You are on page 1of 11

Int. J.

Production Economics 127 (2010) 309319

Contents lists available at ScienceDirect

Int. J. Production Economics


journal homepage: www.elsevier.com/locate/ijpe

Buyersupplier partnerships during product design and development in the global automotive sector: Who invests, in what and when?
Fiona Lettice a,, Clare Wyatt b, Stephen Evans c
a b c

Norwich Business School, University of East Anglia, Norwich NR4 7TJ, UK Morgan Stanley, 25 Cabot Square, London E14 4QA, UK School of Applied Sciences, Craneld University, Craneld MK43 0AL, UK

a r t i c l e in fo
Article history: Received 15 January 2009 Accepted 12 August 2009 Available online 19 August 2009 Keywords: Buyersupplier partnerships Automotive Global supply chain Investment

abstract
This paper explores the concept of partnerships between buyers and suppliers in the global automotive sector during product design and development. Partnerships are often the goal in a shift away from adversarial arms-length relationships. The objective of this research is to provide empirical evidence to explain the levels of mutual investment expected and achieved in partnerships from both buyer and supplier perspectives. During this research, 25 employees from 12 global supplier organisations who were in partnership with a specic vehicle manufacturer (VM) were interviewed. Twelve employees from this VM were also interviewed. The research showed the differences between partnerships and non-partnerships and the disparities in the expectations of investment from each partner. For suppliers and buyers to get the most out of partnerships, clear expectations and investments needed over time should be understood and agreed early in the relationship. & 2009 Elsevier B.V. All rights reserved.

1. Introduction The automotive industry has been the subject of a great deal of study, largely due to its importance as the single largest industrial sector in the world economy (Turnbull et al., 1992; Taylor and Taylor, 2008). Of major inuence has been the work of the International Motor Vehicle Programme (Womack et al., 1990), which reports on the global industry and the overall future of the automobile. Vehicle manufacturers (VMs) are facing intense challenges to survive (Oliver et al., 2008) associated with globalisation, sustainability and the opening up of world markets. A key outcome has been an increasing emphasis on the role of the global supply chain
Corresponding author. Tel.: +44 1603 592312; fax: +44 1603 593343.

E-mail addresses: Fiona.lettice@uea.ac.uk (F. Lettice), clare.wyatt@morganstanley.com (C. Wyatt), steve.evans@craneld.ac.uk (S. Evans). 0925-5273/$ - see front matter & 2009 Elsevier B.V. All rights reserved. doi:10.1016/j.ijpe.2009.08.007

in competitive success and recognition that competition is based on the whole supply chain and not just the manufacturer (Leisk and Wormald, 1992; Cousins and Spekman, 2003). An automobile is composed of approximately 15,000 parts (Hyun, 1994; Oliver et al., 2008). Thomas and Oliver (1991) found that European motor manufacturers typically outsource 5060% of their parts and assemblies from outside suppliers and in Japan, Toyota and Nissan outsource 7075% of their components. Outsourced components are therefore a substantial element of total costs in the car industry, estimated at between 50% and 60% (Bresnen, 1996; Lee and Oakes, 1996). Three times as many people are employed in the industries that supply parts to VMs than in the automotive manufacturers themselves. In the UK alone the automotive manufactur` 48.5 billion with approxiing sector had a turnover of E mately 850,000 employees directly dependent on the sector and accounting for approximately 10% of UK

310

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

exports (SMMT, 2007). It is acknowledged that attention has predominantly focused on the activities of the VMs, but that the success of supply chain companies is also an important factor (Ingersoll Engineers, 1995; SMMT, 2007). The nature of supply chain relationships in the automotive sector has evolved, especially as competitive pressures have increased since the 1970s and the industry has matured and reached levels of over capacity (Lamming, 1993). During the 1970s and early 1980s, relationships with suppliers were highly adversarial, with multiple sourcing of suppliers, large supplier bases and a focus on cost reduction (Lascelles and Dale, 1990). The focus on cost reduction led to strategies such as Dutch auctions, which forced suppliers to continually undercut each other until prices of components fell below the level required to achieve a basic level of protability. Low or non-existent margins were reported to destroy the competitive capabilities of the components industry. They were forced to reduce costs until they no longer had the incentive nor the capability to update equipment, innovate or plan for the longer term (Powell, 1990). Since the 1980s, all VMs have attempted to adopt Japanese-style just in time (JIT) manufacturing techniques, lean production, JIT delivery of component supplies, minimum inventory programs and total quality control (TQC) to some degree (Maccoby, 1997). This shift in manufacturing philosophy has been simultaneous with VMs attempting to reduce their supply bases and trying to set up longerterm, more collaborative relationships with their remaining suppliers (Thomas and Oliver, 1991; Cousins and Spekman, 2003; Storey et al., 2006), with the aim of improving quality and reducing product development lead times (Ellison et al., 1995; Lamming, 1990; Oge and Dickinson, 1992). It is often argued that higher levels of integration or partnerships are required in the supply chain, especially for complex business conditions (van der Vaart and van Donk, 2008) and complex products and components (Wasti et al., 2006). Although most VMs had invested in manufacturing facilities in a number of countries in the 1950s and 1960s, these operations were basically national or at best regional in character (Anderson et al., 1997). But, the sophistication and variety of consumer tastes across the world means that VMs still have to retain a national focus, but alter their strategy to think globally but act locally (Bursa et al., 1997; Nakamura and Milburn, 1997). One way this is commonly being achieved is through the optimisation of platforms, and developing more model variants from each individual platform (Ealey et al., 1996). In the 1990s, this was being achieved through alliances, partnerships and collaboration agreements which took advantage of new electronic communication media and information technologies (Kanter, 1994; Lascelles and Dale, 1990; Hyun, 1994; Leverick and Cooper, 1998; Cousins and Spekman, 2003). The form that these alliances take varies from loose arrangements to increase manufacturing capabilities, through joint development projects to complete mergers or takeovers. Alliances in their many forms are being seen between VM and VM, for example VolkswagenSeat, Skoda and Audi, Renault Nissan, FordMazda, Jaguar, Land Rover, Lincoln, Mer-

