Developing strategic partnerships in the supply chain: a practitioner perspective

European Journal of Purchasing & Supply Management 6 (2000) 117}127

Developing strategic partnerships in the supply chain:a practitioner perspective

Martin Christopher*, Uta JuK ttnerCranxeld School of Management, Cranxeld, Bedford, MK43 0AL, UK

Received 6 January 1999; received in revised form 19 September 1999; accepted 31 October 1999

Abstract

The idea of managing supply chain partnerships for competitive advantage is receiving considerable interest amongst bothacademic researchers and industry executives. This article describes some current practices in several industries with respect tomanaging supply chain relationships. Focus group interviews and multiple case studies were conducted to gain insights intopractitioners' experiences. Six salient content themes are identi"ed and structured into a managerial framework, to provide guidanceto the increasing number of organisations that are now seeking to manage integrated supply chains. ( 2000 Elsevier Science Ltd. Allrights reserved.

It is becoming apparent that a major re-appraisal ofthe way in which companies compete is now required.

Traditionally, the under-pinning philosophy of mar-keting has been based upon the idea of `matchinga theneeds of the market with the capabilities of the "rm. If theproduct or service was carefully researched and if themarketing mix was well managed, success should follow,it was argued. Nowadays, however, competitive advant-age on a sustainable basis is unlikely to be achieved inthis way. Technologies are easily cloned, brand valuescan be emulated by competitors, òwn labela productsattract growing numbers of customers and many marketshave taken on the characteristics of `commoditya mar-kets.

Against this backdrop, a new model of competitivestrategy is emerging. It is based upon the premise thatincreasingly the "rm competes through its capabilitiesand competencies. In other words by how well it man-ages the fundamental processes involved in satisfyingcustomers. Such processes include the new product de-velopment process, the customer management process,the order ful"lment process and, speci"cally, the supplychain process.

*Corresponding author. Tel.: #44-1234-751122; fax: #44-1234-752691.

E-mail address: m.g.christopher@cran"eld.ac.uk (M. Christopher)

Supply chain management is concerned to achieve amore cost-e!ective satisfaction of end customer require-ments through buyer}supplier process integration(Christopher, 1992). This integration is typically achievedthrough a greater transparency of customer requirementthrough the sharing of information. This integration issubsequently compounded through the establishment of`seamlessa processes that link the identi"cation ofa physical replenishment need with a `just-in-timea re-sponse.

Organisations have also been re-appraising their valuechains and out-sourcing those activities which they con-sider to be non-core. Simultaneous with this growth inout-sourcing has been a move towards rationalisation ofthe supplier base. In other words organisations haveactively sought to reduce the number of suppliers they dobusiness with. The motivations for this move towardssupplier rationalisation are based partly upon econ-omics, partly upon the search for continuous qualityimprovement and innovation but also on a realisationthat there is a limit to the extent to which multiplesupplier relationships can be e!ectively managed.

As a result of these changes in the supply chain therehas emerged a growing inter-dependency amongst theparties in that chain. With this inter-dependency hascome a realisation that co-operation and partnershipare essential pre-requisites for the achievement of long-term mutual bene"t. The implications for competitivestrategy of this move towards collaborative supply chain

0969-7012/00/$ - see front matter ( 2000 Elsevier Science Ltd. All rights reserved.PII: S 0 9 6 9 - 7 0 1 2 ( 9 9 ) 0 0 0 3 8 - 6

Table 1Selection of companies represented in focus group discussions

BASF Kraft Jacob SuchardBritish Airways Philips LightingEsso Samsung EuropeReebok International HondaKellog's Benelux PanasonicLever Europe EricssonTimberland USA Marks & SpencerJohnson & Johnson Du Pont de NemoursRank Xerox International Distillers & Vintners3M Rockwell InternationalWhitbreadBeerCompany LauraAshley

networks are considerable* in particular the likelihoodthat real competitive advantage will, in the future, derivefrom the supply chain as a whole rather than the indi-vidual components of it. In other words `supply chainscompete, not companiesa. As a result, the need to struc-ture supply chain management into overall businessstrategy development becomes ever more apparent.

Interestingly, whilst the need to develop strategic ap-proaches to managing supply chain relationships is com-monly accepted, there appears to be a void of empiricalresearch (Olsen and Ellram, 1997). Existing frameworksand managerial guidelines are mainly conceptual andtheoretical and lack empirical observations of the state ofpractice (see for example, Ellram, 1991; Anderson andNarus, 1991). The work of the International Marketingand Purchasing (IMP) Group pioneered the focus oninteraction as a key to understanding the buyer/sellerexchange process (e.g. Ford, 1990; Hakansson andJohanson, 1992). Whilst this and other work have signi"-cantly in#uenced the way academics view the role ofrelationship management there is still only a limitedamount of empirically derived evidence on how supplychain relationships might best be managed.

The objective of this article is to help "ll the gap byreporting a study which speci"cally investigated howexecutives in industry manage strategic supply chainpartnerships on a day-to-day basis for long-term success.We have integrated the "ndings into a framework basedupon six salient aspects for a systematic approach torelationship management.

1. Methodology

Our data collection strategy involved two phases, "rsta focus group discussion phase and subsequently a mul-tiple case study phase.

A total of 12 focus group interviews were conductedduring a major logistics conference in October 1996 (seeChristopher, 1997). The focus groups comprised del-egates who were responsible for supply chain manage-ment at a senior level, drawn from a wide range ofcompanies and industry sectors (see Table 1).

Participation in one of the 12 focus group discussionswas voluntary and the delegates were recruited to groupsby a process of self-selection and availability. Informa-tion about the scope of the focus groups was sent todelegates before the event. Previous research has identi-"ed these task-oriented interaction-centered focusgroups as an ideal methodology to explore professionals'experiences and to describe that experience (Calder,1994). Running the groups ourselves, we used a brief onthe topic to be discussed as an initial stimuli and, inaddition, relied on the fact that the group context itselfhas a strong focussing e!ect (Calder, 1994). In our role asmoderators, we encouraged participants to identify com-

monalities and di!erences in their experiences and sum-marised the discussion at the end. The discussions weretaped and content-analysed for patterns of salient issuesand experiences. Overall, six content themes relating tothe issue of supply chain management were identi"ed.

Focus groups can provide rich insights but should befollowed by more in-depth means of data collection, i.e.for example surveys or case studies. In our research, sixcases have been developed to investigate each of theissues identi"ed in the group discussions in greater detail.This sampling approach (Glaser and Strauss, 1967;Eisenhardt, 1989), appeared to be consistent with ourobjective to describe business experience. Following thegroup discussions, the delegates from participant "rmswere screened and asked for their willingness to collabor-ate. Whilst all cases are based on personal interviews andarchival data analysis, two of the cases additionally in-volved a survey. These two companies requested thattheir names should remain disguised.

2. The framework

Based upon what is essentially qualitative research,albeit strengthened by a limited quanti"ed sample, wesought to identify a tentative framework to guide man-agers in their attempt to develop strategic partnerships inthe supply chain. Inevitably when the data derives froma limited number of case examples, it has to be empha-sised that any resulting conclusions and generalisationswill be contingent upon the conditions and context with-in which the selected organisations operate. However, wefeel that the companies included in this study, togethercover a broad spectrum of commercial activity and hencewe feel con"dent to present this generalised framework asa guide for action.

Our proposed framework aims at supporting man-agers who face the challenging task of developing part-nerships in the supply chain. The six related elements ofthe framework should be seen as ìngredientsa of a sys-tematic relationship management approach rather than

118 M. Christopher, U. Ju( ttner / European Journal of Purchasing & Supply Management 6 (2000) 117}127

Fig. 1. The framework.

consecutive steps in a rigid procedure. Furthermore, rela-tionships being the focus, we take a dyadic view andinclude both the buyer and the seller stance. Fig. 1 givesan overview of the six elements of the framwork. For eachelement we "rst summarise the main arguments from thefocus group discussions and the literature and sub-sequently provide a company-speci"c case example forillustration.

2.1. Dexning a balanced set of relationships

Every company maintains a variety of di!erent rela-tionships and may not be willing or capable of develop-ing close ties with all parties. Partnerships are resource-intensive investments with not only a "nancial risk, butmaybe more importantly, a strategic risk emerging fromthe increased vulnerability of the parties and their expo-sure to opportunistic behaviour. Therefore, relationshipmanagement is a situational approach and involves thedevelopment and maintenance of a portfolio of relation-ships with di!erent natures, and not only close partner-ships.

Prior to developing a speci"c portfolio model, a goodstarting point for the company is to be precise about itsown strategy and to de"ne the role that partnerships andspeci"cally joint strategic activities play within this cor-porate or business strategy. Xerox, for example, has beenknown for its quality-orientated strategy for many years.The development of close relationships upstream anddownstream the supply chain has been part of that strat-egy. More recently, however, the company decided tochange slightly its course towards a stronger emphasis oncosts which has allegedly also had an impact upon sup-plier choice as materials cost has emerged as an order-winning criteria, whilst quality is now seen as a `quali-"era.

A further initial consideration is to de"ne the structureof a potential relationship agreement. Whether only twoparties are involved in a bilateral structure or severalparties are participating, has implications on how therelationships should be managed. The more levels theagreement spans within the chain, the greater the com-

plexity. Trust that the other party will forgo opportunis-tic behaviour is a primary concern in a structure whereone party deals with several competing players. Anexample is a retailer who receives di!erent category man-agement plans from competing suppliers and deals withthem on an independent basis. The example also revealsthe impact of the parties' power positions. A majority ofcompanies will "nd themselves in a chain which is dom-inated by the so-called `channel captaina. It is generallyimpossible to be proactive in de"ning the terms of therelationship from a weaker position but instead of re-maining `passivea, such companies can launch whatcould be called a `best adjustment strategya. The under-lying capability &to be good at being led' as a route toachieving corporate objectives is often a successful stanceto adopt. A good example is the relationship betweenIBM and Microsoft in its early phases.

Having de"ned their own strategy and position, com-panies should evaluate existing relationships as well asfuture prospects. Often, the relationship value is notmeasured at all or only on the basis of revenue andvolume. In business-to-business contexts however, thereal value of a relationship is linked to other, moredisguised, criteria (Matthyssens and Van den Bulte,1994). Whilst the need for a more comprehensive, stan-dard measurement approach is being recognised (Ander-son, 1995), experience also shows that the criteria arecompany and industry-speci"c and, in addition, some ofthe most important criteria are di$cult to quantify (El-lram, 1990). Criteria which are frequently mentioned inthis context are the substitutability of the buyer or seller,the indispensability of the goods purchased or sold, thesavings resulting from the partner's practices and thedegree of common interest (Krapfel et al., 1991). Thesubstitutability can reveal that, for example, two cus-tomers or suppliers with the same business volume arecompletely di!erent in terms of how easy they can bereplaced. This is explained by the indispensability of thegoods purchased or sold; the more speci"c the productsare, the lower the substitutability of the partner. Further-more, from a seller's viewpoint, these are often the prod-ucts with the highest contribution margin. The savingsa company can achieve when dealing with a partner inthe long-term have an additional leverage e!ect on therelationship value. These are the so-called `transactioncostsa which decrease over time and which in their mostgeneric form refer to lower administration costs. Finally,the degree of common interest builds a political dimen-sion supplementing the economic relationship value andis particularly helpful in identifying those business part-ners, who in spite of their high relationship value shouldnot be selected for partnership agreements. These rela-tionships are characterised by substantial di!erences, forexample in strategic objectives or corporate cultures.They frequently occur in takeover relationships and theBMW}Rover takeover might serve as a case in point.

M. Christopher, U. Ju( ttner / European Journal of Purchasing & Supply Management 6 (2000) 117}127 119

Fig. 2. Supplier hierarchy.

In spite of recommendations from the literature toapply portfolio techniques to classify relationships andthereby optimise the return on relationship investments(e.g. Krapfel, et al., 1991; Wilson, 1995), we have foundfew companies following this advice. General practice isnot to use two or more dimensions equally weighted ina matrix, but instead to classify relationships in the formof a simple hierarchy. On the procurement and logisticservice provider side in particular, companies structuretheir supplier base in hierarchical tiers. The aim is tofollow internally a more structured procurement ap-proach using prede"ned rules, and to make this transpar-ent to the external relationship partners.

2.1.1. Case illustrationThe "rst case study, based in a retailing environment,

highlights some of the potential pitfalls related to the useof partner tiering. The focal retailing company has intro-duced a four-tier supplier segmentation approach as partof a comprehensive relationship strategy. The classi"ca-tion structure could also be interpreted as a `career pathafor suppliers and is depicted in Fig. 2.

As shown in the "gure, all potential new suppliers canonly enter at the bottom, i.e. they start with the lowestsupplier status. Upgrading and downgrading suppliers isrelated to a formal evaluation procedure involving sev-eral management levels in the retailing company. Fur-thermore, exit is possible at any stage if a company'sperformance no longer meets the prede"ned performancestandards. The classi"cation is a formal part of the re-tailer's relationship strategy and is communicated inter-nally as well as to suppliers. Because the retailer not onlyplaces a greater proportion of business with the highertier suppliers but also invests more resources in theserelationships, there is an incentive for suppliers to achieve"rst tier supplier status. Thus, it could follow that thesuppliers' relationship commitment should be higher inthe top tiers and, as a consequence, that the relationshipsatisfaction experienced by retailer's boundary spanningemployees should be higher in these relationships.

We designed a survey to test these two assump-tions and measured the relationship commitment andsatisfaction on the retailer as well as on the supplierside. Interestingly, a "rst "nding has shown that therelationship commitment in the "rst and second tiersupplier companies has been signi"cantly lower com-pared with the third and fourth tier supplier commit-ment (t-value"2.95, signi"cant at 0.01 level). Twoalternative interpretations can explain this result: Onthe one hand it could be argued that the supplierclassi"cation has counterproductive e!ects because itencourages complacency in higher classi"ed companies.This is supported by statements from supplier managersin the preliminary qualitative interviews who com-plained that `the rating system was not faira. On theother hand, it could indicate that the suppliers in the toptiers have already invested substantially in the retailerrelationship and are not prepared to go any further.Indirect support is given by the relationship satisfactionscores, which were not signi"cantly di!erent for bothgroups. A second "nding demonstrated that the o$cialcorporate supplier classi"cation was not supported bythe relationship preferences of the retailer's boundaryspanning employees. Each employee was asked to namethe supplier status of their most and least satisfactorysupplier relationship and a chi-square test associatingsupplier status with this classi"cation was not signi"cant(chi-square"4.1(chi-square critical at p"0.05). This"nding suggests that a formal corporate relationshipclassi"cation may di!er from the employees' relationshipevaluation.

Summarising, a systematic approach to developingpartnerships in the supply chain should start with de"n-ing a balanced set of relationships, grounded in thecompany's over-arching business strategy. Thereby rela-tionship investment decisions are supported and a frame-work is provided for managing relationships of adi!erent nature on a day-to-day basis. Relationship valueassessment is indispensable and classi"cation approachesare supportive but, as our case illustration has shown,o$cial partner classi"cations should be used carefullyand reviewed on a regular basis.

