L4M6 Chapter 3 Flashcards
A successful partnership relationship can contribute tremendously to buying organisation’s overall profitability. However, identifying right partner can be very difficult. Which tools are most likely to be used to identify the most suitable partner?
- Kraljic model
- Supplier preferencing model
A buyer needs to carefully review all the products and services in its portfolio to identify the areas where developing a partnership would generate the most benefits and value. Buyer can use Kraljic model to make a list of all products and services located in the strategic quadrant.
It also needs to undertake supplier preferencing. Ideally it would be best to consider a partnership development with suppliers that are located in the core quadrant or developmental.
Communications between the purchaser and supplier in the partnership should be…?
Concise, Transparent.
When it comes to the communication method itself, you should assess which method best suits the situation and will deliver the optimum results for supply chain success. There are also some basic principles to consider when it comes how you communicate with stakeholders and suppliers:
- Be clear. This may sound like an obvious basic principle, but it’s vital to make sure the ‘narrative’ of the proposal comes across so stakeholders understand and are excited by what you are proposing. Use a brief headline to sum up the proposal and focus on the benefits the project will deliver as well as how they will be achieved.
- Tailor it. When getting across the key benefits of the project, don’t just focus on general benefits and costs. Consider the stakeholders you are addressing and tailor it to show how you will tackle their own individual concerns.
- Be personal and pragmatic. Often with stakeholders, it’s more beneficial to give them a call or pay a quick visit than to send less direct communication such as emails. A personal and pragmatic approach will get faster and better results when aiming to implement change.
As part of a strategic relationship, such as a partnership, the buyer and supplier must be transparent in their communication in order for the relationship to succeed. Lack of transparency and openness can result in lack of trust.
According to Charles Handy, what type of organisational culture has high level of formalisation and standardisation of authorities, rules and procedures?
Role culture.
Model of culture, popularised by Charles Handy (1999) – and following work by Harrison (1972) – presents organisational cultures as classified into four major types: the power culture, the role culture, the task culture, and the person or support culture.
The role culture can be illustrated as a building supported by columns and beams: each column and beam has a specific role to playing keeping up the building; individuals are role occupants but the role continues even if the individual leaves. This culture shares a number of factors in common with Weber’s description of the ‘ideal-type’ bureaucracy.
This type of organisation is characterised by strong functional or specialised areas coordinated by a narrow band of senior management at the top and a high degree of formalisation and standardisation; the work of the functional areas and the interactions between them are controlled by rules and procedures defining the job, the authority that goes with it, the mode of communication and the settlement of disputes.
Position is the main power source in the role culture. People are selected to perform roles satisfactorily; personal power is frowned upon and expert power is tolerated only in its proper place. Rules and procedures are the chief methods of influence. The efficiency of this culture depends on the rationality of the allocation of work and responsibility rather than on individual personalities. This type of organisation is likely to be successful in a stable environment, where the market is steady, predictable or controllable, or where the product’s life cycle is long, as used to be the case with many UK public sector bodies. Conversely, the role culture finds it difficult to adapt to change; it is usually slow to perceive the need for it and to respond appropriately. Such an organisation will be found where economies of scale are more important than flexibility or where technical expertise and depth of specialisation are more important than product innovation or service cost – for example, in many public service organisations.
For employees, the role culture offers security and the opportunity to acquire specialist expertise; performance up to a required standard is rewarded on the appropriate pay scale, and possibly by promotion within the functional area. However, this culture is frustrating for ambitious people who are power orientated, want control over their work or are more interested in results than method. Such people will be content in this culture only as senior managers. The importance of Handy’s role culture is that it suggests that bureaucracy itself is not culture-free.
Before entering into a new partnership, both parties must believe that they will receive significant benefits in one or more areas and these benefits would not be possible without a partnership. These benefits are called drivers by Douglas M. Lambert. Which of the following are most likely to be the drivers towards partnering relationships?