cury; and also to share critical systems such as engines, for example DaimlerChrysler, Mitsubshi and Hyundai or assembly plant facilities, such as Nissan and Ford. The industry is also seeing ever closer relationships between VMs and their rst tier suppliers. The research is focused on the exploration of global VMsupplier partnerships for product development and design within the automotive industry. The general confusion and lack of sufcient theoretical understanding surrounding the term partnership and its implementation emphasise the requirement for the development of a more grounded understanding. This is achieved through the exploration of partnerships from the perspective of those involved. There are a number of variables that can be used as the focus of study in partnerships, but the literature review highlights the current lack of understanding of the behavioural and attitudinal elements of a partnership and changes in the partnership over time. The research will therefore focus on the longitudinal relationship aspects of a partnership. The literature review also highlights an enduring bias towards the customer perspective, with studies that do not incorporate data from both sides of the dyadic relationship (Wasti et al., 2006; Chung and Kim, 2003). To gain a more complete picture of partnerships this research therefore focuses on the perspectives of both buyers and suppliers. This paper presents a literature review on collaborative buyersupplier relationships, dening partnerships and describing research that has been conducted, particularly in the automotive sector and focusing on the investments that both parties make in the partnership. The next section introduces the case study between one VM and 12 of its rst tier suppliers and explains how the data were collected and analysed. The ndings about the partnership and the investments made by the VM and its suppliers are then presented and discussed to show how expectations change over time and what levels of investment are perceived and realised by both partners in the relationship. Finally, we present the conclusions, implications for practice and implications for future research of this study.

2. Collaborative buyersupplier relationships Kamath and Liker (1994) developed a framework to describe four key different types of collaborative relationships that may be undertaken by VMs and suppliers in product development. This framework, shown in Table 1, is important as it shows that a range of relationship types exist and it describes the relative power of each party in the relationship and the responsibilities of the customer and supplier during product development. The contractual role is basically an arms-length relationship. A supplier manufactures simple parts, either standard across the industry or designed by the VM. In the child role, the supplier both designs and manufactures parts, but again to the specications of the VM. In a mature role, the supplier is given broad specications such as the desired size, weight and inter-connections with other parts, but has the major responsibility for designing the component or system. This is often referred

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

311

Table 1 Four supplier roles in product development (Kamath and Liker, 1994). Role Partner (full service provider) Mature (full system supplier) Description Relationship between equals; supplier has technology, size and global reach Customer has superior position; supplier takes major responsibility with close customer guidance Customer calls the shots, and supplier responds to meet demands Supplier is used as an extension of customers manufacturing capability Responsibilities during product development Entire subsystem. Supplier acts as an arm of the customer and participates from the pre-concept stage Complex assembly. Customer provides specications, then supplier develops system on its own. Supplier may suggest alternatives to the customer Simple assembly. Customer species design requirements and supplier executes them Commodity or standard part. Customer gives detailed blueprints or orders from a catalogue and supplier builds

Child Contractual

to as black box design and is perceived as a strong indication of a collaborative relationship (Bresnen, 1996; Liker et al., 1995; Turnbull et al., 1993). In a partner role, the supplier is fully integrated into the product development processes of the VM and the relationship is considered to be between equals. The supplier participates in the earliest stages of design, working with the VM to solve problems and create the specications for the entire subsystem, continuing to work together to codevelop the nal product. Twigg (1998) adds the extra dimension of supplier capability to the partner role in his typology of supplier involvement. In this type of relationship, the supplier has developed proprietary technology, which they then share with the VM. In the highest level of partner relationships, Twigg (1998) states that the responsibility for design excellence resides with the supplier, but the black box is dimensioned by the assembler. Roy and Potter (1996) expand the concept dened by Kamath and Liker (1994) to include buyer-driven and supplier-driven relationships. In their model, contractual, child and mature roles would be seen as driven by the buyer, whereas the partner role could be viewed as supplier-driven. If a supplier works with one customer alone, the partner role is likely to be either jointly or customer driven, whereas if the supplier develops the technology on their own and merely consults a variety of customers i.e. not developing a bespoke product, the supplier could be said to be driving the process. Roy and Potter (1996) also add an additional role, which they term fully devolved, where the supplier undertakes design and development and sells to the customer. For complex parts, such as in the automotive sector, this role is rare due to the level of interaction required between all components. For example, car radio technology must be developed to overcome the specic vibration frequencies of a vehicle and so the design and development cannot be fully devolved. However, several authors emphasise that partnerships in design and development are not appropriate for every supplier. Stuart and McCutcheon (1996) suggest that the advantages for the VM may only be available from some supplier relationships; similarly, Leverick and Cooper (1998) emphasise the importance of partner selection. In practice, there is considerable evidence to show that VMs will be engaged in a variety of roles with a variety of suppliers at any one time (Wasti et al., 2006;

Vonderembse et al., 2006), reserving the partner relationship for relatively few suppliers (between 10 and 30 for some VMs).

