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Capabilities for Managing a Portfolio of Supplier

Relationships

Article in Business Horizons February 2002

DOI: 10.1016/S0007-6813(02)00263-X Source: RePEc

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Stephan M. Wagner Roman Boutellier

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Capabilities for managing
a portfolio of supplier
relationships
Stephan M. Wagner
Head of Corporate Supply Chain Management,
SIG Holding Ltd., Neuhausen, Switzerland
Roman Boutellier
CEO, SIG Holding Ltd., and Professor of Technology
Management, University of St. Gallen, Neuhausen,
Switzerland
Because companies can no
longer possess all competencies
themselves, strategic partnerships
between customers and suppliers
are becoming more and more essential.
In fact, firms rely on strategic partners
to achieve and sustain a competitive position.
Theory helps explain the choice between arms-
length and cooperative relationships, and practice
provides some valuable examples. Strategic
partnerships, however, need to be set up and
manageda process not yet well understood.
Companies often lack strategic thinking and the
necessary supplier management capabilities.
Advanced corporations continuously improve
internal and external collaboration. Moreover,
they allocate their scarce resources and time by
selectively managing the full range of relationships
across the supplier portfolio.
I n the early 1990s, when Jose Ignacio Lopez de
Arriortuathe man responsible first for GMs and
later Volkswagens purchasingwas extremely popu-
lar and on the front pages of business magazines, suppli-
ers were seen as rivals. Competitive quoting was the
favored method of doing business, and suppliers were
forced to severely and continuously cut prices. Whether
and how they were able to achieve cost reductions was
solely their problem.
Now suppliers are undoubtedly becoming increasingly
important for the success of todays companies, which
rely heavily on external sources for materials, products,
services, technology, and innovation. Hence, a vital ques-
tion is: How should companies do business with their
suppliers in order to strengthen their own competitive
advantage?
After the Lopez years, many people came to be in favor of
cooperative buyer-supplier relationships as the effects of
squeezing suppliers turned negative. Although the impor-
tance of long-term and trust-based relationships has been
advocated by purchasing professionals and the subject
has received enormous research attention, true partner-
ships are still quite rare in real life.
Recent times have seen a growing emphasis on the justifi-
cation for both short-term, non-cooperative relationships
and long-term, cooperative relationships in the supplier
portfolio. In other words, companies are taking a more
contingent approach. For many, the question remains
how optimum supplier relationships should actually be
planned and organized. Moreover, companies are seeking
advice on how to better manage these relationships, a sit-
uation that suggests the need for selective strategies and
approaches.
Choosing and developing relationship types are the main
variables when it comes to exploiting suppliers full po-
tential. For this reason, we will take a look at the oppor-
tunities for designing individual supplier relationships,
depending on the specific supplier portfolio of the organ-
ization.
79
Strategic partnership
attributes
W
hen should a firm aim for an arms-length
relationship versus a partnership with its sup-
pliers? The driving factors and characteristics
of these two opposite relationship types vary considerably.
As suggested by business practice and the literature, at
least two important subdomains are key to such a deci-
sion: internal and external factors. Moreover, relational
contracting theory offers a useful theoretical approach.
Three examples from business practice that largely sup-
port that theory will be discussed here: (1) the alliance
form of DaimlerChryslers Extended Enterprise, (2) the
cooperative relationship of two firms in the development
phase, and (3) the strategic partnership between a com-
pany and its supplier in the manufacturing phase.
Internal issues
Internal issues involve product, technology, and compe-
tence. An arms-length relationship is advisable with non-
strategic inputs that do not contribute to differentiating
the end product, and where no customizing is required.
In the case of standardized or modular product architec-
tures and autonomous innovations, suppliers can be kept
at arms length without compromising product technol-
ogy or quality. The products and services involved, such as
Figure 1
Attributes of discrete and relational exchanges
Attribute Discrete exchange
Chronological Defined beginning
aspects of Short term
exchange Sudden end
Expectations of Conflicts of interest/goals are expected
the relationship Immediate settlement (cash payment)
No problems expected in future
Communication Minimal personal relations
Ritual-like communication predominates
Transferability Totally transferable
It makes no difference who performs
contractual obligations
Cooperation No joint efforts
Division of burden Sharp distinction between parties
and benefit Each party has its own, strictly defined
obligations
Source: Adapted from Macneil 1978; Macneil 1980; Dwyer, Schurr, and Oh 1987
80
MRO (maintenance, repair, and operating) supplies, cata-
logue parts, electricity, or water, are generally of low value.
There are exceptions to this rule, however. Cigarette man-
ufacturers buy large volumes of tobacco for considerable
sums of money, but mostly by verbal agreement and with-
out any contracts being signed. Despite the high value,
they can keep suppliers at arms length and get the best
prices, because tobacco is a typical commodity and ciga-
rette manufacturers are large companies.
With strategic inputs, on the other hand, buyers should
aim for partnerships. Strategic inputs are related to the
buyers core skills, cannot normally be bought off-the-
