Supplier partnerships are in some ways most easy to initiate. This is because there is an ongoing relationship to be built upon. Difficulty when using this source of external innovation typically arises because the relationship ready has expected norms of behavior that oftentimes a new partnership relationship conflicts with.

Value Chain Map Showing Supplier and Customer Involvement

One of the best ways to visualize the overlapping involvement between customers and suppliers is shown in the “Value Chain Map Showing Supplier and Customer Involvement” figure. This figure shows how raw materials are converted to commercial chemicals which are then converted to supplies via multiple processes which finally produce products that end up in a store or supermarket, and finally into customers’ hands. In each step along the way products are passed upward in this diagram coupled with information and money or resources passing both ways in each sub-step. It is at the sub-step level that conflicts typically arise between partnership entities.

Driving Forces

Both companies would like to improve the effectiveness of each sub-step but often the resources needed to do so, as shown in the ”Driving Forces” figure, are not easily agreed upon with suppliers. Likewise the rewards to be derived for sub-step efficiencies can be a source of contention, and a hurdle to overcome in moving a partnership forward.

Expanding the Partnership Perspective

The best way to look at supplier partnerships (focused on sub-step improvement) is to consider 10 elements related to the manner in which information, finances, and people interact. This is shown in the “Expanding the Partnership Perspective” figure. In this figure ten elements are identified that should become part of the partnership discussions. By breaking the problem out in this way and expanding the perspective, the supplier partnership discussions have a better chance of finding a win-win solution. This expansion of the perspective is a common problem solving methodology used in creating win-win negotiation positions. Having both teams look at how each will be able to interact with customer partnerships downstream of the particular sub-process, as well as the logistics each will be involved therein, oftentimes breaks a negotiating logjam. Downstream suppliers often want to look through a sub-process to understand for themselves what’s really driving the performance needed of the sub-process. Taking a company’s word for it is often times not satisfying to a supplier. By allowing a supplier to look through, in joint synergistic teams with a company, can circumvent this issue. Likewise sharing the business information related to the operating efficiency of the process, including proprietary machinery performance enclosed in the process, can also be helpful to negotiations. Likewise the way the people will be developed and labor unions contracts honored during any improvement process is additionally an appropriate element to be included in synergistic partnership teams

Product Performance Matrix

A second useful tool in creating win-win solutions is to make sure both the company and the supplier agree on the product performance their partnership needs to create (as illustrated in the “Product Performance Matrix” figure). In this figure, the company’s cost per unit is plotted against the product’s performance created in the sub-step. By sharing this information, both of supplier and the company can understand which proposed elements of the partnership proposal will affect the cost and performance such that the company remains within its target area. Note that for the illustration in this figure the company is competing on product performance. For a company that competes on cost, the nonstrategic performance area would move from the lower left quadrant to the upper right quadrant and the target area would shift to include solutions that were above the average performance cost ratio line in the lower right section of this graphic. Solutions that the partnership may come up with that lead to nonstrategic performance, or below average performance compared to relevant competitors, are clearly not win-win solutions. Having supplier teams plot their solution options on such a matrix can provide an objective evaluation methodology.

Supplier Evaluation

Many times a company has more than one option with respect to the suppliers that it might choose to partner with. When this happens the company has to be very careful not to allow executive relationships to prejudice the partner selection. One way to highlight the strengths and weaknesses of the supplier options are to evaluate them as shown in the “Supplier Evaluation” figure.

Supplier Survey

To gain more insight on the quality of current supplier relationships, some companies have used surveys to compare the performance of multiple suppliers. Such surveys have the advantage of being built upon broader employee feedback. An example is shown in the “Supplier Survey” figure.

Finally, it should be noted that a source of contention between suppliers and companies can also arise with respect to intellectual property. This is particularly the case where new research will be done as part of the partnership activities. The question arises to who owns the new intellectual property and what rights does the other party have to it. Again one of the best ways to resolve such issues is to discuss them with respect to Product Performance Maps Over Time. Such maps can show which competitors will be allowed access to the newly developed intellectual property over what time period, and the impact on the company’s relative competitive position. The company often wants exclusivity forever and the supplier would like to share it with all its customers, including company competitors immediately. A typical a solution is to allow the company involved in the partnership access to the new technology for a 1 to 3 year lead-time. Another solution is to allow the company a royalty when the technology is used or licensed to its competitors. Putting the above guidelines into practice requires understanding of an overall Supplier Partnership Model. Such a model agreement is described as: