Lecture Purchasing and supply chain management (3rd/e): Chapter 11 - W. C. Benton

Chapter 11 is entitled “Supply partnerships and supply chain power.” The intense coordination necessary for effective supply chain integration necessitates a reduced supplier base; where manufacturers were once producing products with thousands of suppliers, successful firms are now manufacturing better products with fewer suppliers.

Purchasing and Supply Chain Management

3rd edition

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Chapter 11:

Supply Partnerships and Supply Chain Power

Purchasing and Supply Chain Management, 3rd edition, Copyright 2013, All 

rights reserved

The Win­Win Partnership Dyad

• Buyer and supplier share goals and risks through:

• Joint planning and control

• A supply chain with increased information flow and enhanced  loyalty

• The result for both firms: 

• Decreased uncertainty

• Greater control of costs

• Cycle times, inventory

• Quality, customer satisfaction

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Partnership

• Definition:

• A tailored business relationship for achieving a competitive  

advantage based on: 

• Mutual trust

• Openness

• Shared risk

• Shared reward 

• Strategic partnerships receive benefits of joint ventures 

and vertical integration without the ownership 

commitment

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Benefits and Risks of Supplier Partnerships

• Benefits:

• Higher quality, and transaction costs

• Increased market stability

• Setup time reduction, improved process­oriented layout

• Increased communication and goal congruence

• Risks:

• Partner may not meet expectations

• Loss of partnership control

• Complacency

• Over­specialization

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Large vs. Small Suppler Bases

• Benefits of a large competitive supplier base:

• Higher manufacturer bargaining power

• Lower costs, higher quality, reasonable delivery times, and special  exigencies

• Shelters against supply interruptions 

• Benefits of a smaller supplier base:

• Less adversarial attitudes

• Lower switching costs

• Decreased shipping errors

• Quantity and relationship­based discounts

• Decreased cost of quality

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Power of a Supply Chain Member

• Definition:

• The ability of one channel member (the source) to influence the  actions and intentions of another supply chain member (the 

target)

• Characteristics:

• A composite relationship–oriented variable

• Extremely complex in nature

• Affects both the target and the source 

• Key factor in a supplier–buyer alliance

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Types of Power

• Mediated power sources 

• Based on the source’s intention to bring about some action 

• Includes reward, coercive, and legal legitimate power

• Represents the competitive, negative uses of power 

• Traditionally preferred by organizations

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Types of Power (cont.)

• Non­mediated power sources 

• Occur as a natural part of business transactions and do not  necessitate intention from the source

• The source may not even be aware

• Includes expert, referent, and traditional legitimate power

• Represents a more relational and positive use of power 

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Critical Relationship Factors 

• Dependence

• Commitment

• Trust

• Compliance

• Cooperation

• Conflict

• Satisfaction

• Performance

Power, Cooperation, and Compliance

• Definitions:

• Compliance

• Cooperation

• Power attempts to force a target to comply with the  source’s desires.

• Mediated or coercive power: Compliance

• Non­mediated power: Compliance and Cooperation

• A true supply chain partnership requires cooperation  rather than compliance

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Power and Conflict

• Conflict

• When one supply chain member hinders goal attainment and  performance of another 

• Competitive power sources

• Increase conflict

• Positive use of power 

• Can reduce conflict

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Power and Satisfaction

• Satisfaction 

• The extent of contentment with the relationship

• Overriding factor in determining the future of a supply chain 

partnership

• Drivers of satisfaction 

• Planning, mutuality, interdependence, and operational 

information exchange

• Without satisfaction, trust and commitment cannot exist.

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Power, Performance, and Profitability

• Performance 

• The ability to execute intentions and goals

• Mediated power 

• Could reduce performance of the target

• Non­mediated power 

• Improve the target’s opinion of the source’s performance

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Questions?

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