2. Abstract.
The aim of this study was to test the hypothesis:
"Successful partnership sourcing gives companies a competitive advantage"
Where partnerships have been regarded as successful to what extent did they create a
competitive advantage for the parties involved? Many research papers have been
published that concern themselves with the implementation and design of
partnerships. This research paper intends to go one stage further by examining
existing partnership cases, looking at the real and longterm benefits that can manifest
themselves as competitive advantage for both client and supplier companies.
Merli (1991) wrote how through creating partnerships with suppliers competitive
advantage can be created in four different forms:
1. Costs as long as they are linked to high flexibility (that is low set up times)
rather than savings obtained through high production lots.
2. Service/delivery as long as these are based on the ability to respond
(promptness) rather than on stock supplies.
3. Quality as long as it is present from initial production (the ability to
manufacture quality goods in a short time).
4. Innovation as long as new products are bought to market in a short time;
otherwise the effort is a service to the competition.
A copy of a set of case studies published by "Partnership Sourcing Limited" was
purchased. The participants in the case studies were sent questionnaires concentrating
on Merli's (1991) four elements of competitive advantage, gathering primary
information to indicate the participant's opinion on how successful partnership
sourcing has been at creating competitive advantage. The information from these
questionnaires was combined with the information contained in the case studies to
provide a detailed analysis of each specific case of partnership sourcing.
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3.
The findings of the studies are that partnership sourcing does create competitive
advantage in all four elements, with some aspects more effective than others.
Partnership sourcing was seen as effective at creating competitive advantage through
increasing the levels of service achieved from the supplier. Partnership sourcing was
also shown to be successful at reducing the leadtime from product R&D to market. In
the other elements of Quality and Cost partnership sourcing was found to be
reasonably successful. In some cases the results from analysing corresponding
customer and supplier results were varied in terms of their views of the success of the
partnerships. Some conclusions about why the results indicate this have been made.
This analysis and conclusions reached have enabled the study to propose a set of
principles of best practise that should ensure that any attempt at partnership sourcing
is likely to succeed.
1. Contractual Agreement.
2. High levels of communication.
3. Cross functional teams.
4. Product/Supplier Selection.
5. Involvement of company directors.
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4. Acknowledgements
I would like to express my thanks to all the respondents of the questionnaire for
cooperating and spending the time and effort to return the survey, without which this
study would not have been possible.
I would also like to convey my gratitude to Elias Piminidis who advised during the
difficult times when the questionnaire was being formulated, and Kuldip without
who's support and proof reading skills would have made the last few months more
testing.
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5.
Contents
Chapter 1 The Origins and Concept of Partnership Sourcing
Chapter 2 Literature Review
Chapter 3 Methodology
Chapter 4 Results
4.1 Results of primary data collection
4.2 Results of primary data collection by questionnaire section
4.3 Results of secondary data collection
Chapter 5 Conclusions & Recommendations
5.1 Conclusions
5.2 Five principles of best practise for creating successful
partnerships.
5.3 Where next for this study?
5.4 Where next for the academic writings?
Appendices 1.0 Example of completed questionnaire page 1
2.0 Example of completed questionnaire page 2
3.0 Example of questionnaire covering letter
4.0 Example of "Partnership Sourcing Limited" case study
Bibliography
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6.
Chapter 1
The Origins and Concept of Partnership Sourcing.
Post war Japan was the catalyst for change in the way companies viewed their
operations and processes. 1945 saw a rise in the power of trade unions in Japan.
Heavy legislation protection and the rise of firm specific unions led to an explosion in
union membership, making a firm's labour force less flexible. Japanese industry
reacted to this lack of flexibility by putting in place a buffer supply of resources.
Temporary workers were employed, and the use of subcontractors, that could be used
and discharged when necessary, increased. The growth of firm specific unions, where
blue and white collar workers were equal members, meant the workers were unified,
with equal treatment in terms of pay deals, working conditions, and benefits. Equal
performance related bonus schemes were implemented across the whole company
workforce. This resulted in a "Unitarist" frame of reference for Japanese companies
(Nishiguchi, 1994). A Change from "them and us", to "us", or even "them" being a
reference to anything outside the organisation.
In October 1948 the United States adopted a positive attitude towards Japan, and
implemented the Dodge plan. This was an attempt to speed up the economic recovery
of the Japanese economy, and block the spread of communism. Monetarist policies
were introduced, such as a reduction of subsidies, suspension of new loans from the
reconstruction bank, and the reduction or abolition of subsidies to Japan. However
the impact of these policies paralysed Japanese firms cash flow. In 194950
bankruptcies and redundancies soared.
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7. It was another conflict, the Korean war in 1950 that turned the Japanese economy
around. The Japanese economy that was close to dying due to the demands of the
Dodge plan was immediately rejuvenated by demand for munitions. This resulted in
an economic upturn and led to increased demand for household goods and electrical
appliances increased dramatically during the early 1950s. Although production
capacity was increased, demand was still greater than supply (Nishiguchi, 1994).
Large electrical good manufacturers such as Hitachi expanded their subcontracting
base, with the automotive manufacturers following suit in the mid 60s in response to
the rising demand for private use passenger vehicles. The economic troubles of 1949
had increased the wage differentials between large unionised firms and smaller
nonunionised firms. Thus large companies could see considerable benefits by
contracting out to smaller nonunionised firms with lower wage bills. Subcontractors
grew and developed in harmony with their large customers by buying their old
machinery and technology.
The "electification" boom of the early 1950s led to fierce competition for market
share, and large product ranges. This further increased the demand for
subcontractors. From 195060 Hitachi doubled the number of subcontractors it used,
and increased the amount of materials bought by 700% (Nishiguchi, 1994). As
subcontracting grew so the adversarial approach to business increased, with increased
pressure on prices, and payment delaying tactics coming to the fore. To cope with
these problems the first tier suppliers began to move the lower skilled, and labour
intensive work to second tier subcontractors.
The automotive industry took a different approach to dealing with subcontractors.
They adopted a problem solving, as opposed to an adversarial approach, to
subcontracting issues such as pricing, ordering, quality assurance etc. It was
acknowledged in the early 60s that the supply base for the Japanese automotive
industry was essentially weak with regard to its ability to produce quality parts and
increase capacity. Assemblers began to assist their suppliers by offering them
financial assistance to modernise their plant and facilities, providing technical
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8. assistance through resident engineers, and codetermining prices using agreed
standardised cost calculations and rationalisation.
The disparity in wage levels between the core and peripheral sectors of the economy,
known as Dualism, remained in place until 1964, when demand for labour outstripped
supply (Nishiguchi, 1994). Wages at smaller companies began to rise faster than at
larger companies. At this point it would have been natural to assume that the level of
subcontracting would fall with the large companies taking a lot of work back
"inhouse". This was not so, product variation had increased massively. To cope with
increased manufacturing complexity, Japanese producers, also known as prime
contractors, began to strategically outsource the assembly of finished parts, and
systems components to what became known as first tier suppliers/contractors.
