It is not possible for the individual members of the supply chain to function without the economic, quality and service performance of the other actors in the supply chain. Over recent decades, many businesses have begun to realize the advantages of sharing technology, information and planning with other firms. Through sharing information and planning efforts, the firms reduce uncertainty and increase control. Critical elements of a supply partnership in comparison to traditional supply relationships are listed in table 2 below.
Traditional supply relationships Supply chain partners
Price emphasis for supplier selection Multiple criteria for supplier selection Short-term contracts for suppliers Long-term contracts for suppliers
Bid evaluation Intensive evaluation of supplier value-added
Large supplier base Small supplier base
Proprietary information Shared information Power-driven problem solving
• Improvement • Success sharing
Mutual problem solving • Improvement • Success sharing
Table 2: Comparison of the elements of two SC relationships (W.C. Benton)
In general, traditional supply relationships consist of a large supplier base with shorter contracts and a large focus on price. In the supply chain partner relations, the suppliers are selected on a wider criteria
base. The contracting is normally on a long-term basis; the supplier base for such relations is therefore smaller.
Some argue that partnerships can provide similar benefits as vertical integration through acquisition, to harness supplier expertise. Five major potential benefits of supplier partnerships are listed in figure 12 below. Below each benefit, the areas to which the benefit applies are listed.
Figure 12: Potential benefits of supplier partnerships (W.C. Benton, 2007)
On the other hand, supply chain partnerships can retain inherent risks. The largest one being that heavy reliance on one partner can have large negative consequences if the partner does not meet the expectations. Furthermore, decreased competitiveness may result from loss of partnership control, complacency and overspecialization with an affirmed partner. Also, overestimating partnership benefits while ignoring potential shortcomings poses a common risk. (W.C. Benton, 2007)
3.6.1 Supplier partnership implementation and critical success factors
The partnership implementation process can be long and complicated but has to be performed thoroughly in order to ensure a successful supplier relation. The change from a traditional supply arrangement to a supplier partnership involves both an attitude and structural change.
The figure 13 below shows a guide to the implementation process.
Figure 13: Supplier partnership implementation steps (W.C. Benton, 2007)
In the first step of the partnership implementation process, the firm has to evaluate potential risks and benefits of a partnership in comparison with traditional supplier relations, in order to identify the need of a partnership. Thereafter, the criteria for the partners have to be defined, candidates are assessed and partners are selected. Then, the complete sense of awareness about the needs and participation of all involved parties has to be established, which is a very critical step in the process. Finally, once the partnership has been established, it has to be maintained to either enhance its development or bring about its dissolution.
The entire supplier partnership implementation process includes several critical success factors, the most rudiment being top management advocacy.
Reduced uncertainty for buyer in: • Material costs • Quality • Timing • Smaller supplier base Reduced uncertainty for suppliers in:
• Market
• Understanding
customer needs • Product
specifications
Cost savings in:
• Economies of scale in orderding, production and transaction • Decreased administrative costs • Fewer switching costs Time management • Faster product developmnet
• Faster to market for
new products
• Improved cycle
time
Shared risks and rewards
• Joint investments
• Joint research and
development • Market shifts • Increased
profitability
Establish strategic need for partnership
Develop partner criteria, evaluate suppliers and
select partner
Formally establish
A list of critical success factors, connected to the different implementation steps can be found in figure 14 below.
Figure 14: Supplier partnership success factors (W.C. Benton, 2007)
The most important attitudinal factors in a successful supplier partnership involve cooperation, trust, goodwill and the ability to handle conflicts while being flexible. Also, shared goals, attitude, communication and effective performance measurement are described as success factors.
If the firms are unable to work successfully, the partnership may have to be dissolved. If a firm has abandoned partners in the past, it might make future partners difficult to attract. It is therefore of high importance to investigate whether a partnership has sufficient potential prior to engaging in such a relationship.
The selection of suppliers is very important. A well-implemented supplier selection process within the supply/purchasing department increases the chances for well-functioning supplier relations. However, even after the selection phase, it is important to manage and develop the supplier relations in order to have high performing relationships between the different actors within the supply chain. (Oakland, 1990)
3.6.2 Supplier development
Supplier development is a process in which the buyer is involved in activities focusing on improving a supplier’s performance. Examples of such activities are:
• Supplier evaluation; • Supplier training; • Consultation; • Sharing data;
1. Establish strategic need for
partnership
2. Develop partner criteria, evaluate suppliers and select partner
3. Formally establish partnership 4. Maintain and refine partnership Throughout (step 1-4) • Communication Initial strategic analysis
phase (step 1) • Social and attitudinal barriers • Procedural and structural barriers
Supplier evaluation & selection phase (step 2) • Total cost & profit
benefit • Partner capabilities • Cultural compatibility • Financial stability • Location
• Top management support • Central coordination
Partnership establish- ment phase (step 3) • Perception and needs analysis • Intense interaction • Documentation Maintenance phase (step 4) • Trust • Goodwill • Flexibility • Conflict management skills • Social exchange • Boundary personnel • Performance measurement
When cooperating with a supplier and providing training and consultation and sharing processes and data, the chances of the supplier development to be efficient and rewarding increase.
The supplier development process consists of seven steps, as can be seen in the figure 15 below.
Figure 15: Supplier development process (Foster, 2010)
The first step in the supplier development process is to identify critical products and components. Normally such products or components are difficult to obtain, of high cost and/or of high volume, not seldom so-called strategic products. In the second step, critical suppliers are identified; suppliers delivering strategic products and components but not meeting quality/reliability objectives or scheduled deadlines. In the third step, cross-functional teams are formed in order to work with the supplier, starting with the forth step of meeting with the top management at the supplier. The fifth step includes selecting key projects for the supplier to work with. The projects are chosen based on issues where there is a need for improvement and then selected depending on criteria such as ROI, impact, feasibility and required investment. The sixth step defines the project, in terms of cost and benefit sharing, commitment of resources, how to measure the improvements, accountability and deliverables. The seventh and last step focuses on monitoring the status of the development work. It is essential to monitor progress in order to revise strategies if necessary during the development process.
Many companies equalize supplier evaluation with supplier development. However, there is a significant difference; in the supplier development processes there are resources allocated for the development and improvement of the supplier, which is not the case for the supplier evaluation. Depending on how the targets are set, the benefits are also allocated differently to the parties. For example, if a buyer contributes to a 10% cost reduction at the supplier, the buyer may ask for a 5% price reduction and provide the other 5% cost reduction to the supplier as a benefit. Suppliers with successful development programs are often designated as preferred suppliers, this due to their commitment to the customer needs. (Foster, 2010)