2.1. Investment in a partnership From the earliest days of mass production, suppliers have seen the customer as king and associated behavioural norms have been established and accepted by both parties. Norms have been described as social expectations about accepted behaviour in relationshipsythis shared set of implicit principles can act as a control mechanism to co-ordinate the activities performed by the parties and govern the relationship (Campbell, 1997, p. 421). Increasing collaboration requires both parties to establish new norms through exhibiting new behaviours; which is far from easy to achieve. For supplier customer relationships to improve, both suppliers and customers need to make an investment in the relationship (Turnbull et al., 1996). This view is also supported by Fynes et al. (2005) to achieve interdependent relationships with better communication and cooperation. Ford (1997) describes how both parties in a buyer supplier relationship are likely to be involved in adaptations to their own process or product technologies to accommodate each other. They cannot make unilateral changes without consulting each other or at the very least considering how the other party will react. Adaptations that take into account the needs of the other party constitute an investment in the relationship. For example, a supplier may be asked by the VM to present project updates using particular software that is compatible with their own system. If the supplier specically purchases that software for the VM, they have made an investment in the relationship. Similarly if a VM agrees to accommodate drawing formats unique to a supplier, they too are making an investment in that relationship. Both parties begin to tie themselves to each other through small adaptations in their processes that both make the relationship easier and have the additional effect of making both parties less compatible with other buyers or sellers. Turnbull and Wilson (1989) use the term structural bonds to describe the effect that value added investments have on buyersupplier relationships. Some researchers have found that established longerterm interdependent relationships tend to have better

312

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

technology transfer and knowledge exchange, especially for highly complex products and business conditions. In turn, higher levels of integration lead to better supplier performance (Kotabe et al., 2003; van der Vaart and van Donk, 2008). On a larger scale of investment, Dyer (1994) discusses the advantages of the Japanese system of dedicated assets, whereby suppliers send engineers to work at the customers site, locate plants near the customer, or invest in customised physical assets to reduce costs and development time and improve communication and coordination. This system has been replicated around the world, with suppliers locating closer to VMs and thus making signicant investments in their customer relationships (Narasimhan and Nair, 2005). It has also become common practice for suppliers to send their employees as guest engineers to work daily at the VM and act as the focal point for managing the relationship between the two parties (Twigg, 1998). Twigg (1998) describes this investment as two-way, because the supplier places an employee in the VM and the VM bears the cost through the price he pays for the component. Guest engineers may also be sent to the VM to facilitate knowledge transfer by learning about VM processes, procedures and technologies. In these instances, it is more usual for the supplier to bear the costs. The investment made by the VM is the time spent working with the guest engineer on their own site. VMs also send their engineers to their suppliers factories to help them to implement lean production techniques and improve performance. The length of these interventions can vary between a few days and a few months, and often continues until improvements in supplier performance are considered to be sustainable. This type of supplier development constitutes a major investment by the VM in terms of time and human resources. The benets are not immediate and it may take years to justify the expense. In this case, the investment required by the supplier is to adapt their own systems and processes to match those of the VM. These partnership investments are summarised in Table 2. Mutual investment and adaptation are core features of collaborative relationships between automotive manufac-

turers and their rst tier suppliers. Turnbull et al. (1996, p. 60) suggest, investments are made not only to intensify the relationship and to demonstrate the interest that the partner has in developing a strong relationship, but also with the faith that the other partner will reciprocate. They go on to suggest that initial investment expectations of suppliers by VMs will be high and perhaps even affect the bottom line of suppliers, but in time the costs should decrease. They would therefore expect both VM and supplier investment to decrease over time as the development phase of a relationship becomes the maintenance phase. Both parties have expectations of their own and their partners inputs into the relationship. These inputs are a commitment to support each other, agreement to work together and share the risks associated with their relationship. These investments create an environment that supports observable changes in the relationship, including structural changes, moves towards joint design and development and increases in the nature and quantity of exchange in the relationship. Changes in attitudes and behaviours are less easy to observe and measure, but will undoubtedly inuence and be inuenced by the more tangible evidence of the partnership e.g. structural changes. Partnerships are created to achieve benets; these can be classied in terms of performance and increased equity in the relationship where both parties share the rewards of their investments. The whole partnership has a long-term view. Fig. 1 claries the distinction between investments in a partnership, the changes that are effected and the expected outcomes. It is a descriptive diagram, synthesising the major concepts and elements of partnership as discussed in the literature and as such is a useful comparative framework. The reversible arrows are used to illustrate the absence of causality and the inter-relatedness of investment, change and outcomes. Although much research is positive on the benets of partnership, some studies of the automotive industry have concluded that the meaning of the term partnership is not always reected in its application. Authors suggest that suppliers are not gaining from partnerships. Some authors

