Module 6 6th Jan 2023

Partnership
 A commitment between a buying organisation and a supplier entering into a long-
term collaborative relationship based on trust and mutually agreed objectives and
goals for the benefit of both parties – CIPS
 A partnership is a tailored business relationship based on mutual trust, openness,
shared risk and shared rewards that yields a competitive advantage, resulting in
business performance greater than what could be achieved by the firms individually
– Lambert et al., 1996
Characteristics

 No end dates
 No win-lose negotiation
 Less contractual
 Commitment
 Long-term
 Collaborative
 Trust
 Transparency
 Shared risk
 Shared rewards
 Joint performance measurement
 Competitive advantage
 Benefits to both parties
 Synergy
Synergy: 2+2 = 5
When two parties work collaboratively as partners, then the resulting output is more than
the sum of their individual outputs.

Type I – lowest form of partnership, one function from each party interacts with each other
Type II – the depth of relationship is greater, multiple functions from each party interact
with each other
Type III – highest form of partnership, each party views the other as if they belong to the
same organisation

Type I and Type II  transactional or operational

Type III  strategic

Characteristics of Partnerships
The following characteristics of partnership relationships are not found in traditional
relationships:
 Early Supplier Involvement
 No tender process or win-lose negotiations
 Shared costs and benefits
 Higher levels of trust and transparency
 Joint performance measurement and KPIs
 No defined end period
 Less contractual

The Elements of the Partnership Model

 Drivers - compelling reasons (strong motivation) to partner. (WHY?)
 Facilitators – elements of the corporate environment which allow a partnership to
grow and strengthen. The facilitators enhance partnerships growth. (CATALYSTS)
 Components – are the activities and processes that management establishes and
controls throughout the life of the partnership. These joint activities and processes
build and sustain the relationship (HOW?)
 Outcomes - The outcomes are the benefits that the companies involved on a
partnership achieve from their relation. (WHAT BENEFITS?)

Drivers of Partnership Sourcing

 Generating synergies that will reduce costs and increase profitability
 The ability to develop products more quickly
 To enable both parties to survive in the face of changing or unstable markets
 To identify wastes such as duplicated activity, bottlenecks and delays
 To enable access a particular market
 Where buyers need to source highly complex products or services
 To increase the security of supply.
Facilitators of Partnership
Once we have achieved the motivation to partner its necessary to have a good environment
to support the relationship. Facilitators cannot be developed in the short run and the degree
to which they exist often determines whether a partnership succeeds or fails. Facilitators
include:

 Corporate Compatibility - The cultures and business objectives of the two firms must
mesh. They do not have to be identical, but they should not clash.

 Managerial philosophy and techniques - This is the compatibility of management

philosophy and techniques between the two firms. For example, the relation
between managers and employees of both firms must be similar to avoid
uncomfortable situations.

 Mutuality - Both firms must feel themselves into the same team, thinking and
playing together.

 Symmetry - When firms are relatively symmetrical (in terms of market share,
financial strength, and brand image) there is no junior partner and therefore none of
the insecurity defensiveness and fear which is often found in an unequal
relationship.

Components of Partnership

 Joint planning
 Joint operating controls
 Frequent communication across all levels of the two organizations
 Risk/reward sharing – ‘joint destiny’
 Trust and commitment
 Less contractual
 Joint investments

Drivers
Components Outcomes
Facilitators

Advantages of Partnership to both the buyer and the seller

  Synergies reduce costs and increase profitability for both partners.
 Investment (new machinery and R&D) can be shared by both partners
 Improved competitive advantage and/or increased market share.
 Reduction of risk through risk sharing and improved risk management
 Better market knowledge to both parties due to information and knowledge sharing
 Organisations become more ‘Lean’
 Innovation and New Product Development become faster and hence time to market
is lower

Disadvantages of Partnership to both the buyer and the seller

 If a partnership relationship breaks down or one partner fails, there could be serious
repercussions for the remaining company due to level of dependence that the
partners have on each other
 Partners can become locked into a relationship in which they are incompatible
 Serious risk of loss of confidentiality
 Planned benefits and advantages do not materialise unless the relationship is
actively managed by both partners. This active management can be costly and
resource intensive.
 Relationship management can be costly for both partners (70% relationships with
suppliers will not be partnerships , Lambert)
 Being locked into relationship reduces the flexibility of both the buyer and the
supplier

Uses of the Partnership Model

 Establishing a new relationship
 Diagnosing an existing relationship
 Strengthening a key relationship
 Implementing Relationship management

Suitability of Partnership Sourcing

Partnership sourcing is suitable only for the following cases:

 Suppliers with whom we have high spend - Having partnerships could lead to a
number of synergies which may allow the buyer to make savings on the spend

 Suppliers who supply high-risk strategic items – companies that rely on partnerships
are better able to adopt to unforeseen changes. Partners can undertake a joint risk
management approach, which may provide additional mitigation. Partners can also
share the risk. However, partnership-sourcing itself is a high-risk strategy.

The products and services which should also be considered for partnership sourcing
are the ones which match the following criteria:
They are used in products or services that represent a company’s USP
The buying organisation’s most important customers depend on them
In the case of a public sector organisation, the general public relies on the buying
organisation to provide them

 Technically complicated supplies - Technically complicated supplies are those that

are generally not ‘off the shelf’ but are specifically developed or adapted for the
buyer by the supplier. These are likely to be of high financial risk and also high supply
risk, located in the strategic quadrant of the Kraljic model. They are therefore
suitable for the development of partnerships relationships. It is argued that higher
levels of integration or partnerships are required in the supply chain, especially for
complex business conditions and complex products and components. There are
usually a small number of suppliers for technically complex products (or services),
due to the inability to use a substitute product as a result of technical complexity. In
addition, the cost of supplier switching is also high. Due to small number of suppliers
in the market, the buyer is unable to leverage its demand via a competitive
tendering process, instead the buyer may be able to gain value from the relationship
by developing a partnership. However, this will be successful if the supplier views the
buyer as a development or core customer. Partnership may also enhance the
development and use of specialised equipment and processes between the parties,
without fear of technology transfer to a competitor. Buyers may also gain value by
getting access to specialist knowledge that the supplier may possess.
Technically complicated supplies may also include products that are not technically
complicated but the supply chain for the product may be complicated. Creating
partnerships would reduce the logistics risk by sharing up to date information on
schedules and deliveries or operating integrated systems.

 New services - During new product (or services) development, supplier involvement
should be as early as possible. Partnering during new product development benefits
both parties as the parties are able to pool knowledge and resources together.
Developing partnership, is likely to benefit the buyer by getting access to additional
 innovation from the supplier. The partnership relationship also provides the supplier
with the assurance that the buyer is committed to the relationship and will not
behave opportunistically. Another major advantage of partnership during new
product development is the reduction of ‘time to market’.

 Fast changing technology - Due to rapid changes in technology and shortened

product life cycles, buyers may need to develop partnership relationship quickly. The
process could be helped by.
 Periodic scanning of the marketplace to understand new supplier entrants
and the products or services they offer
 Undertaking research on what competitors in the buyer’s marketplace are
doing.
Access to innovation gives competitive advantage to the buyer. New products and
services that offer the latest technology can be sold at a premium price. Seeking a
supplier that is a technology expert will also free up the buying organisation to focus
on its core competencies. When the buyer and the supplier are focusing on their
core competencies, they are likely to create more value than if their focus were
spread over multiple areas.

