 |
 Logistics
is defined as the movement of raw materials and parts into and within a business firm, and
the distribution of finished products to customers. It is an essential function that
adds value to the final product. However, in today's business world, many companies
need to go far beyond that. They want to establish long-term relationships by
sharing information. There is a trend toward joining efforts between customers and
vendors to achieve common objectives. These kinds of interdependence are often
referred to as "partnering" or "strategic alliances." To get a
better understanding of this way of doing business, we talked with two experts in the
field of logistics: C. John Langley Jr. and Ray A. Mundy, Distinguished Professors
of Logistics and Transportation at the University of Tennessee. This is what we
learned. |
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| EDITOR'S NOTE: "Partnering" is quite
different from "partnership." A partnership is a legal form of business
organization in which the owners share all profits and losses.
"Partnering" is a non-legal relationship between independent companies who share
compatible goals and strive for mutual benefits without formal legal ties. Firms may
engage with one another in"partnering," even though there are no legal
partnership agreements between them. |
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| WHAT EXACTLY
IS PARTNERING?  Dr. Langley: "One of
the easiest ways to understand partnering is that in any kind of business relationship,
you have to spend money. Many times, neither party wants to, or one of the parties
is not willing to share. In true partnering, if the relationship needs funding, the
companies involved will figure out a way to share the financial burden.
"In addition, there might be some things that the
customer always did that might be better for the supplier to do, and the transferring of
these responsibilities is something that could easily be done under a partnering kind of
arrangement.
"This
is quite different from arm's length relationships where you make a transaction and buy
service on an as-needed basis. In partnering there is a steady flow of information
coming from one company to a supplier about the quality of the product and the service
they receive. And the supplier communicates to the customer how the relationship
looks from its point of view.
"Traditionally,
vendors never comment on how easy it is to deal with the customer. If you have a
true partnering relationship, the customer will ask for feedback, and ask questions like,
'Tell me, aren't we easy to do business with? What can we as a customer do to
improve?' And that's a lot different from the way business has always been
conducted."
WHAT ARE THE DIFFERENT KINDS OF
RELATIONSHIPS BETWEEN A SUPPLIER AND CUSTOMER?
Dr. Mundy: "Relations between a company and buyers
can be at a transactional level. That is, we buy something and pay money for it,
then it's caveat emptor, 'Let the buyer beware.'
"Partnering is midway through the range of relationships
- transactions to partnering agreements to a true alliance. Partnering can be used
in terms of how you're working with customers, or how you want them to work with you.
"A transactional relationship is a very technical one.
The participants are separated from everything else before, during and after the
exchange. There is no relationship between the parties. Their identities are
ignored. There is little communication and little product knowledge exchanged.
A transaction involves a non-negotiable price and a one-time purchase.
Obviously, unless you are the low-cost producer, you don't necessarily want to be in that
kind of relationship. It takes a lot of marketing effort to consistently be low
bidder.
"In a partnering arrangement - for example between a
trailer manufacturer and a fleet manager - the fleet manager would share his needs with
his supplier.
"Such as, how many trailers he will need over the next
year, and how and when he would like them delivered. He makes an agreement with the
vendor to deliver 25 percent of the order each quarter, and tells the supplier well enough
in advance so production can be planned to meet delivery deadlines. No marketing is
needed, no effort is there. The supplier saves in costs and the buyer saves somewhat
be no having non-value added activities a part of their transaction, such as bids and
presentations.
In a strategic alliance, a fleet manager decides what his
needs will be and plans in concert with his vendor. The vendor is brought all the
way into the planning process with his fleet customer and asked to participate with ideas
and solutions to dramatically change the company's competitive position." |
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ATTRIBUTES OF RELATIONSHIPS
TRANSACTIONS
- No relationships between parties
- Identities are ignored
- Little communication
- Limited product knowledge
- Non-negotiable price
- One-time purchase
PARTNERING
- Ongoing relationships between parties
- Extensive planning and interaction
- Frequent communication
- Explicit performance expectations
- Continuous price modification
- Ongoing purchase
STRATEGIC ALLIANCES
- Long term relationship between two or more firms
- Extensive sharing of information
- Risks and rewards also shared
- Emphasis on trust and cooperation
- Ongoing interaction
- Commitment to improve each company's competitive position
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SINCE THERE
ARE DIFFERENT KINDS OF TRANSACTIONS, ARE THERE ALSO DIFFERENT KINDS OF PARTNERING? Dr.
Langley: "Yes, there are. If you are a fleet, there can be partnering
between your fleet and your customers. And partnering between the fleet and its
vendors. You can partner with suppliers of logistic services, and with other
transportation firms and distribution centers."
IN PARTNERING WITH A VENDOR, CAN YOU ORDER
SUPPLIES IN ADVANCE AND LEAVE IT TO THE SUPPLIER TO DELIVER?
Dr. Mundy: "That's right. You would let your
supplier know as early as possible in your planning cycle what your plans were and how the
purchases were progressing, so the supplier could plan its production to meet your needs
over the coming quarter and the next year."