peg, and can be used to differentiate the end product.
Customized or integral product architectures and systemic
innovations demand intensive buyer-supplier interactions,
which only partnerships can provide. As a general rule,
purchasing can justify a partnership approach only when
the items to be bought are of high value. Otherwise, it is
too expensive. A prominent purchasing portfolio used by
Du Pont and Philips Medical Systems that differentiates
between noncritical, leverage, bottleneck, and strategic
products puts forward some of these interrelationships.
External issues
The second subdomain takes into account the most im-
portant external issues: the industry environment, the
market, the competitive situation, and the economy. If the
Relational exchange
Beginning can be traced back to earlier agreements
Long term
Reflects a continuous process
Conflicts of interest expected
Future problems are overcome by trust and joint
commitment
Both formal and informal communication used
Limited transferability
Exchanges are highly dependent on the identity of
the parties
Joint efforts at both planning and implementation
stages
Modifications endemic over time
Burden and benefits likely to be shared
Division of benefits and burdens likely to vary over
time
Business Horizons / November-December 2002
suppliers industry is characterized by simple products
and a high level of standardization, as in the oil refining
industry, buyers will be better off having the supplier at
arms length. Suppliers and their products are interchange-
able. In this particular industry, prices develop mostly
proportional to the level of capacity at which the produc-
tion plants are running. The same applies in shrinking in-
dustries, where suppliers are suffering from permanent
excess capacity caused by high exit barriers and high fixed
costs. One example of this situation was the semiconduc-
tor chip market in the late 1990s. The market was satu-
rated, there was too much production capacity, and some
suppliers were on the brink of ruin. However, the situa-
tion changed when the demand for end products began
rising and major production plant capacity was destroyed
by earthquakes in Taiwan at the end of the decade. In-
stead of pummeling suppliers, buyers were suddenly look-
ing for reliable partners and long-term contracts to guar-
antee their supply sources.
If firms are buying from industries with complex, highly
customized products, they should generally seek close part-
nerships with suppliers. The higher the complexity, the
more effective close interorganizational coordination can
be. When buyers need products in growing markets and
resources in those markets are scarcein other words,
when supply is tightpartnerships are also advisable. Such
partnerships should be established early on and not in a
pinch, when the supplier holds all the cards.
Relational contracting theory
Macneil (1978, 1980) distinguishes between discrete and
relational exchanges (see Figure 1). In the case of discrete
exchanges, all transactions between the contracting parties,
both past and future, are assumed to be independent of
one another, involving a one-time granting of disposal
rights. Dwyer, Schurr, and Oh (1987) put forward an
example that comes very close to a true discrete transac-
tion: a one-time purchase of unbranded gasoline out-of-
town at an independent station paid for with cash. With
discrete transactions, the individual contracting parties
involved strive to enforce their interests emphatically and
can call on extensive financial and legal sanctions if con-
tracts have to be enforced. These are typical characteristics
for arms-length buyer-supplier relationships. With simple
low-tech products or commodities, spot market contracts
may be advisable, provided there are enough suppliers in
the market. The main goal here is to secure low prices.
The main difference with relational exchanges lies in the
time and processes involved. Each transaction has a past
and a future, and the transaction partners are involved in
complex social relationships. Both sides set out what they
will do and what they are to receive in returnopenly
and well in advance. Conflicts are resolved without resort-
ing to the courts. Correctly understood, relational transac-
tions provide the basis for an ongoing partnership be-
Capabilities for managing a portfolio of supplier relationships
tween customers and suppliers in todays procurement
practices. Typical examples are the single-source contracts
of a wholly owned DaimlerChrysler subsidiary, named
Micro Compact Car (MCC). MCC has only a few suppli-
ers for the car being manufactured, but they hold compre-
hensive responsibilities. They are even physically tied
together in the plant and are jointly responsible for as-
sembling the car. Thus, the partnerships should last at
least the six-year lifetime of todays car model.
While arms-length relationships are desirable in the case
of one-time transactions and discrete exchanges, it is ad-
visable to set up and manage relationships associated
with relational exchange and ongoing business as partner-
ships (Figure 2).
Extended Enterprise alliances
DaimlerChrysler develops, implements, and monitors
commodity and supplier strategies for all main automo-
tive commodities worldwidematerial or product groups
such as flat glass, aluminum body panels, door trims, or
hydraulic brake systems. Deciding on the type of relation-
ship is an important part of the companys global pro-
curement and supply (GP&S) strategy process. The deci-
sion is based on seven criteria
share in value-adding costs
dependency on suppliers technical know-how
buyers own know-how about specifications and design
for a given technology or product
number of possible suppliers
costs of changing to another supplier, and general barri-
ers to switching
suppliers negotiating power, or supplier power in general
Figure 2
Type of business and type of exchange must match
Relational
Partnership
EXCHANGE
Arms length
Discrete
One-time Ongoing
BUSINESS
81
 Figure 3
Relationship types at DaimlerChrysler

