Chapter

Five

Partnering and Strategic

allianceS

learning ObjectiveS

After completing this chapter, you should be able to:

■■ Distinguish between partnering and strategic alliances.
■■ Give examples of innovative alliances.
■■ Describe the concept of internal partnering.
■■ Explain the concept of partnering with suppliers.
■■ Explain the concept of partnering with customers.
■■ Explain the concept of partnering with potential competitors.
■■ Summarize what is meant by global partnering.
■■ Identify the benefits of education and business partnerships.

Partnering for mutual benefit is fundamental to total quality. In an intensely competitive marketplace, where quality is defined by
the customer, such practices as low-bid contracts, antagonistic internal relationships, and attempts to operate as an island are
being replaced by partnering. Working together for mutual benefit sounds like a nice thing to do, and it is. However, being nice has
little to do with this contemporary approach to doing business. On the contrary, the partnering philosophy is solidly grounded in
the practical demands of the marketplace. This chapter provides the information needed to facilitate partnering relationships with
suppliers, customers, internal units, and potential competitors.

Partnering Or Strategic Figure 5.3 shows the contemporary supplier–customer

allianceS chain. The walls are removed, and the overlapping portions
represent partnering. In this model, the manufacturer knows
The simplest way to understand the concept of partnering or
the strategic alliance is to think of it as working together for
mutual benefit. Those who work together may be suppliers,
fellow employees, customers, and even businesses that are
potential competitors (see Figure 5.1). Suppliers Customers
The maximum benefits of partnering are realized
when all parties in the chain of partners cooperate (see
Figure 5.2). In a traditional supplier–customer chain, each
link in the chain operates independently. Invisible walls
exist between each one. The manufacturer in the middle Partnerships
of the chain produces a product used by the customers Can be
(end users). For this example, assume that the product is an Established
upscale running shoe. The manufacturer receives leather, Among . . .
fabric, synthetic rubber, glue, and other materials from its
suppliers. However, because there is no partnering among
the three links in the chain, the manufacturer does not fully
understand who buys its shoes and why, what the end users
Potential
like and dislike about the shoes, or what changes end users Competitors
Employees
think would improve the shoes. Because the manufacturer
doesn’t know its market and because it doesn’t partner with
suppliers, the suppliers can’t help it better meet the needs
of end users. Figure 5.1 Potential Partnership Participants.
64
 Chapter Five Partnering and Strategic Alliances 65

Partnering Model
Establishing partnering relationships with suppliers or cus-
tomers is a process that should be undertaken in a systematic
way. Haphazardly formed relationships based on halfhearted
commitments are worse than having no partnerships at all.
Figure 5.4 provides a model that can be used as a guide in the
formation of partnering relationships with both external and
internal suppliers and customers.

Develop a Partnering Briefing Partnering is about

creating cooperative alliances. Before trying to establish
such an alliance, a partnering briefing must be developed
to make sure everyone involved understands partnering as
a concept.

Identify Potential Partners Any external or internal

supplier or customer is a potential partner. Choose partners
in an order determined by how much value the partnership
can have toward enhancing quality, productivity, and com-
petitiveness. Internal partnerships between the design and
manufacturing departments have considerable potential in
this regard. Partnerships between the manufacturing de-
Figure 5.2 Cooperation Is Vital to Partnerships.
partment and major external suppliers also have excellent
potential.
who buys its shoes and why. Further, by involving its custom-
ers in the ongoing product development process, the manu- Identify Key Decision Makers In every organization
facturer designs in the features important to end users and (unit, department, etc.), there are key people whose support
eliminates problems or undesirable characteristics. Because is needed to make an initiative involving their organization
the manufacturer in the contemporary model knows its work. Identify these key decision makers in any organization
customers and their needs, it can work with its suppliers to considered a potential partner. Their support must be won if
enlist their help in meeting those needs. a successful partnership is to be formed.
Figure 5.3 depicts the desired relationship between
external suppliers and customers. In traditional supplier– Conduct a Partnering Briefing Call a meeting of the
customer relationships, there are invisible walls that block key decision makers in both the organizations—yours and
out communication and cooperation. With contemporary the potential partner’s. Present a briefing explaining the
supplier–customer relationships, these walls are broken partnering concept, with time built in for discussion and
down. There is communication, input, feedback, and coop- questions. This briefing should answer such questions as the
eration (Figure 5.3). following:

■■ How can we mutually benefit from a partnership?

Benefits of Partnering
■■ What is expected of each partner?
Several benefits can be derived from partnering. Partnering
can lead to continual improvements in such key areas as pro- Determine the Level of Commitment After the key
cesses and products, relationships between customers and decision makers have been briefed, gauge their level of com-
suppliers, and customer satisfaction. Internal partnering can mitment. Are they willing to commit to the partnership for
improve relationships among employees and among depart- the long term? Are they willing to make any and all proce-
ments within an organization. When taken as a whole, these dural or philosophical changes that may be necessary for the
individual benefits add up to enhanced competitiveness. partnership to work?

End Users
Customer
Suppliers (Customers of
(Manufacturer)
the Manufacturer)

Figure 5.3 Contemporary Relationships: Supplier–Customer Chain.

66 Chapter Five Partnering and Strategic Alliances

Develop a
1
Partnering Briefing

Identify Form the

2 8
Potential Partners Partnership Team

Identify Key Develop a

3 9
Decision Makers Mission Statement

Conduct a Develop
4 10
Partnering Briefing Objectives

Determine the Level Prioritize

5 11
of Commitment Objectives and Begin

Decide
Whether There Is No
6
Sufficient Commitment

Yes

Identify Key
7
Operational Personnel

Figure 5.4 Partnering Model.

