Introduction This essay has for aim to improve that the close, collaborative, non-adversarial relationships between buyers and suppliers are not at a hundred per cent, but in most of the case the best practice, when it comes for big high-tech globally significant project in IT, military, aerospace, automotive and nanotechnology industries.
However, to adopt the right type of supplier relationships avoiding large-scale mistakes the buyers’ managers should look over all circumstances and have clear idea what type of interaction and division of surplus value are best suitable for them, because these two factors are the key elements of buyer-supplier relationship theory. Main body “The ability to match the environment, business strategy and business structure is at the hear of all issues and concepts of organaizational design”(Hines, P. et al. , 2000, p. 135).
The first two factors are well involved in the model of six generic supplier relationship management types existing in business market. Have been characterised by two main dimensions: the nature of interaction between the two parties and the way in which the surplus value is shared. It is important these two elements to be accepted as interrelated not as opposite,which is an usual misunderstanding. Actually the real differentiation between the styles comes from the level of domination of the one element over the others in particular situation.
Central to all relationships is the exchange process,where each participant gives something in return of a greater value. Building effective, long lasting relationships demands careful attention to details so all generic types should be closely examined and compared. (Watson,2003; Hutt, M. and Speh, T. ,2001) As regards to the first key dimension-the way of working, its two possible options of styles are arms-length and collaborative. Arms-length way of working appeared when the two sides have a limited contact, beyond the exchange of basic information needed for a transaction to take place. Watson, G. and Lonsdale, C. A, 2003)Collaborative relationships are observed when the correspondence involve social and operational linkages, high level of information exchange and additional profit is created in expectation of long-run benefits. “According to James Anderson and James Narus ,collaborative exchange involve: a process where a customer and supplier firm form strong and extensive social, economic, service and technical ties over time, with the intent of lowering total costs and/or increasing value, therby achieving mutual benefits. ”( Hutt, M. and Speh, T. ,2001,p. 89)
Cannon and Perrault identified four aspects of buyer-supplier interaction: product/process information exchange, operational linkages,legal bonds, co-operative norms and relationship-specific adaptations in their work paper from 1999. Product/process information exchange can include open transfer of proprietary techinal,forecasting information and cost data. Participants are willing to share these information in order to improve speed and quality of production. Operational linkages are systems,procedures and routines of the firms linked to facilitate the flow of goods, services, payment or information operations. hese linkages are the steping stone of every kind of fill up order of out of stock items or the just-in-time delivery.
Cooperative norms reflect the expectation that each partner should to cover according to the agreed set of standards of behaviour and ways of managing with problems or opportunities. Last but not least, relations-specific adaptation refer to non-transferable investment in modification of products or processes, training in definate systems in order to meet the specific need of an exchange partners. Relationship-specific investment have little value outside a particular relationships. ”( Hutt, M. and Speh, T. ,2001,p. 91,92;Lecture materials sheet ) Furthermore, the relationship between buyers and supplier can be categories according to the buyer segmentation of its suppliers. They are separate into two groups in dependence on the type of the product that they contribute to the buyer-common material, ingredient for commodity or specific strategic items,which have a great impact over the manufacture process of more competitive product.
If the suppliers fall in the first segment the relation can be define as arms-length and it is unlikely to lead to collaborative activites,because the purchasеs of small commercial value and with the other group can have a collaborative exchange. (Dyer er. al. ,1998)In both cases there is optimal decision which to lead to financial benefits from the relation for the buyer-Arms-length buyer dominance or collaborative balanced share of surplus value. As additional argument in favour of close relation could be use the joke statement “If you are so brain, why you are so poor? which sounds like a general question about supply chain management. And the obvious answer is that you should have a good relationship and friendly co-operation with those around you to manage to transfer your great idea into a real product for a minimum cost of production. However, the development saga of Airbus A380 is a great example of what could be caused by misleading in a communication channel between its teams and wrong managers decisions. These weak proactive style of working cots to the EDAS (European aeronautic defense and space) multibillion-euro overspend and a delay of at least two years.
As Dave Taylor said in his blog “Everything was going well until the different engineering groups inside Airbus forgot to talk with each other and the result has been nothing short of catastrophic… ”However, according to the case the main technical problems come from the Socio-cultural one. Dreaming to accommodate German and French national sensibilities rather than find the most coherent way to finish the task, both of the groups preferred to work following their own style of decision-making and used two different incompatible versions of the CAD design software.
The results were an enormous lost of time and drawing data during the system transfer, 300 miles of wiring with wrong connectors and etc. Even these big troubles couldn’t stop the EDAS to complete the A380 project relying on the consortium and non-adversarial connection between the four main suppliers country. Because just according to them suppliers managed to co-operate and collect their knowledge and skills and improved effectiveness of their work instead of blaming and judging each other for the failure of the biggest and most complicated aircraft project. Airbus case study; The Airbus saga, 2006;)In a nutshell, from this case it is noticeable that strong leadership and collaborative, non-adversarial supplier relationship are necessary to achieve success. However, what actually mean non-adversarial and from where it is come?!? The adversarial or non-adversarial are terms from the second dimension of buyer-supplier relationships correlate with the sharing of surplus value. This theory can be explained with reference to economics and the major factor behind the share ratio –power position.