EE transaction EE coordination EE cooperation EE alliance

(market-based (selective (selective (strategic
competition) competition) partnership) partnership)

Relationship Exchanging Transferring Building up

Data
based on information know-how specialist knowledge

Relationship Transaction Contract Life cycle

Series life cycle
lasts for (short-term) (e.g. annually) and beyond

Suppliers integrated Numerous departments

Suppliers integrated
Extent of joint Suppliers not into product develop- integrated, joint
into product develop-
commitment integrated ment to a limited concepts and product
ment, interfaces
extent, conducted via development, invest-
defined jointly
defined interfaces ment in joint assets

Examples Pencils Moldings Exhausts Fuel cells

Operational Strategic
types types

importance of the commodity or its suppliers to the cus-
tomers decision to buy, and/or differentiation with re-
gard to customers
The outcome is an allocation of each commodity to one
of DaimlerChryslers four Extended Enterprise (EE) rela-
tionship types
transaction (market-based competition)
coordination (selective competition)
cooperation (selective partnership)
alliance (strategic partnership)
The first two types are operational and the other two are
strategic in nature (Figure 3). The operational types are
based on outside know-how, and the strategic ones on the
internal know-how of DaimlerChrysler and its suppliers.
The development of the fuel cell provides examples of EE
alliance relationships. Because this is new technology that
can only succeed by building up specialist know-how
together, the level of joint commitment on the part of sup-
pliers, development partners, and DaimlerChrysler is very
high. Many different departments are involved in the proj-
ect on both sides, and concepts are developed together.
Specific investments secured by strategic partnership agree-
ments are characteristic here. This has resulted in joint ven-
tures with the leading partners: Ford Motor Company and
Ballard Power Systems, a Canadian company at the fore-
front of fuel cell technology. They set up three common
joint ventures wherein the company with the specific core
capability has the majority and supplies all partners. Ford
has the majority for electric motors, DaimlerChrysler for
the controller software, and Ballard for the fuel cell.
Strategic partnerships in
the development phase
Developing know-how together is at the heart of strategic
partnerships in the development phase. Customers tie sup-
pliers closer by integrating them in the product develop-
ment process, as early and at as high a level as possible.
The arguments are plausible. Making their future suppliers
(manufacturers of parts, components, modules, and sys-
tems in particular) responsible for product design makes
for better results, because the suppliers know what can be
done in technical terms. First, they can establish a better
cost structure. Second, they are usually working with a
number of customers in different markets. Product devel-
opment is outstandingly suited to strategic partnerships
because of the intensive interaction it involves, especially if
the supplier bears a large proportion of the development
responsibility and risks.
The collaboration between Stork Digital Imaging (SDI), a
successful Dutch manufacturer of inkjet printers for paper
and textiles, and Te Strake, a supplier of drives and preci-