 Restricted markets (markets with high barriers to entry)- A restricted

marketplace is a market where there are only a small number of capable and
competent suppliers. Marketplace restriction may be due to:
 High financial investment required to enter the market
 Suppliers not tempted to enter markets with low levels of profitability
 Strong brand loyalty
 Some markets are heavily regulated by governments and legislation
 In some markets, obtaining distribution channels is difficult due to pre-
existing relationships
 In some markets, existing companies collude in order to deter new entrants,
for example by undertaking aggressive marketing strategies

The buyer may enter into partnerships with suppliers in such restricted markets
to ensure continuity of supply and negotiate more effectively (provided the
supplier views the buyer favourably)

USP  unique selling proposition

“Trying to develop a partnership where one is not warranted will waste valuable resources
while providing minimal return. Not having a partnership where one is appropriate
squanders an opportunity for competitive advantage” – Lambert et al., 1996
Situations
1) Partnership developed when it was not necessary - Wastage of resources
2) Partnership not developed when it was necessary  Loss of opportunity

Senior Management
Sell the idea of partnership Internal functions
Supplier

Approach to Partnership Sourcing

 Identify the items which require partnership sourcing, map the suppliers who
deliver these. Thus, identify the suppliers with whom we should develop
partnership (we also need to consider Supplier Preferencing, the Power-
dependency).

 Sell the idea to the senior leadership – through a proper business case. The business
case should outline the current situation, the drivers for partnership sourcing, and
the expected benefits and advantages for the buying organisation

 Sell the idea to the internal functions – “ If the whole company does not buy into the
importance of developing a supplier as a collaborative partner it will not happen, as
the departments will not free up the resources required to develop a partnership”-
Emmet and Crocker, 2006. It is beneficial if a member of senior management
(preferably from the highest management levels) can act as project champion for the
partnership project. “Partnership management requires a champion or change agent
who will promote the partnership concept throughout the organisation” – Lambert et
al., 1996. Change management methods (like Kotter’s model) can be useful

 Sell the idea to the supplier - Suppliers will be interest only if the buyer is in the core
or development category. Pre-existing collaborative relationships will help. The
buyer will have to determine the key stakeholders in the supplier’s business and the
idea should be first sold to these senior members of the supplier’s organisation. They
will then be able to support selling the philosophy to the rest of the business

 Define the standards that the potential partners are expected to meet - For a
partnership relationship to be successful it is key that the supplier understands the
standards that the buyer is aiming to achieve. Generally, the buyer will have decided
 to move to developing a partnership relationship in order to make a strategic change
to the way it manages its supply.
Such standards could include factors like:
a. Commitment to TQM and clearly defined quality management
b. Ability to apply JIT
c. Ability to provide supplies locally or globally
d. Willingness to take part in innovation programmes
e. Flexibility management (Agility)

 Establish joint commitment to the partnership - Joint commitment is a key

requirement for a partnership. It can be established through:
o Communication:
a) Establish a formal review structure
b) Provide clear information on the knowledge to be shared by the buyer
and supplier (demand forecast, market intelligence etc.)
c) Both parties must communicate the partnership information within
their organisations to support commitment
o Contractual commitment and partnership governance: in some cases, the
buyer’s and supplier’s joint commitments, obligations and responsibilities will
be outlined in a formal partnership agreement, similar to a contract, signed
by both parties. In the absence of such formal agreements, there must be
well defined governance structure outlining roles, responsibilities and
accountabilities to support the partnership.

o Driving commitment and allocation of resources from the top down: If the
senior management of both the buyer and supplier are not committed to the
partnership, they will not provide the resources required in terms of staff,
equipment or finance. To ensure that there is commitment from senior
management the benefits of the programmes should be clearly
communicated to all staff from the top to the bottom of the organisation.

o Joint objective setting: One of the first steps in developing a joint

commitment will be to agree on shared objectives and goals for partnership.
These objectives should be SMART. If the buyer and supplier have Type I or
Type 2 partnership, the objectives are likely to be more operational and less
strategic. If the partnership is of Type 3, then the objectives are more likely to
be strategic and less likely to be operational.

o Joint planning and decision-making: Developing joint plans will serve to

develop joint commitment to the partnership, as this demonstrates that
both parties are entering into the relationship for the long-term. The buyer
and supplier will need to jointly decide and agree an implementation plan
 with relevant milestones and targets and assign responsibility to individuals
within each company for each of the key drivers accepted as joint goals
o Benefits and resource allocation: The buyer and supplier should agree as to
how the benefits of the partnership will be shared between them and how
the supplier will be financially incentivised to meet its objectives.

o Quick wins: Joint commitment from both parties can be further consolidated
by sharing information on quick wins. These quick wins demonstrate the
benefits of the partnership to both the supplier and the buyer . This enhances
confidence and trust.

