Partnerships in Supply Chain Management

Abstract

Introduction

What is Supply Chain Management?

Supply chain management is active management of supply chain activities to maximise customer value and achieve a sustainable competitive advantage [1]. For this the supply chain need to operate in the most efficient way possible. Successful SCM involves reducing the cost by reducing the amount of inventory used. SCM is a combination of 3 different flows, these include finance, product and information flows. Benefits of SCM include reduced costs, increased profitability and most of all it makes the business more competitive in different markets. [2]

Partnerships

Krause and Handfield define partnership as a bilateral effort by both the buying and supplying organisations to jointly improve the supplier’s capabilities in areas such as: cost, quality, delivery, technology, etc. [3]. The principle is that teamwork is better than combat and the parties must both work together to best serve the customer and achieve a competitive advantage. A partnership is bilateral as both parties have the ability to shape its nature and direction [4]. In partnerships mutual trust, shared resources, shared risk and reward offer a competitive advantage to each of the partners in their business which is greater than the performance achieved individually [5]. Partnership sourcing works because both parties have interest in each other’s success [6].

A study by Global Environmental Management Initiative (GEMI) classified SCM partnerships into 3 main types, indicating an increasing commitment level [6].

1. Agreement to coordinate selected supply chain activities, with limitation on time and scope.
2. Agreement to integrate a broader range of activities with a long term approach.
3. Commitment for large level of operation integration, with no anticipated end date

Only in rare cases the 3rd type of partnership will be justifiable.

The same study produced a partnership model which is developed to provide basis for decision making about partnerships.  It includes the drivers, facilitators and the outcomes.[pic 1]

The drivers indicate mutual benefits and will influence the decision to partner, for a partnership to be successful the drivers need to be strong. Facilitating factors such as the business environment will also dictate the likelihood of a successful relationship. The facilitators assess the compatibility through evaluating the shared competitors, management techniques and the shared end users. The components are the joint activities involved that make the partnership operational. It is important for partners to regularly evaluate their expectations in terms of performance indicators so that the outcomes can be monitored and components be adjusted [6].

Characteristics & Benefits of Partnerships

One of the most vital component of a partnership is open information sharing and coordinated decision making. For this to be successful every partnership requires an element of mutual trust as each of the partners need to be assured that the information shared wouldn’t be misused. Helper and Sako distinguished between “exit” and “voice” relationships; in the latter the partners use all their resources to cooperate and resolve any problems rather than “exit”-ing their relationship [7]. Through open long-term relationships firms can eliminate any problems they face and ensure continual improvement. Failing to collaborate results due to distortion of information through the supply can lead to pricey inefficiencies also known as the bullwhip effect [8] resulting in lost profits through excess inventories and slower lead-times.

Taking into account the logistics involved with creating and sustaining these relationships it is important for a firm to focus on its partner in a long run. This type of partnership is different from a strategic alliance or a project-based partnership in which firm works to a common goal but later end the partnership when the goal is achieved. Open ended nature of these partnerships make it more challenging. For partnerships to be successful in the longer run it’s important for partners to agree on common values, have mutual respect for each other most importantly have good communication[8].

Benefits of partnerships is decided based on the drivers which can include shorter lead times, cost efficiencies and overall profit and growth of all the partners involve. Facilitators such as shared competition, physical location and previous relations play a crucial role in strengthening the relationship [5].  The full list of benefits from partnership is endless and it depends from firm to firm but the most common benefits are summarise in the table below.

[pic 2]