The Long‐Term Strategic Impact of Purchasing Partnerships

Abstract

The strategic importance of purchasing has emerged clearly in recent years. The recognition of the potential to be gained through communication and cooperation has prompted many firms to move away from an adversarial buyer-seller stance. Instead, efforts have focused on managing purchasing relationships in order to contribute to strategic success.[1] This contrasts sharply with the traditional perspective of viewing purchasing as a tactical manufacturing subfunction.[2] Developing effective purchasing partnerships is a complex process requiring a long-term commitment. Rewards are not likely to be immediate. However, a review of the literature presenting previous research and case histories provides little indication of the time required to realize substantive benefits from partnership arrangements. Consequently, the current research focuses on exploring that area. More specifically, the research examines the relationship between the length of time partnership-oriented arrangements have been established and the degree of success in implementing specific purchasing strategies and achieving desired outcomes. Following a brief review of literature relating to the strategic role of purchasing and partnership involvement, research hypotheses and methodology are presented along with the results of an empirical study. BACKGROUND Traditionally, external purchasing or outsourcing has been prompted by desires to achieve efficiency improvements. Today, external purchase decisions often are part of a firm's strategic focus of maintaining flexibility. Firms are finding that they can leverage their core competencies by focusing on what they do best and forming coalitions, or long-term relationships, with best-in-class suppliers for other needs.[3] Developing partnerships and cooperative buyer-seller relationships in all types of business arrangements has been identified as a significant contemporary trend.[4] The rationale for entering into such partnership-type purchasing arrangements has been well documented.[5] For example, manufacturing firms have realized significant economies and operating improvements by selectively developing partnerships with suppliers of a variety of products and services.[6] Reasons for external purchases include the avoidance of extensive capital investment needed to produce the products or services internally, access to specialized talent or leading edge technology, higher quality, increased flexibility, and cost and efficiency enhancements.[7] However, partnerships are not without risk. Closer ties also create strategic vulnerability--i.e., partners are likely to anticipate greater degrees of risk and dependence. Spekman summarizes the challenge involved in effectively managing buyer-supplier partnerships: . . . the key is to both recognize one's potential vulnerability and to gain a sense of order, or control, by actively and purposively attempting to manage the relationship and to keep the dependence in check. For the buyer, the process might consist of better evaluating potential trading partners so that only sellers who have certain attributes are selected as close and interdependent partners. In other instances, the process might entail better gathering of environmental information so as to reduce and manage the level of uncertainty in the supply market.[8] Creating Successful Partnerships A number of characteristics, sometimes referred to as critical success factors, are associated with successful partnerships. These factors include selective matching, information sharing, role specification, defining ground rules, development of exit provisions, and long-term commitment.[9] Partnerships reflect a different approach to doing business. Separate operating philosophies must be blended together, hopefully with a minimum of disruption. Therefore, it is important that the corporate values and cultures of the individual prospective partners be compatible. …