Decide Whether There Is Sufficient Commitment If should be formed into a team. This means more than just
the key decision makers show noticeable reluctance, they are naming them to the team. They must be given opportunities
not likely to make a full commitment to the partnership. There to get to know and trust each other. The success of the part-
is no need to proceed any further with potential partners who nership will depend in great measure on the willingness and
seem reluctant. The better course of action in such a case is to ability of these team members to work together in a mutually
break off further involvement and begin the process again with supportive and trusting manner.
another potential external partner. However, if the level of com-
mitment is sufficient, proceed to the next step in the process. Develop a Mission Statement The partnership team
needs a clear and concise mission statement so that every-
Identify Key Operational Personnel If the level of com- one involved understands what the team is supposed to do.
mitment is sufficient to proceed with the partnership, who are The mission statement should be developed by executive-
the key people from both organizations needed to put it into level decision makers from both organizations. Figure 5.5 is
operation? Are personnel needed from marketing, purchas- an example of a mission statement for a supplier–customer
ing, engineering, manufacturing, receiving, or accounting? partnership.
Identify the people who will be needed to put into action the
commitment made by executive-level decision makers. Develop Objectives The mission statement is written
in general terms. It is translated into more specific terms by
Form the Partnership Team The key people identi- objectives. These objectives should be developed by the part-
fied as necessary to putting the partnership into operation ners and ratified by the executive-level decision makers of
 Chapter Five Partnering and Strategic Alliances 67

This mission statement is the guiding vision of the customer–supplier partnership

that exists between Keltron Electronics (the customer) and Precision Machining, Inc.,
(the supplier). The mission of this partnership is to promote a mutually supportive
working relationship that will help maximize the quality, productivity,
competitiveness, and profitability of both partners. In carrying out this mission, the
following agreements apply:

• Precision Machining, Inc., agrees to deliver quality discrete components to

Keltron Electronics just in time and at the best possible price.
• Keltron Electronics agrees to purchase discrete machine components from
Precision Machining, Inc., at a negotiated price as a sole source provider without
requests for competitive bids.

Figure 5.5 Mission Statement: Keltron Electronics–Precision Machining, Inc., Customer–Supplier Partnership.

both partnership organizations. Well-written objectives are it allows the supplier to gain firsthand knowledge of how
stated in measurable terms, such as the following: to better serve the customer. Another innovative partner-
ship takes the form of the customer focus group. The cus-
■■ Each week 100 low-voltage power supplies will be deliv-
tomer focus group is an example of a partnership between
ered according to a just-in-time (JIT) schedule.
a supplier and the users of its products or services. Such a
■■ All power supplies delivered will be free of defects. focus group consists of customers who are pulled together
These objectives are specific and measurable. In the first by a supplier to provide feedback concerning the quality of
one, the expected quantity (100) and the delivery sched- an existing product or service or input concerning a pro-
ule can both be easily checked. In the second objective, if posed product or service. There are many examples of in-
even one power supply is rejected, the objective has not novative partnerships in today’s highly competitive global
been accomplished. All such objectives must be agreed to by marketplace.
both partners before being sent forward for ratification by Coca-Cola and Nestlé formed a research partnership to
executive-level personnel. develop a line of ready-to-drink teas and coffees. Procter &
Gamble and Walmart formed a partnership to better serve
Prioritize Objectives and Begin It will typically their shared customers through improved shipping and re-
take several objectives to completely translate the mission ceiving procedures. IBM has a formal partnering program
statement into measurable action. The importance of these called the Business Partner Program in which IBM and
objectives is relative. Although all are important, the ob- more than 1,000 partners share information of mutual ben-
jectives should be prioritized and listed in order from the efit and develop strategies to better serve mutual custom-
most important to the least. After priorities have been es- ers. Partnerships among automobile manufacturers are now
tablished and confirmed by executive-level personnel, the common: Ford partners with Mazda, and General Motors
work necessary to accomplish them begins. Results should with Suzuki.
be monitored and appropriate action taken when prob- There are no limits on the types of partnerships and alli-
lems arise. ances that businesses can form for mutual benefit, and there
are no limits on the types of companies that might form part-
nerships; even competitors may do so. Anything that can be
innOvative allianceS done better through cooperation represents a potential basis
and PartnerShiPS for a partnership.
Partnering between and among companies can take many
forms. A group of small and medium-sized companies
might form a partnership to save money through consor-
tium buying. This is a concept wherein two or more com- QuAlity tiP
panies get together to purchase common items in bulk: by
Process integration with Suppliers
doing so, they gain the cost benefits of size. Another in-
Suppliers are among an organization’s most important partners.
novative type of partnership involves suppliers and their But supplier partnerships can be high-maintenance in nature.
customers. Major customers agree to welcome an in-house Even the best supplier partnerships demand constant attention,
supplier representative who works with the customer’s nurturing, and improvement. One of the most difficult supply-
personnel to continually improve the supplier–customer chain problems for organizations is process integration. The
relationship. Having an in-house supplier representative best supplier partnerships result when processes can be inte-
grated to the point that the partners share forecasts, demand
gives the customer an advocate who sees firsthand what is signals, inventory control, and transportation information.
needed from the supplier, when, where, and why. In turn,
68 Chapter Five Partnering and Strategic Alliances