Assembly and subassembly lines were moved intact from prime contractors to
subcontractors. By the late 1980s Toyota had eight subcontract assemblers, each
specializing in separate product ranges (Nishiguchi, 1994). Such outsourcing allowed
the prime contractors to redirect resources away from managing the increasingly
complex administration and operational issues of rapid growth, and diversified
product ranges, to more strategic activities such as product development, brand
management, process innovation, and manufacturing technology.
From the late 1950s onwards, the Japanese automotive industry began to invest
heavily in subcontractors, creating 100% owned subsidiaries, or partly owned related
firms. Subcontractors welcomed these more stable trading conditions; increased
opportunities for technological learning and the improved growth prospects. Such
companies could expect to follow in the fortunes of their larger partners because of
their increased integration into the supply chain. Purchasing contracts became as
standard one year in length, and were automatically renewed unless one or both
parties requested otherwise. This stability meant subcontractors could better allocated
and plan resources for the future.
Japanese companies also began working very closely with their suppliers on such
things as product costing, bilateral product design, and supplier grading. A technique
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9. called "Market Price Minus" was developed in which the market price was calculated,
and then supplier and customer worked together to reduce the cost, whilst ensuring
customer requirements are satisfied. Any resulting cost savings were shared by both
the supplier and client companies, which inturn inspired supplier entrepreneurship.
Research and Development costs were essentially transferred to suppliers. The supply
companies were being given the basic specifications/requirements, and left to come
up with their own ideas. 'Vendor rating' was developed to monitor the performance of
suppliers. A vendors rating was based on their performance in several areas such as
quality, price, delivery, management competence, and longterm business viability.
Vendors were communicated their grade, told about their weak areas, and discussions
took place on how they could improve performance. The supplier companies that
gained better ratings were given more responsibility and enjoyed longer term
commitment from their customers. Companies that had poor ratings were given a
chance to improve, but if no improvement was found then they are moved down the
supply chain to a lower tier.
These kinds of collaborative relationships were virtually unheard of in UK companies.
The expansion of Japanese manufacturing companies into the UK in the 1980s
increased awareness of supplier partnerships, and the success of the Japanese
companies led western organisations to adopt similar practises. Japanese customers
were looking for overall cost reduction, taking into account, price, quality, delivery,
and manufacturing technology. Contrast this with the attitude in the UK, where there
has traditionally been an adversarial relationship between customer and supplier, cost
increases over time were assumed to be natural and unavoidable, and so short tern
solutions to keeping prices down were practised. In the last decade "Partnership
Sourcing" has been one of the buzzwords around UK companies, with many
companies claming to have implemented partnership programmes successfully. The
CBI (Confederation of British Industry) and DTI (Department of Trade and Industry)
have set up a notforprofits company called 'Partnership Sourcing Limited' to help
UK companies understand and implement the process of partnership sourcing. They
offer the following definition:
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10. What is Partnership Sourcing?
Partnership sourcing can help firms to overcome 'power based
purchasing', where companies treat suppliers or customers as adversaries,
and where pricecompetitiveness and delivery performance are all that
count. Partnership sourcing replaces this. It focuses on cooperation, and
is a commitment by both customers and suppliers, regardless of size, to a
long term relationship based on clear mutually agreed objectives to strive
for worldclass capability and competitiveness. It involves both parties
addressing all aspects of the 'cost' of doing business together and not just
looking at the 'unit price'. It aims to build on quality based on the
teamwork approach using shared information wherever possible.
The key objectives are to:
▪ delight the customer
▪ obtain competitive advantage
▪ minimise total cost.
It doesn't matter if you are in the private or public sector, buying or
selling, making or serving everyone can benefit from the principles of
partnership sourcing".
The aim of this piece of research was to measure the success of these partnerships in
assisting the participant's in achieving their objectives of creating competitive
advantage, both for the client organisations, and the supplier companies. Merli (1991)
provides the research with four areas in which supplier partnerships can be seen to
create competitive advantage:
Costs If a manufacturing company depends on a competitive cost advantage,
its suppliers are responsible not only for the percentage that they contribute
(usually over 50% ) but also for helping to research less costly solutions for the
same function.
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12. Chapter 2
Literature Review.
The increase in awareness of the benefits that partnership sourcing can bring to
company performance has led to an avalanche of academic studies in the areas of
partnership sourcing and more generally supply chain management. The rise in
popularity of corporate strategy over the thirty years has led companies to examine
how organise their business units and create competitive advantage. The literature
review examines recent academic writing on "Partnership Sourcing". Current
corporate trend is to develop core competencies, outsource noncore operations and
use suppliers core competencies to provide a source of competitive advantage. The
object of "Partnership Sourcing" is to tap this potential competitive advantage to its
optimum.
Many of the writers reviewed provide models or classifications to build
customer/supplier relations around. The level of collaboration between customer and
supplier depends on the strategic importance of the supplier's products. Competitive
advantage can be created through removing waste, reducing the costs of doing
business and increasing collaboration of research and designs.
The review discusses some of the writings on the negative aspects of "Partnership
Sourcing". Expectations on both sides of the relationship have been shown to be
different. Participants are frustrated by the lack of ability to measure the return on
their investment. Some of the academics write how "Partnership Sourcing" is not an
equal partnership. Risks on the supply side tend to be higher, purchasers usually
dominate the arrangement, and cannot move from the western adversarial culture.
They highlight how the lack of understanding of corporate strategy in the purchasing
role weakens the functions ability to create competitive advantage.
Spekman, Kamauff, and Myhr (1998) wrote:
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13.
"We have entered have entered a new era in understanding the dynamics
of competitive advantage and the role played by procurement" (p.630).
They talk about how suppliers and customers are no longer managed in isolation, but
how the value chain now tends to extend right through the supply channels to the final
consumer. Spekman et al 1998 wrote :
"Simply, Ford Motors is as successful as its ability to coordinate the
efforts of its key suppliers (and its supplier's suppliers) as steel, glass,
plastic, and sophisticated electronic systems are transformed into an
automobile that is intended to compete in world markets against the
Japanese, the Germans, and other US manufacture's." (p.630).
The development of corporate strategy has lead to companies thinking about where
and how they should invest their resources, and what are their core competencies that
they should develop. A good example of this is how the automotive industry has
created first tier contractors that supply assemblies such as window mechanisms in car
doors. The first tier contractor will purchase components from second tier component
suppliers. This leaves the car manufacturer to concentrate on, and develop its core
competence of final assembly. Recently automotive companies are talking about
taking this business model one stage further and outsourcing the actual final assembly
of automobiles, leaving the likes of Ford, and GM to concentrate on managing the
ever increasing number of brands. Spekman et al (1998):
"World class companies are now accelerating their efforts to align process
and information flows throughout their entire value added network to
meet the rising expectations of a demanding marketplace. We hear from
enlightened managers worldwide that success is now measured by cost,
speed, innovation, and customer satisfaction." (p.630).
