Reaction Paper on Supply Chain Partnerships

Gbemileke Ogunranti

Supply Chain Partnerships

Gbemileke A. Ogunranti
Department of Business Administration, College of Business, Tennessee State University, Nashville, USA. Email: gbemilekeogunranti@yahoo.co.uk

Reaction Paper on Supply Chain Partnerships Introduction

Gbemileke Ogunranti

Nowadays, business environment are characterized by scarce resources, increased competition, higher customer expectations, and faster rates of change, organizations are turning to partnerships to strengthen supply chain integration and provide sustainable competitive advantage. Wilson 2012 says partnerships in todays business environment embody the meaning of the popular adage (two head are better than one) and expand upon it for the mutual benefit of all parties. Lambert et al., (1996) defined a partnership as a tailored business relationship based on mutual trust, openness, shared risk and shared rewards that results in business performance greater than would be achieved by the two firms working together in the absence of partnership. Therefore, supply chain partnership is a relationship formed between two independent entities in supply channels to achieve specific objectives and benefits (Benton and Maloni, 1997). Table 1 summarizes the major partnership reasons ranked in priority order from buyer and suppliers perspectives. Table 1: Main Reasons for Entering Into Partnership
RANK 1 2 3 4 5 6 7 8 BUYERS Price/total cost of delivered item/ product class Secure reliable sources for product Desire to influence supplier's quality Desire to improve delivery schedules Desire to influence/ gain access to suppliers' technology Reduce internal procurement procedures and costs for RFP, RFQ, contracting, etc. Support JIT initiatives Reduce ongoing administrative procedures and costs for ordering, invoicing, etc. SUPPLIERS Secure reliable market for this item/product Desire to influence customer's quality Support customer's JIT initiatives Desire to improve forecasts of requirements Reduce ongoing administrative procedures and costs for ordering, invoicing, etc. Reduce internal sales procedures and costs for preparing RFPs, RFQs, contracts, etc. Price able to receive for this item/product class Desire to influence/gain access to customer's technology

Source: Ellram (1995)

Reaction Paper on Supply Chain Partnerships The Partnership Model

Gbemileke Ogunranti

This model was originally developed by Lambert, Emmelhainz and Gardner in 1996. It comprises of four steps: examination of the drivers of partnership, examination of the facilitators of partnership, calibration of the components of partnership, and the outcomes (Lambert et al. 2004).

Figure 1: The partnership Model (Source: Lambert et al. 1996; 2004) Drivers are what compel two firms into partnership. These are expected benefits from expanding a relationship, which can be summarized as: asset/cost efficiencies, customer service improvements, marketing advantage and profit growth/stability. Therefore, the stronger the drivers the more chance of a successful partnership. Facilitators are the environmental factors which increase the probability of partnership success. These factors are found in all business relationships and cannot change in the shortterm. Facilitators measure how well the potential partners fit together. These include:

Reaction Paper on Supply Chain Partnerships 1) The compatibility of the corporate cultures;

Gbemileke Ogunranti

2) The compatibility of the management philosophy and techniques; 3) The perspective of mutuality between the potential partners; 4) The degree of symmetry between the firms. In addition, there are five facilitators that when present will strengthen a relationship but cannot be expected including: 1) The firms share a competitor 2) The firms are in close physical proximity 3) The potential for exclusivity in the relationship 4) Prior relationship experience 5) The firms share a common end user Partnership components are the managerial controllable elements of a partnership. It is through the implementation of these components that the potential of the partnership can be achieved. Partnership components include: 1) The style, level and content of planning; 2) Metrics and joint operating controls; 3) The degree and type of communication between the firms; 4) How risk and rewards are shared; 5) The level of trust and commitment; 6) The type of contract used in the relationship; 7) The scope of activities between the firms; and, 8) The degree of joint investment.

