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Chapter 11: Supply Partnerships and Supply Chain Power

Purchasing and Supply Chain Management

3rd edition

The Win-Win Partnership Dyad

Buyer and supplier share goals and risks through:

Joint planning and control

A supply chain with increased information flow and enhanced loyalty

The result for both firms:

Decreased uncertainty

Greater control of costs

Cycle times, inventory

Quality, customer satisfaction

Partnership

Definition:

A tailored business relationship for achieving a competitive advantage based on:

Mutual trust

Openness

Shared risk

Shared reward

Strategic partnerships receive benefits of joint ventures and vertical integration without the ownership commitment

Benefits and Risks of Supplier Partnerships

Benefits:

Higher quality, and transaction costs

Increased market stability

Setup time reduction, improved process-oriented layout

Increased communication and goal congruence

Risks:

Partner may not meet expectations

Loss of partnership control

Complacency

Over-specialization

Large vs. Small Suppler Bases

Benefits of a large competitive supplier base:

Higher manufacturer bargaining power

Lower costs, higher quality, reasonable delivery times, and special exigencies

Shelters against supply interruptions

Benefits of a smaller supplier base:

Less adversarial attitudes

Lower switching costs

Decreased shipping errors

Quantity and relationship-based discounts

Decreased cost of quality

Power of a Supply Chain Member

Definition:

The ability of one channel member (the source) to influence the actions and intentions of another supply chain member (the target)

Characteristics:

A composite relationship–oriented variable

Extremely complex in nature

Affects both the target and the source

Key factor in a supplier–buyer alliance

Types of Power

Mediated power sources

Based on the source’s intention to bring about some action

Includes reward, coercive, and legal legitimate power

Represents the competitive, negative uses of power

Traditionally preferred by organizations

Types of Power (cont.)

Non-mediated power sources

Occur as a natural part of business transactions and do not necessitate intention from the source

The source may not even be aware

Includes expert, referent, and traditional legitimate power

Represents a more relational and positive use of power

Critical Relationship Factors

Dependence

Commitment

Trust

Compliance

Cooperation

Conflict

Satisfaction

Performance

Profitability

Power, Cooperation, and Compliance

Definitions:

Compliance

Action without inherent desire

Cooperation

Action with implied internal agreement

Power attempts to force a target to comply with the source’s desires.

Mediated or coercive power: Compliance

Non-mediated power: Compliance and Cooperation

A true supply chain partnership requires cooperation rather than compliance

Power and Conflict

Conflict

When one supply chain member hinders goal attainment and performance of another

Competitive power sources

Increase conflict

Positive use of power

Can reduce conflict

Power and Satisfaction

Satisfaction

The extent of contentment with the relationship

Overriding factor in determining the future of a supply chain partnership

Drivers of satisfaction

Planning, mutuality, interdependence, and operational information exchange

Without satisfaction, trust and commitment cannot exist.

Power, Performance, and Profitability

Performance

The ability to execute intentions and goals

Mediated power

Could reduce performance of the target

Non-mediated power

Improve the target’s opinion of the source’s performance

Questions?