internal Partnering ■■ Problem-specific ad hoc teams

Partnering should begin at home. This means an organiza- ■■ Brainstorming sessions
tion should initiate its partnering efforts internally. Internal Involving both managers and employees as internal partners
partnering occurs at the following three levels: in these types of activities is an excellent way to maximize
■■ Management-to-employee partnerships human resources and promote mutually supportive allianc-
es. Such alliances will tap the creativity of all internal part-
■■ Team-to-team partnerships
ners, allowing good ideas to be turned into improvements.
■■ Employee-to-employee partnerships
The overall purpose of internal partnering is to harness the
full potential of the workforce and focus it on the continuous
Partnering with SuPPlierS
improvement of quality. Relationships between an organization and its suppliers have
traditionally been characterized by adversarial activities
Internal Partnering Defined such as the low-bid process, in which at least one and often
both parties lose. Rather than working together to find ways
Internal partnering goes by a number of different names. It for both to win, buyers use their leverage to force suppliers
has been called employee involvement, employee empower- to absorb costs to win the low bid, and suppliers look for
ment, and various other terms. Regardless of what it is called, ways to minimize their losses by barely meeting the buyer’s
the concept can be defined as follows: specifications. Such relationships will not help either party
Internal partnering is creating an environment and es- succeed in the long run in a competitive marketplace.
tablishing mechanisms within it that bring managers and To understand the rationale for partnering with suppliers,
employees, teams, and individual employees together in one must first understand the goal.
mutually supportive alliances that maximize the human The goal is to create and maintain a loyal, trusting, re-
resources of an organization. liable relationship that will allow both partners to win,
The key concepts in this definition are as follows: while promoting the continuous improvement of quality,
productivity, and competitiveness.
■■ Environment
■■ Mechanisms The traditional adversarial relationship between suppli-
ers and buyers is not likely to contribute much to the accom-
■■ Mutually supportive alliances plishment of this goal.
■■ Human resources Not all suppliers can participate in such relationships.
Does an organization have an environment that is conducive In fact, suppliers should be required to qualify to participate.
to internal partnerships? If it does, partnering is welcomed, Qualifying a supplier shows that it can guarantee that its
encouraged, and rewarded. Providing a conducive environ- products will be delivered when and where they are needed
ment is important, but by itself, it is not enough. Within the in the specified quantities and without defects. Suppliers
environment, mechanisms must exist through which employ- who can meet these criteria all of the time meet the technical
ees are able to channel their ideas for improvement. Mutually requirements to qualify as a partner. Whether they will actu-
supportive alliances among management and employees, ally become a partner depends on their level of commitment
teams, and individual employees are relationships in which and the synergism and trust that develop between buyer and
each partner helps the other do better. Mutual support within supplier personnel.
an organization is a much more effective way to achieve con-
tinuous improvement than the traditional approach of inter- Mandatory Requirements
nal competition among individuals and teams. of Supplier Partnerships
With internal competition, somebody within the or-
ganization loses. When this happens, the organization also Successful supplier partnerships require commitment and
loses. But with mutually supportive internal partnerships, all continual nurturing. The following points are mandatory re-
internal partners can win, and the organization’s competitive quirements of supplier partnerships:1
energy is directed outward against other competing organi- ■■ Supplier personnel should meet with buyer personnel be-
zations. This is when the organization is truly victorious. yond those in the purchasing office. It is particularly im-
The definition speaks to the importance of human re- portant for them to meet with personnel who actually use
sources. Maximizing human resources is essential in a total their products so that needed improvements can be iden-
quality setting. This is how the most significant workplace tified and made.
improvements are made and maintained.
Employees and managers can work together as internal ■■ The price-only approach to buyer–supplier negotiations
partners to continually improve quality and productivity in a should be eliminated. Product features, quality, and de-
variety of ways, including the following: livery concerns should also be part of the negotiations.
The goal of the negotiations should be to achieve the op-
■■ Cross-functional problem-solving teams timum deal when price, features, quality, and delivery is-
■■ Quality circles sues are all factored in.
 Chapter Five Partnering and Strategic Alliances 69

■■ The quality of supplier products should be guaranteed by to expect of the other. At this point, there is no trust between
the supplier’s quality processes. The buyer should have no the partners.
need to inspect the supplier’s products.
■■ The supplier should fully understand and be able to prac- Short-Term Pressures The typical short-term pressures
tice JIT. Buyers should not need to maintain inventories. that apply in a traditional business setting manifest them-
■■ Both partners should be capable of sharing information selves in this step. The buyer will be under the usual pressure
electronically so that the relationship is not inhibited by to cut costs. The supplier will be under the usual pressure to
paperwork. Electronic data exchange is particularly im- increase sales volume. Both partners will be cautious, and
portant for successful JIT. initial attempts to begin putting some substance to the part-
nership will be probing and vague.
Stages of Development in
Need for New Approaches In the need for new ap-
Supplier Partnerships proaches stage, traditional negotiations will inevitably occur.
Successful supplier partnerships don’t just happen overnight; The buyer will press for price discounts, improved pay-
they evolve over time. According to Poirier and Houser, this ment terms, freight allowances, and other concessions that
evolution occurs in the stages depicted in Figure 5.6 and de- save it money but cost the supplier. The supplier will press
tailed in the following sections: for higher volume to offset concessions made to the buyer.
Then, if either partner has involved total quality-conscious
Uncertainty and Tentativeness In the uncertainty and personnel, it will dawn on them that quality is not being
tentativeness stage, the buyer and seller are like two people served by this traditional negotiating. Both will begin to re-
on their first date. There is interest, but it is tentative and alize that a new approach is needed. If this awareness does
prefaced with uncertainty. Neither party knows exactly what not occur, the partnership will fail.

Mature
Partnering

Stage 7

Adoption of
New Values

Stage 6

Awareness
of Potential

Stage 5

Adoption of New
Paradigms

Stage 4

Need for New

Approaches

Stage 3

Short-Term
Pressures

Stage 2

Uncertainty and
Tentativeness
Stage 1

Figure 5.6 Evolution of Supplier Partnerships.