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14. US based academics, Spekman, Kamauff Jr, and Myhr (1998) have discussed the role
that procurement could play in creating competitive advantage. Success is no longer
measured by a single transaction, but by a company's ability to create a network of
cooperating partners along the entire length of the supply chain. Manager's talk
about how corporate success know depends on the cost, speed, and innovation of
companies. Spekman et al (1998) refer to Porter's (1985) claim that the coordination
of complex global networks of company activities is in itself becoming a source of
competitive advantage. This attempt to create value for the consumer, and competitive
advantage for the organisation, they have referred to as supply chain management.
Spekman et al (1998) looked at how Boeing, 3M, Black & Decker, and Hewlett
Packard, managed their supply chains and came up with the following definition:
"The essence of supply chain management is as a strategic weapon to
develop a sustainable competitive advantage by reducing investment
without sacrificing customer satisfaction. Since each level of the supply
chain focuses on a compatible set of objectives, redundant activities and
duplicated effort can be reduced." (P.631632)
Spekman et al (1998) write how cooperation is the starting point for supply chain
management, the next stage is coordination where specified workflow and
information are exchanged in a manner that permits JIT operation, EDI, and other
seamless transfers of information. Figure 2 shows Speckman et al's (1998) four stages
of supplier development.
Fig 2 The transition from open market negotiations to collaboration
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15. Source: Spekman et al (1998, p.634)
Spekman et al (1998) claim that most companies have achieved levels of cooperation
and coordination with their key suppliers, but the next stage, the move to
collaboration requires higher levels of trust and commitment, beyond those normally
found in JIT, and EDI relationships.
Spekman et al's (1998) studies and subsequent surveys of US companies led to
conclusions that although companies claim to have developed their supply chains and
work in collaboration with suppliers, in reality the concept has not been fully
operationalized. Buyers are reluctant players and are far more sceptical about the
benefits afforded through close integration with their suppliers. The buyer's lack of
strategic awareness had led to the buyers firms losing any potential competitive
advantage that may have been created.
Giorgio Merli (1991) writes about how the evolution of product liability legislation in
the US and EU put increased demands on companies in terms of higher quality of
finished product, higher reliability in deliveries, more flexibility and speed in
responding to customer requirements, more fragmented and frequent deliveries, self
certification, guaranteed improvements, and price reductions. Merli believes time to
be the next form of competitive advantage. Companies achieve this competitive
advantage through four strategies:
▪ Reduction of costs through highly flexible process rather than
large batch sizes.
▪ An ability to respond to customers delivery requirements without
carrying stock.
▪ Capable of producing product to the level of quality required by
the customer.
▪ Innovate, a term being used more and more as a source of
competitive advantage, shortening the time required to get new
products to the market.
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16.
Merli's justification for partnership sourcing, or "comakership" as he terms it,
satisfies these four strategic factors:
▪ Just in time delivery and production processes reduce costs
through being highly flexible, reducing inventory levels, and
increased communication flows of customer requirements
through electronic data interchange (EDI).
▪ Product and process development between strategic partners
means development time is quicker, and the finished article is
exactly to customer requirements.
▪ Value chains means customers can concentrate on their
corecompetences, and transfer noncore operations and
process down the value chain to suppliers who can now create
new corecompetencies and create their own competitive
advantages.
▪ Total Quality Management (TQM) systems allow companies
to consistently produce goods to the levels of quality required
by the customer. Dialogue between the two partners improves
the understanding of customer requirements with regards to
quality issues.
Merli (1991) states there are three operational models arising in western companies
with regards to supplier relations. The 'Class III' suppliers are treated as conventional
suppliers, with a traditional adversarial approach to relations. Suppliers are chosen on
a basis of finding the minimum qualitative specification at the lowest price. Orders are
of a short term nature. The 'Class II' supplier is known as an associated supplier. A
long term relationship is established which is then under periodical review. Pricing
structure and supply fluctuations are based on an agreed criteria in advance. The
supplier is selfcertified in terms of quality, and can deliver product direct to the place
were it is required on a JIT (just in time) basis. 'Class I' suppliers are what Merli
describes as true comakers. Similar in nature to class II suppliers but with a more
Mark Heath Page 16 21/03/2007
17. integrated relationship leading to design and technology cooperation, joint
investment in R&D, and a constant exchange of information regarding products and
processes. At each level the number of suppliers will markedly reduce for each
product group, i.e. products that are supplied by class III suppliers will be of an
nonstrategic nature, and there be many suppliers of this type of product to the
organisation, class I suppliers will be suppliers of products that offer a potential
source of competitive advantage, there will usually be only one supplier of this type
product to the company.
Hines (1994) writes how western companies need to develop their supplier base, and
manage their supply chain for competitive advantage rather than to reduce costs. He
uses a Peter Drucker (1982) to give assertion to his writings:
"Nowhere in business is there a greater potential for benefiting from
interdependency between customer firms and their suppliers. This is the
largest remaining frontier for gaining competitive advantage and
nowhere has such a frontier been more neglected." (p.5)
Hines (1994) writes that competitive advantage can be gained through working with
suppliers to remove inter company waste such as common quality standards, same
paperwork systems, shared transport, communication methods. Hines claims that
serious attempts at supplier development are relatively uncommon in the West due to
the following reasons:
1. Lack of literature suggesting competitive advantage can be
achieved through better supplier relations.
2. Scarcity of western examples to be followed.
3. Absence of knowledge of how to go about such developments and
techniques to be used.
Hines (1994) considers how Womack et al's (1990) concept of "Lean Production" can
contribute to creating competitive advantage in the supply chain. The term "Lean
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18. Production" refers to a system that makes use less inputs to create the same level or
more outputs, similar to mass production but offering increased flexibility.
Brit and Cousins (1994) wrote how the use of Electronic Data Interchange (EDI)
systems can improve the relationship between clients and suppliers, being a
fundamental part of creating supplier partnerships, and can create competitive
advantage for both parties.
They argue that paying attention to the financial, or service aspects of the relationship
can strengthen the partnering philosophy in a manufacturing context. Technology can
speed up the way business does certain processes, giving individuals more time to
utilise on other priorities such as nurturing supplier relationships.
Their studies show that the introduction of EDI, email, and computerized ordering
facilities have improved the overall supplier relationships that customers have with
their suppliers.
Brit et al (1994) discuss the amount of money that can be saved by having funds
transferred electronically from customers to suppliers rather than by cheque. They
claim a company with a turnover of £30m and an average days receivable of 55 days
can reduce the costs of transaction by up to £250,000.
Their conclusion is that significant discounts and increased supplier/customer
relations were achieved through implementation of EDI. Technology can now be used
to show commitment to your suppliers, and so help build a relationship based on trust
with business partners. Supplier/customer relationships will be maximised on all
fronts, and competitive advantage gained.