Table 2 Investment in a partnership. Scale of investment Small scale Large scale Examples of supplier investment Invest in VM compatible software Send guest engineers to work at VM Locate plants near VM Invest in customised physical assets Adapt systems and processes to match VM Outcome of increased investment Improved supplier performance, but initial costs to improve may be high; long term work with VM Reduced development cost and time; improved quality; improved coordination, knowledge exchange and communication Turnbull et al. (1996), Twigg (1998), Dyer (1994), Kotabe et al. (2003), van der Vaart and van Donk (2008), Fynes et al. (2005) Examples of VM investment Change drawing formats to be compatible with supplier Send engineers to work at supplier sites Time spent working with supplier guest engineers Bear cost of supplier investment in price of component Authors Ford (1997) Twigg (1998), Dyer (1994), Narasimhan and Nair (2005)

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

313

EXPECTED INPUTS

PROCESS
Attitudes & Behaviours

EXPECTED OUTPUTS

Closeness

Structure
- Fewer suppliers - Single/dual sourcing - Systems supply

Commitment Working together Shared risks

Improved performance
- Costs, quality & reliability - End user responsiveness

Trust

D&D
- Joint development - Early involvement

Equity
- Joint objectives -achieved - Shared benefits - Shared profits

Exchange
- Information - Ideas Technology & Skills

Co-operation Long Term


Fig. 1. Inputs, process and outputs for partnerships.

argue that the relationship can never really be a partnership of equals (Hill, 1996) and that the customer will typically exert its power and inuence over its suppliers (Johnsen and Ford, 2005). New and Burnes (1998) believe that it is customers who tend to win and suppliers who tend to pay in a supposedly equal partnership. Other research suggests that customers do not commit fully to the partnership and that performance improvements often came at the suppliers expense; for example, Helper and Sako (1995) found that suppliers were stockpiling inventory to meet the JIT delivery demands of their customers, and that cost reductions were achieved by squeezing suppliers margins rather than reducing suppliers costs. Bresnen (1996) nds that partnerships can simply mean new terms and conditions which are forced onto suppliers by powerful buyers and in effect become just another control mechanism for the customer. Burnes and New (1996) concluded that rms claiming partnership relationships seemed to act no differently than rms that did not. From the customers perspective, Cousins and Spekman (2003) found that long-term customersupplier relationships tended to deliver better than expected benets, but a third of their respondents felt they had higher than expected costs, especially where suppliers had to be trained when it was felt that they should already have the knowledge required. Research on partnerships has tended to focus more on the buyer perspective than that of the supplier and some researchers believe that more emphasis should be put on the supplier in future (Burnes and New, 1996; Bresnen, 1996; Stuart, 1997; Campbell, 1997). It is also acknowledged that the empirical evidence on how partnerships can best be formed is currently weak (Szwejczewski et al., 2005). We therefore set out to better understand the levels of investment that buyers and suppliers put into a partnership from both perspectives and to see how the expectations on that investment change over time.

3. Research methodology To meet the aim of understanding the partnership between buyers and suppliers in the automotive sector, we conducted 25 interviews with 12 global supplier organisations. As can be seen in Table 3, the suppliers are from the UK (where the VM is based) and also from mainland Europe, Japan and the USA, representing the globally distributed supply base of the VM and the automotive sector. Supplier organisations were also of varying sizes from small to medium sized enterprises (SMEs) to large multi-national organisations. They also supplied products of varying degrees of complexity and had varying degrees of design responsibility within their partnership with the VM. The average interview length was approximately two and a half hours. A further 12 interviews were conducted in a UK-based VM, where the interviewees were selected based on their involvement in the partnership with the 12 supplier organisations already interviewed. So a total of 37 interviews were conducted. The emphasis of the interviews was placed on partnerships from a product design and development perspective rather than a manufacturing perspective. The VM interviews consisted of a range of engineer/controller, senior engineer/senior controller and manager level participants representing purchase, quality and various sections of design. The semi-structured interviews specically focused on the perceptions of the interviewees towards the partnership and asked them what investments they had made to set up and sustain the relationship. They were asked to describe the investments made by their partner in setting up and maintaining the partnership. They were also asked to explain how relationships were formed and sustained with non-partners. Finally, they were asked to describe what an ideal partnership might look like.

314

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

Table 3 Prole of suppliers interviewed. Company origins S1 S2 S3 S4 UK UK UK UK Employees Product complexity Low High Medium Low Design responsibility Copy parts System System Component Interviewee position Interviewee department Engineering sales Product development Sales and marketing Product development Sales Accounts Product design Sales Quality OE Sales Engineering Logistics planning Sales Sales Sales engineering Operations Quality Product design Sales Technical

410,000 410,000 410,000 100500

Account Director Product Controller Business Manager Technical Director Managing Director Manager Manager Engineer Plant Manager Account Manager Engineer Director Manager Manager Key Account Manager Manager Manager Manager Manager Technical Director Manager Engineer Plant Manager Business Manager Manager

S5 S6

Japan UK

100500 100500

Medium Medium

Component Copy parts

S7

Europe

410,000

High

System

S8 S9

UK Japan

100010,000 100500

Medium Low

Component Component

S10

USA

410,000

Medium

Component

S11 S12

Europe USA

410,000 100010,000

Low High

Component Component

Design sales Technical

Fig. 2. Research process.

