4 Suppy Chain Partnership

Map4Session Synopsis

The conventional logic for outsourcing processes or buying services and materials was to do so where there were no economies of scale from keeping the process in-house and there was a market of competing suppliers. Purchasing followed an adversarial model: playing one supplier/vendor off against another to keep purchase prices down. This model has been progressively replaced by a partnership model, based on long-term relationships. These relationships are kept efficient by complex processes of vendor assessment. Significantly, where in the conventional model a company was not concenrned with the internal operations of a vendor, in the partnership model they want visibility of their partner’s operations, with the poterntial risk that this assymmetric knowledge will be used against the partner. The growth of outsourcing following the partnership model has led to the emergence of specialist firms, for example Electronics Manufacturing Services Firms (EMS) assembling electronic systems, who combine a claim that they are particulalry efficient in their operations with a flexibility to integrate closely with the operations of their customers.

The conventional view of operations management focussed on the management of resources within the walls of the firm. However the growth of the partenrship model led to a realisation that an inefficiency in a vendor or customer was a problem that would eventually affect everyone in a supply-chain. This led to a realisation that supply-chains should be co-ordinated across organisational boundaries. The clearest example of this was in the restructuring of distribution into retailers, with the introduction of regional distribution centres.

Session Objectives

  • be able to describe and explain the rise of outsourcing;
  • be able to describe and contrast the Market/Adversarial and Partnership models of supply relationships
  • be able to describe the logic for supply-chain management: why it makes sense for the whole supply-chain to be coordinated;
  • be able to describe and explain the change in retailing distribution from direct deliveries to stores to the use of regional distribution centres;

Text Book

BS1 Vol. 1, pp 509-543.

Key Terms

  • Supply-chain management;
  • Vendor Managed Inventory
  • Business Process Outsourcing
  • Electronics Manufacturing Services

Papers

New, S. (2010). The Transparent Supply Chain. Harvard Business Review, 88(10), 76-82.