchange resources [40]. Inter-firm relationships are likely to be used to minimise risk and increase access to vital resources and information. Firms enter into relationships to meet identified needs, one of which is improved access to resources. Each firm thus contributes resources with the expectation of receiving improved returns [6]. Different firms need different sets of resources from the other members of their supply chains and they are likely to pursue different types of relationships to share whatever is appropriate.

The supply chain literature identifies three prominent types of inter-firm relationship. The first inter-firm relationship type concerns contractual work arrangements defined as arms-length relationships. This type of relationship can best be described as inter-organisational linkages characterised by dealings that are at arm's-length which involve spot transactions, often based on auctions or auction like arrangements. In arms-length relationships, detailed written contracts prevent the parties from operating and making decisions independently, however, in many cases, particularly in the road transport industry in Australia, contracts are verbal [13] [46]. A second type of inter-firm linkage relates to cooperative agreements. Cooperation involves the coordination of similar or complementary activities carried out by organisations in business relationships, aiming at attaining enhanced joint results or individual results with expected reciprocity, as time progresses. The rationale behind cooperative efforts is based on arrangements to share resources, either tangible or intangible, as well as the pursuit of other business goals, through the redesign of processes and products [8]. The third component of the inter-firm relationships typology is collaboration, viewed as a more durable relationship in which parties bring organisations into a new structure with full commitment to working more closely, with a shared mission, vision and trust. Such relationships require comprehensive planning, seamless linkages [31], unified seeking of synergies and goals and well-structured communication channels operating at all levels. Information exchange plays an important role in improving supply chain collaboration [35]. It appears that collaboration is more than

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cooperation[45] as the former requires that all firms participating work collectively toward common objectives, sharing information, knowledge, risk and reward to ensure a common unity of effort. At the operational level, collaboration involves understanding how other firms operate, how they make decisions, and what is important to them. For true collaboration it is essential that all participants involved realise benefits.

INNOVATION CAPACITY

Capacities can be viewed as the potential to trigger or obtain a set or, what has been defined, a bundle of capabilities [11]. Thus, innovation capacity refers to a continuous improvement of the overall capability of firms to generate innovation for developing new products and processes to meet market needs. Organisational capabilities are best described as integrated resources to which firms have access, and have been built up and improved over time [24]. These resources include tangible and intangible assets, ranging from behaviours and skills to information systems. It has been argued that a firms capabilities are operationalised by its distinctive activities which are defined as competences [60]. The common theme in work on capabilities is that of providing the organisation with abilities and the potential to operate and deal with the environment.

The literature suggests that organisational capabilities relevant to integrate the supply chain encompass knowledge and skills of employees [22], supply chain partner selection [10] [17], collaboration and cooperation with supply chain partners [57], accommodating resource requirements to support service provision and goods manufacturing cost effectively [47] and learning from supply chain partners [17]. A business inter-firm relationship competence involves the ability to find, develop and manage such work arrangements [33]. Collaboration with partners is another capability that involves bringing supply chain partners into a new paradigm comprising commitment to working more closely and sharing a vision and goals [29]. Such relationships require comprehensive planning, seamless linkages [32], united seeking of synergies and goals [58] and well structured communication channels. The collaborative structure demands joint processes supported by a high degree of trust, commitment and sharing of resources as well as information. In addition, the capability of collaborating with supply chain partners implies developing measures of collaboration such as willingness of firms to build meaningful relationships, synergy sharing to achieve collective goals, sharing of strategic, operational and tactical information as well as resources and having mutual understanding [57]. Furthermore, supply chain flexibility is a proactive capability that demands supply chain members adjust resources to respond to changing circumstance with little negative impact on time and costs [47]. Finally, learning from supply chain partners is another capability which includes benchmarking, engaging in inter-firm knowledge and market needs scanning routines via close relationships with supply chain partners [17]. Other research argues that supply chain partners are important sources of new ideas, knowledge and skills which can ensure competitiveness and effective business outcomes.

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BUSINESS OUTCOMES

Bessant and Boer [4] argued that organisations need to engage in continuous innovation to be both operationally effective in exploitation and strategically flexible in exploration. The recent developments in society, markets, technology and industry suggest that leading organisations need to find configurations of processes, procedures, people technologies and organisational arrangements that allow them to become continuously innovative. A culture of continuous innovation requires organisations to focus on renewing managerial competencies congruent with the changing business environment [60] and on building the capabilities to reconfigure and transform their assets. This suggests that supply chain participants should identify specific sets of organisational capabilities to transform and reconfigure competencies for more cost efficient, flexible, quality and time-based operations.

Delivery Flexibility Flexibility, in general, is not only an ability to react to uncertainty, but also a proactive approach to establish competitive advantage by creating uncertainties for competitors [23]. The latter involves influencing what customers have come to expect from a particular industry [23]. Likewise, proactive flexibility leads to the satisfaction of customers without resulting in detriment to time, effort and costs [39]. Delivery flexibility is best described as the ability of the firm to modify the planned delivery schedule. This type of flexibility enables the supply chain to accommodate rush orders and special orders. This is also referred to as access flexibility which is highly regarded and rewarded by customers as it makes goods and services more easily and extensively available [62] if the firm has the ability to form relationships it will ensure the widest possible geographical coverage. To attain a competitive advantage through delivery, logistics must be able to accommodate flexible logistics, viz the dynamic and diverse delivery requirements of customers. Logistics serves customers throughout the supply chain; consequently variations in distribution centre structure, allocation of products among warehouses, and freight transport networks can significantly impact customer service within the supply chain [30].

Costs The supply chain literature has identified that the lack of relevant performance measures is a key barrier to successfully managing cost in the supply chain [19]. Further observations made by Lancioni [36] indicated that as supply chains are growing, it becomes even more essential for firms to measure the cost performance of their supply chains. Likewise Ballou et al. [1] argued that in analysing cost saving opportunities supply chain partners need to develop capabilities to identify and measure cost along the supply channel. Moreover, this notion enables supply chain actors to analyse the linkages between value adding activities. Full information is not available to all supply chain participants without any cost. Thus, organisations will incur costs that will be represented in terms of searching for information and resources. When more resources such as information are shared frequently the costs associated with searching tend to decrease. Studies of firms have revealed that a decrease in transaction costs, due to higher information use frequency [52] decreases overall cost of the products and services [5].

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Quality There is no unique definition of quality. Prajogo and Sohal [42], in referring to Reeves and Bednars [44] argument, assert that there are at least four definitions of quality which are appropriate in different circumstances. The manufacturing literature refers to quality as the conformance to standards [20] this product based approach ensures that goods are manufactured right the first time. Dean and Bowen [12] and Slack, Stuart, Johnston and Betts [53] suggested that quality concerns meeting or exceeding customers expectations. This definition offers challenges as it is often a complex process for customers to identify what their expectations are [42]. Much of the research about quality has been conducted at the firm level. Nevertheless, some logistics chain research has empirically examined several quality dimensions [55] which include overall customer satisfaction, processing accuracy, on-time delivery, complete order, accurate product selection, damage free, accurate invoice, accurate inventory information, planning accuracy, schedule adherence, no out of stocks and consistency of order cycle. Likewise, Larson and Kulchitsky [37] studied the significance of quality of information in supply chain management and found a direct relationship between the quality of information shared between members of the supply chain and delivery performance.

Speed Speed is increasingly becoming a firms key performance objective and lead time reduction has emerged as a dominant issue in manufacturing and supply chain strategy [43] [59]. Lead time reductions result in higher profitability, lower costs, better inventory turnaround, efficient scheduling and better service delivery [50]. Firms are able to charge a premium price for quicker service. Speed is considered as a functional component of a more holistic approach to responsiveness defined as agility [41]. Agility is concerned with the extent to which upstream and downstream members of the supply chain are able to respond promptly to demand challenges and unexpected changes in the marketplace [7]. The ability of firms' supply chains to react promptly to short and medium term market changes can be used to create value for customers.