The research process is summarised in Fig. 2. All interviews were tape recorded, reviewed and transcribed. The interviews were all conducted within a 6-week period and transcription occurred in parallel. For the analysis, all individual comments or statements were given a code, representing the interviewee number and the number of the statement. Each coded statement was then placed within a box. One document was produced for each interviewee. Each statement was matched with other

statements, grouping them into themes based on a principle of similarity. As each interview was transcribed, the process was repeated. New statements were either placed within existing themes or where there was little or no similarity between statements and existing themes, a new theme was created. The process was repeated until theoretical saturation was found to occur when no new themes seemed to be emerging. The researchers included statements from one further interviewee and reviewed ve

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

315

more transcripts in detail to check that theoretical saturation had occurred. The process was repeated with the VM interviews. As each interview was conducted, it was transcribed, statements were highlighted, coded and grouped into themes. At this stage VM and supplier themes were kept separate. The themes were then compared and in some cases two or more themes were merged and in others, new themes were created and the data from supplier and VM interviews were increasingly integrated. The analysis process took approximately 6 months to complete. 4. Findings We decided to investigate the nature of investment and the relative levels required of a VM and a supplier to maintain a partnership over time. The following section will describe the nature of supplier investment and how suppliers change to become more like the VM. It will then discuss the nature of VM investment and will make comparisons with non-partnerships. The differing perspectives on the degree of VM adaptation will be discussed, the return on investment for the VM identied and required investment from both parties will be compared. The ndings presented here are the dominant themes that emerged from the data analysis. They are not related to a specic supplier prole, as presented in Table 3, but are common themes from across the majority of supplier and VM interviews. 4.1. The supplier perspective The suppliers we interviewed had invested in the partnership with the VM quite signicantly, in terms of manpower and time. They had, for example, recruited engineers who would predominantly be working at the VM, they travelled to the customer site to attend regular meetings and they lled in all of the documentation required by the customer. One supplier interviewee explained that: Effectively were putting manpower into the customer because were doing the development work for themywe offer a lot of our time to our customers, we spend a lot of our time in meetings with them. That can be a big drain on our resource, not only the time spent in meetings but the time spent travelling to and from meetings. Its quite signicant, rather than the customer coming to us, Id say not nine times out of ten but perhaps seven times out of ten we are going to the customer. Another acknowledged the reams and reams of information they supply as well as their technical expertise and knowledge. Another key investment was nancial, for example investing in customer-specic equipment, processes and systems and making capital investments to their sites. One supplier said I think [the customer] was probably instrumental in pushing us towards buying our fourth piece of equipment because we tend to do a lot of work for them on it. They also invested in an ISDN link to enable them to receive and send timely computer-aided design (CAD) data to the VM. Another said that his organisation

had also invested in EDI (electronic data interchange) links on the despatch front, so were geared up to suit their needs basically. The suppliers recognised the need to be accommodating and exible towards their partners needs, by adjusting their processes and in-house methods. As one supplier stated they had achieved a mindset changeythe way people behaved, responded, actedyweve changed organisation structures to meet the VMs needsyweve made physical changes as well, moving equipment around and adopting VM techniques like development techniques and problem solving techniquesywere trying to put strategies in place to make sure that our way forward aligns itself with the VM. Supplier interviewees demonstrate their customer focus and their commitment to continuous investment in the partnership. However, some of the suppliers felt that the partnership was a bit one-way, because although the VM gave them time, they had not made any nancial investment: Its about nancial investment, they havent invested in kit or equipment for usyI cant think of anything where theyve invested in something physical for us. During the interviews, supplier interviewees were also asked about their non-partnership relationships. Suppliers invest in new processes and equipment for non-partner VMs, but are less likely to mirror the VM and adapt as much to their ways of doing business. They may be given design responsibility by non-partner VMs but do not have the same level of alignment and intensity of relationship as with their partner relationships. One supplier suggested that the only investment non-partnership VMs make is keeping the business with us. Another explains that theyre so keen or desperate to cut costs that theyll use that wherever they can and weve had to reduce prices to hold onto certain key bits of business at lower margins. Suppliers may therefore have to signicantly reduce their own margins to maintain the relationship. Non-partnership VMs will take the business elsewhere if suppliers do not meet their cost demands, whereas partnership VMs have a longer term view and work with the suppliers to achieve cost reductions and provide support. For example, one supplier describes how all VMs put development work for new products out to tender and require intense investment from the selected supplier during the development phase. In a partnership relationship, the manufacturing contract is agreed. In a nonpartnership relationship, the manufacturing contract is subsequently put out to tender once the development work is complete. The supplier therefore invests in equipment, skills and time during the development phase without a guarantee of being able to capitalise on their investment. When asked to describe their ideal partner relationship, supplier interviewees discuss the need for both parties to continue their levels of investment and build improved understanding of each other. One supplier says that the future is a relationship where both parties continue to put in lots of effort. Another supplier says that their ideal partner relationship is one where the customer respects your lead times as much as you respecting theirs.

316

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

The ndings from the interviews show that the investment demands made of suppliers by the VM are consistently high in a partnership, and include investments in time and manpower to complete paperwork, attend meetings and provide expertise; nancial investments in equipment, processes, techniques and systems; and investments to adjust and align existing processes, methods and mindsets with the VM. But, in return, the VMs levels of investment often fall short of the suppliers expectations. The VMs demands are sometimes seen as too high by the suppliers with a disregard for their relationships with other customers: They do make big demands on us, we try and be as exible as possibleywe always do our best to try and meet the deadline but sometimes it can be impossible and I suppose whats seen as being unfair from my point of view is that the customer doesnt want to accept that there can be demands from other customers that make things difcult for us and were not supermen and were not going to spend 24 h a day behind a desk working on these things.