 Review and audit the partnership – Reviews ensure that the benefits are achieved
within timescales, detect areas which need focus and improvement, improves trust
and commitment, document and celebrate success, reinforce the philosophy of
continual improvement. Reviews should be undertaken by each partner and also
jointly. Lessons learned can help the buyer in making future relationships. An audit is
a more formal process than a review and is a confidence building measure

Reasons why partnerships can end

 Unrealistic expectations of one or both partners or expectations not shared to
the other partner
 Poor communication
 Lack of senior management support
 Lack of trust
 Lack of commitment by one or both partners
 Poor planning
 Lack of value-added benefit
 Changes in the market
 Corporate cultural differences
 Logistics and distance barriers
Communication within partnerships
• To exchange information – at the start of a partnership relationship buyers and
suppliers need to exchange information to decide whether the proposed partners
are suitable. During the partnership the parties will need to exchange information in
order to understand their roles as part of the partnership.
• To build relationships – building relationships between buyer and supplier staff at an
operational and strategic level is important. This includes developing rapport, trust
and respect. This should be done throughout the duration of the partnership
relationship.
 • To persuade – the partners will need to communicate to persuade each other of the
merits of ideas and to come to agreement on how benefits and costs will be shared.
• To confirm – ensuring that the buyer and supplier have the same understanding.
This will serve to reduce conflict in the partnership.
Reasons for Poor Communication
 Distortion or omission - of information reduces trust and transparency
 Misunderstanding – can be due to lack of clarity or technical jargon
 Communication overload – Important aspects of messages may be lost if too much
information is provided
 Ineffective communication – due to lack of communication skills or use of an
ineffective method of communication
Ineffective communication
1) Unimportant things communicated
2) Communication to the wrong recipient
3) Communication using the wrong channel
4) Feedback not taken
Reasons for lack of trust
 Lack of information sharing / transparency
 Poor, irregular or inconsistent communication
 Lack of understanding of shared goals/objectives leading to increased vulnerability
 One of the partners may behave opportunistically at the expense of the partnership
 Disclosure of sensitive information to a third party
 Issues like late payments
Lack of Commitment
 The partners do not demonstrate their commitment to each other
 Lack of commitment from senior management
 There is a lack of joint decision-making
 There is a lack of supplier involvement in developing objectives and KPIs
 The buyer or the supplier may have been tempted away from the partnership by
short-term gain and value-added benefits elsewhere.
Planning for Partnership
Is the supplier strategic? (If not, check whether
there is any specific advantage)

 Incorrect supplier selection Supplier preferencing (are we in the

development or core category?

Power-dependency matrix (Interdependency?

Supplier selection for partnership

 Due diligence of suppliers not done
 Stakeholders not involved in planning
 Partnership objectives and goals not aligned with business goals
 Lack of senior management buy-in
 Stakeholder needs and interest not managed

Lack of value-added benefits

 If a partnership does not bring in the expected levels of value-added benefits then
the partnership is considered a failure. This may happen due to:
 Wrong partner selection
 Complacence of one partner
 Change of market conditions (reduction of demand for the supplier’s
product)
 Relationship is not actively measured and managed
 Buyer’s expectation of unrealistic levels of value-addition
Corporate Cultural Differences
 Cultural mismatch …..an aggressive culture and a laid-back culture
 The buyer should spend time developing relationships with the supplier before
entering a partnership ( for example working closely on key projects)
 If the buyer and supplier have significantly different values and cultures this will
affect the ability of the partnership to create a joint vision
Logistics and Distance Barriers
 Improvements in communications and transport technology , global sourcing and
offshoring are increasing rapidly.
 Another driver for global sourcing is low-cost labour rates in some countries
 If partners are located in different countries then higher levels of effort and
resources are required to maintain the relationship
 Physical distance also results in cultural distances
 Barriers of time differences and physical distances to be managed well