Getting Closer and Nicer: Partnerships in the Supply Chain

Getting Closer and Nicer: Partnerships in the Supply Chain Paul Matthyssens and Christophe Van den Bulte T HE BUYER OF A GERMAN &CtrOniCS company recently declared that ‘following an obvious change in attitude taking place with regard to openness and co-operation between companies, we will have to modify the relationship with our suppliers substan- tially’. He presented the so-called SUCCESS programme as an answer to this challenge. SUCCESS stands for Supplier Customer Co-operation to Effi- ciently Support mutual Success. It is the formation of suppliers (Figure 1).This is perhaps best illustrated intercompany, cross-functional teams which tackle by the practices of the British and American car aspects of entrepreneurial concern, such as quality, manufacturersm4 They tried to realize a minimal cost logistics, R & D and production. The intent is to bring per unit for components and consequently used considerable increases in productivity for both tactics that are characteristic of tough negotiators. partners. Such a co-operative approach will lead to Playing different suppliers off against each other, much higher profit increases than could be realized continuously threatening ‘backward integration’, via individual actions, he concluded. using shadow cost calculations and refusing to sign In the past decade the industrial customer has contracts which extended over more than 1 year, radically changed. This inevitably leads the most were common practices. Moreover, a low price was responsive suppliers to change their marketing not enough. They also demanded service, total strategy. This article aims at introducing general consistency and high production flexibility. When a managers to these developments. First the most supplier wanted to sell a system on which he could important changes in buying behaviour during the earn a considerable margin, they did not hesitate to 1980s and early 199Os-increased co-operation, out- ‘reverse engineer it’, look for suppliers for the sourcing, and globalization-are sketched and ana- subcomponents and reassemble the system from the lysed. Next, we propose relationship marketing as a parts. In the case of breakthrough innovations they suitable response to these changes and we discuss even forced their suppliers to license the patent to the emerging areas to which suppliers should pay competitive suppliers. special attention during the 1990s. This model was also widely applied outside the car manufacturing sector. Heinz, for instance, always exacted price reductions from its four bottle suppliers via a system of punishments and rewards. Evolutions in Buying Behaviour This antagonistic model had serious disadvant- Until the middle of the 1980s purchasers typically ages. Firstly, the exploited suppliers were not pre- operated in an antagonistic mode towards their pared or able to invest in new machines or products. Long Range Planning, Vol. 27, No. 1, pp. 72 to 83. 1994 Copyright 0 1994 Elsevier Science Ltd Printed in Great Britain. All rights reserved 002466301/94 $6.00 + .OO Co-operative model interaction and tough negotiations communication (annually) (on-going) price is central quality and competence of the supplier are central short term contracts long term, close relationships ‘multiple sourcing’, tendency to dual and single several suppliers for each sourcing component outsourcing and threat of buying co-makership the suppliers strategic supply management tactical purchasing The purchasing companies began to realise that very simple message: goods must flow as smoothly as antagonism leads to short term savings only. In the possible through the system and waste should be meantime increased competitive pressure forced eliminated. To achieve the ideal flow, the following them to innovate more quickly and to provide a aspects are essentialV higher quality and reliability. In order to achieve this, q Total quality management, including preventive the support of the suppliers was vital.’ A second maintenance of machinery, to forestall break- important disadvantage was that working with a downs, defects and remakes. The quality of the large number of different suppliers led to inconsisten- goods supplied is crucial; to avoid the necessity cies in input, congestion in production and cumber- for a goods-in inventory, the supplier has to carry some administrative procedures. It was very difficult out the quality control himself, or work on the to manage this complexity. basis of zero defects. Often the supplier is involved In addition to these negative implications, new from the design stage of new products in order to insights into inventory, production and quality arrive at optimal quality (the so-called co-design). pushed buyers in the direction of a so-called co- Where there are no reliable suppliers, supplier operative model in which close ties between sup- development programmes, joint investment pro- pliers and buyers develop in a strategic perspective grammes and pro-active planning will have to be (Figure Besides research and development comple- 1). set up. mentarity and leverage and total quality management, the Just-in-Time concept has a key role in the q Extreme simplification of the production process change in attitude. through improved lay-out of the factories, reduced In essense JIT is a (production) philosophy with a set-up times, design for manufacturability, etc. A Long Range Planning Vol. 27 February 1994 balanced and trouble-free production-and if in the past the supplier with the lowest price possible balanced demand through synchromar- normally received the order, today an increasing keting-are also aimed at. number of customers appear to take other criteria into consideration. More and more buyers raise the 1 The timing of the incoming flow of goods has to be question of how the capital investment can contri- strictly synchronized. This requires careful con- bute in the long term to strengthening their competi- sultation between supplier and buyer about tive position. This brought Picanol, the world leader production planning. True JIT-producers do not in weaving technology, to design machines with demand that their suppliers keep free capacity or lower set-up times, with the aim of reducing the costs take rush orders: ‘Delivering just-in-time means to its customers and to increase their mix flexibility. planning in plenty of time’, as Westbrook puts it. When selecting suppliers, companies also increas- q Competent and motivated employees, a must for ingly take into consideration the staying power of the Total Quality Management and the rapid identifi- supplier and even his growth potential. When buying cation and solving of problems. an operation system, the risk of losing the ability to acquire or to fully use complementary products in the On the whole, Eisenhardt and Wescottl’ observe, future is given considerable importance.14 Respons- JIT leads to a much greater sense of holistic and iveness, the degree to which a supplier is prepared to harmonious interrelationships among processes and respond to his customer’s unique wants, is another people inside as well as outside the organization. consideration. Therefore, customers prefer suppliers JIT buyers approach their suppliers from a long who already have a long track record.“‘16 Purchasers term perspective. Companies such as Deere and in the most progressive companies now pay more Caterpillar organize joint workshops with their attention to total cost management and life cycle suppliers, share the savings and inceasingly work costing. When determining the total net cost for the with contracts of between 24 and 36 months. They full life duration of the product, they take into also tend to engage in single and dual sourcing: co- account not only the purchasing price, but also the operation and involvement typically results in a cost of financing, maintenance, poor delivery per- reduction in the number of partners. formance and quality deficiency. Such total value A British producer of industrial heat and chilling purchasing is still exceptional, but changes are equipment has a programme of dramatically reducing occurring. the number of its suppliers. In the buying office, a Asea Brown Boveri is a good case in point. The huge scoreboard indicates the actual number of company distributes a brochure to its suppliers, ‘ABB suppliers vs the reduced number to be reached at the and our suppliers-Expectations of the relationship’. end of the year. In less than 3 years, the total number The company defines supply management as the of suppliers has been reduced by 60 per cent. controlled concentration of purchases of selected According to the chief electronics buyer, companies commodities and services from preferred, certified who want to remain on her list of suppliers will have suppliers. The goal is the development of a competi- to excel1 in the following areas: customer orientation, tive advantage through the implementation of long a continuous preoccupation with cost reduction, a term, total cost reduction opportunities of mutual high price/quality and service/delivery performance benefit to the supplier, ABB and ABB’s customers. (speed up the process, reduce inventories). The company expects from its suppliers error-free The suppliers confirm these new attitudes. Studies quality and delivery, compressed cycle times, a of the American car manufacturing sector, once the reasonable price, innovative engineering capability classic example of the adversarial mentality, identi- and a portion of total cost improvements. In return,

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