International Supply Chain Management - Partnership Sourcing

International Supply Chain Management

Partnership Sourcing

Word Count: 2302

Module Code: 7BSP1011

Module Leader: David Wright

Prepared By: Mustafa Mert Dikmen

Student Number: 10252709

Table of Contents

1.0 - Introduction.....................................................................................................3

2.0 - Drivers of Partnership Sourcing....................................................................3

3.0 - Aim of Partnership Sourcing.........................................................................4

4.0 - Drivers of Success............................................................................................5

4.1 Strategic Colloboration: Commitment and Loyalty.........................................5

4.2 Trust.................................................................................................................5

4.3 Communication................................................................................................6

4.4 Culture Compatibility.......................................................................................6

5.0 - Benefits of Partnership Sourcing...................................................................6

5.1 Benefits for Purchasers.....................................................................................7

5.1.1 Secured Supply........................................................................................7

5.1.2 Faster Product and Service Development................................................7

5.1.3 Delivery on Time.....................................................................................7

5.1.4 Reduction of Supply Base.......................................................................7

5.1.5 Improved Quality.....................................................................................8

5.2 Benefits for Suppliers.......................................................................................8

6.0 - Risks and Limitations of Partnership Sourcing...........................................8

7.0 - Conclusion........................................................................................................9

8.0 - References and Bibliography.......................................................................10

1. Introduction

Competition amongst suppliers is rapidly increasing due to the threat of trade regulations, excessive

development of technologies and globalisation. Promoting strategic partnerships with suppliers has

been the strategy of organisations in response to the threat of undesired costs arising from the highly

competitive business environment (Ellram, 1991). According to DTI (1992), “partnership sourcing”, a

new name of alliances of organisations with suppliers can be defined as “a commitment by both

customer and suppliers, regardless of size, to a long term relationship based on clear mutually agreed

objectives to strive for world class capability and competitiveness”

“Adversarial competition” and “partnership sourcing” are two forms of purchasing strategies

that organisations use. Among these two, partnership sourcing is considered to be more beneficial than

the other since it creates a relationship based on trust between two sides (Macbeth and Ferguson,

1994). There again, single sourcing was considered as a dangerous strategy because it gave the

supplier the occasion to take advantage of the potential opportunities (Newman, 1988). Interestingly

enough, the term “adversarial competition” was being referred to as short-term, competitive supply

around 20 years ago, when now it is purposely enunciated as adversarial.

On some occasions, the relationship between the supplier and the buyer is best described as

“dependency” rather than partnership. For this reason, Van Weele (1995) states these partnership

relationships as to be misleading. This clearly necessitates the need of some specific conditions for

partnership sourcing such as a clear definition of mutual responsibilities and specific, measurable

milestones for improved performance (Parker and Hartley, 1997). If not critically evaluated,

partnership sourcing can be damaging.

This paper aims to evaluate the term “partnership sourcing”, exploring its advantages and

disadvantages. Long term strategic and operational implications of the term will also be examined

with the intention to draw a conclusion if partnership sourcing is truly beneficial to all parties

concerned.

2. Drivers of Partnership Sourcing

The availability of low-cost manufacturers located in Eastern Asia and the increased legislations

especially regarding the environmental concerns necessitated an improvement of co-ordination

throughout the supply chain. The need of co-operation is what stimulated the need of partnership

sourcing in this respect. The competition arising from the availability of cheap manufacturers has led

organisations to focus on their core businesses to maintain their place in the market and remain

competitive. Organisations try to identify the aspects which are strategic in their procurement activities

by using a variety of positioning techniques to anticipate the potential impacts of a probable supply

failure. These types of procurements generally lead to partnership sourcing. Professor Andrew Cox

(1995) has defined strategic procurement as “the development of an external sourcing and supply

strategy which link the total business plan of an organisation so as to maintain a sustainable position

for that organisation in the total value chain”.