2.2. Developing the right interface structure

The classic debate within the strategy literature in thepast as to whether a company's `structure follows itsstrategya or, alternatively, if the `strategy follows struc-turea, could be continued in the context of relationshipmanagement. Experience shows that the quality of rela-tionships like the degree of closeness between the parties,is strongly in#uenced by the interface structure which hasbeen set up to manage them on a day-to-day basis(Carter and Ellram, 1994). Therefore, de"ning a balancedset of relationships for the strategic partner choiceand the development of the right interface structure are


Fig. 3. Interface structures.

mutually reinforcing and a clear-cut attribution of e!ectsseems impossible.

The following "gure illustrates four distinct interfacestructures which represent typical approaches applied inpractice (McDonald et al., 1996) (Fig. 3).

From the top left to the bottom right the number ofties between the companies gradually increases and therelationship becomes multifaceted. The "rst structureshows an interface which is con"ned to a buyer}sellerinteraction, other functions as well as the strategic levelare not involved in the relationship. For these businessrelationships, the commercial deal is central and negoti-ations concentrate on price and margin. On the positiveside, the interface structure can be set up with fewresources and can therefore be used as a structural foun-dation for managing a large number of relationships.Likewise, switching barriers are low, which can be bothan advantage or a disadvantage. On the downside how-ever, the structure sets limits to value creation exceedingthe mere product value, mainly because it does not en-able the parties to get to know each others business,a precondition for comprehensive value generating pro-cesses. The second structure is built around a closercollaboration between buying and selling, which isunderlined by the change in titles to purchasing andaccount management for the corresponding boundaryspanning employees and departments. They get back-upsupport from further functions on demand, although thefunctional people are not dedicated exclusively to one ora few accounts. Compared to the traditional sales forceorganisation described above, this second interface struc-ture represents an increasing resource commitmentwhich explains the involvement of managers from the

strategic level. In the third structure, the relationship isorganised as a relationship between companies. Directinteractions between a range of functions emphasisea collaboration across each partner's core business pro-cesses and create stability independent of individual em-ployee turnover. Managing the relationship on sucha basis requires substantial investments and therefore thedecision is linked directly to the company's over-archingbusiness strategy. The same applies to the fourth struc-ture, where company boundaries become blurred. Theassignments of the focus teams further illustrate that theparties are not only jointly handling the day-to-day op-erational business but are cooperating on strategic issueslike R&D or market research and market development.

Due to the close linkage between the interface struc-ture and the quality of the relationship, it follows thatcompanies with a balanced relationship set do not man-age them all from the same structural platform. Thefollowing case example illustrates how this issue is cur-rently addressed by one company.

2.2.1. Case illustrationThe case example illustrates the organisation of

Speedo, a leading international brand company of pro-fessional swim wear, based in the UK. Like many com-panies today, Speedo has set up di!erent, parallelstructures for managing its diverse customer base.

Their current organisation comprises three distinctinterface structures: "rst, a traditional sales organisa-tion with a large and dispersed "eld salesforce who dealwith the small independent sports stores. They havetraditionally been the pillar of the business and repre-sented in the past the main channel of distribution. For


Speedo however, the sports stores are low volume cus-tomers, geographically spread all over the country andtherefore best dealt with by individual salespeople. Thecompany's concern for these relationships is manifestedin the strong emphasis they place on an experienced,well-quali"ed salesforce with a high level of employeeretention.

The portion of the business accounted for by the sec-ond customer segment, major high street retailers andsports multiples, has gradually increased over the last fewyears to approximately 50% today, with the prospect ofa further rise to 80% in the near future. The shiftingbalance and the concentration within this channel ofdistribution, leverages the relationship value which inturn justi"es the resource-intensive account structureSpeedo maintains to deal with these customers. The workbetween the dedicated account managers and theircounterparts on the retailer side is facilitated by theprovision of back-up support from other functions withinthe company.

Finally, Speedo has started an even closer cooperationwith two potentially high growth customers about a yearago. The relationship project and the corresponding in-terface structure are still in a trial phase but both parties'commitment is high. One of the clients is Sports Division,Europe's biggest independent sports retailer with appro-ximately 120 High Street stores, additional in-store con-cessions as well as a number of superstores. For Speedo,the relationship is crucial because aside from the higheconomic relationship value, Sports Division shares theirinterests, stocking only leading brands and not own labelproducts. The initiative for the project came from theoperations director who is still in charge of the imple-mentation and who assigned an account developmentteam to work exclusively on this one account. The teammembers have been selected to match the retailer's sup-ply management team and both teams' target is to im-prove the e!ectiveness and e$ciency of the supply chain.

To sum up, the most important factor concerning thesecond aspect of our framework is to match the interfacestructure with the relationship classi"cation. As a conse-quence, companies will often "nd themselves in a posi-tion where they operate from several structuressimultaneously. As the example of Speedo has shown,such an approach can be developed through gradualextension, where new structures are "rst organised astemporary, trial projects. Finally, just as important as thestructure itself is the symmetry across the companies'boundaries, i.e. to mirror the partners' structure. If, forexample, one account manager faces a whole purchasingteam, it is likely to cause frustration on both sides.