"Here's a different way of looking at these kinds of
relationships. A transaction is a one-time purchase, like buying a light bulb.
It's a simple purchase at a hardware store. I'm paying for this service, I
don't expect it to continue, neither does the store. There is no negotiation, there
is no continuation, it's a one-time cash and carry purchase."
"However, redecorating and furnishing my living room is
something I would share with someone else, such as an interior decorator. I would
work closely with the decorator in a combined effort, sharing information, establishing a
budget and agreeing on due dates on a partnering type level."
"Buying a house is a true alliance. There can be
several other people to help with the purchase - a realtor, a financial person, a title
expert - all working together in an ongoing relationship to find the right home, stay
within a specified budget, certify the title on the house, arrange a loan at the best
rate, and have the closing go as smoothly as possible. My destiny is co-mingled with
my vendors and vice-versa."
"You need to be sure, however, exactly what kind of
relationship you're in. If you think that your relationship is a true alliance, but
your customer looks at it as partnering, or worse yet, a simple transaction, there's going
to be a lack of communication and a lot of misdirected effort." |
| IS PARTNERING THE SAME AS
STRATEGIC ALLIANCE? Dr. Mundy: "Some of
us regard partnering as a lesser form of a strategic alliance. Partnering is sort of
a 'teamed' approach for the life of the project."
DOES PARTNERING TAKE A LONG TIME TO DEVELOP?
Dr. Langley: "The good ones do. True
partnering relationships evolve over time. They start out with a little piece of the
business, but grow to other geographical areas. You might work with a company on a
regional basis, but may end up doing a national contract, moving into leasing arrangements
and providing more value-added services over a period of time.
"Good partnering seems to evolve that way.
Sometimes, bad relationships occur when two CEO's play 18 holds of golf and decide they
should work together and that the underlings can take care of it. Those shotgun
weddings don';t seem to last, because they were not developed over concerns for each
other's needs."
HOW DO YOU GO ABOUT SETTING UP PARTNERING?
Dr. Langley: "Arrange a relationship where there
is a willingness to share information between both parties. The more information
each is willing to share, the better each can function."
STRENGTHENING RELATIONSHIPS
"Essentially, you take uncertainty out of their
processes and replace it with clear and consistent goals. That's the key right
there. You'll wind up with increased loyalty to one another. A common vision
and effort to achieve success."
Dr. Mundy: "As a matter of fact, Chrysler
Corporation has developed a program which they use to measure their partnering
arrangements. As their partnering suppliers perform well, they give them an
opportunity for greater financial returns, or a larger piece of Chrysler's business."
IS PARTNERING A NEW CONCEPT?
Dr. Langley: "Partnering has been around for a
long time, but not until recent years has it become a popular concept. Actually,
partnering is a really easy word to say, but it's much harder to do.
"One of the rationales of partnering is instead of
having competing vendors for each product or service - and rebidding every 6 months, the
alternative is to develop long term relationships."
"You eliminate non-value added activity - like
competitive bidding - and you develop someone who understands your business and is able to
assist you in developing a better product at a lesser cost.
"Noting the successes that Japanese automotive and tire
manufacturers have had, the challenge was how to lower production costs. Some
suggested we evaluate out traditional competitive bid process and form relationships that
would achieve the same thing. That's the origin of the trend, and what was first a
trickle in the 70s, is now pretty much of a wave in the 90s.
"It still makes procurement officers really nervous when
you don't have a competitive bid, but that's how we're doing business today." |
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Ray A. Mundy, Taylor Distinguished Professor of
Logistics and C. John Langley Jr., Dove Distinguished Professor of Logistics and
Transportation at the University of Tennessee, Knoxville. |
When the editors of Real Answers needed information for an
article on "Partnering," we didn't look any further than Bridgestone's own
backyard. The University of Tennessee's Department of Marketing, Logistics and
Transportation ranks number one in the country in the education of logistics/distribution
managers. This is international executive research firms, and a team of researchers
from Fordham University's Graduate School of Business.
The study, "Logistics Executives" A
Management Discipline in Transition," is the first of its kind to address how today's
senior logistics executives advanced to their current positions. Runners-up in the
survey were Michigan State, Ohio State, Penn State and Georgia Tech.
Department Head David Schumann believes that the executives
chose University of Tennessee because, "A number of our faculty are recognized as
world-class experts in the field. The designation is clearly very significant for
the department."
The department has a reputation for working closely with the
private sector. "We are at the forefront of institutions forming partnering
arrangements to solve the most pressing logistics problems," Schumann says.
"The results of the study will further our ability to recruit the best and brightest
students."
A Supply Chain Management Forum has been formed at the
university to help define and clarify today's most critical logistics issues. The
form\um brings logistics executives together with faculty members and other experts.
It will expose Tennessee business students to issues they will be facing once they
graduate.
The executive board of the management forum includes major
corporations, including Coors Brewing, Eastman Chemical and General Motors. |
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