70 Chapter Five Partnering and Strategic Alliances

Adoption of New Paradigms In the adoption of new par- chain. To meet this challenge, world-class organizations
adigms stage, both partners explore ways to move toward the use a variety of approaches. The most common of these ap-
concept of mutual benefit. The key is for both partners to ac- proaches for managing quality in the supply chain are sup-
cept the principle that absorbing costs within the partnership plier evaluations, supplier certifications, third-party filters,
(by either the supplier or the buyer) gives neither an advantage. supplier audits, and supplier development programs. Each of
The best way to promote competitiveness is for both partners the concepts is explained in this section.
to work together to lower costs. This new way of thinking (par-
■■ Supplier evaluations. With this approach, specific criteria
adigm) will give the partnership a competitive advantage over
are established such as quality, on-time delivery, technical
other organizations that produce the same product.
capabilities, process capabilities, and management quality.
Suppliers are then graded on each of these criteria. In order
Awareness of Potential In the awareness of potential to work with the organization that sells the finished prod-
stage, both partners become fully aware of the possible ben-
uct, suppliers must maintain a specified minimum score or
efits that can be realized from the partnership. The potential
grade on all criteria and, often, a minimum overall score.
for a true win–win relationship can now be seen. Rather than
negotiating price concessions and volume increases, both ■■ Supplier certifications. Supplier certifications are similar
partners realize that by working together they can exceed any to supplier evaluations except that they are more involved
short-term advantages that might have been realized from and imply long-term relationships. Supplier certifications
these traditional negotiating strategies. are typically based on both evaluations and on-site inspec-
tions. Suppliers that are certified and maintain that certi-
Adoption of New Values In the adoption of new val- fication are given priority when work is subcontracted by
ues stage, both partners adopt the new values inherent in a the organization that sells the finished product.
true supplier–buyer partnership. These values include trust, ■■ Third-party filters. A third-party filter is an organiza-
openness, and sharing. Each party trusts the other to pro- tion that registers or certifies suppliers. In the United
tect the confidentiality of what they learn about one another. States, the two most common third-party filters are ISO
Both parties accept that the more information they share, in- (ISO 9000) and the Malcolm Baldrige criteria. For exam-
cluding financial information, the better prepared they will ple, a large organization with a long list of suppliers might
be to help one another. require suppliers to be ISO 9000 registered or to show that
they effectively apply the Baldrige criteria.
Mature Partnering In the mature partnering stage, the ■■ Supplier audits. Supplier audits for quality are similar
partnership has solidified. A high level of trust and coopera- to the kinds of audits conducted by CPAs on an organiza-
tion has been established between the partners. Continuous tion’s books. A team of auditors visits on site and inspects
interfacing between pertinent employees at all levels of both the organization’s processes and other pre-arranged
organizations exists as fact. Each partner has a strong self- factors. The results are then used to determine if the or-
interest in the success of the other partner. ganization that is audited qualifies to be a supplier or if
additional development is required.
Managing Quality in the Supply Chain ■■ Supplier development programs. Some large organiza-
tions use supplier development programs to ensure quality
A modern aircraft will be composed of parts from 20 to
in the supply chain. These organizations typically use third-
30 different suppliers. For example, the landing gear might
party filters, supplier certification, or supplier audits to make
come from one supplier, the wings from another, the body
a determination of the status of a given supplier. Then, sup-
from another, the engines from another, the tail from an-
pliers that show promise or that provide some type of unique
other, and so on. The “maker” of the airplane is really the
or hard-to-find product or service are provided with men-
assembler of a long list of subassemblies from a variety of
toring and training to bring them up to standards.
different suppliers. To a greater or lesser extent, this same
concept applies to cars, computers, washing machines, Managing quality in the supply chain has become an im-
dryers, televisions, handheld electronic devices, and most portant aspect of partnerships and strategic alliances. When
other major manufactured products. This concept of re- you read that a given automobile maker is recalling an entire
ceiving parts and subassemblies from a variety of suppliers line of vehicle due to some faulty system in it, the problem is
creates a need for managing quality in the supply chain. often a breakdown in supplier quality. But the organization that
The quality of the organization that does the final assem- must bear the brunt of the negative publicity and subsequent
bly of a product is only as good as the quality of its suppli- damage to its image is the organization that sells the product to
ers. The quality of the products on the shelves of a retail the public, not the supplier whose quality broke down.
outlet is only as good as the quality of the organizations
that supply the products. Emerging Issues in Supply-Chain
Because of the global nature of business, suppliers are
just as likely to be located in foreign countries as they are
Management
in the home country. This globalization of suppliers just For years, the key issue in supply-chain management was
complicates the challenge of managing quality in the supply increased speed—get the product produced and in the
 Chapter Five Partnering and Strategic Alliances 71