Enhanced customer services
Higher cost efficiencies
Entry into new markets
Drivers are the benefits that both parties believe they will be able to realise after forming the partnership. Without partnership, it is impossible to achieve these benefits. Lambert et al lists 4 groups of drivers:
Asset/Cost Efficiencies: Better collaboration can help to reduce costs in doing business. This reduction must not hamper the quality of the product but give the partners an upper hand in the market. This groups includes: Product cost savings; Distribution cost savings, handling cost savings; Packaging cost savings, information handling cost savings; Management efficiency; Assets utilisation
Customer service improvement: Partnerships are often expected to increase the customer service by reducing inventory level, higher service level, more accurate information. Customer service improvement can be: Improved on-time delivery; Better tracking of movement; Better order processing; Improved cycle times; Better customer satisfaction; Process improvement
Marketing advantage: By forming the partnership, an organisation may get a foot into new market, or access to technological improvement. This group also includes: Promotion opportunities (joint promotion with partners)Reduced price; Joint developed new product; Extended geographical presence; Innovation opportunities
Profit stability/growth: This is one of the most common driver for partnership. To a supplier, partnership means that the buyer has a commitment on long-term volumes. Other benefits can be: Profit growth; Market share stability; Stable sales volume; Assurance of supply
Which of the following are typical features of a partnership relationship?
Contract only outlines the basic philosophy guiding the relationship
Both parties focus on long-term objectives
Buyer gains the access to supplier’s cost data.
Several characteristics distinguish a partnership relationship from a traditional contract:
- Early supplier involvement (ESI)
- No tendering and no win-lose negotiation – supplier not ‘selected’ but the relationship evolve overtime, no negotiation but with discussion based on win-win
- Share cost, benefits and risks
- Higher levels of information sharing and transparency: Partnership sourcing will involve sharing information with the partner organisation. This would include information that gives the buying organisation a competitive advantage in the marketplace. Information sharing may involve the process of open book costing. These elements are likely to be the key to the buyer’s and supplier’s competitive advantage in the marketplace. In the traditional contracting, the buyer is only able to estimate the supplier’s cost.
- Joint performance measurement
- No definite or defined end date: Partnership relationships, especially type 3, are long-term, without a defined end period. As a result of the increased length of the relationship, partnership tends to focus on long-term objectives, with the partner being a key part of each other’s future plans, whereas more traditional contracting agreements focus on short to medium term objectives.
- Less contractual: In the spirit of partnership there is less need to specify treatment for failure in performance as it is in the best interests of the buyer and supplier to make the partnership a success. There will still be a requirement to agree objectives and KPIs.
- High level of trust
Eric, a senior buyer at a mobile manufacturer, is disappointed by a supplier. This supplier provides one of the key components to Eric’s company and the supply market is so narrow that not many suppliers are able to provide this component. Which of the following is a right course of action for Eric?
Schedule a review session with the supplier.
In this scenario, the relationship between Eric’s company and the supplier can be a partnership due to the importance and complexity of the items. However, it is seemed that the supplier does not commit to the relationship. A performance review may be necessary for the following reasons:
- By having review process, the partners are reminded about the goals so that they can commit the resources.
- Both parties may find the causes of this lack of commitment and suggest some remedial actions
In order to persuade senior management team and other functions to buy in partnership sourcing, procurement professional must undertake which of the following?
Identifying interest and influence of relevant stakeholders.
Presenting the business case to senior management.
Managing the organisational changes.
When seeking buy-in for the philosophy of partnership relationships, procurement professional should do the following:
• To senior management of the organisation
- Develop and present a compelling business case
• To the various functions/key stakeholders involved in the relationship
- Review business case
- Require stakeholder management
- Require change management
- Require change management to remove resistance
• To potential or targeted suppliers
- Involve senior management
- Review business case for buy-in
- Define operational framework, standards and expectations
Which of the following shows the highest level of trust between two parties?
Both parties perform joint innovation activities.
Trust can be difficult to define and measure, as it is demonstrated by the behaviour of people. Trust is developed through clear, two-way feedback and communication between the buyer and supplier; it is developed over time.
As trust increases so do levels of cooperation between a buyer and a supplier, moving from defensive win-lose situation to synergistic win-win scenario.
Among the answers, only “Both parties perform joint innovation activities” occurs when both parties have high level of trust in each other as they readily share sensitive information.
