It is the aim of this assignment to critically undergo a review of literature based on the topic of Partnership. After literature review follows the definitions of 'partnership' then a discussion of their appropriateness and value. Finally, it would be interesting to discuss the above statement and argue whether it is true.
One large topic regarding that of partnership literature is the concept of power and trust (and its 'cousin' collaboration) amongst suppliers and buyers, "One of the ripest areas of research in supply chain management is in the area of trust- Trust seems to be the singular discussed element. (Handfield and Bechtel, 2004)
As the market progresses and competition is more and more fierce, it is crucial to develop ones supply chain management (SCM) in order to improve efficiently. "The idea of collaboration is believed to be one new aspect of SCM that could be the future to improved business, 'companies cannot successfully compete by themselves'. (Kotler, 1997)
Firstly the idea, what is power? Seem to be analyzed, as far back as the fifties. Although considered intangible effects, it seems you can't have power without trust.
French and Raven (1959) identified three types of power, cited below in Figure 1, with Lewicki & Bunker in 1995 doing the same for trust. This is shown to be very interesting as the two diagrams show clear correlation amongst the two components.
Hence, this leads on the literature based on collaboration between parties, also known as partnership sourcing. "Suppliers and customers are expected to cooperate, even to the extent of sharing skills and resources, to achieve joint benefits beyond those they could of achieved by acting alone (Slack, Chambers, Johnson 2002), this type of market cooperation is said to be the future tool to improved efficiency and profitability "developing long-term collaboration and cooperation, partnering, can significantly remove waste from the supply chain and provide a route to the best commercial advantage. (Boddy et al., 1998)
Although partnership sourcing is said to adopt both vertical integration and marketing trading perspectives, with a 'constant incentive to improve' (Slack, Chambers, Johnson 2002), there are many factors, which affect this, like any relationship. Below we can see these factors with brief descriptions.
- SHARING SUCCESS working together to share failures and successes, in order to obtain higher achievements together as opposed to only working for individual gain.
- INFORMATION SHARING - Based on trust it is crucial there is limited information asymmetry between partners.
- JOINT LEARNING - Learn from each others' operation etc.
- LONG TERM EXPECTATIONS - The partnership is aimed to be one with longevity however not permanent.
- MULTIPLE POINTS OF CONTACT - I.E. communication is through many channels as opposed to simply formal ones.
- JOINT COOPERATION OF ACTIVITIES - Partnership develops possibly of sharing business activities I.e. flow of materials.
- JOINT PROBLEM SOLVING - working together and helping each other with successes as well as problems. This aims to increase closeness over time.
- TRUST - Probably most important issue, as in any relationship, it is imperative partners trust each other in order to share information in the context of mutually beneficial outcomes.
However, Professor Lamming, of Bath University, criticized the suggested effectiveness, and, indeed fairness, of partnership sourcing. He suggested "in partnership relations the supplier is still the junior partner (Lamming cited in Slack et al., 2002). This undermines the concept of equal pegging thought to be the essence of partnership sourcing and the idea of sharing information freely. Lamming them came up with a model named 'Lean Supply Concept', whereby the customer and supplier, in this model, are equal partners:
Although Langley argues an improved SCM is 'difficult to achieve' without the introduction of collaboration or 'Lean supply concept', they are difficult to implement, 'firms underestimate the effort that it takes to collaborate' (SCM Advanced cited in Peterson & Gartner Inc). This may be due to the complexity of the issue of trust that is essential to it. Is it ever realistic for parties to share all information with each other even if it means leaving themselves potentially at a disadvantage? The literature on this issue is mixed, with Professor Lorenz agreeing with the principals-"The key in partnerships is to sacrifice short-term gains for long-term benefits of mutual cooperation, whilst Fisher and Brown argue that it should never be an equal field 'Firms should give trust conditionally but be trustworthy unconditionally' and according to Cox 'organisations want to be in a position of power over buyers', and thereby if one party has more power than the other, will trust ever be achieved? This again highlights the correlation between power and trust.
Continually critical research was found regarding the proposed actual reasons for incorporating in the model, "dependence opposed to partnership seems to describe a number of these relationships (Parker and Hartley 1997). This suggested some parties were involved due to their need for dependence on their presumed more successful partner, i.e. to reap the benefits without any successful operations to share. Again this concept of power in partnerships is brought up and directs us to the works of Andrew Cox. If understanding of the power channels present in supply chains can be achieved, the reduction in information asymmetry will allow each party to adopt an approach that best suits their attributes.
Cox argues "essential to start any thinking about effective procurement and supply chain management from a power perspective (2001), a conflict to the lean approach of equality and implicit trust between partners. This however, does, appear to be more realistic view. From a stakeholder or shareholders view, they are only interested in the success of their own company and the financial benefits that occur, not that of a partner or competitor. So the sole reason for involving one's self in a partnership will be the intent of making more money and therefore out doing competitors, possibly the reasoning for 'collaboration has the most disappointing track record of the various supply chain strategies introduced' (Fontanella, 2002).