4.2. The buyer perspective VMs also feel that they invest heavily in terms of time and effort in the partnership, by training new suppliers, working with suppliers to improve performance, solve problems and build up their business through their supplier development teams. The VM interviewees also acknowledged the level of supplier investment in new equipment, guest engineers and local ofces close to the VM site. The major investment desired of suppliers by the VM is for them to adapt to the VMs way of operating. The VM interviewees also indicated that this differentiated the good and bad suppliers: Supplier A were slow to adopt our philosophy or way or method, the good suppliers adapt quickly and expressed frustration with suppliers who were unable or unwilling to make the changes required. In effect, they feel that they are not getting a return on their investment with these poor performing suppliers. The VM interviewees acknowledge the extent of the demands they place on suppliers. This is clearly illustrated by one VM interviewee who discusses the possibility of legal contracts with suppliers. He reveals that the VM and their suppliers do not sign contracts because they are so one sided that if a (supplier) company has any ability for the legal side, they wouldnt let them sign it. Another acknowledges that their demands on suppliers are probably higher than other customers make, but possibly no higher than the demands made on their own employees: We understand that we put unfair demands on our suppliers, but were quick to point out we put unfair demands on our own people as wellyeach and every person (employee) has a duty to contribute to these objectives and they (the supplier) have got a part to play in this as well. The VM does aim to reduce its own levels of investment in the supplier over time. Both supplier and VM interviewees identify the desire of the VM to invest in a supplier, improve their performance and then decrease

their involvement and investment, perhaps in contradiction to the partnership philosophy: One VM interviewee says: So, very generally the way we push the responsibility out to the supplier and expect him to do everything slightly moves away, or does move away, from the partnership philosophy. In contrast, the VM continues to expect high levels of investment behaviours from the supplier in improving performance, accommodating VM requirements and adapting and aligning their processes and cultures to suit the VM. The interviewees dene a number of attitudes and behaviours that are seen as occurring within a partnership and not occurring in other relationships. These behaviours include the willingness of the VM to listen to supplier views, the investments made by the VM in education and training, the unwillingness of the VM to damage the bottom line of suppliers and the readiness of VMs to solve problems jointly. Overall, the desire to invest in the relationship is seen by the interviewees as a distinct characteristic of a partnership VM. Suppliers have been shown to make fundamental changes to their organisations, their way of working and their attitudes. The changes they make mirror the approach taken by partnership VMs. Both parties agree on the ultimate goal of joint prot. Morris and Imrie (1992) and Bresnen (1996) suggest that suppliers show an unwillingness to increase their dependency through signicant investment in customerfocused changes to their own organisation. This research suggests that interviewees involved in partnerships are willing to radically change their organisations to mirror the VM. The term partnership has become devalued through over use and abuse and as a result is difcult to dene and execute. There is no clear evidence that rms claiming partnership relationships act signicantly differently from those who dont (Burnes and New, 1996). However, in our research, we did nd that it was possible to begin to clarify distinguishing attitudinal and behavioural features of partnerships in comparison to either espoused or non-partnerships from the perspective of those involved.

5. Discussion At the outset of the relationship, the VM is clearly willing to invest in improving suppliers through cost and supplier development activities. The VM interviewees, however, explicitly state their desire to reduce their investment in suppliers over time. However, the research shows the desire of suppliers for continuing investment behaviours from the VM, to include behaviours that actively sustain the partnership, such as two way ow of information, greater access to condential information and greater accommodation of supplier needs and requirements. The graphs in Fig. 3 are conceptual, and are intended to show the expectations on investments over time and how those levels change, rather than to give exact measures. The rst graph shows the expectation on supplier investment in the partnership by both parties. Before

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

317

Fig. 3. Relative levels of expected investment over time.

the partnership, the VM expects a higher level of investment from the supplier than the supplier expects to give. Both parties expect relatively low levels of investment by the supplier before partnership arrangements have been established. Both parties share a similar expectation of increased investment levels after the partnership has been formed than before. They also share the expectation of continuously high supplier investment maintained over time. The second graph shows the expectation of VM investment in the partnership by both parties. Before the partnership, both parties have a similar expectation of the VM investment and it is relatively low. Once the partnership is formed, however, the research shows an increasing perceptual imbalance in VM and supplier expectations of VM investment in the partnership over time. The supplier expects a continuously high level of investment to be maintained by the VM. In contrast, the VM expects to decrease their level of investment over time. This leads to an expectation gap, as indicated in the second graph in Fig. 3. From these ndings, we would suggest that frustration and dissatisfaction with a partnership may increase over time as the result of two interacting issues. The rst is a mismatch between expectations and experience. For example, suppliers expect and want accommodation from the VM but do not experience it. The second is the perception of imbalance in expected investment. In other words, the VM expects suppliers to continually invest at high levels whilst looking to reduce their own levels of investment over time. This increasing imbalance in relative levels of expected investment over time has not previously been identied in the automotive partnership literature. The ndings from our research directly contrast with the ndings from much of the literature. Supplier and VM

