Assessing supplier performances under partnership in project‐type procurement
| Pages | 290-312 |
| Date | 09 March 2012 |
| Published date | 09 March 2012 |
| DOI | https://doi.org/10.1108/02635571211204308 |
| Author | Liang‐Chieh (Victor) Cheng,Edward E. Carrillo |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Assessing supplier performances
under partnership in project-type
procurement
Liang-Chieh (Victor) Cheng
Information & Logistics Technology Department, College of Technology,
University of Houston, Houston, Texas, USA, and
Edward E. Carrillo
WorleyParsons – Resources & Energy, Bellaire, Texas, USA
Abstract
Purpose – The purpose of this paper is to investigate the effects of a commercial partnership in a
project-type supply chain. The research focuses on the performance of suppliers who develop a
partnering mechanism for procurement of complex manufacturing projects. In total, four supply chain
metrics are evaluated: project scope change, ratio of actual-to-estimated project costs, gross profit
margin, and delay in deliverable shipments. Hypotheses are formulated to contrast partnerships and
arms-length relationships for industrial procurement. Statistical results support the conclusion that
supplier performances improve under partnership.
Design/methodology/approach – Four supply chain metrics were generated through review of
literature and in-depth field study. The authors utilized the supply chain management, project
management, and principal-agent theory literature to develop hypotheses to examine effects of
instituting a partnership agreement. A case study approach was employed to collect financial and
operational data from 167 projects among a manufacturing supplier and a group of customers that
purchase industrial analyzer systems. Statistical techniques were employed for hypothesis testing.
Findings – The findings from the authors’ empirical work support the prediction in partnership
literature that suppliers’ operational and financial performances improve after they and
manufacturing customers jointly implement partnerships. A supplementary finding also suggests
that a manufacturer should develop partnering mechanisms with suppliers to achieve higher
performance for both the individual firms and the entire supply chain.
Research limitations /implications – This study, like other “before and aft er” analyses,
encounters limitations on causality. Advanced techniques, e.g. cause-effect investigation with richer
data, are hence necessary to validate the causal relationships between performance metrics and their
drivers. This study focuses only on the supplier’s side of the supply chain and its partnership in a
specific industrial setting. Future research may consider studying the joint performance by
supplier-customer dyads in commercial partnerships with variations of partnering agreements.
Practical implications – Partnerships motivate trading partners to engage in higher level of
coordination. Transactional hazards can be reduced and performance may improve under the
partnering mechanism. The manufacturer may design the procurement partnership as a collaborative
mechanism, thus helping a partnering supplier and itself to obtain increased mutual gains.
Originality/value – The paper provides detailed information of a unique case study of the
partnership in a project-type supply chain, which is relatively new in the literature. Research streams
on supply chain management, project management, and principal-agent theory are integrated to
evaluate supplier performance. Empirical results confirm partnership impacts on suppliers’ business
performance.
Keywords Supply chain management, Project management, Procurement,Production management
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0263-5577.htm
IMDS
112,2
290
Received 17 March 2011
Revised 17 August 2011
Accepted 17 August 2011
Industrial Management & Data
Systems
Vol. 112 No. 2, 2012
pp. 290-312
qEmerald Group Publishing Limited
0263-5577
DOI 10.1108/02635571211204308
Introduction
In the era of networked economies, partnership is a subject intimately related to supply
chain management. The partnership agreeme nt is a coordination mechanism
governing the supply chain relationship (McCutcheon and Stuart, 2000). Operation al
partnerships encompass a wide variety of value-creation processes, e.g. research and
development, procurement, production, marketing, investment, employment, logistics,
etc. (Reed and Reed, 2009). The crux of a successful partnership is the joint pro fitability
among the members as opposed to individual gains. A management challenge is to
reconcile supply chain members’ conflicts of interests while creating incentive to
achieve performance among the respective partners (Ellram, 1995).
Despite the prevalence of partnership, the conceptualization on partnership varies
from study to study. Partnership can be implemented in a two-tier or a three-tier
distribution model, and different industries and cultures treat it differently. As such, it is
difficult to provide a “one-size-fits-all” definition for partnership broadly across all
parameters (Johnsto ne et al., 2009; Reed and Reed, 2009). We hereby develop a working
definition of commercial partnership to more effectively probe our study subject.
A partnership is defined as a long-term relational mechanism between a industrial
supplier and its customer, which replaces open-market mechanism and provides
financial and operational incentive for partnering entities to pursue performances
individually and jointly (Chang, 2008; Whipple and Roh, 2010; Zhang, 2009).
The study context of this paper is the project-type, manufacturing supply chain.
Project businesses are discrete and the management environment may vary across
projects. Project environments demonstrate the “antithesis” of partnership
development, which aimed at long-term, stable collaboration (Beach et al., 2005). For
instance, in the construction industry, it is difficult to implement partnerships at the
downstream stage in a development project because of the sporadic transactions.
Industrial managers have adopted on supply chain management and project
management in controlling complex systems (Foster et al., 2011). Project members
across industrial supply chains can form partnerships to obtain scope economies and
complement one another’s competences (e.g. Barnes & Noble partnering with Starbu cks
to achieve functional integration). Supply chain management hence provides a new
systematic perspective to reconcile the incompatible aspects among project
management and partnership mechanisms (Hicks and McGovern, 2009).
The purpose of this paper is to assess the effects of the partnership in a project
environment. Our research scope focuses on the performance of suppliers who develop
a partnering mechanism for procurement of manufacturing projects. Compared to the
partnership literature on the benefits for a customer base, studies evaluating the
impacts of partnership on suppliers are few and sporadic in selective industries (Field
and Meile, 2008). We intend to extend the partnership literature by addressing the
following research challenges:
.Identification of project-based performance metrics under partnership.
.A comparative evaluation of the supplier’s performance under partnership and
arms-length relationships.
The basis of the paper is the study of a partnership between a global supplier and
a Fortune 500 customer. We collected a unique dataset under the case partnership
through a multi-year case study in an industrial procurement context. This paper
Assessing
supplier
performances
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