customer’s hands as fast as possible. However, like most of the chain. In fact, this ability can mean the difference be-
quality-related concepts, supply-chain management is still tween success and failure for companies that operate on a
evolving and being improved on as organizations learn more global level. What happens when a critical supplier in the
about it and how best to apply the concept. Emerging issues chain suddenly closes its doors or when delivery of critical
in supply-chain management include the following:2 components is interrupted by a natural disaster or a ter-
rorist act? The ability to quickly adjust to this type of crisis
Security With the rise of international terrorism, orga- throughout the supply chain will be increasingly critical in
nizations are being forced to consider the issue of security the future.
when selecting suppliers. Companies that do business with
the U.S. government are being forced to comply with new,
more stringent security regulations throughout their sup- Partnering with cuStOmerS
plier chain. This is especially the case for U.S. companies that The term customer as used in this section means the end user
do business overseas. of the product in question and any buyer of a supplier’s prod-
ucts. There are other uses of the term, of course. Internal
Adaptability and Responsiveness Supply-chain man- customers exist in every organization. However, in this sec-
agement is an ever-changing concept. As an organization’s tion, the term will be used to mean end users and custom-
competitors get better at using the concept and continually ers of suppliers. In this context, for example, the customer of
improve on its application, other organizations must adapt an automobile manufacturer might be a consumer who buys
in order to stay competitive. Consequently, it is important one of its models or a car rental agency that purchases its
to have suppliers in the chain that can adapt continually and fleet from the manufacturer.
respond quickly. The rationale for forming partnerships with customers
in this context is simple: It is the best way to ensure customer
Globalization Globalization has changed the customer satisfaction, which is, in turn, the best way to be competitive.
base for many organizations at the top of the supply chain. To understand this rationale, answer the following questions:
As a result, these companies are finding that their suppliers
must also change accordingly. Large multinational compa- 1. Who knows better what the customer wants, your orga-
nies that are accustomed to working with large suppliers nization or the customer?
are finding it necessary to work with much smaller suppli- 2. What makes more sense, guessing what customers want
ers in order to be responsive to markets in smaller countries or asking them?
throughout the world. The needs and capabilities of smaller 3. Can a producer benefit from seeing how its product is
suppliers are different than those of large suppliers. This used by customers?
is forcing large multinational companies at the top of the
4. What costs more, making design changes early in the
supply chain to reengineer their approach to supply-chain
product development cycle or recalling faulty prod-
management.
ucts that have already been produced and purchased by
customers?
Misalignment of Material Technologies and Product
Life Cycles Companies that manufacture electrome- The answers to these questions form the rationale for
chanical systems, equipment, and devices that are designed partnering with customers. No organization can possibly
with a product life expectancy of 10 to 15 years are finding know better than its customers what the customers want.
that the materials and parts they purchase from suppliers for Customer-defined quality is a fundamental part of the total
normal upgrades and maintenance are not available. This quality philosophy. Whether it is best to guess what a cus-
is especially the case with semiconductors. Parts suppliers tomer wants or to ask is obvious. No organization can af-
might maintain a readily available inventory for just 18 to 36 ford to squander its resources and, in turn, its competitive
months. This means that the system’s manufacturer is forced edge guessing what customers want. Organizations should
to choose one of the following three alternatives, with all of ask customers what they want. Any organization that pro-
them considered to be bad: (1) purchase at the outset a large duces a product can benefit from observing how it is used
enough inventory of spare parts to last 12 to 13 years; (2) by customers.
divert the valuable time of engineers from product develop- By involving customers early in the product develop-
ment to reengineering of parts (which amounts to mortgag- ment cycle, a manufacturer can make changes inexpensively
ing the future); or (3) locate brokers who are willing to take and with relative ease. The further along a product is in the
the risk of maintaining an inventory of unique parts (which development cycle, the more costly such changes become.
means paying extraordinarily high prices for the parts when If modifications are needed after the product is being used
they are needed). This is a major supply-chain management by customers, such as in the case of product recalls, the cost
issue for many companies. cannot be measured in just dollars and cents. Additional
costs accrue in the form of lost consumer confidence, di-
Transition and Crisis Management The ability to minished trust, and a tarnished corporate image. Product
handle transitions and crises throughout the entire supply defects can be corrected much more easily than consumer
chain has become a critical issue for companies at the top confidence or trust can be restored.
72 Chapter Five Partnering and Strategic Alliances

The customer feedback survey conducted by mail and

telephone is a widely used strategy for measuring customer QuAlity tiP
satisfaction. Such surveys have a place. However, their after-
the-fact nature limits their usefulness. Unless they are just Flexible Manufacturing Networks
one part of a much broader set of strategies implemented a Flexible manufacturing networks (FMNs) are alliances of small
great deal earlier in the process, customer satisfaction sur- and medium-sized manufacturing firms that collaborate in
veys will have only a limited effect on an organization’s abil- ways that make the individual members more competitive. The
concept is based on bringing together firms that have offsetting
ity to compete. strengths and weaknesses so that each member reinforces the
The key to success in partnering with customers is to get others allowing the network to undertake projects that none of
them involved early in the product development cycle. Let them the individual firms would be able to attempt alone. By network-
preview the design. Allow them to observe and even try proto- ing in this way, smaller firms can gain economy of scale without
type models. Get their feedback at every stage in the product losing the benefits of speed, rapid response, and flexibility.
development cycle, and make any needed changes as soon as
they are identified. When this approach is used, customer satis-
faction surveys can solicit feedback from a broader audience to
verify the input given earlier in the product development cycle. Manufacturing networks began to appear in the United
Discussion Assignment 5.1 illustrates this approach. States in the 1980s. The earliest known network in the United
States is the Garment Industry Development Center, estab-
Partnering with POtential lished in New York City in 1984. Figure 5.7 shows the broad
cOmPetitOrS industrial clusters in which manufacturing networks can be
found in the United States. Of these, the greatest number of
Partnering with potential competitors sounds like an odd networks can be found in the metalworking, woodworking,
strategy on the surface. Why would organizations that and textile industries.
compete for business in the same markets want to form part-
nerships? The rationale for partnering with potential com- Network Activities
petitors is the same as that for partnering with suppliers and
customers: competitiveness. This is a strategy that applies The joint activities in which networks participate vary a
more frequently to small and medium-sized firms, but it can great deal, depending on local objectives. Figure 5.8 shows
also be used by even the largest organizations, and some- some of the most widely practiced joint activities of manu-
times is. For example, the leading computer companies in facturing networks in the United States.
the United States may form a partnership to develop the next
technological breakthrough before a similar team in Japan,
Germany, or some other country beats them to it.
Small and medium-sized enterprises (SMEs) don’t typi-
cally develop major technological breakthroughs. However, Defense
there are many ways in which SMEs can work together to Related
enhance their competitiveness in spite of being competitors
in the same markets. The most widely practiced type of part-
nership among SMEs is the manufacturing network. Plastics

Manufacturing Networks of SMEs

A manufacturing network is a group of individual SMEs Textiles
that cooperate in ways that increase their quality, productiv-
ity, and resultant competitiveness to levels beyond what the
individual member companies could achieve by themselves.
The concept originated in Europe after World War II. It is Woodworking
still practiced extensively in the Emilia-Romagna region of
Italy and in Denmark.
These countries applied the concept to rebuild their
manufacturing bases after the devastation of World War II,
when resources were insufficient to allow manufacturers to
rebuild independent of one another. Consequently, rather Metalworking
than trying to completely retool and restaff independently,
companies formed networks and shared both human and
technological resources. Manufacturing networks were orig-
inally conceived as a way to rebuild. They have since evolved Figure 5.7 Industrial Clusters with Networks in the
into a way to compete—particularly for SMEs. United States.
 Chapter Five Partnering and Strategic Alliances 73

Production

Education
Purchasing and
Training

Joint
Activities of
U.S.
Manufacturing
Networks

Technology
Marketing
Transfer

Product
Development

Figure 5.8 Joint Activities of U.S. Manufacturing Networks.

Production Networked SMEs are able to pursue produc- By partnering, SMEs can solve all three of these problems
tion contracts larger than any individual member company through economy of scale. Although giving employees time
could undertake alone. Through teaming arrangements, the off for training will always be difficult, it can be made easier
work and the financing of it are divided among network through the sharing of employees by network members on
members as appropriate. a reciprocal basis. By bringing together all employees from
The Technology Coast Manufacturing and Engineering member companies who need a certain type of training,
Network (TeCMEN) in Fort Walton Beach, Florida, under- networks can produce classes large enough to attract edu-
takes joint projects and its members work together to meet cational institutions and to qualify for discounts from pri-
joint needs such as training. The member organizations are vate training providers. The Garment Industry Development
Department of Defense contractors that design and manu- Corporation (GIDC) in New York City is an example of a
facture electromechanical military technologies. By partici- network that provides joint training opportunities for its
pating in TeCMEN projects, individual members are able to members (see Figure 5.9).
pursue larger, more complex contracts than they could at-
tempt alone. Marketing Marketing is the most widely practiced
joint activity among manufacturing networks of SMEs.
Education and Training Education and training are Typically, the joint capabilities of the network are what
often a problem for SMEs. On the one hand, employees need is marketed. Member companies share the costs of pro-
ongoing education and training to continually improve qual- ducing marketing tools, such as brochures, videos, and
ity, productivity, and competitiveness. On the other hand, promotional materials; of attending trade shows; and of
they face the following problems because they have a limited marketing personnel and related expenses such as travel.
employee base:
■■ Difficulty giving employees time off for education and
training and still meeting production schedules • Sewing machine maintenance and repair
• Computer-assisted shop-floor management
■■ Difficulty convincing educational institutions that typi- • Manual working and grading operations
cally need 15 to 20 students to form a class to bring • Computerized working and grading operations
courses on-site • Advanced training (whole-garment
construction and quality control)
■■ High expense for education because they do not get the
substantial registration discounts large firms get when
participating in training provided by private training Figure 5.9Joint Training Programs: Garment Industry
firms Development Corporation (GIDC).
74 Chapter Five Partnering and Strategic Alliances

The TeCMEN in Fort Walton Beach, Florida, conducts a glObal Partnering

joint marketing program. Members share the costs of par-
ticipation in selected trade shows, production of a joint The partnering concept, like all contemporary business con-
marketing brochure, and other miscellaneous related costs cepts, has a global aspect. Companies that market to custom-
(e.g., telephone, travel, postage). ers worldwide should examine the possibility of partnering
with suppliers worldwide. In some cases, the government of
Product Development Developing new products can the host country will actually mandate supplier partnerships
be too expensive an undertaking for SMEs. It typically in- as an economic quid pro quo. This arrangement is often the
volves such activities as research, design, market analysis, case in nondemocratic countries. Government-mandated
competition analysis, prototype production, performance partnerships are not recommended here because they might
testing, and test marketing. The costs associated with be driven more by political than business considerations.
these activities can be prohibitive for an individual SME. In countries where businesses are free to develop part-
However, when the costs can be divided among network nerships based on sound business principles rather than
members, product development becomes a more feasible politics, the same rules apply as those set forth earlier for
concept. domestic partnerships. Modern transportation and tele-
The True North Certified Forest Products Network communication technologies make geographic separation a
Inc. in Bemidji, Minnesota, sponsors joint product de- manageable issue. But the latter technologies do not take the
velopment projects for its members. The products fall place of on-site visits to the facilities of partners, nor do they
into three categories: craft items, furniture, and building replace face-to-face interaction with global customers.
materials. A one-size-fits-all product will not suffice in the global
marketplace. Local on-the-ground interaction with both
Technology Transfer Technology is the physical mani- suppliers and customers is critical in gearing up for product
festation of knowledge. Technology transfer is the movement design. No designer, planner, or manufacturer in the United
of technology from one arena to another. The form of tech- States can possibly understand all the cultural nuances or
nology transfer that is most readily and widely recognized is country-specific preferences of people from other nations.
the transfer of a new technology from a research laboratory Put another way, product attributes that are popular in the
to a production setting. This is often referred to as technol- United States may not be in another country. Consequently,
ogy commercialization. Another aspect of technology trans- access to suppliers and customers in these countries is criti-
fer is the movement of a commercialized technology into the cal. Partnering is the best way to gain the necessary access.
hands of users. This aspect is often referred to as technology
diffusion. educatiOn and buSineSS
After it has been diffused, technology must be properly
PartnerShiPS
used to realize its potential benefits. Proper use of technol-
ogy requires knowledge. Knowledge sharing is the approach Two of the most important factors in continually improv-
networks use to promote effective technology transfer. An ing the performance of an organization are the quality of
example of how knowledge sharing is applied is the Heat employees and the quality of human interaction with tech-
Treating Network Inc. (HTN) of Cleveland, Ohio. One of the nology. To improve performance, organizations must first
partners in this network is the Edison Material Technology improve their people and the interaction of their people
Center (EMTEC). The EMTEC provides a free hotline that with process technologies. Individuals who lack fundamen-
HTN members can access for assistance in solving heat tal work skills cannot perform at globally competitive lev-
treatment problems. The hotline is the primary vehicle for els, and people who lack process skills cannot get the most
information sharing. out of technologies available to them. For example, a person
When a technology-related problem is confronted, the who cannot solve general algebraic equations will be unable
member calls the EMTEC’s hotline and explains it in detail. to learn statistical process control, and a person who uses a
EMTEC personnel provide a solution within 72 hours or word processing system as if it were a typewriter will not get
guide the company to another source that can help. The lat- the most out of this technology.
ter approach is known as brokering. The need to continually improve employees’ work skills
is the primary force driving business and education partner-
Purchasing One of the most productive applications ships. In such partnerships, educational institutions provide
of the economy of scale gained from networking is in pur- on-site customized training, technical assistance, and con-
chasing. SMEs working alone are not able to enjoy the cost sulting services to help organizations continually improve
savings that large firms achieve by purchasing bulk quanti- their people and their processes. They also provide work-
ties of expendable materials and other necessities, such as shops and seminars and facilitate focus groups.
insurance. However, by jointly purchasing necessities, net- Partnering with business and industry has become
worked SMEs can achieve similar cost savings. For example, a common practice for institutions of higher education.
members of The Metalworking Connection Inc. in Alabama Discussion Assignment 5.2 contains two examples of the
jointly purchase casualty insurance, thereby saving between approaches educational institutions are taking to promote
20 and 30% of the cost of premiums. business and industry partnerships.
 Chapter Five Partnering and Strategic Alliances 75

Summary need and interdependence are the characteristics that make

manufacturing networks succeed. Widely practiced network
1. Partnering means working together for mutual benefit. It activities include joint production, education and training,
involves pooling resources, sharing costs, and cooperat- marketing, product development, technology transfer, and
ing in ways that mutually benefit all parties involved in the purchasing.
partnership. Partnerships may be formed internally (among 7. Global partnering is an option for organizations that do
employees) and externally with suppliers, customers, and po- business on a global scale. The same types of partnerships de-
tential competitors. The purpose of partnering is to enhance scribed in this chapter can be applied to global suppliers, cus-
competitiveness. The formation of partnerships should be a tomers, and competitors.
systematic process involving such steps as development of a 8. Education and business partnerships are formed to help orga-
partnering briefing, identification of potential partners, iden- nizations continually improve their people and how well they
tification of key decision makers, presentation of the part- interact with process technologies. Services provided include
nering briefing, determination of the level of commitment, on-site customized training, workshops, seminars, technical
identification of key personnel, formation of the partnering assistance, and consulting.
team, development of a mission statement, development of
objectives, prioritization of the objectives, and implementa-
tion of the partnership.
Key termS and cOncePtS
2. Innovative alliances and partnerships can take many forms.
For example, small and medium-sized businesses might form
Brokering
a partnership or alliance to save money through consortium
Environment
buying. Customer alliances and customer focus groups are two
Internal partnering
other forms. An example of an innovative alliance is the re-
Level of commitment
search partnership formed by Coca-Cola and Nestlé to develop
Manufacturing network
a line of ready-to-drink coffees and teas.
Mature partnering
3. Internal partnering operates on three levels: management- Mechanisms
to-employee partnerships, team-to-team partnerships, and Mutually supportive alliances
employee-to-employee partnerships. The purpose of internal New paradigms
partnering is to harness the full potential of the workforce and New values
focus it on the continuous improvement of quality. Internal Partnering
partnering is also called employee involvement and employee Partnering briefing
empowerment. Successful internal partnering requires a sup- Partnering model
portive environment, structured mechanisms, and mutually Partnership team
supportive alliances. Partnering with customers
4. The goal of a supplier partnership is to create and maintain Partnering with potential competitors
loyal, trusting relationships that will allow both partners to Partnering with suppliers
win, while promoting the continuous improvement of qual- Price-only approach
ity, productivity, and competitiveness. The requirements Short-term pressures
for success in supplier partnerships include the following: SME
supplier personnel should interact with employees who Technology transfer
actually use their products, the price-only criterion in the Uncertainty and tentativeness
buyer–supplier relationship should be eliminated, the qual-
ity of products delivered should be guaranteed by the sup-
plier, the supplier should be proficient in just-in-time (JIT), Factual review QueStiOnS
and both parties should be capable of sharing information
electronically. Supplier partnerships typically develop in the 1. Define the term partnering.
following stages: uncertainty and tentativeness, short-term
pressures, realization of the need for new approaches, adop- 2. What are the benefits of partnering?
tion of new paradigms, awareness of potential, adoption of 3. Describe each step in the partnering model.
new values, and mature partnering. 4. Define the term internal partnering.
5. The rationale for forming customer partnerships is customer 5. What is partnering with suppliers?
satisfaction. The best way to ensure customer satisfaction is
6. Explain the mandatory requirements of supplier partnerships.
to involve customers as partners in the product development
process. Doing so is, in turn, the best way to ensure competi- 7. List and explain the stages of development in supplier
tiveness. Customer-defined quality is a fundamental aspect of partnerships.
total quality. 8. Explain the rationale for partnering with customers.
6. Small and medium-sized enterprises, or SMEs, even those 9. What is a manufacturing network?
that compete in the same markets, can benefit from partner- 10. What role does mutual need play in manufacturing networks?
ing. The most widely practiced form of partnership among
11. List and explain the most widely practiced network activities.
SMEs is the manufacturing network. A manufacturing net-
work is a group of SMEs that cooperate in ways that enhance 12. What types of services do educational institutions typically
their quality, productivity, and competitiveness. Mutual provide to business and industry partners?
76 Chapter Five Partnering and Strategic Alliances

