Problem Sources in Establishing Strategic Supplier Alliances

By Stuart, F. Ian; McCutcheon, David | International Journal of Purchasing and Materials Management, Winter 1995 | Go to article overview

Problem Sources in Establishing Strategic Supplier Alliances


Stuart, F. Ian, McCutcheon, David, International Journal of Purchasing and Materials Management


INTRODUCTION

A number of North American firms have established supplier alliances(*) and supplier development programs during the past few years.[1] The supplier alliance concept has been pursued for a number of reasons, including supply base reduction, quality improvement, and a reduction in source variance.[2] At the same time, total quality management (TQM), a system of management whose primary objective is customer satisfaction, has broadened the historical definition of quality to include supply quality.[3] Supply management thus has become a key element in a company's quality strategy, and supplier alliances have been touted as effective means for achieving better results.

Data supporting the effectiveness of strategic supplier alliances have been accumulated; however, most studies have focused on the generalizability of alliances across industries and the potential benefits that can accrue.[4] This study's purpose is to examine a different issue: potential sources of problems in establishing such relationships with suppliers, an area of investigation that has largely been ignored. The study compares perceptual differences between matched samples of buyers and suppliers concerning their interrelationships. Specifically, alliances in which suppliers perceive the alliance relationship less positively than do their buyer counterparts are examined, based on suspected reasons that might lead to the suppliers' lower assessment of their arrangements.

STRATEGIC SUPPLIER ALLIANCES

Prior research has contrasted the alliance style of relationship with the traditional approach for dealing with suppliers, a relationship characterized by low commitment, limited information sharing, and contractual delineation of each party's role. The traditional buyer-supplier relationships involving multiple sources and short-term contracts have been evaluated using transaction costs and risk as determining factors.[5]

While transaction type arrangements are suitable in many circumstances, some authors have suggested that competitive bidding is not the preferred supplier selection method when, among other reasons, issues other than price (e.g., quality or technical capability) are of major concern.[6] Drawbacks to the competitive bidding process have been discussed extensively by a number of authors.[7]

There is growing interest in "new" forms of supplier selection procedures and relationships. Of particular interest are supplier alliances, inter firm transactional bases that expand the buyer-supplier relationship's dimensions. Typically, an alliance is characterized by a buyer providing more information about order quantities and timing, upcoming design changes, long-range plans, and so on, and sometimes about process technology assistance. At the same time, the supplier usually becomes more involved in product design and in providing broader technical support to the buyer. In return, the buyer usually commits a larger share of its business over an agreed period of time exclusively to the allied supplier. Numerous authors have investigated supplier alliances from the dimensions of definitions, activities,[8] and rationale.[9] However, none of these studies have investigated the causes and outcomes of conflict in such relationships.

MATCH AND MISMATCH OF PERCEPTIONS

Depending on circumstances, firms may have differing opportunities and capabilities to establish broader terms for their relationships with suppliers. Therefore, an alliance can be viewed as a matter of degree of mutual involvement. The degree of alliance can be measured by assessing two characteristics that are considered hallmarks of the nontraditional arrangement:(1) the amount of joint problem solving and (2) the equality in benefit sharing that occurs.[10] Firms reporting higher levels of these characteristics are considered to have greater degrees of alliance.

Measuring the degree of alliance in this way can also reveal problems in the purchasing arrangement. …

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Problem Sources in Establishing Strategic Supplier Alliances
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