Brown, Boyett, and Robinson (1994) have studied how increased competition has led
purchasing organisations to cultivate strategic partnerships with suppliers. They have
observed how Japanese business practice of closer collaboration with suppliers has
created advantages throughout Japanese industry. Bought in materials can, in some
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19. cases, account for 50% of total product cost. Advantages for client companies
manifest themselves in the following ways:
1. Costs can be cut.
2. Quality can be improved.
3. Security and timeliness and supply can be more guaranteed.
The advantages for the supplier are that the customer agrees to place large orders for
their products, not just for now, but into the foreseeable future, and on terms that
deliver sustainable profits.
They claim that Total Quality Management (TQM) is no longer a source of
competitive advantage, it is an absolute requirement if companies are going to
compete. ICL, Rank Xerox, and Hoover realized that they had to seek new ways to
extend their quality management. This has been one of the primary drivers of supplier
partnerships as this appeared to offer the opportunity to impose quality specifications
on suppliers.
Brown et al (1994) write that during the late 1980s organisations realised that
managing their supplier bases was accounting for an inordinate amount of time, effort,
and money. In 1990 ICL spent £1b with 9500 suppliers. Only 200 of these were
deemed strategically important. The 200 suppliers were invited to work on a more
cooperative basis in an attempt to reduce their numbers, and influence them more
directly. Brown et al outline three major strands to the "Partnership Sourcing" vision:
1. Supplier Accreditation.
2. Electronic Data Interchange.
3. Joint Strategy Formulation.
Their research at ICL revealed some key facts surrounding "Partnership Sourcing":
Mark Heath Page 19 21/03/2007
20. ▪ There was a psychological contract between purchasers and suppliers,
loyalty was traded for commitment.
▪ Purchasers and suppliers recognised that the quality, openness, and
timeliness of their communications had improved.
▪ Purchasers agreed that one of the major advantages of embarking on a
"Partnership Sourcing" programme were the cost savings that resulted
from a reduced supplier base.
▪ The supplier accreditation system had increased the quality standards of
suppliers.
▪ Most suppliers observed that the partnerships they had entered into were
unequal, and that by revealing information on their costs and relying so
heavily on one purchaser they were potentially open to exploitation.
Brown at al (1994) found that most of the individuals interviewed were positive about
"Partnership Sourcing". However there were also some negative aspects to
"Partnership Sourcing". Most evident was frustration among suppliers that the volume
of business they were experiencing was not increasing as rapidly as they had
expected, and was a possible source of conflict. Purchasers recognised this, and
responded by saying that increases in sales volume was not guaranteed, partnerships
merely presented potential opportunities.
Some suppliers were alarmed that while they were expected to be open, honest, and
candid with their purchaser, this was not always reciprocated. Purchasers were not
alway inclined to single source, therefore not reassuring suppliers of future orders. An
example of single sourcing is Rover and Rank Xerox, they did use single sources but
found backup suppliers.
The studies found there was a concern shared by both customers and suppliers, and
purchasers, that of cost. Partnership Sourcing is expensive, and only works when both
partners view themselves as net beneficiaries. The problem Brown et al (1994)
encountered was on how they calculate a return on their investment in the partnership.
In calculating the risks involved in partnerships it is important to note that the risks
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21. for the supplier are often much greater than for the customer. Brown et al (1994) note
that generally the supplier is the smaller organisation, and is highly dependent on the
purchaser. The research suggests this form of partnership is rarely instituted between
equals. The purchaser is usually dominant. The result of this is that some suppliers
who have been invited to become partners have declined the opportunity. They feel
that unequal partnerships are open to abuse.
Brown et al (1994) concludes that "Partnership Sourcing" has benefits in the long
term. However the biggest threat to it's success is the western culture of adversarial
behaviour. There exists a lot of mistrust in supplier partnerships. More than one
respondent to Brown et al's (1994) survey admitted that as suppliers they tended to
disclose only ambiguous or insignificant information on costs. Volkswagen admitted
to courting suppliers as partners only to help force down prices later. Brown et al
(1994) believe it is such examples, entrenched attitudes, lack of trust, occasional
instances of blatant opportunism, that make it impossible to say whether "Partnership
Sourcing" is here to stay, or a temporary fad.
McIvor, McAleer, and Humphreys (1998) studied changes in the relationship between
European car makers and their suppliers. With excess production capacity and a poor
outlook for car sales, the European car industry requires structural changes to balance
supply and demand. The globalisation of the car industry is affecting the European car
makers. The global players such as GM, and Ford have a cost advantage over their
European based rivals who are trapped in a high cost base. This has led to
manufacturers reappraising their suppliers, leading to more collaborative
relationships in areas such as new product development, supplier development, and
information sharing on a range of issues.
McIvor et al (1998) compare manufacturing plants in the UK, US, and Japan. Their
conclusion was that the competitiveness of the Japanese car industry owes much to
the nature of the relationship between the car assemblers and suppliers. Toyota and
Nissan rely on suppliers for full product design and manufacture. Successful
Mark Heath Page 21 21/03/2007
22. relationships with suppliers result in lower costs, higher quality, and greater
innovation.
"Japanese manufacturing industry owes its competitive advantage and
strength to its subcontracting structure" (Ministry of International Trade
and Industry, 1987) (p.89).
Reducing the number of suppliers is viewed by McIvor et al (1998) as a prerequisite
for improved and collaborative supplier relations. Peugeot and Citroen intend to cut
their supplier base of 900 in half by the end of the century. Other organisations are
planning similar moves.
The European car makers are now realising the benefits of supplier involvement at an
early stage in the product development process. McIvor et al (1998) view this as not
surprising considering how dependent manufacturers are on suppliers. For example,
purchased materials frequently account for 60% or more of the total product cost
(Dobler et al 1990), and 50% of the manufacturer's quality costs can also be traced to
purchased materials.
Partnership Sourcing has fundamentally changed the way in which companies do
business, involving factors such as trust, commitment, and information exchange. In
general partnerships are created for product ranges that are of strategic importance to
the business. McIvor et al (1998) found information flows were multidirectional in
partnerships, versus unidirectional from customer to supplier.
McIvor et al (1998) quotes a study by Sako et al (1994) in which it was investigated
whether European firms were adopting true JIT delivery. It was found that European
supplier's batch sizes were seven times as large, and the delivery sizes were four times
as large as similar products in Japan. This observed gap between production and
delivery batch sizes supports the argument that JIT transfers the responsibility from
customer to supplier, and that collaborative relationships are initiated for the benefit
of customers only.
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23.
McIvor et al (1998) concludes that car makers have begun to develop closer
relationships with suppliers rather than pursue the alternative of financial ownership
via vertical integration. Car makers are seeking to consolidate and reduce the number
of direct suppliers, they are developing more collaborative relationships with these
suppliers. This requires a significant change in attitude from traditional adversarial
relationships to collaborative. McIvor et al (1998) state that their studies suggest that
car makers and suppliers have some way to progress before they perceive themselves
as partners. Suppliers are implemented on rather than jointly involved in designing the
processes with their customers. Purchasing managers have found it difficult to adapt
to the new ethos of openness with suppliers. However McIvor et al (1998) ends on a
positive note, citing Chrysler's relationship with its suppliers as an example of how
Western companies can work as partners to find ways of lowering costs and sharing
the savings. Whilst the western approach does not match exactly the Japanese system
of subcontracting, a similar approach is being adopted and developed that is more
suited to traditional western business relationships.