2.3. Cooperating across systems

The third aspect, cooperating across systems, refers toall initiatives undertaken to improve the information

exchange between the parties. We deliberately usea broad de"nition because the form the cooperationtakes can di!er depending on its purpose or the industry.In fast moving consumer goods industries, cooperationacross systems is often a central issue in partnershipdevelopment, concepts like È$cient Consumer Re-sponse (ECR)a, `Vendor Managed Inventory (VMI)a or`Co-Managed Inventory (CMI)a are based on linkagesbetween the parties' information systems (see Peck, 1998).Likewise, Just-in-Time relationships as experienced inthe motor industry, strongly rely on technology as a rela-tionship facilitator. But the use of sophisticated systemsis not always essential to improve the information ex-change. Relationship parties might simply set up a PCconnection through the Internet or commercial networksand install speci"c software packages like Lotus Notes tofacilitate inter-company communication.

The most critical issue to address is the de"nition ofthe scope for mutual systems development, i.e. to clarifyas a "rst step which business functions should be connec-ted in boundary spanning processes. From that, the de-gree and form of technology needed to secure a smoothinformation #ow within these processes can be derived.Looking at the example of a collaborative relationshipbetween a retailer and a manufacturer, the business func-tions that are typically linked are forecasting, orderingand distribution. Interestingly, these are at the same timevery information-intensive functions which might explainthe crucial role of joint systems development for re-tailer}supplier relationships. Smooth information #owswithin these arenas will then in turn impact upon themore company-speci"c issues, such as pricing, promo-tions or new product introduction on the demand-side;and production planning, new product development ortransport planning on the supply-side.

Cooperating across systems is a very sensitive aspect ofdeveloping partnerships and the way is strewn with bar-riers to be overcome. First, the best system can onlytransfer the amount of information fed-in by its users.Sharing information requires a degree of trust and open-ness which often contradicts traditional policies and de-mands cultural changes that are di$cult to achieve in theshort-term. Even worse, the means of information trans-mission has to be `boughta and justi"cation for thesometimes high capital investments as well as agreementson how the costs should be shared are an issue for debate.In addition, one party resistance can be encounteredbecause the weaker party may fear becoming overlydependent, or alternatively for the dominant player, thecurrent favourable position might be at stake. Finally,di!erences in the existing technical infrastructure are animpediment, particularly when both parties are alreadyoperating sophisticated systems.

The primary concern for system development is dataaccuracy and not the degree of automation or sophistica-tion of the technology. Data accuracy implies the need to


tailor the system to the speci"c situation and therefore,the following case study serves to illustrate the mainissues to be addressed in the procedure which will thenlead to a customised solution.

2.3.1. Case illustrationThe case example describes the approach developed in

a relationship between the Whitbread Beer Companyand Anheuser Busch, Whitbread's largest supplier for thetake home o!-trade. For Whitbread, the objective was tomove its relationships with major suppliers on to a co-managed inventory (CMI) basis and Anheuser Busch asa supplier of a relatively small number of predictable,high volume SKUs was an ideal pilot partner. Applyingco-managed inventory principles for Whitbread was seenas an opportunity to replenish just-in-time into its owndistribution network while reducing stock holdings butimproving stock availability and achieving order cyclereductions. Two functions which had to be linked inorder to achieve these ambitious goals were ordering andforecasting.

Under the old approach, there was a clear-cut separ-ation between order placing performed by Whitbreadand order ful"llment as Anheuser Busch's responsibility.In addition, whilst Whitbread placed orders in line withtheir weekly sales forecasts, this forecast information wasnot passed to Anheuser Busch and therefore, Anheuser'sproduction and transport planning could only be gearedto meet incoming orders. In the pilot programme theseactivities were rede"ned and joint responsibility wasagreed. Instead of "xed orders, Whitbread de"neda stock band with a maximum and a minimum levelwithin which Anheuser could operate. The two-to-fourdays stock band enabled Anheuser Busch to raise anorder and decide when it should be sent. They wouldsimply give 24 h advance noti"cation about their delive-ries which in turn, would be con"rmed by Whitbread. Inthe new, joint forecasting process, Whitbread does a roll-ing forecast over a 13 weeks period which is passed on toAnheuser. On top of this, Anheuser gets daily updates onstock holdings and information about projected sales forthe next two days, to prepare them for deviations fromthe original forecast, if for example demand begins eitherto overshoot or sales have not gone as planned. Bothrede"ned processes have implications for Anheuser's pro-duction and transport planning which can now be opti-mised based on actual sales and stock level data.

The restructuring of the relationship has been inex-tricably linked to a more extensive and frequent informa-tion exchange between the parties, with di!erent datatypes: the 13 weeks forecast data, the two days sales andstock level data transferred on a daily basis and the ordernoti"cation and con"rmation data. Optimising data ac-curacy from all the di!erent data sources has been theprimary criterion for joint system development. Whit-bread experimented with a manual system but quickly

moved on to a fully automated system. Both parties areconvinced that EDI is a prerequisite of their speci"capproach. Finally, for Whitbread, the experience fromthe pilot study has been built into their supplier manage-ment policy: all CMI suppliers have extended contracts,more than compensating for any investment in techno-logy that those suppliers may have to make.

2.4. Managing people through change

Many companies struggle to implement partnershipprogrammes because they do not pay enough attentionto what is often labelled the soft side of the strategy, i.e.the people issues (Dion et al., 1995). A company's pro-gress in developing partnerships in the supply chain owesmuch to the way the relationships between participatingindividuals at all levels within both companies, supplierand customer, are handled. Building robust partnershipsbetween companies requires the commitment of allpeople involved. Gaining employee commitment how-ever, seems to be a notoriously underestimated, complextask. In many cases, companies rationally accept thebene"ts of partnership approaches but their cultures arenot readily compatible and implementation faces strongresistance to change.

Emphasising internal relationships with employeesand reinforcement of their commitment as strategic pre-requisites to external customer relationships has "rstbeen proposed in service management (e.g. GroK nroos,1990). Empirical work by Schneider in particular, dem-onstrated that organisational climate impacts uponboundary spanning employees' behaviour in service en-counters and that this in turn, in#uences the perceivedservice quality and satisfaction of customers (e.g.Schneider et al., 1980). More recently, the linkage be-tween internal and external relationships has also beenrecognised in business-to-business contexts (Evans andLaskin, 1994; Beckett-Camarata et al., 1998). The crucialcoordinating role of the àlliance managera (Spekman etal., 1994) or `key account managera (McDonald et al.,1996) in inter-company relationships, gives rise to theinsight that they must perceive tangible evidence ofa supportive, trusting and committed relationship be-tween their company and themselves in order to perform.However, not only the alliance manager but all em-ployees who interface across the company's boundary ona regular basis, determine the success or failure of inter-company relationships. Therefore, the company's re-sponsiveness to their needs, as well as assurance andempathy about their role will constrain or enhance theirperception of the partnership programme.

As a consequence, a partnership strategy should beapproached like any change management programme.Apart from the provision of training and support, par-ticular attention should be paid to the timing of decisionsas well as the required degree of openness and honesty.


Radical changes * especially when requested by cus-tomers * cannot always be avoided but, in a time of`downsizinga, they face growing scepticism in companiestoday. Similarly, management may hold back delicateinformation for too long and keep those a!ected in thedark. Such behaviour can be seen as a leadership weak-ness by employees or, alternatively, they feel patronised.A good starting point instead, is to analyse the currentinteraction process and decompose the business-to-busi-ness relationships into all interrelated contacts betweenthe individuals involved (GroK nroos, 1997). In this way theinformal structure within and across both companies andthe in#uence network can be revealed (Krackhardt andHanson, 1993). Identifying the key players reveals impor-tant leverages for strategy implementation. Typical rolesto be found in partnership programmes are `pioneersaand `baronsa. Pioneers often come from IT or logisticsdepartments. They are the "rst to be involved and mostenthusiastic about partnering. Barons in turn, run divis-ions or sites and whilst powerful, tend to be parochial sothat it can be very di$cult to make them view the bene"tsof partnerships from a corporate perspective. On thecustomer side, buying managers often take the role ofbarons. When a partnership programme is well on itsway, the balance between the interpersonal relationshipsat di!erent hierarchical levels or functions should bemonitored. Strategic agreements made in good spirit atboard level, can be greeted less warmly by employeesinvolved in the working relationships. Likewise, earlyestablished links between departments sta!ed with`pioneersa, can be far ahead of other inter-companyinterfaces, where sceptical individuals remain at the edgeof the project. Pulling these threads together should bea prime priority for the alliance manager. Finally, build-ing partnerships requires the use of creative, innovativemeans to support relationship transformation. Com-panies preaching the corporate partnership vision andcommunicating o$cial guidelines seem to be less e!ectivethan those following an unconventional route. Consider-ing the strong impact of personality factors, companiesshould see their role as a facilitator of closer contactsbetween individuals in the organisations concerned.

2.4.1. Case illustrationThe case example highlights some of the di$culties

companies encounter internally when embarking onpartnership strategies. It is another study we have carriedout in the retailing environment and looks speci"cally ata supplier-targeted partnership strategy, launched bya retailing company. Although positive supply chain ef-fects have been achieved since the retailer moved about40 of its most important suppliers on to a partnership-type relationship, they still felt stuck in their search forfurther improvements. Intuitively, it was suspected thatthe ideas and philosophies articulated in the relationshipstrategy, did not cascade to the boundary spanning em-

ployees. Instead, the relationships appeared to be strong-ly in#uenced by factors which could hardly be controlledby the company. After initial in-depth interviews, wedesigned a survey to measure the e!ect of the corporatestrategy on the individual employees' behaviour in theirsupplier relationships as well as their relationship satis-faction. The results were stunning: although relationshipsatisfaction was good overall, the strategic activitiesundertaken to support relationship improvements hadonly a very limited e!ect and altogether explained only8% of the di!erences between the individuals' partneringbehaviour (Multiple regression R2"0.08). In addition,the results revealed that the employees' incentive forpartnering stems from a deeper, personal motivationwhich we operationalised as their general `job attitudea.The "ndings underline how di$cult it is to `reacha indi-vidual employees in their external interactions and, inaddition, provides partial support for a widespread suspi-cion that in business relationships, ìt all comes down topersonalitya.

2.5. Assigning a relationship promoter

Many of the problems that arise in relationship man-agement are recognised by companies but they lack thecapabilities to resolve them. Since in many industriesbusiness relationships have been adversarial for decades,relationship issues present a new task for companies andwell-established planning and implementation tools arenot always applicable.

