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Purchasing, Supply Partnerships, and Supply Chain Power

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1 Purchasing, Supply Partnerships, and Supply Chain Power
Purchasing and Supply Chain Management by W.C. Benton Chapter Eleven Purchasing, Supply Partnerships, and Supply Chain Power McGraw-Hill/Irwin Copyright © 2010 The McGraw-Hill Companies. All Rights Reserved.

2 Learning Objectives To understand the relationship between purchasing, supply partnerships, and supply chain power. To understand the elements of supply chain partnerships. To understand the continuum of interfirm relationships.

3 Learning Objectives To understand the potential benefits of supplier partnerships. To understand the nature of supply chain power. To understand the different sources of power. To examine how supply partnerships work in the automotive industry.

4 Supply Chain Partnerships
Critical to the implementation of ___________________________________________________________________________________. Also termed a strategic alliance, a supply chain partnership is a relationship formed between two independent entities in supply channels to achieve specific objectives and benefits, ___________________________________________________________________________________.

5 Supply Chain Partnerships
Within the win-win partnership dyad, buyer and supplier share goals as well as inherent risks through joint planning and control, ______________________________________________________________________________. Like the overall goal of supply chain management, such coordination allows for improved service, ______________________________________________________________________________. Ideally, the end result for both firms should be decreased uncertainty, ______________________________________________________________________________.

6 Importance of Supply Chain Partnership Awareness
Like supply chain management, the frequency of partnering is increasing in industry, but implementation still remains a difficult process. And like supply chain management, buyer-supplier partnering extends ____________________________________________________________________________________________________________________________________________________________.

7 Partnerships: Definition and Overview
Though partnering has received abundant recognition over the last few decades from both researchers and practitioners alike, ________________________________________________________. Although many firms engage in partnering activities, the specific interpretation of a strategic alliance or partnership (the terms partnership and alliance will be used interchangeably in this chapter) is at best vague.

8 Relationship Intensity
Partnerships move beyond special influence transactions by involving efforts of both firms to coordinate functional activities. The Figure on the next slide shows how partnerships can be segmented into three tiers based on the intensity and duration of the leadership. Tier I _____________________________________ _________________________________________. Tier II ____________________________________ _________________________________________. Finally, tier III partnerships dilate into “significant levels of operational integration.” _________________________________________.

9 Traditional Sourcing The evolution of intrafirm functional integration has occurred for most firms over the last few decades, _________________________________________________________________________________________. Supply chain partnerships ______________________________________________________________________________________________________________________________________________________________________.

10 Reduced Supplier Bases
Some supply managers argue that implementation of many new manufacturing techniques necessitates ____________________ _______________________________________. The two primary factors of Asian production techniques are reduced supplier ________ and ________________. Other supply managers proclaim that single sourcing is not as widespread in Japan as believed and that many Pacific Rim manufacturers actually exercise a single/dual hybrid approach.

11 The Size of the Supplier Base
Despite the differences in opinions about the size of the supplier base, __________________________________________________________________________________. There is an increased tendency toward a smaller supplier base in the United States. With regard to the automobile industry, __________________________________________________________________________________.

12 Expected Reduction of Supplier Base
In the 1980’s the automobile industry relied upon approximately 10,000 suppliers __________________ _________________________________________ Twenty years later, such purchases rose to $300 billion while the number of tier 1 suppliers fell to just 375. _________________________________________________________________________________. The objective of a drastically reduced supplier base precludes an acceptance of supplier partnerships because a firm must accept dependence upon fewer suppliers before they can internalize legitimate forms of supply chain management and supplier partnerships.

13 Supply Chain Partnerships
A Harvard Business School study concluded that a key driver in the decline of U.S. competitiveness ______________________________________________________________________________________. It is impossible to operate as a discrete entity, but while virtually no firm engages in completely discrete engagements, conventional Western and American business practices have been more oriented toward discrete than relational.

14 Supply Chain Partnerships
Over recent decades however, __________________ _______________________________________________________________________________. Even competitors, and many modern business thinkers will claim that not only is a more open and relational attitude advantageous, _______________________ _______________________________________. Recognizing partnerships between buyer and supplier as a fundamental driver for the success of the Pacific Rim supply chain processes, _______________________________________________________________________________.

15 Benefits of Supplier Partnerships
While many firms have sought vertical integration through acquisition to harness supplier expertise, some argue that partnerships can provide similar benefits without the necessity of ownership and arduous exit barriers. Buyers can gain from higher quality, and transaction costs may be reduced through economies of scale, decreased administrative and switching efforts, process integration, coordination of processes, and quantity discounts.

16 Risks of Supplier Partnerships
With its many benefits, supply chain partnerships retain several inherent risks that can be potentially damaging to participants. _____________________________________________________________________________________________________________________. Partnerships may actually open the weaker party up to negative influence potential and research _______________________________________.