According to Brown et al. (1994) partnership sourcing is strongly associated with quality

initiatives. When organisations understood that “total quality management” was not a competitive

advantage but a definite requirement, they tried to find new ways of maintaining their quality

management approach. Partnership sourcing offers organisations the opportunity to compel the

suppliers to take quality initiatives. Hence, it is accepted that quality initiatives is one of the main

drivers of partnership sourcing.

3. Aims of Partnership Sourcing

Traditional procurement methods which include aggressive bidding and negotiation have often caused

lack of trust, poor quality, bad service and stiff prices. Lewis (1995) asserted that if each part of the

supply chain sees itself as an investor these consequences will not appear. He further indicates that

working co-operatively with the supplier helps an organisation to maximize their benefits and argues

that the co-operation between the purchaser and the supplier “unleash a capacity for innovation that far

outweighs the short term cost savings offered by arm’s length competitive bidding”. Therefore the aim

of partnership sourcing is to achieve greater benefits through good supplier and buyer relationships.

According to Sadler (2003), partnership sourcing is an element of competitive strategy of an

organisation and is developed and implemented with the intention to provide benefits. The aim of a

successful partnership is reducing stock times, shortening lead times, achieving a greater flexibility,

improving the cash flow and lowering the administrative costs. In addition this approach aims to

improve the quality of the information and its flow which leads to successful long-term planning,

innovation and technological development. However, partnerships won’t work unless the limitations

are possible problems are not diagnosed and managed the way it should be.

4. Drivers of Success

There is a variety of partnership dynamics which should be present to be able to consider the

collaboration of the supplier and the buyer successful. Both parties should make further considerations

to proceed with the partnering decision if most of the characteristics identified below are not present.

4.1 Strategic Collaboration: Commitment and Loyalty

The sense of mutual interdependence between the buyer and the supplier brings about a long term

relationship between two parties concerned. However, in order to achieve high buyer commitment and

supplier loyalty, both parties have to perceive that there is a soaring level of strategic fit between them.

Therefore for the buying party the initial phase of undertaking a partnering relationship should be the

analysis of the value of the supplier considering its long-term purchasing needs. However, by forming

close partnerships with suppliers, purchasers have realized that the development of the suppliers to

meet its demands is expensive and time consuming. This is a reassuring factor for the supplier as

expenditure is considered to be a necessity of true partnership and brings about trust. Trust is seen to

be more difficult to build if the buyer and the supplier have a record of adversarial negotiations.

4.2 Trust

The suppliers and the purchasers have to work closely to reduce cost and improve quality. A

successful partnership relationship arises from a substantial amount of trust. Cry (1999) states that in

any kind of alliance between two organisations building trust is a necessity for success. When there is

a level of trust between the purchaser and the supplier, both parties believe that the other is committed

to mutual success.

Successes of the purchaser and the supplier are often interdependent. A trustful purchaser will

cater its needs using the same supplier and a trustful supplier will use its resources fully to be able to

satisfy the purchaser’s needs. Both parties will win if they can obtain the degree of collaboration and

trust.

Buttler (1999) asserts that the level of complexity of the negotiations between the supplier and

the buyer decreases when both parties trust each other. This allows organisations to get rid of the

concerns regarding each other’s behaviours and to communicate more important matters rather than

losing time on discussing small details. Thus, negotiations consume less time and resources with

mutual trust.

4.3 Communication

Suppliers appreciate it when the purchasing organisations use collaborative communication (indirect

influence strategy, formality and feedback) to communicate and perceive this as a mechanism to

enhance their relationships. The suppliers expect commitment, loyalty and long life from their

relationships with the purchasing organisations. According to Prahinski and Benton (2004), the

purchasing organisations can influence the supplier’s commitment through improved communication

and relationship development. They further indicate that this development comprises of improving

cooperation, problem solving, and reflecting commitment, loyalty and aspiration to proceed with the

partnership for a significant amount of time.

When the necessary measures of partnership sourcing is taken and fully implemented, the

quality and reliability of the data exchanged between two parties is significantly improved. The most

important aspect of this relationship will be the improvement of communications. The purchaser and

the supplier will be able talk through the problems they have and try to resolve any kind of problems

with pure and mutual intent.

4.4 Culture Compatibility

For the partnership of the purchaser and the supplier organisation to be successful, their culture has to

be adaptable with one another. This is important to corroborate the cooperative relationship of the

organisations. Behaviours such as adversarial purchasing have to dispelled to serve the cause of

strengthening the organisational relationship.

The similarity of size, working environments between two parties will simplify the partnership

relationship. In addition it is possible that good relationships between the management of these

organisations will increase the chance of success of partnership sourcing.

5. Benefits of Partnership Sourcing

The main benefit of partnership sourcing is the fall in total cost. Frequently encountered advantages of

partnership sourcing are reduction of handling, accounts activities, buying and dispatching activities,

and examination necessities. In addition to these, increase in stock return and scope for increasing

sales can be identified as common benefits of partnership sourcing (Lock, 1998).

5.1 Benefits for Purchasers

5.1.1 Secured Supply

Successful partnership sourcing provides the buying organisation with a variety of benefits and a

secured supply chain is one of them. Through to help of partnership with the supplier, the purchasing

organisation enjoys improved “product safety”, “inventory management”, “supply chain visibility”,

“product handling”, “process and speed”, “problem identification time” (Blanchard, 2006).

5.1.2 Faster Product and Service Development

Another benefit arising from successful partnerships with suppliers is the faster development of

product and service. Shared benefits due to mutual dependency with the supplier lead to improved

communication with the supplier. Subsequently, it results in benefits such as faster engineering

changes, reduced assembly time, improved productivity, improved responsiveness and faster product

development.

5.1.3 Delivery on Time

Partnership sourcing usually increases the efficiency of JIT (Just in time) purchasing. According to

Fenneteau (1990), an organisation chooses to partner up with the supplier to encourage the supplier to

deliver better performance than it would otherwise deliver. The supplier can give better service if there

is a partnership relationship between them because the supplier will perceive the needs of the

purchaser, such as the expectations regarding deliveries and services or the type of demand, better.

5.1.4 Reduction of Supply Base

With the reduction of the supply base organisations neutralize the wastage of resources arising from

adversarial relationships with suppliers. According to Brown et al, there is little to lose from

partnering up with suppliers since the competitive tendering approach usually leads to potential

suppliers conniving so as to fix the price. However, partnerships yield benefits for companies by

means of increased commitment of suppliers to improve their products and services. Reducing the

supply base for organisations allow them to spend more time with suppliers, thus allows them to build

close relationships. This permits the purchasing organisation to influence the degree of quality and

cost. Taken as a whole, reduction of the supply base helps the company to improve its products and

reduce its costs.

5.1.5 Improved quality

Improvement of the quality of products and services is a common result of partnership sourcing

relationships. However, the improved quality of products/services can be originating from different

approaches. The buyer firm may have insisted that the quality should be improved or another

possibility is that the purchaser company may have made the supplier firm to understand the

importance of quality. Both ways partnership sourcing provides the purchasers with the benefit of

improved quality.

5.2 Benefits for Suppliers

Unquestionably the suppliers benefit from partnership sourcing as well, like the purchasers

organisations. This partnership provides the suppliers with an improved long term management

capability; improved technological capability via long term relationships, learning and better

communication; marketing improvement and with an improved cash flow and financial stability.

6. Risks and Limitations of Partnership Sourcing

Partnership sourcing may not always work as there are many reasons for failure when implementing or

after the implementation phase of the activity. The necessary commitment and involvement from the

purchaser and supplier to successfully partner up are not often accomplished from the beginning. Even

when everything seems to be in order regarding the implementation process of partnership, there is a

possibility that one partner or some third party organisation can stop the progress of partnership

sourcing.