Assigning a relationship promoter is an important stepin overcoming this problem and to support the learningprocess essential for successful relationship building.A relationship promoter can either be a single person ora task force group and should address the followingpartnership barriers (GemuK nden and Walter, 1994): "rst,the barrier of `no knowledge of each othera, which ischaracteristic for supply chain partners because the par-ties focus on speci"c tasks within the chain. As a conse-quence, they lack empathy for their counterparts'business in related supply chain stages and the problemsassociated with it. A relationship promoter should active-ly seek to make all parties view &the overall picture' of thesupply chain process. Secondly, the barrier of `no abilityto co-operatea which may even exist when two equallydetermined and complementing parties face discrepan-cies for example in the language they use or the way theyde"ne problems. Here, the relationship promoter facilit-ates the dialogue until the parties achieve a commonperspective. Finally, and most troublesome, the barrier of`no will to co-operatea, which can be rather evident orotherwise, remain disguised. The challenge for the rela-tionship promoter is to work towards a change in thepeople's attitude and to support them in overcomingemotional resentments to deal rationally with the situ-ation.


An issue of debate in business practice is whether therole can be best ful"lled by outside consultants, a personor team from one company, or by a joint team withrepresentatives from both parties. Furthermore, somecompanies expect the account and purchasing managersto take over the role on top of their management re-sponsibility. The idea however, is to assist them in con-ducting tasks they cannot do themselves due to a lack ofexpertise or time. Consultants tend to be called in at anearly stage to analyse de"ciencies in the current situationand to investigate the potential for mutual bene"ts fromcloser cooperation. They are perceived to be less e!ectivein solving implementation issues later on and more im-portantly, lack credibility among employees at the opera-tional level who feel they have been imposed from above.Compared with one party representatives, designatinga joint team has considerable merit but the decision isoften in#uenced by resource constraints. Few companiesseem to be able or willing to dedicate people as `Rela-tionship Promotersa and free them from their daily re-sponsibilities.

Independent of the assignment's form and structure,relationship promoters should distinguish themselvesthrough certain personal characteristics (Geddes, 1993).They have to dispose of experience and expert knowledgein order to be asked for advice and to be accepted asneutral counsellors and mediators. Likewise, their back-ground should be broad enough to cover su$cient know-ledge about all co-operation partners. In addition tothese professional quali"cations, relationship promotersshould possess the social competence required to estab-lish trust and commitment between the interaction part-ners and to be respected as a discrete `referent powera(GemuK nden and Walter, 1994). Together, these personalcharacteristics substitute for the lack of hierarchicallylegitimated power when relationship promoter(s) seek toextend their in#uence beyond company frontiers.

2.5.1. Case illustrationOur example describes the case of a company which

assigned a relationship promoter team to facilitate therelationship transformation between their own companyand its suppliers. The team comprised six members, someof which have been recruited speci"cally for this position.All six however, were on the buying company's pay-roll.The team's top two priorities were to work `between thelinesa as a relationship facilitator and, in addition, tosupport the company's own buying people. The buyingcompany carefully selected the members to represent allimportant interest groups in the inter-company relation-ship: "rst, the team leader was a director and as suchrepresented on the board. He had the legitimate author-ity essential for the team's internal tasks. The suppliercompanies' perspective was recognised by appointinga former production manager. Moreover, a buyer waspromoted to represent the employees dealing with the

day-by-day working relationships. Finally, the companywanted to bene"t from the experiences gained in otherindustries and brought in a member with a di!erentindustry background.

Although the buying company thought that they haddone everything to meet the need for a relationshipfacilitator, they were still not satis"ed with the team'se!ectiveness. The reason for this became apparent whenwe investigated the satisfaction with the team's supportfunction, both, within the buying company and among itssuppliers. Interestingly, the results revealed that the sup-plier companies were signi"cantly more satis"ed with thesupport they received from the team (t-value"12.4, t sig-ni"cant at 0.001 level). The main reasons for the disen-chantment within the buying company were theperceived lack of availability of team members, their lackof accountability and responsibility and the assessmentthat they were understa!ed considering their massivetask. The conclusion to be drawn from this case is to berealistic about the relationship promoter's assignmentand to carefully manage the expectations of the peopleinvolved. A relationship promotor team that is acceptedby only one of the two relationship parties cannot ful"llits assignment and will inevitably fail.

2.6. Monitoring the relationships

Enacting a relationship approach involves the man-agement of ongoing value creating processes which areunderpinned by a monitoring procedure. Relationshipmonitoring complements rather than substitutes for es-tablished customer or supplier value assessment methods(Anderson et al., 1993). Traditionally, when buyers andsellers have evaluated their agreements, they have fo-cused on the e!ects on their own operating revenues,expenses, pro"ts and growths (Magrath and Hardy,1994). Tighter linkages lead to greater interdependencebetween the parties and this in turn, extends the require-ments of relationship monitoring. In a partnership, rela-tionship monitoring refers to all procedures employed toevaluate whether the relationship meets the speci"cationsagreed upon. In other words, it is not an independentsurveillance but involves joint negotiation and perfor-mance control activities. An examination of businesspractice suggests that companies engage in either formalor informal monitoring procedures. Whereas formalmonitoring is based on well-detailed, written and oftenlegally binding contracts, informal monitoring involves,for example, a routinised procedure executed by bothparties and facilitated by open information sharing.Choosing either form seems to be dependent on thespeci"c situation (Cannon, 1994). The use of formalmonitoring is appropriate when performance evalua-tion is di$cult or when one party has made signi"-cant relationship investments and seeks assurance thatthe relationship will continue long enough to justify


the investments. However, when both parties have maderelationship-speci"c investments, the mutual dependencefacilitates information sharing and informal monitoringseems more appropriate.