The surplus value is the “difference in a transaction between the supplier’s costs and the buyer’s utility function” and who will take it depends on the type of the general position, which could be buyer dominance, supplier dominance, independence or interdependence. (Watson, G. and Lonsdale, C. , eds. 2003,p. 79) So it essential managers to understand the circumstances under which make decisions. If the buyer is dominant or have a situation of independence the outcome is same-the buyer receive all of the surplus value, because the market is competitive.
In case of supplier dominance it takes the majority of surplus value and the last opportunities characterised by buyer-supplier interdependence both parties are enough strength to survive on the market without each other, but working together can enlarge their profit, which mean that they share the surplus value. The last power position where isn’t a dominant side is described as non-adversarial relationship, whereas all other relationships are adversarial.
From economic point of view is essential the supply management type relation to be interdependent collaborative, because the firms can reduce the supplier’s cost or expand the buyer’s utility. Through out reducing the time for order-delivery transaction, adapting the buyer’s production process to supplier or inventing the new supplier product into production aiming to increase effectiveness and achieved better quality (Watson, G. and Lonsdale, C. , eds. 2003). Since that non-adversarial means a “spirit of co-operation, a passive stance, the parties are willing to reach a mutually satisfying resolution to a problem.
There is persuasion rather than coercion. ”(Answers. com) Don’t change the fact that supplier-buyer power relation affects the division of the super profit. Under balanced conditions of power buyers and supplier presume to split every risk and reward as it happens at the end of “British Sea Power” case study. Beginning a long-term project of producing six submarines for approximately 20 years hide a lot of uncertainty factors such as technical progress development, price changing of row materials, deadlines and budgets etc.
At the same time all of these factors can be taken under control after the smart movement of BAE-submarine constructor firm, to sign up a Performance Partnering Arrangement (PPA) contract with strategic suppliers. The supply chain and IT services director said, ”Pre-PPA supplier relationships were more adversarial. The problem was that suppliers were competing for contact” . He continued that the hardest part had been to convince the supplier that they will interact with them “as long as they hit quality, cost delivery and technical innovation target, mutual gains are shared. ”(“British Sea Power”, 2008,p. ). Once the new interdependent collaborative relationship was fact suppliers begun to invest in modern technology trying to reduce the cost, because now everything is 50/50-share the gain or the pain. Other important improving connected with the communication channel of the working process has been introduced – supplier meeting with BAE in two-month periods. Evidence for the better business opportunities available in this type of relationship compare to arm’s length adversarial is the John Swift statement: ”There was an adversarial relationship [with suppliers] and contract was formal and stilted.
Since then it has become honest and transparent. Everyone is going in one direction. ”(p. 4) In conclusion this submarine programme has been evaluated as so well working and profitable that can be use as example for other programme projects. (Supply Management case study,2008) Conclusion Business relationships are far too complicated to be standartised and depends on highly individual circumstances, but still have some basic rules which managers is good to follow selecting one of the six generic relationship types.
The level of investment, information exchange, adaptation and sharing profit required different relationships styles,which are major affected by the buyer-supplier power. Having looked at some examples of dynamic development industries connected in big, long-run or even multinational project, it can be concluded that the non-adversarial and collaborative relationships are the best in this case, but not the only one possible. Collaborative relation binds firms together,drives effectiveness and encourages commitments.
Reference:
Airbus case study-available online on-http://www.ukessays.com/essays/cultural-studies/airbus-case-study.php [Accessed: 3 January 2013]
Answear.com-online helper portal- http://wiki.answers.com/Q/What_does_non-adversarial_mean[Accessed: 5.01.13]
Cox A., Lonsdale C. And Waston G.”The Role of Incentives in Buyer-Supplier Relationship:Industrial Cases From a UK Study”CBSP, Birmingham Business School
Dave Taylor(2007) “Airbus and the trillion dollar engineering error”-publishe at The Business Blog at Intuituive.com- http://www.intuitive.com/blog/airbus_and_trillion_dollar_engineering_error.html [Accessed: 30 December 2012]
Dyer, J. H., Cho, D. S. and Chu, W. (1998) “Strategic supplier segmentation: the next best practice in supply chain management.” California Management Review 40(2), p.57-77
Hines, P. et al. (2000) “Value Stream Management: Strategy and Excellence in the Supply Chain”.
Hutt, M. and Speh, T. (2001) “Business Marketing Management”, chapter 4
Nicola Clark (2006)”The Airbus saga: Crossed wires and a multibillion-euro delay – Business – International Herald Tribune”-article in The New York Times-available online on- http://www.nytimes.com/2006/12/11/business/worldbusiness/11iht-airbus.3860198.html?pagewanted=all&_r=2&
Supply Management case study (22 may 2008) “British Sea Power”-weak nine of lecture programme.
Watson, G. and Lonsdale, C.A, eds. (2003) Managing the Supply Base within Business Networks, chapter 7