Burnes and New (1997) discuss how Partnership Sourcing rhetoric is running far
ahead of reality. They are concerned that Partnership Sourcing is often described in
simplistic terms, and true benefits are often hard to achieve. They suggest that one of
the reasons for this is that all supplier development initiatives tend to be treated in the
same casual manner. Burnes and New et al (1997) offer a framework of three
complementary strategies for customersupplier relationships.
Table 1. Model of customer relations.
Model Mechanism for
supply chain
improvement.
Focus Key
requirements
Key metaphor
Model 1
Partnership and
cooperation to
eliminate waste at
interface
Relationship Trust Marriage
Mark Heath Page 23 21/03/2007
24.
Model 2
Supplier development
for technology
transfer from
customer to supplier.
Knowledge/S
kill
Communication Paternalism
Model 3
Best practise firms
work with best
practise firms:
survival of the fittest.
Performance Strategic clarity
Evolution/che
mical kinetics
Source: Burnes & New (1997, p.378)
Model 1 represents the standard model of partnership sourcing, firms working
together to remove waste generated at the interface between customer and supplier
through adversarial behaviour and improving the communication of demand forecasts
and other planning information. Model 2 represents supplier development. Large
powerful firms with plentiful resources assist the performance of less resourceful
suppliers. Model 3, Burnes and New describe this as effective partnerships driven by a
process of "Darwinian" evolution. Firms independently pursue best practise and
survive by becoming "fitter" trading partners as a result. This model helps explain
why the scenario can exist where customers and suppliers maintain long term
beneficial relationships without necessarily developing formal partnerships.
Burnes et al (1997) highlight the importance of fitting customer/supplier relationships
into one of the above models. For instance, trying to develop model 3 suppliers would
be a waste of resource, as they are already moving towards, or have achieved, best
practise. Burnes and New et al (1997) claim that the reason why so many suppliers
seem disillusioned with partnership sourcing is that companies try to run model 1 and
model 2 in parallel. Both models have different areas of focus. Model 1 should be
cooperative, with both parties changing their ways of working. Model 2 is less
cooperative, requiring the customer to act more as a consultant. The skills and
resources required to implement each model will be different. Burnes and New et al
(1997) conclude that suppliers and customers can, and should, work together to
improve performance. However they warn that both supplier and customer must
accept that "there is more than one way to skin a cat".
Mark Heath Page 24 21/03/2007
25.
Lamming (1996) developed two strategies for supplier development, cascade and
intervention. The cascade strategy involves passing the customer's ideas and
philosophies down the supply chain via the partner and their suppliers. Lamming
describes the concept as a pyramid, with the customer sitting at the top, and the
policies being washed down the pyramid from high up. The alternative is the
intervention method, based on the belief that the customer can intervene in the
suppliers business operations to bring about change for the better. The cascade
strategy has clear potential as a method for eliminating weak areas and rationalizing
the supply bases. The intervention method is more of a paternalistic method, and
nurtures suppliers to improved levels.
Harland, Lamming, and Cousins (1999) studied the concept of supply chain
management and found that the purchasing function is found wanting when it is
required to move to the strategic level of business. Skill levels are found to languish at
clerical levels, and these limitations prevent purchasing from breaking through to a
strategic level.
This literature review provides the study with models on the implementation of
partnership sourcing, and provides theories of how "Partnership Sourcing" can create
competitive advantage. The following analysis tests these theories and models in the
search for evidence of competitive advantage.
Mark Heath Page 25 21/03/2007
26. Chapter 3
Methodology.
Two methods of data collection were employed to test the hypothesis "Successful
partnership sourcing gives companies a competitive advantage". Primary data was
collected using a questionnaire, and secondary data was used from the relevant
"Partnership Sourcing Limited" case studies.
As discussed in the previous chapter, Merli's (1991) definition can be used to identify
areas in which partnerships can create competitive advantage. These areas were
identified as:
1. Costs
2. Service and Delivery.
3. Quality
4. Innovation
Primary data was collected using a questionnaire based on the above four areas. It was
decided to send a copy of the questionnaire to the companies that were involved in
"Partnership Sourcing Limited" case studies. There were three reasons why the
sample was limited to these organisations:
1. The limited budget of the study meant that a large sample could not be
targeted with questionnaires.
2. "Partnership Sourcing" is still not commonly found within many
organisations. Instead of sampling companies that did not understand
the concept, it was decided to sample organisations that already had
partnering arrangements.
3. The organisations targeted had already discussed openly and in length
their partnering experiences. These companies would be more
Mark Heath Page 26 21/03/2007
27. prepared to return the questionnaire and be involved in another study
on "Partnership Sourcing".
In total 45 companies were involved in the "Partnership Sourcing Limited" case
studies, research through company websites, and product packaging resulted in
addresses for 29 of these companies. These 29 organisations were targeted with
names of individuals included in the case studies targeted as the primary contacts for
the questionnaires. There was no discrimination between suppliers and customers at
this point in the study, both categories received the same the questionnaire. The
sample was taken from a cross section of industries, with representatives from
technology, healthcare, automotive, electronics, banking, print and utility sectors
The questionnaire was designed around Oppenheim's (1966) writings on likert scales.
The attitude to each question was measured on a scale from zero to a maximum score
of four. The higher the score the more positive the response.
Table 2 Likert scale scores on questionnaire.
Score Classification
0. No Reductions/Not Used/No Improvement/No Contribution.
1. Small Reductions/Used on some projects/Slight Improvement/Small Contribution.
2. Adequate Reductions/Usually used/Adequate Improvement/Adequate Contribution.
3. Good Reductions/Used to a large extent/Good Improvement/Active Contribution.
4. Excellent Reductions/Always Used/ Excellent Improvement/Large Contribution.
This next section of the methodology shows an example of each question that was
included in the questionnaire, and provides reasoning for its inclusion. The writer
designed all questions used in the questionnaire.
Section A of the questionnaire looked at the costs involved in a supply chain and how
partnering can assist in the reduction of these costs.
Mark Heath Page 27 21/03/2007
28. Section A Costs
Q1) Did the partnership enable the client company to reduce costs of products/services sourced from
the supplier through a reduction in labour costs?
Excellent
Reductions
Good
Reductions
Adequate
Reductions
Small
Reductions
No
Reductions
Question one aims to find the impact on costs of outsourcing certain operations. Non
skilled labour rates at the subcontractor will usually be lower than skilled labour rates
at the customer. This question aims to highlight the impact of this concept.
Q2) Did the partnership enable the client company to reduce costs of products/services through
exploitation of the suppliers core competencies?