interviewees suggest that adaptation is almost entirely perceived as being conducted by suppliers, with a parallel perception of insufcient levels of reciprocating behaviours from the VM. Similar to Turnbull et al. (1996), the VM expects their own levels of investment to decrease over time, but in contrast, expectations of supplier investment remain high. The suppliers also expect or desire higher levels of investment from the VM than is predicted in the literature. Our research conrmed that both buyers and suppliers felt they beneted from the longer-term partnership approach and that the partnership was important for their businesses. In accordance with Turnbull et al. (1996) and Fynes et al. (2005), our research also concluded that both VM and supplier do need to invest in the relationship and both parties recognise that their own and their partners investments are necessary. The heaviest investment by both parties is in terms of manpower and time. In addition, the supplier often commits signicant nancial resources in terms of equipment and systems, whereas the VM does not. This is one area where the research showed a clear imbalance in terms of investment in the partnership and that this gap has the potential to widen considerably over time. Both parties did adapt to each other, as found by Ford (1997), but the level of adaptation was signicantly higher for the supplier than the VM, with the supplier being expected to learn how to mirror the VM as closely as possible. The VM does give considerable time to the supplier at the outset of the relationship to enable this adaptation to occur and to facilitate supplier development and improved performance. The VM would then expect to considerably decrease their investment over time as supplier performance improves. The suppliers, however, would have preferred the investment levels to remain

318

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

higher and for the VM to continue to take time to better understand the constraints and issues facing the supplier and to continue to invest in the partnership. As predicted by Hill (1996) and Johnsen and Ford (2005), our research demonstrated that there is an imbalance in the partnership. But our ndings were that the initial and ongoing expectations on the supplier are quite high, but neither the supplier nor the VM seem overly concerned with this. Although the suppliers feel that they do invest heavily in the relationship, the benets they receive are high in terms of improved processes and performance and a long term commitment of business from the VM. The imbalance occurs because the supplier is expected to continue investing heavily in the relationship, while the VM levels decrease. So, it was over time that the imbalance occurred. The VMs levels of investment do decrease quite rapidly over time, but possibly to the detriment of good levels of knowledge exchange and trust between the partners. Similar to Cousins and Spekmans (2003) ndings, the VMs did nd that some suppliers had much poorer than expected performance and seemed unable to change and adapt as required. These suppliers needed ongoing investment and time, which was frustrating for the VM and possibly distracted them from further improving their relationships with the better performing suppliers.

By understanding the dynamics of the partnership over time, both parties can have more realistic expectations of each other. With a relatively small increase in ongoing investment, through increased communication and information ows, the VM can reduce supplier frustration and reduce the rate of fall in investment as perceived by the suppliers. Also, if suppliers consider their dependence on the VM and nd ways to gradually reduce this over time, the expectation gap should close. Although the literature emphasises mutual investment as a key element in partnership, it does not identify the imbalance in perceived and desired investment over time. A key contribution of this research is to consider the time aspect. This research is limited in generalisability, as it is based on a single VMs partnership with 12 of its global suppliers and the ndings about changes in investment in partnerships over time need to be validated with a comparison of different industrial sectors. The exploratory nature of the study has also given rise to new questions and identied areas for further research. Future research should consider how buyersupplier partnerships are maintained over time and where partnerships have been successful, how the expectations have been managed over time to avoid the expectation gap identied in our study, which left unchecked could potentially lead to the failure of a partnership.

6. Implications for practice and conclusions References Many organisations embrace partnership as a philosophy and view it as a key strategy for continued competitive success. Studies have viewed partnership as an economic concept, designed to manage ongoing transactions within the framework of a relationship. We found it important to consider the behavioural aspects of the relationship and also to take a temporal perspective of the partnership. We found that for partnerships to be successful, clear and ongoing expectations need to be formed and communicated. At the outset of the partnership, both VM and supplier need to understand that the investment will be high. For the VM, this investment will be predominantly resource and time to help the supplier improve and align their processes and culture with the VMs processes and culture. For the supplier, this will be in terms of resource and time, but they will also potentially need to invest in new equipment, processes and techniques to achieve the level of improvement and alignment required and to effectively mirror the VM. After the initial formation of the partnership, VMs need to consider how to maintain an equitable partnership with their better suppliers over time, to prevent feelings of frustration and dissatisfaction from the suppliers due to the imbalance of investment over time. Although the VM may decrease its investment over time, some investment in communication, knowledge exchange and trust building is still required to ensure a successful partnership. At the same time, the suppliers need to become more proactive and selective in their interactions with the VM and gradually decrease their dependence on such regular contact as was necessary at the beginning of the partnership.
Anderson, P.F., Dickinson, H.M., Komlofske, G., 1997. Globalization: its meaning for the automotive industry. The JAMA Forum 15 (2), 38. Bresnen, M., 1996. An organisational perspective on changing buyer supplier relations: a critical review of the evidence. Organization Articles 3 (1), 121145. Burnes, B., New, S., 1996. Understanding supply chain improvement. European Journal of Purchasing and Supply Management 2 (1), 2130. Bursa, M., Hunston, H., Lewis, A., Wright, C., 1997. The Automotive Supply Chain. FT Automotive Publishing, London. Campbell, A., 1997. Buyersupplier partnerships: ip sides of the same coin?. Journal of Business and Industrial Marketing 12 (6), 417434. Chung, S., Kim, G.M., 2003. Performance effects of partnership between manufacturers and suppliers for new product development: the suppliers standpoint. Research Policy 32 (4), 587603. Cousins, P.D., Spekman, R., 2003. Strategic supply and the management of inter and intra organisational relationships. Journal of Purchasing and Supply Chain Management 9 (1), 1929. Dyer, J.H., 1994. Dedicated assets: Japans manufacturing edge 72 (6), Nov/Dec, 174178. Ealey, L., Robertson, D., Sinclair, J., 1996. Beyond Supplier Tiers: Facing The Platforming Challenge. Motor Business International, 1st Quarter. Ed, Limited, T. E. I. U., pp. 107120. Ellison, D.J., Clark, K.B., Fujimoto, T., Hyun, Y.S., 1995. Product development performance in the auto industry: 1990s update. Working Paper 95-066. Ford, D., 1997. Understanding Business Markets: Interactions, Relationships and Networks. The Dryden Press, London. Fynes, B., Voss, C., de Burca, S., 2005. The impact of supply chain relationship quality on quality performance. International Journal of Production Economics 96 (3), 339354. Helper, S.R., Sako, M., 1995. Supplier relations in Japan and the United States: Are they converging?. Sloan Management Review Spring, 7784. Hill, S., 1996. Success through partnership. Logistics Focus April, 1820. Hyun, J.H., 1994. Buyersupplier relations in the European automobile component industry. Long Range Planning 27 (2), 6675. Ingersoll Engineers, 1995. Partnership or Conict? The Automotive Component Supply Industry: A Survey of Issues of Alignment. IE Ltd, Rigby.

