Partnership model

2938 Columbia Avenue, Suite 1102 Lancaster, PA 17603 Ph: 717-295-0033 www.Dcenter.com2938 Columbia Avenue, Suite 1102 Lancaster, PA 17603 Ph: 717-295-0033 www.Dcenter.com
Building and Sustaining
Relationships with Trading
Partners in the Supply
Chain
Michael Knemeyer
Assistant Professor of
Logistics
Fisher College of Business
The Ohio State University
knemeyer.4@osu.edu
(614) 292-2507

AGENDA
 Importance of Partnership
 Types of Partnerships
 The Partnership Model
 Drivers
 Facilitators
 Management Components
 Outcomes
 Uses of the Model
 Summary

IMPORTANCE OF PARTNERSHIPS
“Being a good partner has become a key
corporate asset... In the global economy, a
well-developed ability to create and sustain
fruitful collaborations gives companies a
significant competitive leg up.”
Rosabeth Moss Kanter

A partnership is 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 two firms working
together in the absence of partnership.
PARTNERSHIP - DEFINITION

Arm’s Length Type I
Partnerships
TYPES OF RELATIONSHIPS
Joint
Ventures
Vertical
Integration
Type IIIType II

 To gain the advantages of
vertical integration while still
maintaining organizational
independence
 To take advantage of “best in
class” expertise
 To achieve service
improvements
 To gain operational
efficiencies
 To respond to competition
WHY PARTNER?

 Partnerships are costly to implement
 Not all relationships should be
partnerships
 Partnership strategy should be driven
by overall corporate strategy
 Partnership Model developed by The
Global Supply Chain Forum is a tool for
developing and managing partnerships
PARTNERSHIP STRATEGYPARTNERSHIP STRATEGY

WITH WHOM DO WE PARTNER?
Factors to consider:
• Product
• Service
• Quality
• Continuity
• Capacity
• Complexity of
specifications
• Social responsibility
• Supplier’s relationship
with competitors
• Financial stability
• Industry dynamics
• Environmental issues
• Availability of suitable
suppliers
• Supplier also a customer
Factors to consider:
• Innovation and technology
• Intellectual property
• Supply chain process integration
• Minority/women-owned business
• Global presence
• Competitive pricing
• Cost management
• Volume/spend
• Compatibility / strategic alignment
• Access to assets and capabilities
• Impact to cost, quality, delivery, profitability
• Our attractiveness as a customer
StrategicBottleneck
LeverageRoutine
SupplyRisk
Potential to Add Value
Low
Low High
High
Characteristics
• Best value providers
• Respond to price movement
• Several suppliers
• Potential disruption in
replacement
• Some differentiation in
specifications
Characteristics
• Low potential to add value
• Many suppliers
• Standard specifications
• Ease of replacement
• Competitive pressure
• Simple market management
Characteristics
• Low potential to add value
• Few suppliers
• Quality, service issues
• Regulatory requirements
• Non-standard specifications
• Likely to stop production if not
available
Characteristics
• Long-term profitable growth
• Critical to competitive advantage
• Small number of suppliers
• Difficulty of replacement
• Unique specifications
• Focus on development
• Leading edge processes used
Source: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Performance, Third Edition, Sarasota, FL: Supply Chain
Management Institute, 2008, p. 58.

SEGMENTATION STRATEGY
StrategicBottleneck
LeverageRoutine
Potential to Add ValueLow High
SupplyRiskLowHigh
Business Objectives
• Remove risk and vulnerability
• Ensure supply security and quality
• Avoid any potential disruptions
Business Objectives
• Manage risk and vulnerability
• Maximize supply performance
• Develop preferential relationships
• Have close supplier management
Business Objectives
• Remove unnecessary
complexity
• Free up time for other work
Business Objectives
• Obtain major cost savings
• Maximize value
• Create and harness market competition
Result: Supply quality and
continuity
Result: Profitable long-term
growth for both parties
Result: Simplicity and
efficiency
Result: Cost savings and value
maximization
Source: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Performance, Third Edition, Sarasota, FL: Supply Chain
Management Institute, 2008, p. 59.

HOW?
WE NEED A TOOL!!

 Case approach used to develop model
 Focused on member companies “best”
relationships
 Wide range of channel relationships represented
 Model improvements based on usage of the
model over the past few years by member
companies
 Model being used by member and nonmember
companies across a variety of supply chain
relationships
DEVELOPMENT AND REFINEMENT
OF THE MODEL

AT&T Network Systems and Panalpina for freight
forwarding services of telecommunications equipment in the
South American market.
UPS and a manufacturer for national distribution of
industrial products.
McDonald's and Martin-Brower for the distribution of
products and supplies to franchisees and company stores.
McDonald’s and OSI for the supply of hamburger patties to
distributors.
McDonald's and Coca-Cola for the supply of beverages to
McDonald’s restaurants.
Xerox and Ryder for the delivery, installation, and removal of
copiers.
Xerox and Ryder for inbound transportation services to
Xerox’s manufacturing locations.
Whirlpool and ERX for the warehousing and distribution of
Whirlpool appliances in six of eight Quality Express locations.
Whirlpool and KP Logistics for the warehousing and distribution
of Whirlpool appliances in one of eight Quality Express locations.
Whirlpool and TRMTI (Leaseway) for the warehousing and
distribution of Whirlpool appliances to dealers in one of eight
Quality Express locations.
3M and Yellow Freight for LTL outbound transportation services.
Target and 3M- seven distinct relationships involving the two
corporations, and six 3M divisions that sell to six Target
departments.
Goodyear and Yellow Freight for the shipment of tires.
Goodyear and Sea-Land Services for ocean carriage.
Texas Instruments and Photronics for the supply of a critical
component.
CSX and Allied Signal for logistics services.
RELATIONSHIPS USED TO
DEVELOP THE MODEL

RELATIONSHIPS USED TO
REFINE THE MODEL
Wendy’s and Marzetti for the supply of sauces to Wendy’s
restaurants.
Wendy’s and Sysco Corporation for national distribution
of food service products.
Wendy’s and Pactiv for the supply of packaging materials.
Wendy’s and Pilgrim’s Pride for the supply of chicken to
Wendy’s restaurants.
Wendy’s and IFG for the distribution of food service
products to Latin America.
Wendy’s and Dopaco for the supply of packaging
materials.
Wendy’s and Schreiber for supply of cheese to Wendy’s
restaurants.
Wendy’s and Dairfair for the supply of dairy products.
Wendy’s and Crest Uniforms for the supply of crew
uniforms.
Lucent and Graybar for the distribution of electrical components.
Lucent and Ryder for distribution services.
Colgate Palmolive and FMC for the supply of biopolymers.
Colgate Palmolive and Zeller Plastik for the supply of packaging
materials.
Colgate Palmolive and Huber for the supply of silica and abrasives.
Colgate Palmolive and Huhtamaki for the supply of packaging
materials.
Xpedx and Commercial Printing and Imaging Papers an internal
International Paper relationship for distribution services.
Approaching
100
relationships!

EXPECTATIONS

Drivers
Compelling reasons to
partner
Facilitators
Supportive environmental
factors that enhance
partnership growth
Components
Joint activities and processes that build and
sustain the partnership
Outcomes
The extent to which performance
meets expectations
Feedback to:
Decision to
create or adjust
partnership



Components
Drivers
Facilitators
Drivers set
expectations
of outcomes
THE PARTNERSHIP
MODEL

 Compelling reasons to partner
 Expected benefits from expanding a relationship
 Improvement in asset/cost efficiencies
 Improved customer service
 Enhanced marketing advantage
 Profit growth/stability
 The stronger the drivers, the more chance of a
successful partnership
PARTNERSHIP DRIVERS

Example: Wendy’s lowered channel costs by partnering with a distributor.
Drivers are strategic factors which result in a competitive advantage and which help to determine the
appropriate level of a business relationship. For each driver, circle the boxed number which reflects the
probability of your organization realistically achieving a benefit through forming a tighter relationship.
ASSESSMENT OF DRIVERS
Probability
No Chance Certain
ASSET/COST EFFICIENCY 0% 25% 50% 75% 100%
1. What is the probability that this relationship will substantially reduce
channel costs or improve asset utilization?
-product costs savings
-distribution costs savings, handling costs savings
-packing costs savings, information handling costs savings
-managerial efficiencies
-assets to the relationship
If you rated efficiencies in the shaded area and if the advantage is either a sustainable
competitive advantage or it allows your firm to match benchmark standards in your
industry, circle the 1 to the right.
2 3 4 5
1
1

Drivers
Compelling reasons to
partner
Facilitators
Supportive environmental
factors that enhance
partnership growth
Components
Joint activities and processes that build and
sustain the partnership
Outcomes
The extent to which performance
meets expectations
Feedback to:
Decision to
create or adjust
partnership



Components
Drivers
Facilitators
Drivers set
expectations
of outcomes
THE PARTNERSHIP MODEL