Excellent
Reductions
Good
Reductions
Adequate
Reductions
Small
Reductions
No
Reductions
Question 2 highlights one of the key reasons for developing partnerships with
suppliers, making use of the supplier organisations expertise to the customers
advantage. This may involve specialist machinery, or in the service industries a
certain amount of knowledge capital can be classed as a core competency.
Mark Heath Page 28 21/03/2007
29.
Q3) Did the partnership reduce the cost of quality, i.e. self certification reduce costs of auditing and
checking for quality?
Excellent
Reductions
Good
Reductions
Adequate
Reductions
Small
Reductions
No
Reductions
Question 3 aims to discover how closer supplier partnerships increase levels of trust
and allow suppliers to deliver product to the point of delivery with the minimum of
auditing, and therefore reducing the need for quality inspectors to be involved.
Q4) To what extent did the partnership use lifetime costing techniques to predict future costs and yield
satisfactory returns for supplier?
Always
used.
Used to a
large
extent.
Usually
used.
Used on
some
projects.
Not Used.
In examples of Japanese supplier partnerships client and supplier companies openly
discuss and share details of costs and profits. Suppliers are allowed to make profits
Mark Heath Page 29 21/03/2007
30. that make the business sustainable, but a commitment to drive down costs must be
made. An open book costing process during the R&D stage can identify areas of high
cost, and engineers from supplier and clients, working together, can look to reduce
these costs, and eliminate work that may be unecessary or duplicated.
Section B of the questionnaire concentrate's on the service and delivery issues of
partnerships.
Section B Service/Delivery
Q5) To what extent did the partnership reduce inventory at the customer?
Excellent
Reductions
Good
Reductions
Adequate
Reductions
Small
Reductions
No
Reductions
This question aims to find out how successful the partnership was at reducing
inventory. With the advent of JIT, and KANBAN systems, it is essential to provide
partners with forecasts of demand, and detailed delivery schedules. If this improved
communication is successful, inventory at the customer should fall, and the supplier
should be able to better plan the use of resources.
Mark Heath Page 30 21/03/2007
31. Q6) Did the suppliers ability to respond quickly to changes in volume and mix improve?
Excellent
Improvement
Good
Improvement
Adequate
Improvement
Slight
Improvement
No
Improvement
A reduction in inventory at the customer means an increased risk in terms of losing
flexibility, and an ability to quickly respond to customer demands. To minimise this
risk the supplying partner needs to be able to provide a high mix of product, and in
very differing volumes.
Section C Quality
Q7) To what extent did the number of rejections (due to poor quality) decrease due to formal
partnership arrangements?
Excellent
Reductions
Good
Reductions
Adequate
Reductions
Small
Reductions
No
Reductions
Section C tackles the benefits that should come as a result of supplier partnerships.
Question 7 attempts to analyse the bottom line of quality, rejections. When suppliers
and clients work together they have the opportunity to dicuss at the time of design,
any areas they may be a problem in terms of quality, clients will better understand the
capabilities of their suppliers. As a result of this the supplier should deliver less sub
standard product.
Mark Heath Page 31 21/03/2007
32.
Q8) To what extent did the supplier contribute to the R&D stage of product/service design?
Large
Contribution
.
Active
Contribution
.
Adequate
Contribution
.
Small
contribution.
No
contribution.
Studies of Japanese Partnership programmes show that collaboration on R&D to be
one of the areas where the concept has been most successful. When client and supplier
companies work together on R&D elements such as design, quality, cost, and
duplication are improved.
Q9) By involving the supplier at the design stage, did the quality of the final product/service improve?
Excellent
Improvement
Good
Improvement
Adequate
Improvement
Slight
Improvement
No
Improvement
Question 9 takes is the final stage in the quality section. It asks the vital question, did
quality improve due the more collaboration on design.
Mark Heath Page 32 21/03/2007
33.
Section D Innovation
Q10) To what extent did the partnership reduce lead times from product/service design to
implementation?
Excellent
Reductions
Good
Reductions
Adequate
Reductions
Small
Reductions
No
Reductions
Section D concentrates on Innovation. Partnering theory tells us that by closer
collaboration between client and customer, more innovative working practises and
products will be discovered. Supplying partners will have the confidence to approach
customers with new ideas about there products. By working as partners getting new
product to market should be quicker, and therefore create a first mover advantage for
the partnership. This question attempts to emphasise how well this theory works in
practise.
Section E Option to expand on your answers (continue on reverse if necessary)
Mark Heath Page 33 21/03/2007
34.
Section E gives the respondent an opportunity to expand and explain in detail any
issues they feel are relevant the questionnaire.
Section F Please provide contact details if you are willing to be involved in a either a telephone or face to
face interview on Partnership Sourcing.
Name and Address Telephone No
eMail Address
Type of Interview? Please tick box.
Face to Face
Post Code: Telephone
Section F gives the respondent the opportunity to provide contact detail should they
wish to be involved further in any research that is conducted.
Likert scales were used on all questions. This gives a more detailed response than a
simple Yes/No answer, allowing the respondent to demonstrate their opinion more
accurately. It is difficult to precisely measure certain aspects such as cost, and
inventory reductions in percentage terms. It was therefore decided to offer five
catergories of opinion, from "no reductions", through to "excellent reductions".
See Appendix for an example of a completed questionnaire.
Mark Heath Page 34 21/03/2007
35.
A Microsoft Excel database was constructed with postal details of the sample. This
was "mail merged" with Microsoft Word to provide a personalised covering letter
(see appendix ) .
The opening paragraph of the letter introduced the recipient to the nature of the
research, how they were identified as having a role to play in the research, and
assurances that all information disclosed will remain confidential. The second
paragraph explains the layout of the questionnaire, and instructions of how to
complete each question.
To maximise the response from the sample a stamped addressed envelope was
included with every questionnaire to return the completed forms in. An added
incentive of a free copy of the report on completion, and a free interview to discuss
the findings for all participants in the survey was also used as an added incentive.
In total 29 questionnaires were sent out to the participating organisations. 9 were
returned completed.
Secondary Qualitative data was collected through purchasing a selection of case
studies from "Partnership Sourcing Limited". These case studies give details of how
partnerships were implemented, managed, and problems encountered and overcome.
Chapter 4
Results
4.1 Results of Primary Data Collection.
Question 1
Mark Heath Page 35 21/03/2007
36. The results from question 1 show that Partnership Sourcing has been reasonably
successful at reducing costs by making use of supplier's lower labour costs.55% of the
respondents show good reductions or better, whilst 36% claim to have achieved
adequate reductions.
Question 2
Again, as in question 1, 78% of the respondents claim to have achieved good cost
reductions or better through exploitation of the suppliers core competencies. The other
22% of the respondents achieved adequate costs reductions.
Question 3
67% of the respondents achieved good reductions or better in respect of the cost of
quality. 11% achieved adequate reductions, whilst 22% benefited from only small
reductions.
Question 4
Mark Heath Page 36 21/03/2007
37. 66% of the respondents used lifetime costing techniques, the rest of the respondents
(34%) did not engage in open book costing programmes.