critical thinKing activity supply. With the necessary design change made, NCC quickly re-
gained its lost sales.
Does training Cost or Pay?
Discussion Question
John Andrews and Martha Stevens are supervisors in the produc-
tion department of ATV Inc., a manufacturer of various types of Discuss the following question in class or outside of class with your
all-terrain vehicles. ATV is beginning to feel the pressure of global fellow students:
competition. To continue the growth it has enjoyed over the last 1. Is there a store, restaurant, or other establishment with which
five years, ATV is going to have to improve quality, productivity, you do business that could improve its service or products? If
customer service, and supplier relationships. given the opportunity, what would you tell the owner or man-
One task force has been formed to investigate the feasibility ager about improvements that are needed?
of supplier partnerships. John and Martha have been appointed
to another task force to determine whether a partnership with a
local college is feasible as a way to improve employee performance. diScuSSiOn aSSignment 5.2
Representatives from the college have interviewed employees, su-
pervisors, and managers to determine what types of assistance ATV Business and education Partnerships
needs.
The college’s director of business services made a presentation the Quality institute
to the Education Partnership Task Force this morning. He made the The Quality Institute (TQI) is a partnership of Northwest Florida
following recommendations: (a) all production employees should State College, the University of West Florida, and the Economic
receive training in benchmarking, continuous process improve- Development Council of Okaloosa County. TQI is dedicated to the
ment, use of the quality tools, and problem solving; (b) the train- continual improvement of quality, productivity, and competitive-
ing should be provided on-site and on company time; and (c) the ness in the private and public sectors. To this end, TQI offers educa-
company should pay all costs associated with the training. John and tion, training, consulting, and technical assistance in a wide range
Martha are discussing these recommendations. of areas, including quality management, supervision, manufactur-
“There is no way ATV is going to pay what the college wants ing improvement, workplace health and safety, human resources
to charge,” said John. “And I guarantee there won’t be any train- and development, and management.
ing conducted on company time. All of this is too expensive.
Management will turn the college down flat.” institute for Professional Development
“I don’t think so,” said Martha. “If the training improves our
The Institute for Professional Development (IPD) of Northwest
performance enough to keep us competitive, it will be worth every
Florida State College was established to help business, industry, and
penny and more.”
government agencies as well as individuals continually improve
Join this debate. Does training for business and industry cost,
their performance in the global marketplace. A knowledgeable
or does it pay? What is your opinion?
and well-trained workforce can provide a formidable competitive
advantage. The IPD provides seminars, short courses, workshops,
diScuSSiOn aSSignment 5.1 and customized contract training to help continually improve the
performance of people, processes, products, and organizations. The
IPD’s services are designed to help individuals and organizations
Partnering with Customers Pays Off not just survive in today’s intensely competitive marketplace but
Newspaper Concessions Corporation (NCC) manufactures vend- also prevail.
ing machines for newspaper chains nationwide. The machines are
placed in conspicuous locations and accessed using the appropriate Discussion Questions
combination of coins. A great deal of research has gone into con-
Discuss the following questions in class or outside of class with your
tinually improving this aspect of the vending machines. Even with
fellow students:
this, NCC noticed a sharp drop-off in sales to newspapers serving
large urban centers. 1. Do you know of any companies that partner with educational
As part of its new customer partnership effort, NCC invited institutions for training or technical assistance?
representatives from established customers in 10 large cities to 2. Does the institution you are attending partner with business
spend time in its production facility and participate in all phases of and industry?
the development of the latest model of its vending machine. Input 3. In both cases, what is the nature of the partnership (e.g., what
from these representatives resulted in a major design change. kinds of courses, technical assistance)?
The NCC had put a great deal of effort into developing a stron-
ger coin box that could stand up to vandals and thieves. As it turned
out, theft of money was only part of the problem. More important
to the newspaper representatives was theft of their newspapers. In endnOteS
their cities, people were putting in the correct combination of coins
to pay for one newspaper but taking all of the newspapers in the 1. www.fao/org/ag/ags/publications/docs/AGSF_OccasionalPapers/
box. The newspaper sellers speculated that drug users were selling ags/op17.pdf. Retrieved on February 9, 2011.
the newspapers and keeping the money to support their habits. 2. CSCMP Toolbox, Council of Supply Chain Management
What was needed was a vending machine that would drop just Professionals. Retrieved from http://cscmp.org/academics/
one newspaper at a time rather than opening its door to the entire educational.asp on January 12, 2011.