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SCRC Article Library: Implementation Issues: Developing Collaborative Supplier Partnerships

Implementation Issues: Developing Collaborative Supplier Partnerships

Published on: Jan, 24, 2011

by: Brian Fillard, MBA ‘03 Scott Frahm, MBA ‘03 Amy Mercer, MBA ‘03 Kendyle Scott, MBA ‘03

Implementation Issues

Gather data
Develop a supplier presentation
Develop a purchasing profile
Develop specific negotiable issues
Conduct negotiations
Award the business
Provide joint resources as required
Develop monitoring and evaluation system
Potential risks and pitfalls

When implementing supplier partnerships, firms commonly take either a strategic or reactive approach. In the current business environment firms are trying to migrate from a reactive approach to more of a strategic approach to establishing supplier partnerships. Generally, a strategic approach to collaborative partnerships looks at the entire supply base with a focus on improving specific supplier activities. Reactive on the other hand, is often the result of dedicating resources to repairing problems after they occur. (23) The following table identifies differentiating factors between strategic and reactive supplier development.

  Strategic Supplier Development Reactive Supplier Development
Primary Situation Are resources available to develop a supply base?

Where should these resources be allocated?

What is needed to fix the problem that is occurring at this time?
Primary Objective Improving the entire base of suppliers Fix the problem that has just occurred

Fix a deficiency within the supplier

Scope Ongoing program to develop the entire supply base Ad hoc

Development project of single supplier

Selection Process Market driven analysis of suppliers Driven by problems within the supply base
Time Frame Long-term solutions Short-term ‘band aids”
Drivers of Supplier Development Integrating suppliers

Continuous improvement and supply chain optimization

Identify competitive advantages

Market driven

Collaboration from suppliers that is value added

Missed delivery date

Defects

Poor customer response

Production stoppages due to back order situation

Change a company’s make vs. buy decisions

As firms are moving toward the strategic approach of developing collaborative supplier partnerships, the plan to implement partnerships will focus on this approach. The strategic based process is market driven and focused on improving the overall performance of the supply base.

There are steps that companies can take in order to develop relationships with their suppliers that are founded on trust. As companies move toward a strategic based view of implementing supplier collaboration, having a set process can ensure success. The process must be flexible in that no two situations are the same, however it is important to follow the outline in order to measure success the implementation strategy (24). The following steps detail a process for developing supplier partnerships that will allow a company to reach a high degree of measurable success. The outline is as follows.

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h2. Gather data

First, research the needs of each department in the company. These needs should include levels of service and material needs provided by the suppliers. The process of gathering this data is best accomplished through interviews and reviewing data such as work orders and purchase orders. This step is important in that it will give “buy in” to the organization’s employees and that it provides groundwork when negotiating with suppliers (24). Giving members of the organization buy in will help if any issues arise during the implementation process or duration of the relationship with a given supplier.

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h2. Develop a supplier presentation

Next, seek out both current and potential suppliers that may be better able to fill the company’s needs established through the initial data-gathering phase. Once a list of suppliers has been formed present company ideas and goals in developing these collaborative supplier relations. The major objective of this step is finding suppliers with goals that are similar to the company’s and presenting the partnership proposal to these companies (24).

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h2. Develop a purchasing profile

After identifying possible suppliers, develop a profile that provides potential or current suppliers with a detailed report of both material and service needs. This step gives suppliers honest assessments of what is needed of them and puts them in a better position to formulate a plan that will fit these needs. Also, it gives suppliers a format to develop proposals that will be used in negotiating a collaboration that benefits both companies that are involved (24).