82 Business Horizons / November-December 2002

sion motion control systems, serves as an excellent exam-
ple of how to succeed in the market through product dif-
ferentiation. The two firms work closely together at the
limits of what technology can do. With a fiercely competi-
tive market, SDI cannot win on price, so it has to use con-
stant technological innovation to set itself apart. Develop-
ment work with suppliers is aimed at minimizing time-to-
market. SDI provides the basic ideas, and its suppliers im-
plement them using their know-how. A new product con-
cept for industrial inkjet printers was based on radical new
technology and developed almost entirely by suppliers,
with SDI acting as system integrator. The risk for Te Strake
to cover its development costs depends largely on SDIs
success, because SDI controls the commercial process. But
Te Strake can only accept that risk because the two com-
panies understand and practice their relationship as a
long-term strategic partnership.
Strategic partnerships in
the manufacturing phase
The aims and approaches involved in strategic partner-
ships in the manufacturing phase, which extends from
engineering to after-sales support, are different. During
development, the emphasis is on extensive, project-ori-
ented work; during manufacturing, companies deal with
building skills and working together to make and contin-
uously improve processes, products, and services. The
basic assumption is that, as with supply chain manage-
ment, integration can tap into considerable potential for
boosting efficiency. Working in partnerships can reduce
lead times, make suppliers delivery promises more reli-
able, reduce deviations from budget, lower stock levels,
implement product changes faster, reduce quality prob-
lems, attain more stable, competitive prices, and secure
orders of high priority.
Since 1874, the Geberit Group has been among the gen-
uine pioneers in the area of sanitary technology. It is still a
global provider and market leader today. Outside Europe,
Geberit has significant manufacturing facilities in the US
and China. Its business and financial success can be attrib-
uted largely to customer satisfaction with its products and
services. High product and process quality are vital, espe-
cially in dealing with external entities in the supply chain,
such as suppliers. The kanban strategy implemented suc-
cessfully with a strategic partner to supply plants in the
Geberit Group with fastener and assembly solutions shows
that partnerships in the manufacturing phasecoupled
with tried and tested innovative solutionscan unleash
enormous potential for rationalization. The partner
Bossard Group is an international logistics-oriented group
for fastener technology with three strong marketing centers
in Europe, the US, and Asia/Pacific.
Bossards two-container kanban system is based on the
simple but striking principle that there should be at least
two containers for each product, arranged one behind the
Capabilities for managing a portfolio of supplier relationships
other at the point of use. When one container is empty,
this is the sign that replenishment is required. When the
empty container is replaced, the product is reordered. By
integrating Bossard, Geberit has simplified its procure-
ment processes considerably, doing away with all the indi-
vidual steps involved in conventional solutionsfrom
obtaining quotes through to warehouse management
with all the expense and greater risks of error they entail.
The two-container kanban system has reduced logistics
costs by 72 percent, not to mention a 27 percent saving
on material costs. The whole system has been rationalized
by cutting out scheduling and order administration, elimi-
nating incoming material and lot control costs, minimiz-
ing Geberits internal transportation costs, and providing
automatic replenishment. Geberit no longer has to deal
with packaging, and it receives monthly collective in-
voices. The kanban principle benefits both Geberit and
Bossard due to lower stock levels, higher availability, and
reduced throughput times.
Geberit has completely delegated overall responsibility for
sourcing fasteners and has integrated its supplier very
closely in point-of-production supply processes. So it was
crucial to trust Bossard completely and set up a long-term
strategic partnership. Under the old system, there were 10
companies supplying the Geberit group with fasteners
(multiple sourcing). Now there is just one.
Strategic partnership
management
K
nowing which type of relationship best suits a buy-
ing firm under certain conditions driven by internal
and external factors is only the starting point of
active supplier management. The next step is to configure