Reaction Paper on Supply Chain Partnerships

Gbemileke Ogunranti

The outcomes reflect the performance of the partnership and the ability of the firms to achieve their stated drivers. The outcomes can be viewed in terms of three primary categories: 1) Global performance outcomes related to the enhancement or leveling of profits; 2) Process outcomes, such as improved service or reduced costs; 3) Competitive advantage outcomes such as positioning in the market, market share or knowledge. Comparison of Supplier Partnerships to Traditional approach According to Stuart (1993) for supplier partnership to work; there must be information sharing, joint problem-solving activities, and mutual dependency. Whereas in traditional approach, these key elements are lacking. Thereby making traditional approach been discarded in favor of the partnering approach. Table 2 show the key contrasting elements between the traditional approach and the supplier partnership form of purchasing. Table 2: Traditional vs. Partnership Traditional Approach Primary emphasis on price Short-term contracts Evaluation by bid Many suppliers Improvement benefits are shared based on relative power Improvement at discrete time intervals Problems are supplier's responsibility to correct Information is proprietary Clear delineation of business responsibility Source: Stuart (1993) Supplier Partnership Multiple criteria including management philosophy Longer term contracts Intensive and extensive evaluation Fewer selected suppliers Improvement benefits are shared equitably Continuous improvement is sought Problems are jointly solved Information is shared Quasi-vertical integration

Reaction Paper on Supply Chain Partnerships Benefits

Gbemileke Ogunranti

A deep and long lasting supplier collaborative partnership has provides several benefits to supply chain organization such as product and process improvements, lead time reductions, cost reduction and increased business opportunities, among others. Suppliers can also be instrumental to breakthrough innovation that leads to cutting edge products, processes or services. Most time suppliers are willing to enter into mutual collaboration with supply management - provided there is a benefit. Benton, (2010) and Benton and Maloni, (2000) provides a comprehensive list of possible advantages of supply chain relationships composed from several sources summarized in table 3 below . Table 3: Potential benefits derived from Supply Chain Partnerships Potential benefits of supplier partnerships Cost savings from: Reduced Uncertainty for buyers in: Economies of scale Materials cost Ordering Quantity Production High quality Transportation Improved timing Decreased administration costs Reduced Uncertainty for Suppliers in: Decreased switching costs Market Process integration Understanding of customer needs Technical or physical integration Product/materials specification Improved asset utilization Reduced Uncertainty for both in Enhanced Responsiveness from: Convergent expectations and goals Joint products and process development Reduced effects from externalities Faster product development Reduced opportunism Increased shared technology Increased communication Greater joint involvement of product design Shared risks and rewards Faster time to market Joint investments Improved cycle times Joint research and development Market shifts Increased profitability Sources: Benton, ( 2010) and Maloni and Benton, (1997, 2000) as

Reaction Paper on Supply Chain Partnerships References

Gbemileke Ogunranti

Benton, W. C. (2010). Purchasing and Supply Management (2nd Ed.). McGraw-Hill, New York. Benton, W.C., & Maloni, M. J. (1997). Supply chain partnerships: Opportunities for operations research. European Journal of Operational Research, 101 (3), 419-429. Ellram L. M. (1995). Partnering pitfalls and success factors. International Journal of Purchasing and Materials Management, 31 (2), p. 36. Lambert,D. M., Emmelhainz, M. A. & Gardner,J. T. (1996). Developing and Implementing Supply Chain Partnerships. The International Journal of Logistics Management, 7 (2), 1 18. Lambert, D. M., Knemeyer, A. M., & Gardner, J. T. (2004). Supply Chain Partnerships: Model validation and implementation. Journal of Business Logistics, 25 (2), p. 21. Maloni, M., & Benton, W. C. (2000). Power influences in the supply chain. Journal of Business Logistics, 21(1); p. 49. Stuart F. I. (1993). Supplier partnerships: influencing factors and strategic benefits. International Journal of Purchasing and Materials Management. 29 (4), p. 22. Wilson R. (2012). Partnering for Innovation. Inside Supply Management, September 2012, 23 (7), 8-9.