Which of the following are most likely to be drivers of partnership relationships?
Ensuring security of supply
Access to the new market
Higher cost efficiencies.
Drivers are the benefits that both parties believe they will be able to realise after forming the partnership. Without partnership, it is impossible to achieve these benefits. Lambert et al lists 4 groups of drivers:
Asset/Cost Efficiencies: Better collaboration can help to reduce costs in doing business. This reduction must not hamper the quality of the product but give the partners an upper hand in the market. This groups includes:
- Product cost savings
- Distribution cost savings, handling cost savings
- Packaging cost savings, information handling cost savings
- Management efficiency
- Assets utilisation
Customer service improvement: Partnerships are often expected to increase the customer service by reducing inventory level, higher service level, more accurate information. Customer service improvement can be:
- Improved on-time delivery
- Better tracking of movement
- Better order processing
- Improved cycle times
- Better customer satisfaction
- Process improvement
Marketing advantage: By forming the partnership, an organisation may get a foot into new market, or access to technological improvement. This group also includes:
- Promotion opportunities (joint promotion with partners)
- Reduced price
- Joint developed new product
- Extended geographical presence
- Innovation opportunities
Profit stability/growth: This is one of the most common driver for partnership. To a supplier, partnership means that the buyer has a commitment on long-term volumes. Other benefits can be:
- Profit growth
- Market share stability
- Stable sales volume
- Assurance of supply
To improve its supplier capability, Toyota introduces a supplier development programme to the most potential vendors. During the programme, Toyota procurement team monitors the attenders closely. They discover that Gemba Ltd improves the most among the attending vendors. The company starts from making one component to making subsystems for Toyota. The procurement team sees an opportunity to form partnership relationship with Gemba. Which of the following clauses should be included in the agreement so that the partnership will work in a fully collaborative way?
Continuous improvement.
Unlike other types of relationship, partnership requires both parties to work in the most collaborative way. The partners should not focus solely on reducing their own risks or transferring their risks to the other party (by damages or penalty). The agreement should include clause on continuous improvement. The following is an example of continuous improvement clause:
“The Supplier shall adopt a policy of continuous improvement in relation to the Services pursuant to which it will regularly review with the Authority the Services and the manner in which it is providing the Services with a view to reducing the Authority’s costs (including the Framework Prices), the costs of Contracting Bodies and/or improving the quality and efficiency of the Services. The Supplier and the Authority will provide to each other any information which may be relevant to assisting the objectives of continuous improvement and in particular reducing costs. “
Which of the following are possible benefits for buyer when the enter into a partnership relationship with a supplier?
Greater stability of supply and prices
Potential cost-savings
Coming together to form a partnership style relationship will bring a number of advantages for both the buyer and the supplier.
Partnering-buyer’s perspective Advantages
Greater stability of supply and prices, Sharing of risk and investment, Better supplier motivation and response, Cost savings - reduced supplier base, Collaboration, JIT, Access to supplier’s technology/expertise
Partnering-buyer’s perspective Disadvantages
Risk of complacency re cost and quality
Less flexibility to change suppliers at need
Risk to confidentiality, intellectual property
Partnering-supplier’s perspective Advantages
Greater stability and volume of business, Working with customer, Joint planning and information sharing, Sharing risk and investment.
Partnering-supplier's perspective Disadvantages Maybe locked into relationship Gains and risks not fairly shared Risk of customer exploiting transparency Investment in relationship management Restricted by EU procurement directives
The high level of commitment to partnering relationship suggests which of the following?
Buyer views the supplier as strategic
Supplier views the buyer as a core customer.
Commitment to a relationship is a willingness to dedicate financial and non-financial resources to the relationship. Buyer is more likely to invest more efforts and resources on suppliers of high-value, high-risk items (strategic according to Kraljic portfolio matrix). Conversely, supplier is more willing to do so if it views the buyer as a development or core customer (supplier preferencing)
Which of the following are priority action to be done by both buyer and supplier to ensure that they commit to total quality management (TQM) over the life time of the partnership?
Jointly develop KPIs with the supplier
Develop formal review process.