the entire supplier portfolio and the strategic partnerships
in such a manner that competitive advantages result.
Management of relationship portfolios
Todays firms need to select and work with suppliers who
best meet their needs. This requires an active design of sup-
plier portfolios, a task that involves many different criteria
how many suppliers to have for each material or prod-
uct category
the supplier mixthat is, the proportion of parts, com-
ponent, module, and system suppliers in the portfolio
the regional distribution of suppliersthat is, the ratio
of domestic to foreign suppliers and their distribution
in economic regions (dollar, yen, euro)
supplier riskthat is, the risk of one or more suppliers
in the portfolio not being able to provide the expected
(and important) input
83
 the proportion of ISO 9000-certified suppliers
the proportion of women- or minority-owned suppliers
the nature of the relationships (relationship types) the
company maintains with suppliers in its portfolio
It should be obvious that not all suppliers will receive the
same attention or get the same treatment. Even if internal
and external factors would recommend partnership-like
supplier relationships, it would neither be possible nor
make sense to maintain such relationships with a large
number of suppliers.
Dyer, Cho, and Chu (1998) point out the necessity to seg-
ment. Firms should consciously employ both arms-length
and strategic durable partnerships. Instead of a one-size-
fits-all strategy, Dyer et al. advocate a differentiated ap-
proach and a strategic segmentation of suppliers. Only
then, they maintain, can companies realize the benefits of
both kinds of relationships at reasonable expense.
The entire supplier portfolio must be balanced with re-
spect to all the criteria mentioned above. Establishing and
maintaining partnerships consumes enormous amounts of
resources, and any companys resources are inevitably lim-
ited. Therefore, note Araujo, Dubois, and Gadde (1999),
a buying company can be involved only in a limited
number of interactive interfaces at the same time. This will
require that the resources of other suppliers be accessed
through less resource demanding interfaces. Companies
tend to focus on single relationships, neglecting important
Figure 4
Strategic partnerships require substantial supplier management capabilities
Strategic
High
partnership
SUPPLIER MANAGEMENT
Partnership
CAPABILITIES
Preferred
supplier
Arms length
Repeat
supplier
Approved
supplier
Low
One-time
supplier
Low
RELATIONSHIP INTENSITY
84
interdependencies and the trade-off between different
relationship options. Because of the very high level of
resources and capabilities required, our experience shows
that most companies cannot manage more than 5 percent
of the suppliers in their portfolio as strategic partners.
Maintaining such intensive relationships to any wider
extent would exceed their resources and capabilities.
Partnership management capabilities
A companys supplier management capabilities (see Figure
4) are its efficacies in establishing and managing relation-
ship portfolios and workable interfirm relationships. These
are crucial for company performance and can result in sus-
tainable competitive advantage. Difficult to imitate, sup-
plier management capabilities can establish idiosyncratic
relationships between companies that are also difficult to
copy. Intensive relationships can succeed only if a com-
pany has the necessary skills to establish, exploit, develop,
and follow up on them thoroughly and professionally.
What are the typical relationship skills required to estab-
lish and maintain strategic supplier partnerships? They are
quite specific and call for strategic planning as well as for a
proper relationship management process.
Planning strategic partnerships
Unstable internal and external environments have forced
managers and researchers alike to pay close attention to
formal strategic and marketing planning and its integra-
tion into management processes. Formal strategic and
marketing planning results in
improved market and financial
performance for the firm. Simi-
lar positive effects can be
achieved when the manage-
ment of strategic partnerships is
supported by formal planning
activities. Consequently, plan-
ningthe act of creating a set
Develop-
ment of priorities and goalsis a
partner vital supplier management
Manu- capability. The partners should
facturing always begin joint activities
partner
with strategies and long-term
programs, which must be set
up, implemented, and reviewed
continuously (Figure 5).
Wacker Siltronic, a producer of
silicon wafers for the semi-
conductor industry with major
operations in the US, Germany,
and Singapore, uses supplier
strategies extensively and draws
them up for fewer than 50 key
High
suppliers from a 600-strong
supplier base. These strategies,
Business Horizons / November-December 2002
Figure 5 with their suppliers mainly at
Ten guiding principles for supplier strategies arms length. On the other hand,
some firms stick to their suppliers
Principle Description for the long term but are unable
to exploit the full potential of the
1. Distinction Distinguish between strategies aimed at managing the entire relationships. They do not move
supplier portfolio versus individual supplier relationships. to higher stages of cooperation.
Long-term supplier relationships
2. Focus Set up individual supplier strategies only for key suppliers, based are beneficial only when actively
on volume and strategic importance. Include all strategic partners. managed and constantly aligned
with strategic goals.
3. Coordination Coordinate the interests in the strategic partner of all internal
functions throughout the process. Relationships with strategic part-
ners are the most intense. As a
4. Use of Make the most of all available critical information at the time consequence, they necessitate
information when supplier strategies are created. substantial capabilities in manag-
ing suppliers and a dynamic
5. Documentation Ensure that supplier strategies are written down. Subsequently,
process consisting of multiple
they can be properly communicated.
stages. One such process, shown
6. Communication Communicate supplier strategies throughout the company and in Figure 6 on the next page,
make them accessible in written form. starts with a clearly defined prob-
lem and the awareness that the
7. Use of Constantly look for arising opportunities and feed them into problem can be solved more eas-
opportunities the strategies. ily in cooperation with a supplier
(Phase 1). The next steps are iden-
8. Advancement Update and revise strategies on a regular basis in order to adapt tifying (Phase 2) and selecting
to internal and external changes, at least once a year. (Phase 3) possible supplier part-
ners. Then the companies get
9. Revision of Continuously verify assumptions by checking the validity of the
together and compare their
assumptions underlying supplier-related factors.
respective positions and expecta-
10. Performance Monitor supplier strategy implementation and assess achievement tions to get an idea of how they
monitoring of strategic goals. can contribute to each others
competitive advantage. Congru-
Source: Wagner 2000 ence of goals is built up. The part-
nership terms and conditions are
which Wacker Siltronic calls Supplier Roadmaps, help then defined (Phase 4). Once they have drawn up and
the purchasing department find out whether suppliers are signed a partnership and cooperation agreement, the
able and willing to follow the companys development. In companies can get down to business with a regular
this context, individual supplier objectives play an impor- exchange of services. The strategic partners recognize that
tant role. Supplier roadmaps are an important starting their relationship leads to a win-win situation, and they
point for targeted supplier management and integration. support it consistently, usually becoming highly depend-
They are regularly updated and revised, mostly once a ent on one another.
year. Wacker Siltronic is convinced that the benefits clearly
Any long-term relationship can come under pressure.
outweigh the costs of creating and following up on them.
Urgency diverts attention from the real priorities. People
Managing strategic partnerships concentrate on firefighting and forget about strategy. More-
over, problems can ariseeven early onand corrective
It is well understood that long-term supplier relationships action may be necessary. In such cases, the only answer is a
evolve over time. By definition, multistage developments close combination of long-term strategic thinking and the
apply only to partnerships. Firms that do not have the ap- ability to resolve problems together. If the companies fail
propriate qualifications to manage their suppliers might to think about taking corrective action, or if corrective
fall into one or both of the following groups. Some firms actions are not successful, the relationship usually breaks
tend to concentrate on one procurement process at a time down (Phase 5).
and are more concerned with analysis of the (albeit com-
plex) process by which buying firms arrive at individual Recently, Swiss Industrial Group (SIG), a $1.8 billion man-
purchase decisions, and the ways in which the seller can ufacturer of packaging machinery with 20 SBUs and major
influence this process in its favor (Ford 1980). They work operations in Europe, the US, and Asia, intensified the