Partnership is not a one way relationship. Both the purchaser and the supplier has to contribute

completely if not equally, to maintain a steady relationship. If one of the partners try to attain a

relationship with another organisation, for instance for the sake of accessing new technologies, the

partnership relationship will not turn out to be successful. A partnership in which only one of the

organisations contributes is not likely to succeed.

Good partnerships take time to develop. During the process of development there are some

types of behaviours both parties would want to avoid such as impatience, arrogance, complacency and

over-dependency.

The following have been identified as common causes of failure in partnership sourcing (Lock,

1998):

Lack of commitment

Lack of resources and planning

Poor communication

Unrealistic and arbitrary targets

Targets which cannot be measured

Behavioural changes or conflicts in the key personnel within two parties

However, perhaps the most common cause of concern is that the volume of business the supplier

is reaching does not reflect the intended expectations. Yet, this is supposed to be something that

should be agreed on through collaborative communication.

7. Conclusion

This paper has evaluated the term “partnership sourcing” and uncovered some of its principals in

terms of the advantages and limitations to be considered by both buyers and suppliers. The aims,

drivers, advantages and failure risks have been evaluated thoroughly by taking into account all the

aspects of partnership sourcing that both of the organisations can encounter to come to a conclusion if

the practice of partnership is beneficial to the parties concerned.

It is here concluded that if the organisations measure the risk of success and failure by analysing both

oneself and the other party, there are no real impediments for success. By avoiding and overcoming

adversarial behaviours such as impatience, arrogance, complacency and over-dependency, both

organisations are likely to take advantage of the benefits presented by partnership sourcing.

8. References and Bibliography

Blanchard, D. (2006), IndustryWeek [online], Available from:

http://www.industryweek.com/articles/the_benefits_of_a_secure_supply_chain_13103.aspx

[Accessed: 26 April 2011].

Brown, A., Boyett, I., Robinson, P. (1994). The Dynamics of Partnership Sourcing. Leadership and

Organisational Development Journal, 15: 7, 15-18.

Cox, A. (1995), “Strategic procurement management in the public and private sectors: the relative

benefits of competitive and collaborative approaches” In: Lamming, R. and Cox, A. (eds) Strategic

Procurement Management in the 1990s: Concepts and Cases, Earlsgate Press, Boston 5-22

Cry, D. (1999), High Tech, High Impact: Creating Canada’s Competitive Advantage through

Technology Alliances, Academy of Management Executive, 13:2.

DTI (1993), Partnership Sourcing, Department of Trade and Industry, London.

Fenneteau, H. (1990), “Mise en concurrence de fournisseurs ou partenariat?” Revue internationale,

PME 3:2, 167-191

Ellram, L.M. (1991), “A Managerial Guideline for the Development and Implementation of

Purchasing Partnerships”, International Journal of Purchasing and Materials Supply Management,

August, pp. 2-8.

Lock, D. (1998), The Gower Handbook of Management, 4th. ed. England: Gower Publishing Limited.

Lewis, J. (1995), The Connected Corporation, New York: Free Press.

Macbeth, D., Ferguson, N. (1994), Partnership Sourcing: an Integrated Supply Chain Approach.

Pitman, London.

Newman, R. (1988), Single source qualification. Journal of Purchasing and Materials Management,

Summer, 10-17.

http://www.industryweek.com/articles/the_benefits_of_a_secure_supply_chain_13103.aspx

Parker, D., Hartley, K. (1997), The Economics of Partnership Sourcing Versus Adversarial

Competition: A Critique, The European Journal of Purchasing & Supply Management, 3:2, 115-125

Prahinski, C., Benton, W. (2004), Supplier evaluations: communication strategies to improve supplier

performance, Journal of Operations Management, 22: 39-62.

Sadler, P. (2003), Strategic Management, 2nd. ed., London: Kogan Page Limited.

Van Weele, A. J. (1995) Myths and Truths in Purchasing and Supply “Some Provocative Ideas for

Thought” IPSERA 4th International Conference, 11-12 April, University of Birmingham.

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