Total quality management is a strategic business practice, and a partnership style relationship with a supplier would be needed in order for it to be implemented. Buyer may request that the supplier commits to developing TQM over the life of the partnership, raising its quality standard to the level required by the buying organisation. To ensure that this happens, the buyer and supplier should develop joint KPIs that link to this required standard. Development of TQM will require significant resources from both the buyer and the supplier. Both parties should also jointly review and develop their quality management policies and procedures.
Both parties should also review separately as well as jointly. Project audits should also be undertaken by an independent party.
XYZ Ltd and CSX Ltd has just engaged in a partnership agreement in which they will establish a cross-organisational team that focuses on the design, development and deployment of new order and delivery systems. The team consisting of members from functional departments of both companies will make the plan for this project. But this plan still needs approvals from XYZ’s and CSX’s top management. A set of KPIs is also mutually developed to measure the performance of each individual company. The relationship between XYZ and CSX is an example of which type of partnership according to Lambert et al?
There are three types of partnership relationship that a buyer and a supplier could choose to enter into as outlined in the model developed by Lambert et al:
The right answer should be Type 2.
Type 1 partnership -
The organisation recognise each other as partners and co-ordinate activities and planning on a limited basis e.g. partnership to improve delivery. Procurement is involved from the buyer side and operations from the supplier side.
Type 2 partnership -
Both companies progress beyond co-ordination of activities to integration. The partnership has a long-term focus and a number of functions within both companies are involved e.g. the buyer and the supplier have decided to invest in the same ordering and delivery system to improve integration. The scope of the partnerships now spans several years. From the buyer side procurement, operations and stores are involved. From the supplier side sales and operations are involved. A cross-organisational team has been developed to manage progress.
In the scenario, the two companies has formed a partnership relationship in which a cross-organisational team is involved. This partnership can not be Type 1 as number of functions from both companies take part in the relationship. However, the decision is still held by the two companies top management and performance measures are still focused on each individual company. This is a stark difference from Type 3 partnership where companies must share significant level of operational integration. In Type 3 partnership, top management is involved in joint planning, risks are shared, measures focus on relationship and joint performance as well as parties may make changes to other’s system without getting approval…
An international retail giant WMT Ltd was aiming at Indian market. However, the government imposes a lot of barriers on foreign investor in order to protect the local businesses. WMT senior managers then considered about acquiring a local retail company. What would be the benefits of this approach?
- Access to the restricted market
- Gain the knowledge on local market
An acquisition is defined as a corporate transaction where one company purchases a portion or all of another company’s shares or assets.
Acquisitions are typically made in order to take control of, and build on, the target company’s strengths and capture synergies. There are several types of business combinations: acquisitions (both companies survive), mergers (one company survives), and amalgamations (neither company survives).
Acquisitions offer the following advantages for the acquiring party:
- Reduced entry barriers
With M&A, a company is able to enter into new markets and product lines instantaneously with a brand that is already recognized, with a good reputation and an existing client base. An acquisition can help to overcome market entry barriers that were previously challenging. Market entry can be a costly scheme for small businesses due to expenses in market research, development of a new product, and the time needed to build a substantial client base.
- Market power
An acquisition can help to increase the market share of your company quickly. Even though competition can be challenging, growth through acquisition can be helpful in gaining a competitive edge in the marketplace. The process helps achieves market synergies.
- New competencies and resources
A company can choose to take over other businesses to gain competencies and resources it does not hold currently. Doing so can provide many benefits, such as rapid growth in revenues or an improvement in the long-term financial position of the company, which makes raising capital for growth strategies easier. Expansion and diversity can also help a company to withstand an economic slump.
- Access to experts
When small businesses join with larger businesses, they are able to access specialists such as financial, legal or human resource specialists.
- Access to capital
After an acquisition, access to capital as a larger company is improved. Small business owners are usually forced to invest their own money in business growth, due to their inability to access large loan funds. However, with an acquisition, there is an availability of a greater level of capital, enabling business owners to acquire funds needed without the need to dip into their own pockets.
- Fresh ideas and perspective
M&A often helps put together a new team of experts with fresh perspectives and ideas and who are passionate about helping the business reach its goals.