Definitions of 'Partnership'
"A commitment by both customers and suppliers, regardless of size, to a long-term relationship based on clear mutually agreed objectives to strive for world class capability and competitiveness. (Sir Derek Hornby Director General Partnership Sourcing (CBI/DTI) cited in Baily, 2008).
"Partnering is a commitment between two or more parties in a collaborative relationship to create value by striving to achieve shared competitive goals and operational benefit through a spirit of mutual trust and openness. It is important to recognize that not every relationship is a partnership but it can encompass the partnering ethos. (PSLCBI, 2009)
According to Ellram's (1995) definition, "Partnership sourcing is the buyer-seller partnerships that have been defined as agreements which involve commitment and trust over an extended time-period and which include sharing of information, risks and rewards.
Three models of components of Partnership sourcing were reviewed, including:
- In model 1, "supply chain improvement is achieved by firms working to remove the waste generated at the interface between customer and supplier. This is the standard model of partnership sourcing, and leads to the standard injunction that what is needed to improve industrial performance is more trust (Lamming, 1994; Sako, 1992)
- Model 2 has as its essence an active partner who helps the other to improve their internal processes. "This is the model most closely associated with the notion of supplier development, in which big, advanced and resourceful firms improve the performance of smaller, less advanced suppliers (Burt, 1987; Hyun, 1994) and
- Model 3 offers a different perspective on supply-chain improvement. "Here, the development of effective partnerships is driven by a process of almost Darwinian evolution. Firms which independently pursue best practice are thus "fitter to be trading partners with other firms with similar aspirations. (New & Burnes, 1998)
Appropriateness and Value of Partnerships
The choice of what and why to form partnerships: (1) to reduce costs in administration or offloads some of the work in outsourcing; (2) when the firm's existing capabilities are limited, ineffective or inferior; (3) to improve the contribution of information exchange to business performance; and (4) to create new sources of revenue and profit.
Advantages of forming partnership
"The aim is to secure the best possible commercial advantage and that the principle is that teamwork is better than combat. If the end-customer is to best served, then the parties to a deal must work together and both must win. Partnership sourcing works because both parties have an interest in each other's success. Like the very best ideas, it is a simple one though it demands considerable work, commitment and patience and its rewards can be immense. (Macbeth and Ferguson, 1994)
"Partnership sourcing is often promoted as the best approach to achieving supply chain improvement through the development of more effective customer-supplier relationships. (New & Burnes, 1998)
In my view, the idea of forming partnerships is simply cannot be a good one in exhorting the benefits of buyer-seller partnerships since not all relationships result in mutual benefits. One of the main dangers of partnership sourcing is that whilst managers understand its benefits, they pay insufficient attention to the need to establish strong relationships, both contractual and personal, with their suppliers. This can result in a lack of top management control over key decisions that affect their firm. Inevitably, to avoid this:
"Suppliers will need to be educated about the organization's strategies, priorities and standards and how their work influences the final performance of the product or service. They need to be motivated to perform consistently to these required standards. (Johnson and Scholes, 2002)
Conversely, many of these relationships can fail. Lambert et al., (1996) state that one reason why partnerships may fail is that "at least one of the parties has unrealistic expectations relating to the structure or outcomes of the relationship. It is estimated that the failure rate of some of these relationships at over 50% (Spekman et al., 2000). What's more, a study by Gemnden et al., (1996) found similar results. They researched 578 cross-European business relationships and purported that a major reason for unsuccessful relationships is often explained by the lack of trust developed between organisations. Trust is detailed from both, practitioners and researchers as the main reason for long term successful relationships.
- Johnson, G. and Scholes, K. (2002) Exploring Corporate Strategy: Text and Cases, 6th edition Harlow: Pearson Education Limited.
- Lambert, D., Emmelhainz, M. and Gardner, J. (1996) Developing and implementing supply chain partnerships, The International Journal of Logistics Management, Vol. 7 No. 2, pp. 1-17.
- Spekman, Robert E., Isabella, Lynn A. and MacAvoy, Thomas C. (2000): Alliance Competence: Maximizing the Value of Your Partnerships. New York: John Wiley.
- Gemnden, Hans Georg, Helfert, Gabi and Walter, Achim (1996): "Geschftsbeziehungen in Europa. absatzwirtschaft, 39(10): S. 104-114 (1990).
- TRUST, POWER, DEPENDANCE AND ECONOMICS: CAN SCM RESEARCH BORROW PARADIGMS? ROBERT HANDFIELS AND CHRISTIAN BECHTEL 2004 http://supplychainredesign.com/publications/ijism-2004.pdf
- Ellram, L., & Hendrick, T. (1995) Partnering characteristics: A dyadic perspective, Journal of Business Logistics 16(1): 41-64