Formal and informal monitoring processes shouldboth integrate business targets, for example in the formof key performance indicators, as well as process-related targets. Thereby, feedback is not only obtained on`what has been achieveda but also on `how it was ac-complisheda. In the event of a problem, both measurestogether allow the parties to trace back to its causes.Any unforeseen situation should in addition be coveredin an escalation procedure. Furthermore, monitoringprocesses should accommodate the soft, people issues.With little amendments, traditional customer surveyscan often be applied to internal boundary spanningemployees to gather information on their perception ofthe relationship quality as well as suggestions for im-provements. Finally, planning and negotiating the end ofthe relationship in a disengagement procedure is seen asan important part of a professional relationship monitor-ing approach. It forces the parties not only to be explicitand open about their commitment but also to recognisedi!erent relationship `life cyclesa. Bene"ts from a rela-tionship can decrease over time, even though the qualityof the relationship rises. They may peak when bothparties are working on new solutions, but diminish oncethe new solution has been put into place.

2.6.1. Case illustrationA compromise between the formal and informal

monitoring alternatives described above, is the develop-ment of a written mutual agreement without legal status.It became "rst known in the motor industry and hasrecently been adopted by a retailer and its supplier com-panies. Here, the document is signed by both parties andis seen as a mutual statement of the relationship intent. Itcomprises a general part describing the mission andvision of the relationship as well as a speci"c and detailedbusiness plan for the next four years. Furthermore, objec-tives relating to the relationship's general purpose as wellas operational performance measures and monitoringresponsibilities are included.

An example of a high level objective in such an agree-ment would be: to create a framework which enablesretailer and supplier to deliver the value proposition tothe ultimate customer. A process objective within theretailer's responsibility is his commitment to increase thespend with a supplier upon achievement of superiorperformance. The supplier in turn might agree to dedi-cate appropriate supply capacity to produce productsexclusive to the retailer. Finally, performance measuresde"ne, for example, that both the retailer and the suppliermeasure and provide feedback on service performanceand that costs on both sides of the relationship will bemade transparent.

In the case that we studied the agreement attemptedto move relationship monitoring onto a corporatelevel with consistent processes across all interfaces. Thetargets are measured objectively and communicatedopenly among the parties. A formal review process in-corporated in the document de"nes how it can be ad-justed over time to accommodate relationship changes.Overall, the agreement builds a solid foundation forprofessional relationship monitoring but as a member ofthe company emphasised: `the document is a piece ofpaper and it's down to us to take full advantage of itsrichnessa.

3. Conclusion

As companies foster longer-term and co-operative re-lationships in the supply chain, buying and supplyingcompanies need to better understand how to managethese relationships. The need to see relationship manage-ment as a strategic priority within the over-arching busi-ness strategy is increasingly accepted but traditionalmanagement approaches and tools are not ideally suitedto accommodate the changed requirements of such astrategy. These traditional approaches all emerged fromindustrial environments which were distinctly di!erentfrom today's markets. Thus, practitioners making deci-sions on relationship arrangements often act intuitively.

The purpose of this paper has been to share the experi-ences of managers seeking to apply relationship manage-ment principles in supply chain contexts. Drawing uponthe insights gained, we developed a framework en-compassing six aspects which have been identi"ed asthe key areas for advancing the state-of-practice. Whilsteach aspect can be interpreted as a step in a procedureand is illustrated through a case study, we do not claimto provide a rigid model. We have not sought to estab-lish a theoretical foundation at this stage and followinstead what could be described an attempt to gatherthe `theory in usea by practitioners (Zaltman, 1982)and to disseminate this knowledge for application anddevelopment.

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Martin is Head of the Marketing & Logistics Group and teaches thosesubjects in the School of Management. He has lectured widely inEurope, North America and Australasia and has had appointments asVisiting Professor at the University of British Columbia, University ofSouth Florida and the University of New South Wales. ProfessorChristopher is currently a Deputy Director of the School and Chair-man of Management Development in the School of Management. Hehas written many books and articles on marketing and logistics and isJoint Editor of the International Journal of Logistics Management. Heis a non-executive Director of a number of companies and is an activeconsultant on Marketing and Logistics. He is a Fellow of the CharteredInstitute of Marketing and an Emeritus Fellow of the Institute ofLogistics and Transport.

Uta is a Visiting Research Fellow in Marketing at Cran"eld Schoolof Management and a regular guest lecturer at the University ofZurich, Switzerland. Her main research interests are in relationshipmarketing and strategic marketing and management. She holds a mas-ters degree in Public Administration and a Doctorate in BusinessAdministration.


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Developing strategic partnerships in the supply chain: a practitioner perspective