The literature relating to relationships in the supply chain; and literature innovation capacity to business outcomes have been drawn together to demonstrate the importance of interaction through relationships to innovation in supply chains. Preliminary findings from the literature suggest that supply chain members perceive forming and managing relationships as important capabilities relating to their capacity for supply chain innovation which leads to the fulfilment of business outcomes. Thus, this research aims to demonstrate that relational capabilities can enable ongoing capacity for supply chain innovation building that produce improved business outcomes.

METHODOLOGY

As this is exploratory research, case study methodology was adopted to study a contemporary phenomenon in a real world context. The findings can then be used for creating and refining

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theory [18]. The study was exploratory in nature as there has been no reported empirical research conducted on capacity for supply chain innovation within freight transport service providers. The research reported here explores whether or not there is a relationship between capabilities, such as the formation of, and interaction in, inter-firm relationships, innovation and the supply chain. To ensure the rigor and accuracy of information, this case study research uses semi-structured interviews to explore the variables that were under investigation. The issues explored in this case are chosen to facilitate a better understanding of inter-firm relationships and expected business outcomes in supply chain relationships. The managers were asked what the most important relational capabilities were that enabled them to constantly improve or innovate. The recurring themes were derived from the reported statements of managers in the supply chain on either the existence or absence of the relational capabilities and the expected business outcomes from inter-firm relationships. The sample was purposive and was selected in order to cover a range of possible view points and all of the interviewees are managers involved in inter-firm relationships [48] [49]. The data collection for this case study involved a series of 5 in-depth interviews with managers, and visits to observe the operations of the case study participants. Thematic analysis was used to identify factors relevant to the research [49]. Word tables that link the statements to the framework were the descriptors that were used to map out the relational factors and expected business outcomes.

DISCUSSION

The case study examines inter-firm relationships between a large national freight service provider (Firm A) and two of its supply chain partners one supplier which is a regional truckload carrier (Firm B) and a customer which is a large retailer (Firm C). Firm A is a leading provider of business to business integrated freight transport services, which moves over two million tonnes annually and operates a network of more than twenty depots across Australia. Two interviews were conducted, independently, within the firm concerning inter-organisational business relationships. Interviewees consisted of a business manager who was responsible for the operation of the firm in a regional city, and a regional operations manager who was accountable for the business and logistics operations, in the north of Queensland. Firm B is a regional family owned and operated freight transport firm with over ten years in the trucking industry, delivering services across regional Queensland. The firm owns a fleet of over fifteen vehicles, it is focused on short-haul work, and specialises in the delivery of alcohol products. One interview was conducted with the business managing director, relating to the business relationship with Firm A. Firm C is an Australian liquor retailer which operates over two hundred retail liquor outlets across Australia. One interview was conducted with the regional distribution manager who is responsible for controlling the movement of goods in and out of the warehouse and negotiating as well as maintaining relationships between Firm C and its freight service providers.

Nature of Firm A, Firm B and Firm Cs inter-firm relationship The inter-organisational relationship between Firm A and Firm B has been in operation for approximately three years, and was originally started by the large freight service provider. The regional trucking company (Firm B) is on a renewable one year contractual agreement for

