Strategic Alliances in Purchasing: Transportation Is the Vital Link

Article excerpt

The nature of the buyer-supplier relationship has been undergoing dramatic changes during the last several years. Industry observers and researchers have described these emerging closer relationships as "partnerships" or "strategic alliances," as opposed to the traditional "arm's length" type of association.|1~ A strategic partnership between a purchaser and a supplier has been defined as "a mutual, ongoing relationship involving a commitment over an extended time period, and a sharing of information along with the risks and rewards of the relationship."|2~

Purchasing professionals tend to associate the terms "strategic alliance" and "partnership" with suppliers of goods. In this author's view, however, purchasers should not limit their partnering activities to relationships with goods suppliers alone. The same strategic advantages of long-term agreements with suppliers can be realized by developing similar partnering arrangements with transportation suppliers. Additionally, strategic alliances with goods suppliers can be further developed by including carriers in these alliances. By integrating the entire supply channel, the existing benefits of strategic alliances can be enhanced, because all parties in the supply chain are working together to improve quality, efficiency, and customer service.

In an effort to explore transportation's role in strategic alliances, the primary objective of this article is threefold. First, the goals and benefits of strategic alliances are briefly reviewed. Second, the role and the importance of including transportation suppliers in partnering agreements are discussed. Finally, the article explores the concept of transportation strategic alliances, along with purchasing's role in the carrier selection process for such partnering arrangements.

STRATEGIC ALLIANCES IN PURCHASING

Partnerships and strategic alliances between purchasers and suppliers are gradually replacing the adversarial relationships of the past. This approach to sourcing has already proved that it can provide numerous operating advantages for both parties, and has assisted in transforming the purchasing professional from a buyer to a negotiator and facilitator. Although every partnership is unique between the firms involved, increased partnering efforts typically share the common goals of (1) attaining superior quality conformance; (2) cooperating on cost reduction programs with a minimization of risks; and (3) sharing information, expertise, and new technology.|3~

Quality Improvement

To compete effectively in the global market, a company must have a reliable network of competent and quality-oriented suppliers. A firm's ability to produce a quality product at a reasonable cost is heavily influenced by its suppliers' capabilities.|4~ In a strategic alliance, there is a commitment between the buying and selling firms to jointly improve quality and productivity to reduce overall costs.

In a traditional open-market bargaining environment, price-driven tactics such as competitive bidding and positional negotiations are used. These approaches tend to influence purchasers to base supplier selection decisions on short-term considerations. Ironically, this operating environment often produces lower quality products and ultimately higher product costs to buyers due to scrap and rework.|6~

Firms engaged in strategic alliances typically rely much less on these tactics in their sourcing activities. When a supplier is treated as a long-term business partner, the close relationship and increased two-way communication allow both partners to resolve quality issues before they become quality problems. Suppliers have the opportunity to learn more about the purchasing firms' operating systems and how they use their products. The ongoing relationship encourages suppliers to develop a more complete understanding of buyers' needs and quality requirements. This typically results in reduced variability of output quality, fewer rejected products, and higher quality inputs into a purchasing firm's operations. …