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h2. Develop specific negotiable issues

Then, identify what the company wants, is willing to accept, and thinks supplier needs will be. Using hard facts and figures in addressing these issues helps define where the proposal will benefit both parties involved (24). If there is a feeling that one of the involved parties needs are not being met, or that there is not a perceived mutual benefit, the riskier the collaboration becomes

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h2. Conduct negotiations

At this stage, discuss every service and pricing issue in detail before agreeing to the terms of the collaboration (24). Once negotiations have been conducted, formalize a document that will be the basis of the partnership. As situations in the partnership arise, this contract should be the point of reference to solve any issues. Also at this time, the negotiations should establish clear guidelines about how the information is to be used and what information should and should not be shared. It is essential that all parties understand how information sharing will benefit their operations. If this is not done, one company may not see where they are benefiting from the sharing of information and harbor resentment, resulting in a failed partnership (20).

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h2. Award the business

Once negotiations have ended, it is very important to develop supplier rewards and criteria associated with these rewards. As suppliers meet certain goals, extend the current business dealing and establish new business with these suppliers. Also, the creation of certifications will help define what suppliers are working towards in meeting the terms that your negotiations have identified as critical to a successful collaboration (23).

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h2. Provide joint resources as required

For successful on going relationships, it is vital to provide equipment, personnel, and training when it is required by the supplier. In addition to making resources available to all suppliers, information must be shared with them if they are to meet the organization’s needs and terms of the contract (23).

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h2. Develop monitoring and evaluation system

Finally, a crucial responsibility is to sevelop tools, tasks, reports, and routines that will be used throughout the duration of the relationship. These tools should focus on measurable deliverables such as delivery time and rate of defects. Without evaluation tools to measure success and gauge performance, failure of the entire relationship initiative is likely (24).

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h2. Potential risks and pitfalls

Creating alliances between manufacturers and suppliers requires a great deal of commitment to achieve success. In addition to the problems that arise in the integration of computer software and hardware, there are also issues regarding the hesitation to release confidential information to suppliers. In order for supplier collaboration to occur, companies must let go of the long held belief that in order to succeed you must hold on to propriety information. It has become clear that sharing information with business partners actually promotes success not failure. Lack of trust has actually been cited as the number one barrier to supplier collaboration (20).

Another prominent question in the implementation of collaborative supplier relations is the question of security. As supplier collaboration initiatives have moved towards the Internet, it is critical that the information being transmitted only be seen by those involved in the collaboration effort. If this information were to be accessed by competitors, it could be detrimental to the company’s ability to compete in the marketplace. When implementing supplier collaboration systems, a company must also install security measures that ensure the proper transmission of data and prevent information breaches (21). Several EDI security standards that ensure legitimacy and privacy have been developed by X12, but there is still skepticism among system users. By implementing these standards, users make themselves less susceptible to possible information infringement. Encrypted messages also aid in secure message transmission between suppliers and their customers. By requiring encryption the sender and the receiver have a key in which data is encrypted and decrypted. This guarantees that the message is authentic and that only the intended receiver can decode the message (22).

Overall, the risk of allocating resources towards supplier relationships is fairly high in that over 50% of supplier development initiatives are considered failures (23). The dimension of these failures varies, however the following have been identified as major reasons why these failures occur:

Poor implementation – Many partnerships begin with great intentions, however due to poor planning, lack of focus, or lack of resources the implementation process is not executed.

Poor follow-up – Once the development initiative is executed it is vital that communication with suppliers be maintained in order to see where problems are occurring.

Lack of sharing information and resources with supplier – It is necessary to integrate information systems wherever possible and to make resources available for training.

Culture – It is important to identify corporate cultures and to understand the differences between differing corporate cultures (25).

Lack of trust – As stated before, companies are very apprehensive of providing inside information to companies outside their organization. If proper communication and negotiations are conducted on the front end of the process, this can greatly reduce mistrust between the firm and its suppliers.

Lack of Collaboration – A survey conducted by Purchase magazine showed that 44% of companies had ways to rate their suppliers, but only 47% of them had developed ways to help those companies (26). This study illustrates the fact that companies often say they are focused on developing their suppliers, however they do not always follow through with their stated intentions.

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