Question 5
56% of the respondents achieved excellent reductions in inventory at the customer,
whilst 33% achieved good reductions.
Question 6
The results of question 6 are in line with the results for question 5. 56% of the
respondents claim the suppliers achieved "excellent improvements", whilst 11%
demonstrated "good improvements". None of the respondents reported "no
improvement".
Mark Heath Page 37 21/03/2007
38. Question 7
56% of the respondents claim to have achieved "good reductions" or better, in the
number of rejections due to poor quality. 22% showed no improvement.
Question 8
The results of question 8 where evenly spread over all the available responses.
However the largest response, 34%, claimed suppliers made a "large contribution" to
the R&D stage of products development.
Question 9
45% of the respondents claim that partnership sourcing provided "adequate
improvements" in terms of improving the quality of the final product by involving the
supplier at the design stage. 22% gain "good improvements", and 11% "excellent
improvements".
Mark Heath Page 38 21/03/2007
39. Question 10
56% of the respondents achieved "good reductions", and 22% achieved "excellent
reductions", in lead times from product design to implementation?
4.2 Primary data results by questionnaire section
This part of the analysis examines the questionnaire responses for each section, giving
an indication of opinion on each section.
Section A Costs Results Matrix
Respondent #
Questio
n
1 2 3 4 5 6 7 8 9 Total
Respondent
Type
C C S S C C C S S
1 3 3 2 3 3 2 1 2 3 22(36)
2 2 3 3 3 3 3 2 4 4 27(36)
3 2 3 2 1 3 4 1 3 4 23(36)
4 0 2 0 2 2 3 1 0 3 13(36)
Total 7 11 7 9 11 12 4 9 14
85(144
)
C = Customer S = Supplier
The total score available for section A is 144, the matrix demonstrates a total score of
85 (59%). The lowest score was 13 out of a possible 36, by far the most negative
response in section A. There is no clear distinction between the response from
suppliers and clients in this section. The response to questions 13 is very positive,
with most respondents claiming to have achieved good costs reductions. However
Mark Heath Page 39 21/03/2007
40. question 4, which refers to "lifetime costing techniques" achieved very negative
responses and scored the lowest response in section A.
Mark Heath Page 40 21/03/2007
41. Section B Service/Delivery Results Matrix
Respondent #
Questio
n
1 2 3 4 5 6 7 8 9
Tota
l
Respondent
Type
C C S S C C C S S
5 3 4 3 0 4 4 3 4 4
29(36
)
6 2 4 4 1 4 4 2 4 3
28(36
)
Total 5 8 7 1 8 8 5 8 7
57(72
)
C = Customer S = Supplier
The total score for section B was 57 out of a possible 72 (79%). Both questions
achieved high scores. Section B showed the most positive response, indicating that
Partnership Sourcing was most effective at improving the service/delivery aspects of
business. However, respondent four, stands out in the survey, giving this section a
score of 1 out of a possible 8.
Section C Quality Results Matrix
Respondent #
Questio
n
1 2 3 4 5 6 7 8 9 Total
Respondent
Type
C C S S C C C S S
7 1 3 0 0 3 4 2 3 4 20(36)
8 2 4 1 1 4 2 3 0 4 21(36)
9 2 4 1 2 3 2 2 0 3 19(36)
Total 5 11 2 3 10 8 7 3 11
60(108
)
C = Customer S = Supplier
Section C, quality, scored 60 overall out of a possible 108 (56%). All three questions
were very similar in their total scores, however there was a large spread of scores
from different respondents, ranging from a low score of 2, to a high score of 11. Three
Mark Heath Page 41 21/03/2007
42. of the lowest scores came from respondents who are on the supply side of
partnerships, indicating that they did not see any benefits from Partnership Sourcing
in terms of quality.
Mark Heath Page 42 21/03/2007
43. Section D Innovation Results Matrix
Respondent #
Questio
n
1 2 3 4 5 6 7 8 9
Tota
l
Respondent
Type
C C S S C C C S S
10 2 4 3 0 3 3 3 4 3
25(36
)
Total 2 4 3 0 3 3 3 4 3
25(36
)
C = Customer S = Supplier
Section D was centred on Innovation. The total score for all respondents was 25 out of
a possible 36 (69%). This indicates that Section D, Innovation, was the second most
effective area where partnership sourcing played a role. However respondent four
scored this section with a zero, against most of the other respondents replying with a
score of three or four.
Total Scores per Case #
Respondent #
1 2 3 4 5 6 7 8 9
Tota
l
Respondent
Type
C C S S C C C S S
Total Score 19 34 19 13 32 31 19 24 35 226
Possible
Total
40 40 40 40 40 40 40 40 40 360
C = Customer S = Supplier
Overall the survey scored 266 points, out of a possible 360 (63%). This indicates that
over the four areas studied, partnership sourcing is viewed as successful. Five out of
the nine respondents scored over 24 out of 40. Three scored 19, and one respondent
scored 13 out of a possible 40. At this stage of general analysis there seems to be no
difference of attitudes to partnership sourcing between suppliers and clients.
4.3 Results of secondary data collection.
Mark Heath Page 43 21/03/2007
44. The results of the primary data collection from respondents can be correlated with the
corresponding “Partnership Sourcing Limited” case studies to enable a more detailed
analysis of specific cases. This section takes the results from the questionnaire and
relates it to the qualitative data found in the corresponding case study. This enables a
more detailed analysis to be made of each specific case. A high score in a particular
section can be related to part of the qualitiative data, and a conclusion drawn upon
which has more meaning.
This first case study was the only situation where a response was received from both
the supply (respondent 9) and client side (respondent 1) of the partnership.
Respondent 1 & 9 – Analysis of case study.
Questionnaire results:
Section Respondent 1 Respondent 9 Total Possible
Respondent
Type
C S
A 7 14 16
B 5 7 8
C 5 11 12
D 2 3 4
Total 19 35 40
C = Customer S = Supplier
Analysis of the above results provides the study with a valuable piece of information.
The supply side view the partnership as being far more successful than does the
customer.
In this case it was the supplier who led the formal partnership arrangements. By
benchmarking against systems in other industries the supplier was able to develop IT
systems that gave the company a competitive advantage over other suppliers. The IT
system was used to create formal partnerships with three major customers. A bar code
system for product identification was implemented, and replenishment orders were
Mark Heath Page 44 21/03/2007
45. transmitted electronically. The supplier claims to have reduced the customer's costs of
acquisition by 20%, and reduced lead times for product from 8 weeks to 5 days. The
administrative side of the partnership was driven by the software system, therefore
reducing errors and costs.
The partnership was driven and led from directors on both sides of the partnership.
Monthly meetings were held between directors to discuss production and supply
issues.
The disparity in views between supplier and client can be explained as it is in the
supplier's own interest to promote their success at partnerships. They have created a
software system that in theory gives them a competitive advantage over their
competitors. The customer gave the supplier a reasonable score in section B "Service
/Delivery" which would be directly related to the software system. It is in the other
aspects of partnering, quality, and innovation, that are the weak areas of this
partnership.