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delivering liquor to business customers located across the central part of Queensland. The contract was awarded on a low-price basis and includes terms that lead to either penalties or termination if detailed performance criteria are not met by the regional trucking business (Firm B). Firm A considers the relationship a partnership, but Firm B does not refer to the working arrangement in the same way as the contract was not awarded based on anything apart from low price. Nevertheless, Firm A and B work together to set directions and performance indicators to allow for a sustainable, long term orientated relationship. Furthermore, Firm C sought the possibility of a business inter-firm relationship with Firm A early in 2003. The decision was made after the change of ownership in the retailer became driven by efficiency and service. Following lengthy negotiations and expressions of interest by the distribution and operations managers that the partnership with Firm A was an operationally effective way to carry forward the functioning of the business, Firm Cs general management authorised the agreement. Timely and reliable deliveries, as well as accurate reports on performance, are the foundation of the cooperation agreement. Both Firm A and C have made efforts to keep the communication flexible to encourage a smooth flow of information. The results of interviews and analysis of some of the organisations documents confirm the existence of different types of inter-firm relationship capabilities which lead to different business outcomes. The performance outcomes were explored based on the established operational performance objectives of quality, cost, reliability, flexibility and speed. Quality Since the initiation of the cooperative project, quality had been considered an important performance objective in the relationship between Firm A and Firm B. Quality was regarded, by these firms, as reducing the number of wrong deliveries and the return of goods that were not ordered by the different liquor stores. Firm As business manager commented that quality has been ensured by employing routine follow-up procedures for inquiries and complaints. Firm Cs regional distribution manager stated that the follow-up routine had been vital in identifying the key factors for improving their satisfaction and making easier the job for Firm A. The follow-up routine had also been important to make it easier for Firm C and Firm B to seek assistance and successfully resolve complaints. Firm Bs managing director indicated that Although there is not a quality audit system in place, the way the contract is drafted prompts our firm to ensure that the vital logistics activities are carried out under controlled conditions and take corrective action when needed. For instance, the contract between Firm A and Firm B specifies, as part of the quality assurance, the critical acceptable level of returned goods due to wrong delivery as well as the acceptable level of damaged goods due to mishandling.

Similarly, Firm B was not used to reporting on performance indicators that were of value to Firm A, the compilation and preparation of which information demanded significant time from Firm B. The information shared by Firm A and B did not only concern performance, but also related to the activities they undertook to comply with the road fatigue regulation programs. Firm A has supported and provided assistance to Firm B with tasks such as how to document what they were currently doing in terms of occupational health and safety, and to design drivers reference manuals, plus systems to assess fatigue risk as well as health management systems. The

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managing director of Firm B remarked that Everyone is bound by the chain of responsibility law so they help us because they are prepared to do work with those players who are prepared to commit as they are prepared to commit. By doing this it was easier for Firm A to stop contractual arrangements that adversely affect the ability of drivers to manage fatigue because resources were given to ensure the appropriate drivers work-rest hours. Cost Cost was regarded by the interviewees as a critical component of the operation which is directly linked to the profitability of the business. The regional distribution manager of Firm C explained that while improving the quality of the logistics activities was regarded as critical, the decision to initiate a cooperative effort with a leading logistics provider was primarily cost driven. Interviewees from Firms A and C discussed how they gave priority to work on the reduction of inventory levels at each of the liquor stores by jointly analysing operational information such as sales levels, sales trends and space constraints. Firm As business manager indicated that we have worked on building trust little by little to the extent that they do not hesitate to share sales information as it helps us to establish efficient inventory management. The inventory level reduction was about 15 % over a period of one year. It was also found that important resources were shared within the two work arrangements formed by Firm A and Firm B and by Firm A and Firm C which enabled significant cost reductions. Firm Bs managing director commented that Firm A gave them the opportunity to minimise their ongoing operational costs by allowing them to buy some consumables such as petrol, tyres and engine oils at the price Firm A purchases them. This price is considerably lower than the price Firm B would be charged as Firm A has greater bargaining power, due to its size and national purchasing power. Likewise, the interviewees from Firm A and Firm B asserted that other resources were shared such as pallets, and shipping containers. Firm C also reported that warehouse and distribution centre space had been shared with Firm A to enable picking activities, pallet and container preparation. Furthermore, it was found that in order to facilitate the loading and unloading of trucks within the time allotted, Firm C and Firm B shared the cost of a leased forklift and driver. In addition, the cooperative efforts undertaken by Firm A and C enabled the partnership to invest in a web-based electronic confirmation process that automatically updates the inventory system upon the receipt of the goods. The reconciliation is made in real-time with the use of handhelds that are connected to the web enabled interface, created by Firm A. This is one of the examples of the paperless processes developed by the partnership. The contractual relationship between Firm B and Firm A benefited the former cost-wise, as Firm B could obtain better prices for the purchase orders of some of the consumables which where placed through Firm A, for example, tyres, engine oils and spare parts. Flexibility Flexibility was perceived as the ability to add capacity to be able to perform, maintaining productivity and safety, at the highest standards. Firm Bs managing director indicated that, when it came to flexibility, there were difficulties. The freight service providers were deploying the resources in doing the miles, but it had been onerous to have all the regulations in place with little reward. It seemed that when a company of the size of Firm B wanted to expand, change or

