Strategic partnering when the supply base is limited: a case study
| DOI | https://doi.org/10.1108/02635570110365998 |
| Date | 01 February 2001 |
| Pages | 47-52 |
| Published date | 01 February 2001 |
| Author | Festus Olorunniwo,Tony Hartfield |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Strategic partnering when the supply base is limited:
a case study
Festus Olorunniwo
Tennessee State University, Nashville, Tennessee, USA
Tony Hartfield
Electrical Research and Manufacturing Co., Dyersburg, Tennessee, USA
Introduction
Firms are generally interestedin partnerships
rather than adversarial relationships because
they believe that the former can provide a
number of advantages over the latter. For the
supplier, the advantages include reduced
uncertainty, managed dependence, exchange
efficiency, social satisfactions from the
association, and insulation from price
competition. The purchaser hopes to achieve
improved supply continuity, a better match
between the supplier's sale specification and
the buyer's purchase specification, and
reduced long-term costs (Dwyer et al., 1997;
Ramsay, 1996). Despite the benefits derived
from strategic alliances, there are many
problems. These prob lems include the cost
involved, the power trade-off between the
buyer firm and the supply firm (Ramsay,
1996), the relative size of a buyer firm
compared with the supplier firm (Akakum
and Dale, 1995), and the type of product
involved (Lehmann and O'Shaugnessy, 1974;
White, 1978; Evans, 1982).
While the factors stated above are
important, previous study has failed to
consider the size of the supply base relative
to the buyer base. Specifically, when there
are a handful of supplier firms and thousands
of buyer firms, the dynamics at play when
considering entering into partnership
arrangements could be overwhelming. The
objective of this study, therefore, was to
investigate the attitudes of firms towards the
formation of alliance when the supply base is
very small. The interest here is to compare
the attitudes of firms which are in partnering
relationships with those that are not and
endeavor to characterize the differences (or
absence thereof) of their attitudes.
We chose the utility industry for our case
study for two reasons. First, there is only a
handful of supplier firms for the distribution
transformer when compared to the
thousands of buyer firms. Second, the
distribution transformer is commonly used
throughout the utility industry and its
purchase constitutes about one-third of a
utility's supply budget. This paper presents
the result of a study where electric utilities
and distribution transformer buyers were
surveyed to determine their attitudes to the
formation of strategic alliances and their
perception of the benefits that have been, or
can be, realized through such strategic
partnership arrangements.
Background on partnering
Partnership arrangements in general can
range from low levels of tactical transactions
(choosing preferred suppliers, one-way
licensing, or OEM), to strategic alliances
(cross-licensing, strategic business
partnering, franchise alliances, equity
partnerships, or joint ventures). Alliances
can also include mergers and acquisitions
(Maynard, 1996). Agreements can range from
the traditional lengthy verbatim contract,
usually signed for one to three years, to the
honorable handshake. Communication
arrangements are also varied, with some
alliances consisting of full-time supplier's
employees assigned to on-site offices at the
customer's facility, while others consist
mainly of phone conversations and an
occasional visit between representatives.
Strategic business partnering with formal
contractual agreements is the focus of this
paper.
The reasons why buyer firms resist
forming strategic partnering relationships
with suppliers were summarized in the
previous section. In ``genuine'' partnerships
each party not only makes a commitment to
the other, it must also modify its behavior to
more closely match the other's requirements.
Because of the fact that each becomes more
dependent on the other, each loses and gains
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[47]
Industrial Management &
Data Systems
101/1 [2001] 47±52
#MCB University Press
[ISSN 0263-5577]
Keywords
Purchasing, Partnering,
Supply chain management,
Strategy
Abstract
This study considers a supply-
demand situation where a product
has only a handful of supply firms
and a large number of purchasing
firms and compares the attitudes
toward partnering of firms which
are already in partnering
relationships with those that are
not. Noting that only 27 per cent
of the buyers are currently in any
alliance relationships, and most
are not planning to be in one, the
study reveals that buyers
expressed a lukewarm, and
sometimes negative, attitude
toward the formation of alliances.
There are no attitudinal
differences between firms in
alliance relationships, compared
with those without, in five of seven
questions on alliance and in the
relative importance given 14 of 15
purchasing criteria. With most
suppliers willing to provide the
buyers with the same benefits,
irrespective of whether they are in
alliance relationships, it appears
that the limitations imposed by
the small supply base tend to
exert competitive pressures on
the suppliers, discouraging buyers
from forming partnership
relationships.
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