Respondent 2 – Analysis of case study.
Section Respondent 2 Total Possible
Respondent
Type
C
A 11 16
B 8 8
C 11 12
D 4 4
Total 34 40
C = Customer S = Supplier
In this case the customer was suffering from capacity constraints which was causing
problems keeping up with demand. The customer looked to suppliers to assist in
increasing capacity. The aim was to outsource noncore operations, developing new
competencies for suppliers, and increasing capacity levels. Partnerships were set up
Mark Heath Page 45 21/03/2007
46. with established suppliers. This involved transferring responsibility for product
research and design from the customer to the supplier. This was done successfully and
as the questionnaire claims to have gained "excellent reductions" in the reduction of
lead times.
The formal partnership arrangements led to the supplier becoming more flexible, and
reducing the inventory at the customer. By developing the supplier's processes and
allowing them to develop new core competencies process improvements were made.
The supplier relocated onto the customer's site to reduce lead times. Improvements in
communications led to improved forecasting and more flexible reactions, leading to a
maximum points score in the questionnaire.
The partnership enabled a reduction in the cost of quality, hence the high score in the
quality section of the questionnaire. In the early stages of the partnership the suppliers
product was being constantly audited. Through closer working relationships this was
reduced to a random audit.
Respondent 3 – Analysis of case study.
Section Respondent 3 Total Possible
Respondent
Type
S
A 7 16
B 7 8
C 2 12
D 3 4
Total 19 40
C = Customer S = Supplier
Two companies less than three years old decided that an approach of Partnership
Sourcing would suit their business needs best. The main goal of the partnership was to
reduce costs and lead times. The supplier's response to section A which concentrated
on costs was weak indicating that the partnership did not succeed in this aspect of its
Mark Heath Page 46 21/03/2007
47. goal. However the supplier increased sales in terms of volume and turnover to the
customer through the partnership approach.
Improved communication through electronic methods such as EDI, and eMail
enabled the supplier to respond quicker to customer demand, and forecast future
demands more accurately. The customer claims that the supplier achieved a score of
"excellent" on their vendor rating system. This success is backed up by high score in
section B of the questionnaire.
The quality of the supply was also excellent, enabling product to be delivered directly
into stock without being inspected. This claim made by the customer is not in line
with the supplier's point of view who gave section C of the questionnaire which was
based on quality a very poor score.
The customer claims that there was significant benefits of the cultural convergence
that happened when the companies entered into formal partnership arrangements.
There was a significant increase in openness between the two organisations. Problem
solving teams were set up to look at how the companies did business together and
how they could reduce costs. However, this is not in line with supplier's views as
expressed in the questionnaire.
This case is the second example of very differing views between supplier and clients.
However in the case of respondents 1 and 9, the supplier had very positive views of
the partnership, and the customer negative views.
Respondent 4 – Analysis of case study.
Section Respondent 4 Total Possible
Respondent
Type
S
A 9 16
B 1 8
Mark Heath Page 47 21/03/2007
48. C 3 12
D 0 4
Total 13 40
C = Customer S = Supplier
In this case a recently privatised organisation has applied the model of Partnership
Sourcing to service industry problems. The customer claims to have made significant
inroads in several fronts in terms of the benefits found of establishing partnerships
with suppliers:
1. By employing open costing policies the customer claims to have reduced
costs by 50%+
2. Reduced stock levels.
3. Higher technical standards through close relationships in terms of design
and development of new product.
4. Quality was improved by open discussion of quality problems.
The customer found that suppliers were sceptical of their reasons for supplier
partnerships. Crossfunctional teams were established to encourage and promote
change.
We can see from the response of the supplier to the questionnaire that once again we
have very differing views on the success of the partnership. The questionnaire results
indicate that the supplier rates the partnership as poor in three of the four areas, where
the customer claims to have made significant advances and improvements in the same
areas. In the areas of costs reduction it appears that "lifetime costing techniques" were
employed to some mild success.
Respondent 5– Analysis of case study.
Section Respondent 5 Total Possible
Respondent
Type
C
Mark Heath Page 48 21/03/2007
49. A 11 16
B 8 8
C 10 12
D 3 4
Total 32 40
C = Customer S = Supplier
The customer in this case has a long tradition of Partnership Sourcing. In the first
approach they found potential partners to be wary, however suppliers quickly found
that the customer was honest in their approaches. To give the partnerships credence
teams were established to assist with supplier development. The customer's high
regard for supplier partnerships is demonstrated in their high response to all sections
of the questionnaire.
The increased confidence that came with the partnerships enabled suppliers to open
satellite facilities near to the customer. This, combined with close scheduled
requirements from the customer, allowed the suppliers to make deliveries directly to
the point of use, every twenty minutes, thus reducing inventory. This is regarded as
highly successful by the customer as indicated in their maximum response in section
B of the questionnaire.
Mark Heath Page 49 21/03/2007
50. Respondent 6 – Analysis of case study.
Section Respondent 6 Total Possible
Respondent
Type
C
A 12 16
B 8 8
C 8 12
D 3 4
Total 31 40
In this case a high volume producer of steel was able to adapt their operation to suit
small daily demands through improved communications. By providing frequently
updated forecasts of demand the producer was able to adapt production to satisfy the
changing requirements of the customer. This is indicated by the maximum score for
section B which was based on "Service/Delivery".
It was also noted that this partnership, through shared knowledge of the final
application, improved the quality of the supply. This is backed up with the relatively
high score for section C on the questionnaire.
Respondent 7 – Analysis of case study.
Section Respondent 7 Total Possible
Respondent
Type
C
A 4 16
B 5 8
C 7 12
D 3 4
Total 19 40
Mark Heath Page 50 21/03/2007
51. This partnership centred around outsourcing noncore IT operations. Technology was
advancing quickly and it was decided that outsourcing to a specialist firm was the
only option if the company wanted a cost effective method of staying up to date with
IT.
People were identified as the main asset of the partnership and the partnership started
with the transferring of over 100 of the inhouse IT team to the new partner. This
enabled the partnership to get up to speed quickly with the needs and demands of the
customer.
Senior staff at the customer identified two major reasons why the partnership was a
success. One was the cultural fit between the two organisations. This helped create a
team spirit and agreed mutual benefits. The second reason why the partnership has
been a success is the attention to detail at contract stage. Performance measures,
quality, cost, and benchmarks were all discussed and agreed upfront so no entity could
claim to have entered the partnership without full knowledge.
One of the main benefits highlighted by the outsourcing partnership was what the
senior staff member at the customer calls "commercialisation". The true cost of IT
was identified instead of being hidden internally within the organisation. True value
for money could be measured and benchmarked. This also created problems at the
customer as people became directly accountable for justifying the cost of IT services.
The partnership has now developed to the extent that they are working together
strategically to move the customer forward.
Respondent 8 – Analysis of case study.
Section Respondent 8 Total Possible
Respondent
Type
S
A 9 16
Mark Heath Page 51 21/03/2007