Capabilities for managing a portfolio of supplier relationships 85

 Figure 6
Management of strategic partnerships over time

Phase 1: Phase 2: Phase 3: Phase 4: Phase 5:

Prepare Identify potential Evaluate and Establish Assess
partners select partner relationship relationship

Define strategic Establish Contact potential Document Continue

and operative and select strategic partners expectations relationship at
requirements criteria existing level
Gather primary Document
Set up team Assign and secondary modalities of Intensify
priorities data on potential cooperation relationship
Ensure support strategic partners and solve
by top Identify Offer continuous problems
management potential Evaluate and immediate
strategic potential feedback Reduce/end
partners strategic partners relationship

Decide with
team

Offer feedback

Source: Ellram (1991), authors research

relationship with its supplier Rockwell Automation. Today,
Rockwell Automation supplies Programmable Logic Con-
trollers (PLCs) and automation equipment to the entire
SIG group and is considered a strategic partner. When SIG
formed a task force about two years ago to consolidate
group activities in purchasing, Rockwell Automation was a
supplier to only a few of the SBUs, the approaches of the
SBUs toward Rockwell were not coordinated, and the SBUs
did not have the same terms and conditions. The result of
the task force after defining an Automation and Control
Strategy and evaluating alternative suppliers was a clear
decision for Rockwell Automation as key supplier for the
entire group. There have been regular meetings of com-
modity managers and technical people from various SBUs
of the SIG group with the supplier in Cleveland or at SIG
in Switzerland. The goal was and still is to exchange re-
quirements and experiencealready at early R&D stages
to widen the horizon and raise the quality of SIGs strategy
deployment.
Success factorsexternal collaboration
Goal congruence. Strategic partnerships can work only if
the partners strategies and visions of the future are com-
patible, and if those visions and strategies are constantly
being reviewed and developed. The companies must be
compatible both in terms of strategic and operative man-
agement and the approach to solving problems.
Trust. Interpersonal trust between the people inside both
partner firms can be increased through regular face-to-face
contacts. That way, it is easier to transmit tacit knowledge
about interpersonal relationships, such as signals concern-
ing commitment, likely behavior in conflicts, or the per-
ceived value of the relationship. Moreover, trust on an
organizational level is important because it survives a
breakdown of interpersonal relationships due to individ-
ual conflicts or employee turnover, and provides stability
in B2B relationships. Trust is required between many peo-
ple at different hierarchical levels. It should be the level at
which strategic partners actually work together. Several
aspects of trust are important for collaboration with a
strategic development or manufacturing partner:

Companies with a high level of supplier management
capabilities permanently look for opportunities to im-
prove their strategic partnerships. Clearly defined goals
shared by both partnersgoal congruence, mutual pre-
dictability, and, not least, intensive communication
between the partnersare important success factors for
the improvement of external collaboration and vital for
managing strategic partnerships with suppliers.
Generally, trust has much to do with predictability. Each
firm can predict the behavior of the other. The partners
know how the other side is likely to behave in any given
situation, and there are no major surprises. If the part-
ners trust one another, they behave by implicitly de-
fined or explicitly assumed rules.
If their mutual goals require it, strategic partners may
depart from the rules. Incomplete contractscontracts
that do not specify and regulate the subject matter