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add something or do something slightly different it is challenging to get through the politics. Firm As regional operations manager and Firm Bs managing director were of the opinion that another key constraint to being more flexible was staff. Firm As business manager asserted that the major problem trucking companies had at the moment is staffing, whether it be in the office, driving trucks or anything in between. Firm Bs Manager further expanded by stating that We could have potentially doubled the size of the business, given that we were able to get drivers who are prepared to work for the trucking industry and more importantly to our standards of accreditation and licensing and so on. The trucking industry is at risk from price fluctuations and freight service providers must be ready for that and be able to adjust rates which is not a simple task. Firm As regional operations manager commented that most of our competitors are realising now that volume is not as important as profits that either make you or break you. Slim profits do not lead to business growth in the right manner which is prompting organisations to rationalise service and enter into business agreements that increase their flexibility to service more demanding and profitable market niches. Firm Bs managing director and Firm As regional operations manager highlighted that they have made the service flexible to the extent that they do the picking and packing for Firm C and used time slots for their deliveries. Firm Cs regional distribution manager acknowledged the flexible service offered by Firms A and B by stating that Alternatively, if there was a time slot at the delivery centre, and we all know we wont make it, then we can call the DC and the involved parties and rebook it for when we can all be there. Flexibility was also shown in the cases when changes in the frequency of deliveries were needed because of the seasonal variability. Firm As operations manager remarked: There are some weeks when we operate three to four tailgate loaders and others five or six. If it is end of the year, we put out 10 tailgate loaders going to the DC and liquor outlets with the help of some semi-trailers Speed Responsiveness was also a performance outcome of the studied relationships. Quick responses to schedule changes were regarded by Firm Cs regional distribution manager as an important component of the relationship, particularly during the festive season when demand for liquor escalates. Firm B was rewarded on how promptly they managed to distribute urgent deliveries. The expectation on urgent deliveries ranged from two to three hours. However, there had been problems in meeting this expectation, as there was not a common understanding on what represented real urgency, where there is a genuine requirement for an urgent delivery we will do our utmost to accommodate their request Firm Bs managing director stated. Most of the special and urgent orders were fulfilled within six hours. Although the time slots at the distribution centre showed a great level of flexibility, this was not the case at liquor stores because the delivery windows are more constrained. Bottle shops of Firm C usually opened at nine in the morning and receive deliveries until three in the afternoon, as after this time the drive through areas and unloading bays were very busy with the arrival of customers. Firm Cs regional distribution manager commented that although a kind of reward system was set for urgent deliveries, penalties were not applied for not fulfilling urgent delivery orders and more

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importantly premium rates were not charged by Firm A to deliver outside the schedules. Firm C used to be charged higher rates by a former freight service provider to accommodate urgent deliveries.

CONCLUSIONS

In addressing the research aim which is to demonstrate that relational capabilities can enable ongoing capacity for supply chain innovation building that produce improved business outcomes, it is important to note that the literature argues that quality improvements involve minimising errors in operations, conforming to set standards [20] and proactively fulfilling customers expectations [1] [28]. This studys findings demonstrated that quality improvements are achieved in loose relationships by minimising service failures such as picking and delivery mistakes and through constant measurement and communication. Similarly, firms in closer, inter-firm arrangements are more likely to show significant quality improvement as they are committed to using the available shared technology and information to eliminate redundant transactions, making them as accurate and error-free and as cost efficiently as possible. This suggests that quality related improvements are not only possible in close relationships but also in contractual relationships. In this case Firm B is learning from working with Firm A and Firm C and is using this to increase their capacity to incrementally innovate.

