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A long-term, mutually beneficial business relationship containing specific elements unique to the relationship; an agreement detailing performance requirements and conditions, structures to promote successful interaction between parties, organizational alignment, clear measures of success, and a high level of mutual commitment
Buyer-Supplier Relationships
Spectrum of Buyer-Supplier Relationships
Neutral Antagonistic
Parties work actively against the needs of the other Neither party takes responsibility for anything that happens in the relationship
Adversarial
Parties are engaged in competitive struggle Parties attempt to capture the maximum value for their side
Cooperative
Parties realize the benefit of working together Closer relations are a result of mutual goals Supplier input and involvement begins to increase
Collaborative
Congruence of goals exists Parties work together to satisfy the needs of each other and create new value Parties search for creative solutions jointly
Lose/Lose
Win/Lose
Win/Win
Types of Relationships
Strategic Alliance
Collaborative
Vendor/
transactional
Partnerships
Coordinated
Arms Length
Co-operative
Joint Ventures
Vertical Integration
Fewer suppliers Longer term contracts Information linkages WIP linkages EDI exchange Supply chain integration Joint planning Technology sharing
Short-term
Long-term
Collaborative Relationships
Typically used for the procurement of noncommodity items and services A collaborative relationship frequently is an appropriate first step on the road to a strategic alliance Collaborative relationships tend to foster
Longer term contracts Reduction of risk for suppliers Reducing total costs (e.g. contract writing, monitoring) Improvement of products and processes Increased investment in R&D Increased investment in training and equipment Better focus on customer needs
Supply Alliances
The fundamental difference between collaborative relationships and supply alliances is the presence of institutional trust in alliances Benefits:
Lower total costs Reduced time to market Improved quality Improved technology flow from suppliers Improved continuity of supply
Strategic Alliances
E.g. One firms output is used to manufacture another product by the alliance partner. One firm marketing channel is used to sell another firms products Strategic alliances are common in global marketing, where the creation of marketing channel is expensive and time consuming.
e.g. Nestle have an extensive marketing system that spans 70 countries and many companies use Nestl's marketing channel to market their products.
Differences in Relationship
Duration Obligations Expectations Interaction/ Communication Cooperation Planning Goal Performance Analysis Benefits & Burdens
Yes
3. Evaluate Alternatives
If sufficient level of drivers & facilitators are not present a transactional level relationship is indicated Alternatively, when common drivers are present and facilitating factors are also present, a more formal structured relationship may be justified. In addition to the logistics/SC executives other operational managers also need to be involved in the selection process and partnership selection process
Outsourcing/3PL
Traditionally subcontracting has been used to obtain materials and services from external parties. Subcontracting is of varying types and duration and often has conflicting interests, Outsourcing/ 3PL is an extension of the longlongstanding practice of subcontracting Outsourcing has become a major strategy as firms move toward specialization
The End
Types of 3PL
Standard 3PL provider Service developer The customer adapter The customer developer
Reference: The Management of Business Logistics: A Supply Chain Perspective by John J Coyle, Edward J. Bardi and John Longley Jr., Published by South Western Canada, 2003