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February 2007

Harri Lorenx
FINNISH INDUSTRIAL COMPANIE`S SUPPLY
NETWORK COOPERATION AND PERFORMANCE IN RUSSIA
Electronic Publications of
PanEuropean Institute, 5/2007

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Concluding remarks

The rationale behind this study was to establish a knowledge base on whether Finnish firms have actually managed to initiate supply network cooperation in operations planning and management (RQ1) and what is the impact of these activities on performance (RQ2). Thus these two research questions were put forth, in conducting a survey among the Finnish industrial firms engaged in Russian operation either through exports or actually producing goods in Russia. It is deemed crucial to manage these supply chains effectively to secure competitive position in the market, as the Russian emerging market begins to show signs of saturation in some of the sectors. As it would be possible for the Finnish companies to build on common ground with their Russian suppliers and customers and thus establish even strategic partnerships as appropriated by costbenefit analysis, this report is provided in order to encourage such calculative increases in cooperation initiatives in the FinnishRussian supply chain and networks.

While the statistically rigorous comparison of the two main groups of companies (exporters and production subsidiaries) was not possible to due to the small number of respondents in the production subsidiaries’ case, we nevertheless provided some comparisons and cautious conclusions. The following points were indicated as interesting results:

· Production subsidiaries demand chains are shorter (less middlemen) in comparison to the exporters’ chains. Implications are important for supply chain uncertainty in the form of for example hampered sales forecasting due to greater demand variability. Echelon elimination (middlemen reduction) could be considered as a remedy.

· Production subsidiaries have greater number of customers and have significant levels of local sourcing and sales, implying a high level of embeddedness in the local market. Boldly speculating one could say that exporters most probably don’t have enough access to market knowledge and the business and social networks to effectively manage supply chains and remain competitive, as markets developin Russia.

· In terms of relationship length it was found that in the case of production subsidiaries, the customer relationship length is much longer than in the case of Harri Lorentz PEI Electronic Publications 5/2007 www.tse.fi/pei/pub suppliers, indicating maybe the path from exporter to establishing operations in Russia. Also current exporters have shorter customer relationships. In order to reduce supply chain uncertainty and as appropriate key customer and supplier relationships should established with longterm perspective.

· Supply chain uncertainty indicators were considered to be quite high, and thus the cost of managing sourcing in Russia as well as sales can be considered substantially higher than in more developed markets. Again strategic partnership could be considered as remedy to improve for example the timeliness and quality of supplies as well as better forecasting accuracy of sales. The last notion is naturally not highly relevant in the maketoorder and engineertoorder companies that formed the majority of the respondents.

· In terms of supply network cooperation, the results showed greater level of cooperation with customers in comparison to suppliers. Sales administration, distribution and customer relationships management were important areas of cooperation. IT systems implementation was notably lacking in integration efforts. Visits with business partners were almost twice as common annually in production subsidiaries as in the exporters’ case. The greater “distance” to customers across the border most probably has affected this form of cooperation.

· The respondents were cautious in hailing the great performance improvements from supply network cooperation. Only minor positive effects were reported, with number of “no change in performance due to cooperation” areas.

· In the exporters’ case a more rigorous methodology utilisation was possible and the results of the multiple regression analysis shows the following positive relationships of cooperation areas and performance: (1) design of the supply chain to order lead time, (2) inventory management and distribution to inventory turns, (3) production and design of the supply chain to quality, and (4) design of the supply chain to stockouts.

Overall the results are interesting and cautiously encourage to greater levels of supply network cooperation and integration also in Russia. However, as literature shows nondiscriminate partnershipping should not be initiated, but careful analysis of where and when to pursue supply network partnerships in both the supply and the demand side. Customer profitability and potential should be assessed and necessary Harri Lorentz PEI Electronic Publications 5/2007 www.tse.fi/pei/pub keyaccount
programmes established.

As the results indicated Finnish firms currently perceive supply management a bit more challenging in Russia. Therefore firms should consider the level of importance of each supply source and the overall sourcing strategy, whether critical (time, accuracy, quality are important) or leveraged (price is important) (see Cousins & Lawson 2006). Simply put, in critical sourcing strategy collaborative relationships and strategic partnerships are the most appropriate tool with selected suppliers, while armslength supply relationships leveraged with bargaining power are the mode of operation facilitating improved performance.

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