Bensaou(1999), Portfolios of buyer-supplier relationships
Recent focus has been laid on moving towards longer-term collaborative strategic
partnerships with external business partners. But while strategic partnerships create
new value, they are costly to develop, nurture, and maintain. They are also risky. An
alternative is a framework for managing a portfolio of relationships, as presented in
this article. This helps to answer two key questions:
1. Which governance structure or relational design should a firm choose under
different external contingencies?
2. What is the appropriate way to manage each different type of relationship?
External and internal aspects of each relationship:
1. The component and its technology.
2. Competition in the upstream market.
3. The supplier itself.
4. The nature of the boundary spanner’s job.
5. The internal workings of the relationship (contractual conditions).
Level of specific investments made by either partner to a relationship significant
correlation with practices commonly associated with strategic partnership (mutual
trust, cooperation, etc). These investments are difficult or expensive to transfer to
another relationship or may lose value when redeployed. Two dimensions:
1. Buyer’s specific investments tangible investments such as buildings, tools,
and equipment dedicated to the supplier. Intangible investments in people,
time, and effort spent learning supplier’s business practice.
2. Supplier’s specific investments tangible investments including plant or
warehouse location. Intangible investment such as sending guest engineers
and developing information systems.
This results in four segments:
1. Captive buyer (high BSI, low SSI)
2. Market Exchange (low both) partners are interchangeable.
3. Strategic partnership (high both) real commitment.
4. Captive supplier (low BSI, high SSI)
Japanese firms appear to conduct their business with a smaller ratio of strategic
partnerships than is commonly believed (19%) and make extensive use of market-
exchange relationships (31%). There are high captive supplier relationships in Japan
and high captive buyer relationships in the US. This is due to market structure. There
is no significant performance difference among the four segments, meaning not one
type of relationship is superior. It depends on how well or poor it is managed. The
four segments differ along three sets of contextual factors to determine portfolio
balance:
1. The characteristics of the product exchanged and its underlying technology.
2. The level of competition in the upstream market.
3. The capabilities of the suppliers available in the marketplace.
,The four segments can be approached differently by each company by being
divided/classified along three generic dimensions:
1. Information-sharing practices.
2. Characteristics of boundary spanners’ jobs.
3. The social climate within the relationship.
Components having similar characteristics in terms of underlying technology,
architectural design, and market structure tend to be managed in the same way.
Contextual profiles of the four segments:
1. Market exchange
a. Highly standardized products based on simple, mature technology
requiring little engineering effort.
b. Design process is stable and well-structured and manufacturing process
is well established.
c. Manufacturers can find many suppliers capable of engineering,
manufacturing and delivering this kind of product.
d. Little capital investment and few innovation capabilities upstream
market highly competitive as suppliers can easily and cheaply find and
shift their production from one customer to another.
e. Primary goal of manufacturers is to minimize cost and leverage
economies of scale through large volumes, relying on a number of
suppliers. repeat business despite short-term contracts.
f. Relationships can be positive and collaborative without being strategic
partnerships.
2. Captive Buyer
a. Complex products and components that require some customization,
but still based on well-understand, stable technology
b. No anticipated major product, process, price/performance
improvements in the mid-term view.
c. Stable demand and limited market growth.
d. Supply market is highly concentrated with a few large, well-established
players.
e. Incumbents possess proprietary technology and/or benefit from a
strong bargaining power.
3. Strategic Partnership
a. Involve highly customized components or integrated subsystems that
require strong technology and engineering capabilities.
b. Technical complexity of these subsystems affects and runs across the
multiple stages of the value chain.
c. Upstream market is high growth but extremely competitive, with great
uncertainty about the choice of the right technology or standard.
d. Because of competitiveness, partners tend the develop a close, long-
term relationship. suppliers and buyers develop towards each other
and integrate.
e. Suppliers invest highly in fundamental research.
f. High level of interaction and interdependency exists between
components, products and systems.
, 4. Captive Supplier
a. Highly complex products based on a new technology typically
developed and owned by the supplier.
b. Products require heavy capital investments from the supplier to stay in
the market.
c. Products and technology are in high demand, but shift in suppliers is
rapid as technology evolves.
d. Upstream market is fiercely competitive and heavily reliant on
downstream companies.
Management profiles:
1. Market-Exchange
a. Information exchange between two firms during bidding and contract
negotiations.
b. Operation coordination of delivery and inventory, monitoring of quality
are executed using proved organizational routines.
c. Limited amount of time spent with supplier staff as purchasing
manager. (rarely visit supplier’s premises)
d. Supplier operation is perceived as highly routine.
e. Social climate is generally positive.
2. Captive-Buyer
a. Operational coordination is broken down into manageable, well-
understood steps and procedures.
b. Exchange of detailed information on a continuous basis.
c. Boundary spanners (purchasing managers) see their tasks as
structured and highly predictable.
d. High time spent dealing with supplier.
e. Social climate is typically tense suppliers have poor reputation and
track record.
3. Strategic Partnership
a. Regular exchange of information in all ways
b. Frequent visits to supplier premises.
c. Electronic data interchange across multiple functional areas.
d. Social climate is reportedly trusting and collaborative manufacturers
display high commitment to relationship and is willing to engage in
joint action with supplier.
e. Tensions between supplier and buyer often arise over component
pricing, cost structure, product design, quality levels, and inventory and
delivery policies.
4. Captive-Supplier
a. Lower level of information exchange.
b. Communication focus on complex coordinating tasks rather than the
control activities.
c. Purchasing team spends less time on negotiating the contract and
monitoring the supplier.
d. Burden of visits rests on supplier.
, e. Social climate of high mutual trust, though not necessarily active joint
planning.
Two kinds of successful relationship:
1. High requirements-high capabilities.
2. Low-requirements-low capabilities.
Two paths two failure:
1. Under designed relationships.
2. Overdesigned relationships.
Designing or redesigning of relationships consists of three analytical steps:
1. The strategic selection of relational types to match the external conditions
given by the product, technology and market.
2. Identification of an appropriate management profile for each type of relational
design.
3. Matching the design of the relationship.
Chopra & Sodhi(2004), Managing risk to avoid supply chain breakdown
Potential supply chain risks can be broadly categorized into the following(with
drivers included):
, Each category requires its own mitigation strategy. Supply-chain risk mitigation is
tricky, because a decrease of impact of one category can increase the impact of
another category. And actions taken by any company in the supply chain can
increase risk for any other company in the chain. Supply chain risks can evolve to
supply-chain problems, causing unanticipated changes in flow due to disruptions or
delays. Disruptions can be frequent or infrequent, short or long-term and cause
problems for the affected organization(s) from minor to serious. Most companies
develop plans to protect against recurrent, low-impact risks, but many ignore the
low-likelihood and high-impact risks. The challenge for managers good
understanding of the supply-chain risks and remedies, both broad and tailored to the
manager’s own company. Different mitigation strategies and their impacts:
