Supply chain is becoming more and more complicated, some businesses have more than 150,000 suppliers. With such huge supply base, managing the relationship is more important than ever. The first step of successful relationship management is deciding which type of relationship should be applied. Partnership is not an ordinary business relationship. It requires investment from both parties. In this post, we will guide you to decide whether you should form partnership with the suppliers by assessing the drivers and facilitators of a potential partnership.
What a partnership looks like?
Before deciding on partnership relationship, we must distinguish partnership from other business relationship. Partnership is a serious investment of both parties. It is resource-intensive, not only in the term of money but also information and human resources. In return, it can bring tremendous benefits to the partners.
However, other types of relationship may also bring the benefit without huge expense of partnership. For example, a long-term call off contract, framework agreements or outsourcing contract helps an organisation to cut cost and improve the service level. If the specification is clear and unlikely to change, the price and service level are known, you should better draft up a good contract with specific KPI and SLA. This approach is not costly as partnership, but you and your supplier still like the outcome.
On the other hand, partnership should only be formed to solve the hardest problems, such as reducing costs of strategic items, creating new competitive advantage, or maintaining the stable growth. Douglas M. Lambert call these as the drivers of partnership.
Drivers of partnership
Drivers are the benefits that both parties believe they will be able to realise after forming the partnership. Without partnership, it is impossible to achieve these benefits. Lambert et al lists 4 groups of drivers:
- Asset/Cost Efficiencies: Better collaboration can help to reduce costs in doing business. This reduction must not hamper the quality of the product but give the partners an upper hand in the market. This groups includes:
- Product cost savings
- Distribution cost savings, handling cost savings
- Packaging cost savings, information handling cost savings
- Management efficiency
- Assets utilisation
- Customer service improvement: Partnerships are often expected to increase the customer service by reducing inventory level, higher service level, more accurate information. Customer service improvement can be:
- Improved on-time delivery
- Better tracking of movement
- Better order processing
- Improved cycle times
- Better customer satisfaction
- Process improvement
- Marketing advantage: By forming the partnership, an organisation may get a foot into new market, or access to technological improvement. This group also includes:
- Promotion opportunities (joint promotion with partners)
- Reduced price
- Joint developed new product
- Extended geographical presence
- Innovation opportunities
- Profit stability/growth: This is one of the most common driver for partnership. To a supplier, partnership means that the buyer has a commitment on long-term volumes. Other benefits can be:
- Profit growth
- Market share stability
- Stable sales volume
- Assurance of supply
These drivers should be assessed by the team members from both sides. Then the members of the other side must feedback whether or not they can help to realise the benefits. Both parties mark the drivers based on probability of materialisation of benefits. Finally, they sum the total score of drivers. The higher the score, the more likely that partnership will be formed.
Facilitators of the partnership
The drivers of both parties are very strong. That sounds good, but not enough for the partnership to be success. Now we need to judge whether corporate environments support the implementation of partnership. These environmental factors are known as facilitators. They serve as the foundation for good relationship. In his research, Lambert divides facilitators into two categories: major facilitators and minor ones. The four most important are compatibility of corporate cultures, compatibility of management philosophy and techniques, a strong sense of mutuality, and symmetry between the two parties.
Beyond these four major facilitators, five others remain to be assessed: shared competitors, physical proximity, potential for exclusivity, prior relationship experience, and shared end users. These factors won’t cripple a partnership if they are absent, but where they are present, they deepen the connection.
Same as drivers, both parties must work mutually to score their facilitators. The higher the score, the closer the relationship should be. Finally, partnership can bring the benefits of market consolidation without the burdens of M&A. However, it is still an investment that both businesses must be careful about. The first question that needs to be answer is whether or not you should form a partnership with your supplier. Lambert driver-facilitator framework is a good start.