86 Business Horizons / November-December 2002

 down to the last detail and leave much uncertainare
characteristic of agreements between strategic partners.
A good partner does not merely abide by the letter of
the contract, but does whatever is necessary.
High up-front costs, such as development costs, the
high level of technical and commercial risks involved,
and the often uncertain outcome of joint projects call
for faith that only mutual efforts and close working
relationships will ensure success.
Communication. Intensive communication between part-
ner firms and their personnel, especially in the initial
phase of the cooperation, has a major effect on the other
success factorsgoal congruence and trustand enhances
partnership success. Huber and Daft (1987), for example,
report that there is a positive connection between regular
information sharing and close business relationships.
Readiness to exchange information voluntarily is in con-
trast to the obligation to exchange it under rules of con-
tract. In strategic partnerships, companies should commu-
nicate formally and informally and use both serial and
parallel communication structures. When all company
information is sent via the purchasing department, which
acts as the interface with the suppliers sales department,
we call this serial communication. In parallel communica-
tion, different functional units in both companies ex-
change information directly.
Strategic partners can communicate in a number of ways:
in writing, by telephone, via meetings, or electronically.
Using many different methods of communication inten-
sively and in a differentiated fashion keeps costs down
and improves the quality of communication. Dyer (1996)
observed many different means used to improve serial
and parallel communication between Chrysler and its
suppliers: the use of resident engineers, common and
compatible e-mail systems, an advisory board of execu-
tives of top suppliers, annual meetings with top suppliers,
quarterly meetings with all suppliers, and supplier invest-
ment in Chryslers CAD systems.
Success factorsinternal collaboration
For strategic supplier partnerships to be successful, factors
to improve internal collaboration (efforts within the firm)
have to be taken into consideration as well. These include
full support by top management and cross-functional
teamwork.
Top management support. Having the support of top
management boosts the motivation among those who
help manage strategic supplier partners and makes a
strategic partnership more likely to succeed. Such involve-
ment needs to go far beyond actually signing the contract
itself. At many companies, buyers are still relatively subor-
dinate and thus in need of support on strategic issues.
This means management must ensure that the resources
Capabilities for managing a portfolio of supplier relationships
required, such as people, time, travel, technology, and
facilities, are available. In addition, management should
remove any organizational obstacles and create a climate
in which the customers and suppliers staff can work
together well. The level and intensity of such involvement
depend, of course, on the relative size of the customer and
supplier. At SIG, every commodity manager has a letter
signed by the CEO explaining to whom it may concern
that the manager has the competence to negotiate and
sign contracts on behalf of the entire SIG group, not only
for the legal entity he belongs to.
Cross-functional teamwork. Many successful businesses
have emphasized the concept of using the coordinated
expertise of teams. Cross-functional teams have also be-
come a major success factor in procurement to minimize
total cost of ownership and provide the best technical
solution. To be effective, they should be put together at
the earliest stage of identifying needs and should work
throughout the entire procurement process. The motiva-
tion for cross-functional teamwork in selecting and man-
aging strategic supplier partnerships is about knowledge,
commitment, and behavior. Experience shows that bring-
ing together different functions from within the firm adds
considerably to the quality of decisions being made. Both
technical advice and commercial information about the
products, services, and technologies and the potential
strategic partner itself are needed at the beginning. When
the team later chooses a strategic partner and agrees on
the strategies being pursued, it is vital to consider all in-
terests in these decisions. In that case, the people involved
will most likely show a high commitment and support
the implementation.
C
ompanies that invest their resources and abilities
in strategic partnershipsin other words, those
that form close buyer-supplier relationshipscan
generate lasting competitive advantage. Working together
in partnership as a system resource of the firm is particu-
larly resistant to imitation by other companies. Therefore,
says Jap (1999), it may be an inimitable, critical source of
long-term competitive advantage for the dyad.
For the most part, literature and practice have focused on
issues related to the selection of a single strategic supplier
partner. Here we have differentiated and significantly aug-
mented this view, emphasizing that distinct skills for
planning, setting up, and managing strategic partnerships
(supplier management capabilities) are potentially impor-
tant for its success. Supplier management capabilities are
dynamic because they involve the ability to reconfigure a
relationship over time in response to changing environ-
ments and conditions. Moreover, firms need to manage
their full range of relationships across their supplier port-
folios according to priorities. Not all supplier relation-
ships need be long-term ones; in fact, long-term relation-
87
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88 Business Horizons / November-December 2002