Partnership Sourcing Impacts- Valutrics

Partnership sourcing is defined as the process of building long-term,
mutually beneficial relationships between customers and suppliers. It
is a commitment regardless of size – based on trust and clear, mutually
agreed objectives to strive for world-class capability and competi-
tiveness. As an element in competitive strategy it is developed and
implemented in the expectation of tangible and sustainable benefits.
But there are also boundaries and limitations that management must
acknowledge, recognize and work to eliminate. When partnerships
work, there are clear benefits. Stock is reduced, lead times are
shortened and there is greater flexibility to respond to company needs,
administration costs are lower and cash flow improves. The quality of
information is also improved, which means better long-term planning.
And better information flow between customers and suppliers that
have access to each other’s technical resources leads to innovation and
technological advancement. In addition there is also often a reduction
in shortages of key supplies.

Partnership sourcing will have an impact on how the purchasing
function thinks about the following key supply issues:

– Cost versus price. Lowest-tender contracts are not accepted
merely because of low price. Service, quality, reliability and inno-
vation have a greater bearing on supplier selection.

– Long term versus short term. Partnership sourcing focuses on the
long term, with collaboration occurring at the earliest conceptual
stage of design, or the earliest requirement for goods and services.
Quality controls versus quality checks. The emphasis is on getting
it right the first time.

– Single sourcing versus multiple sourcing. In most cases, reducing
the number of suppliers occurs as a matter of course with the focus
turning to quality partners.

– Adversarial approach versus collaboration. This is often the most
difficult adjustment for purchasing officers to make – particularly
those in large powerful businesses who have been accustomed to
bullying small suppliers in the past.

Both parties have to feel the relationship is on a sound footing and that
it will continue for the foreseeable future. They must also be able to
discuss problems frankly and constructively. A disagreement should
not signify the end of a relationship, but the beginning of its
improvement.

For a partnership to work there must be a genuine commitment
from the top of both organizations and a clear understanding by both
parties of what is expected in principle and in detail. Both parties will
need to have capable people involved who are sufficiently trained to
carry out their jobs effectively and have enough patience to tackle
obstacles and teething problems. There must be open communication
between both parties, including full information concerning suppliers’
costs and margins.
Preparation and planning are essential and a system to measure
progress and clearly defined targets should be established at the
beginning. There will also have to be a mechanism to implement
change throughout the supply chain and at the customer/supplier
interfaces.

Internally, the process should begin with the following:
– Decide which suppliers qualify as partners.
– Start with strategic suppliers and/or customers.
– Set clear, simple and easily achievable targets.
– Create a mechanism for driving partnership sourcing forward.
Externally the important steps are:
– Improve the detail and quality of information that you share with suppliers.
– Carefully select those suppliers with which partnerships are to be established.
– Publicize partnership sourcing to all significant suppliers.

Although the case for partnership sourcing is persuasive, getting there
will not be easy. Among the obstacles and problems that need to be
overcome, the following are the most common:

– Impatience. Partnerships take time to develop properly – often years, not weeks.

– Arrogance on the part of large companies. It is sometimes hard for
proud industrial giants to acknowledge that their own internal
systems and procedures need improving and that they might be
able to learn from smaller partners.

– Complacency. The smooth working of the partnership should
never be taken for granted. Continuous measurement and
performance assessment is crucial for both parties.

– Overdependency. For the purchasing company, partnership
sourcing means fewer suppliers; for the supplier, bigger orders.
Openness and dependency are implied in partnership sourcing, but
involve evident risks to both partners.

Types of relationship
The relationships in the supply chain may be classified as follows:

– The demands model. The customer expects the supplier to meet
specifications for a limited range of products and to meet
schedules, but does not engage in joint development or long-term
supply agreements.

– The audits model. Verification moves from an ex post to an ex ante
approach. The supplier will be checked out, including on-site
assessment, audit of quality control processes, perhaps budgets
and strategies, prior to the awarding of long-term contracts. At this
stage, however, joint activity remains minimal.

– The supplier development model. As well as a deeper audit this
approach may include open-book arrangements, joint product
and/or process development and joint training.

– Partnership. Support becomes more of a two-way process, there is
greater joint development activity, the expected time horizon is
relatively unlimited and some form of governance structure may
be formed.

Most of firms may have small minority of their active suppliers with
whom they had an especially  close alliance or partnership.