17 Partnership Implementation and Critical Success Factors
Before firms can enjoy the benefits of a buyer–supplier partnership, ____________________________________ ______________________________________________. A supplier partnership involves a significant attitudinal as well as structural change from traditional supply arrangements, __________________________________ _______________________________________________ Guides to the implementation process are summarized below

18 Supplier Partnership Implementation
The first step ______________________________ _____________________________________________________________________________________________________________________. Next, criteria for potential partners are developed, and candidates are assessed. Once a partner is selected, the establishment of the actual relationship provides the next critical step in which the partners __________________________________ _______________________________________. The final step in the partnering process includes the maintenance of the relationship to either enhance its development or bring about its dissolution.

19 Critical Success Factors
Ultimate dissolution of the partnership may be necessary if the firms are unable to successfully work through the critical steps of partnership formation or synergies cannot be recognized. Abandonment of partners ________________________________________________________________________________. Ultimately, “little is known about disengagement,” so dissolution may offer a pessimistic yet rich source of research. A “rule of thumb” ___________________________ ________________________________________.

20 Interfirm Power The notion of interfirm power holds its roots in social science (psychology, social psychology, and political science) ____________________ _______________________________________________________________. The power component of partnerships will begin with the definition of power. As defined by Maloni and Benton: . . . the power of a supply chain member [is] the ability to control the decision variables in the supply strategy of another member in a given chain at a different level of the supply chain. It should be different from the influenced member’s original level of control over their own supply strategy.

21 Power Influences on Supply Chain Relationships
Extremely complex in nature, power serves as a composite relationship-oriented variable, __________________________________________________________________________________. The following section will examine the effects of influence strategies on critical relationship factors including dependence, __________________________________________________________________________________. Exploration of the effects of power on factors of the supplier–buyer alliance provides the key to understanding the concept of the power-partnership link that is under investigation.

22 Power and Dependence The notion of power in an interfirm relationship implies target dependence on the source; otherwise the target would not need to subject itself to the unbalanced relationship. ________________________________________________________________________________. Does a state of dependence negate the possibility for critical supply chain partnership success factors such as goodwill, trust, and shared goals? ________________________________________________________________________________________________________________________?

23 Power, Commitment, and Trust
Two factors driven by power and critical ________________________________________________________________________________________________________________________. The relationship between power and commitment is dependent _____________________________. Commitment is nothing more than a form of compliance (instrumental) as well as identification and involvement (normative).

24 Power, Commitment, and Trust
Are true trust and normative commitment possible in an interfirm environment of power asymmetry? Can a target in an unbalanced power relationship experience ____________________ ______________________________________? _____________________________________________________________________________?

25 Power, Cooperation, and Compliance
Power essentially attempts to force a target to comply with the source’s desires, and, ____________________________________________________________________________________________________________________________________________________________. Compliance is action without inherent desire, and, thus, compliance remains a relatively easy factor to measure since it implies action, not feeling.

26 Power, Cooperation, and Compliance
_____________________________________________________________________________________________________________________. Can cooperation exist in power of a supply chain partnership relationship? ____________________________________________________________________________________________________________________?

27 Power and Conflict Conflict can be defined as “tension between two or more social entities . . . which arises from incompatibility of actual or desired responses.” Conflict is present in the supply chain when one supply chain member hinders goal attainment and performance of another. ________________________________________________________________________________.

28 Power and Conflict Does a power imbalance in a supply relationship create __________________________________ ______________________________________? Does use of relational power strategies decrease conflict and promote a supply chain partnership? How does power affect ___________________?

29 Power and Satisfaction
Satisfaction in the supply chain can be defined as the extent of contentment with the relationship. Ultimate supply chain partner satisfaction ________________________________________________________________________________________________________________________. Drivers of satisfaction within supply chain partnerships include relationship-oriented factors such as planning, _________________________ ________________________________________.

30 Power and Satisfaction
How does power influence satisfaction within the supply chain? Within a power imbalance, can the target firm experience sufficient levels of satisfaction to retain commitment to the supply chain relationship? _______________________________________________________________________________________________________________________?

31 Power, Performance, and Profitability
A final point on the effects of power concerns _____________________________________________________________________________________________________________________. Performance may be defined as the ability to execute intentions and goals. Supply chain member performance ____________________________________________________________________________

32 Power, Performance, and Profitability
Countervailing power. How does power influence source performance and profitability in a power asymmetric supply chain relationship? ____________________________________________________________________________________________________________________? __________________________________________________________________________________________________________________?

33 Automobile Industry Example of Power Asymmetry
Supply chain management grants the supply chain a potential source of competitive advantage and will become an increasingly important part of the industry strategy. The automobile industry in the United States represents a breeding ground for power research. The industry consists of five manufacturers that account for 85 percent of market share and these manufacturers source from a supplier base of thousands. Such an oligopolistic buying structure has created a power asymmetric environment. With a few manufacturers comprising a large percentage of the suppliers’ sales, the supplier must bow to the authority of the buyers or risk financial collapse.

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