The analysis of the interviews reveals that different degrees of flexibility and responsiveness can be achieved through different types of inter-firm relationship capabilities. First, flexibility can be achieved not only when firms can effectively respond to change and uncertainty with little transition penalty in time, effort or cost [9] [61], but also when firms can proactively create uncertainties for competitors [23] [63]. Agreeing with the first of these two positions, this research found that participants in close relationships are likely to increase flexibility, in areas such as rewarding good practice, without needing to revisit contracts and changing requirements. To build a long term relationship with Firm C, Firm A was prepared to vary contract conditions and Firm C was able to learn from Firm A and increase its capability to manage logistics. Agreeing with the second of the above noted positions, the results demonstrated that access flexibility is improved in contractual relationships when large firms, in particular, have made their services more easily and extensively available to regional customers [62] through the subcontracting of regional trucking firms. In addition, the literature argues that the attributes of closer relationships, such as high levels of information sharing and connectivity, which are not always present in less long-term orientated relationships, are enablers of agility [7] and speed to market [6] [14] [26] in the most cost efficient way [51] [59]. Confirming previous research, this study found that trucking firms in close relationships are likely quickly to re-allocate the fleet to routes that needed them, re-schedule distribution centre activities and customers activities to respond promptly to programmed, as well as urgent, non-scheduled deliveries at low cost. Conversely, contractual relationships exhibit some responsiveness related difficulties, as clarification was often needed in terms of what urgent deliveries should be fulfilled and at what cost.

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The final conclusion for this study relates to cost reductions achieved in inter-firm relationships. This research found that small trucking firms involved in contractual arrangements, with much larger road freight service providers, are likely to pursue the reduction of their running and operational costs, by exploiting their partners purchasing power and market position. Similarly, large trucking firms tend to see arms length relationships as cost-beneficial, because the small firms can service vast geographical areas and specialised niche markets, without large firms having to allocate scarce resources at each remote customers location. Confirming previous research, this study, provided evidence of the cost advantages of a cooperative relationship, as the cost of transacting is lowered when there is an open exchange of operational information, and it is recognised that penalties lead to added enforcement costs [15] [52].

By shedding light on the complex phenomena that link inter-firm relationship capabilities, supply chain innovation capacity and business benefits, this work provides useful insights both to academia and managers. Shifting from contract based relationships to collaborative relationships challenges firms in todays dynamic business environment. The switch in mind-set, culture, and understanding of the business outcomes expected from different types of arrangements in a companys relationship portfolio can be overwhelming. Opportunities have been lost and many challenges remain. A number of road freight organisations are sacrificing cost containment, revenue improvement, maximisation of asset utilisation and customer satisfaction because they are unable to work effectively across the firms that comprise their supply chains.

Finally, the analysis of the case study suggests that trucking firms can think about the gains afforded by long-term relationships with supply chain partners but find it difficult to work cooperatively with members of their own industry, being more easily influenced by more traditional contractual relationships which would ensure their status as independent firms. Small trucking firms, which account for over sixty percent of the industry, consistently view the large players as holding a stronger negotiating position, being able to dictate the rules of the freight transport industry, to the detriment of the industry and the supply chains in which they participate. Large firms need to transfer the cooperative relationship capabilities, developed through interaction with supply chain partners, to their relationship arrangements with small to mid-size trucking organisations, as the latter are keys to ensuring wide coverage at low operational costs which the former needs. Likewise, small to mid-size trucking businesses need to better understand how to work closely with their industry participants, as not all relationships should be adversarial, to ensure they develop or participate in innovative and effective networks able to compete with large domestic and global entrants and protect the industry from a highly concentrated monopolistic situation that escalates freight rates.

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