 Environmental factors which increase the
likelihood of partnership success
 Facilitators possible in all relationships:
 Corporate compatibility
 Compatible management philosophy and
techniques
 A strong perspective of mutuality
 Symmetry between the two parties
PARTNERSHIP FACILITATORS

 Additional facilitators which may be
present and which strengthen the
likelihood of success:
 Shared competitors
 Physical proximity
 Potential for exclusivity
 Prior relationship experience
 Shared end users
PARTNERSHIP FACILITATORSPARTNERSHIP FACILITATORS

ASSESSMENT OF FACILITATORS
Example: A conservative company’s culture may not mesh smoothly with a more liberal company’s
culture thus causing possible challenges for the two companies efforts to form a
partnership.
Facilitators are factors which provide a supportive environment for the growth and maintenance of a
partnership. For each facilitator, indicate the probability of it being a factor in this relationship, by circling
one of the boxed numbers
Probability
No Chance Certain
CORPORATE COMPATIBILITY 0% 25% 50% 75% 100%
1. What is the probability that the two organizations will mesh
smoothly in terms of:
(a) CULTURE?
-Both firms place a value on keeping commitments
-Constancy of purpose
-Employees viewed as long term assets
-External stakeholders considered important
(b) BUSINESS?
-Strategic plans and objectives consistent
-Commitment to partnership ideas
-Willingness to change
1 2 3 4 5

ADDITIONAL FACTORS (BONUS POINTS) Yes No
5. Do you have shared competitors which will tend to unite your efforts?
Yes No
6. Are the key players in the two parties in close physical proximity to
each other?
7. Is there a willingness to deal exclusively with your partner? Yes No
1 0
1 0
1 0
8. Do both parties have prior experience with successful partnerships? Yes No
1 0
9. Do both parties share a high value end user? Yes No
1 0
ASSESSMENT OF FACILITATORS

DRIVER POINTS
8-11 Points 12-15 Points 16-24 Points
8-11
Points
Arm’s Length Type I Type II
FACILITATOR
POINTS
12-15
Points
Type I Type II Type III
16-25
Points
Type II Type III Type III
PROPENSITY TO PARTNER

 Managerial controllable elements of a
partnership
 Partnerships normally include the following
elements or components:
 Planning
 Joint operating controls
 Communications
 Risk/reward sharing
 Trust and commitment
 Contract style
 Expanded scope
 Financial investment
PARTNERSHIP COMPONENTS

 Not all partnerships are the same
 Components can be executed and managed
at different levels
 The combination of drivers and facilitators
determine the level of partnering
 Three levels of partnering exist:
 Type I - components are present at a low level
 Type II - components are present at a medium level
 Type III- components are present at a high level
IMPLEMENTING PARTNERSHIPS

PARTNERSHIP COMPONENT
LEVELS

PLANNING

Partnership
Component
Low Medium High
•Style
•Level
•Content
•On ad-hoc basis
•Focus on projects or
tasks
•Sharing of existing
plans
•Regularly scheduled
•Focus on process
•Performed jointly,
eliminating conflicts
in strategies
•Systematic: Both
scheduled and ad-
hoc
•Focus is on relationship
•Performed jointly and at
multiple levels, including
top management; objective
is to mesh strategies; each
party participants in other’s
business planning

 Factors which reflect the performance of
the partnership
 Global performance outcomes
 Enhancement of profits
 Leveling the flow of profits over time
 Process outcomes
 Improved service
 Reduced costs
 Competitive Advantage
 Positioning
 Share
 Knowledge
PARTNERSHIP OUTCOMES

 Partnerships are not appropriate in all
situations
 General guidelines exist to determine if a
partnership is appropriate
 Different settings require different types of
partnering
 The appropriate partnership can improve
performance of both firms
 Partnerships require time and effort
PARTNERSHIPS - SUMMARY

USES OF THE PARTNERSHIP
MODEL Evaluate a potential new partnership
 Analyze a portfolio of relationships
 Diagnose relationships
 Increase specific performance aspects of
relationships
 Structured approach to relationship
management

THINGS TO WATCH FOR IN
WORKING THROUGH THE MODEL
 People have a tendency to want a Type III
relationship.
 Marketing and sales representatives on the
supplier side tend to rate things very
positively.
 In an on-going relationship, those involved in
day-to-day operations tend to rate things
lower than does management.
 Make sure to establish action plans (time
frames and responsible parties) for achieving
drivers.

QUESTIONS

Partnership model

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