F. Lettice et al. / Int. J. Production Economics 127 (2010) 309319

319

Johnsen, T., Ford, D., 2005. At the receiving end of supply network intervention: the view from an automotive rst tier supplier. Journal of Purchasing and Supply Management 11 (4), 183192. Kamath, R.R., Liker, J.K., 1994. A second look at Japanese product development. Harvard Business Review NovemberDecember, 154170. Kanter, R.M., 1994. Collaborative advantage: the art of alliances. Harvard Business Review JulyAugust, 96108. Kotabe, M., Martin, X., Domoto, H., 2003. Gaining from vertical partnerships: knowledge transfer, relationship duration, and supplier performance improvement in the US and Japanese automotive industries. Strategic Management Journal 24 (4), 293316. Lamming, R., 1990. Strategic options for automotive suppliers in the global market. International Journal of Technology Management 5 (6), 649684. Lamming, R., 1993. Beyond Partnership: Strategies for Innovation and Lean Supply. Prentice-Hall, London. Lascelles, D.M., Dale, B.G., 1990. Examining the barriers to supplier development. International Journal of Quality and Reliability Management 7 (2), 4656. Lee, G.L., Oakes, I.K., 1996. Templates for change with supply chain rationalisation. International Journal of Operations and Production Management 16 (2), 197209. Leisk, C., Wormald, J., 1992. Supplier Innovation: Building Tomorrows Components Industry. The Economist Intelligence Unit, London. Leverick, F., Cooper, R., 1998. Partnerships in the motor industry: opportunities and risks for suppliers. Long Range Planning 31 (1), 7281. Liker, J.K., Kamath, R.R., Nazliwasti, S., Nagamachi, M., 1995. Integrating suppliers into fast-cycle product development. In: Liker, J.K., Ettlie, J.E., Campbell, J.C. (Eds.), Engineered in Japan: Japanese Technology Management Practices. Oxford University Press, Oxford, pp. 152216. Maccoby, M., 1997. Is there a best way to build a car?. Harvard Business Review November/December, 161170. Morris, J., Imrie, R., 1992. Transforming Buyersupplier Relations: Japanese Style Industrial Practices in a Western Context. Macmillan Academic and Professional Ltd., London. Nakamura, Y., Milburn, I., 1997. Global design and development in the European automotive industry. In: The IMechE 1997 James Clayton Memorial Lecture, 12th February. IMechE Manufacturing Division, London. Narasimhan, R., Nair, A., 2005. The antecedent role of quality, information sharing and supply chain proximity on strategic alliance formation and performance. International Journal of Production Economics 96 (3), 301313. New, S., Burnes, B., 1998. Developing effective customersupplier relationships: more than one way to skin a cat. International Journal of Quality and Reliability Management 15 (4), 377388. Oge, C., Dickinson, H., 1992. Product development in the 1990s: new assets for improved capability. Japanese Motor Business, The Economist Intelligence Unit, December. Oliver, N., Holweg, M., Carver, M., 2008. A systems perspective on the death of a car company. International Journal of Operations and Production Management 28 (6), 562583. Powell, W., 1990. Neither market nor hierarchy: network forms of organisation. Research in Organisational Behaviour 12, 295336.

Roy, R., Potter, S., 1996. Managing engineering design in complex supply chains. International Journal of Technology Management 12 (4), 403420. SMMT, 2007. Industry analysis. Society of Motor Manufacturers and Traders Ltd., website: /http://www.smmt.co.uk/dataservices/indana lysis.cfm?sid=-2&catid=553&maincatid=551&d=&d1=&d2=S, accessed 15th October 2008. Storey, J., Emberson, C., Godsell, J., Harrison, A., 2006. Supply chain management: theory, practice and future challenges. International Journal of Operations and Production Management 26 (7), 754774. Stuart, F.I., 1997. Supplier alliance success and failure: a longitudinal dyadic perspective. International Journal of Operations and Production Management 17 (6), 539557. Stuart, F.I., McCutcheon, D., 1996. Sustaining strategic supplier alliances: proling the dynamic requirements for continued development. International Journal of Operations and Production Management 16 (10), 522. Szwejczewski, M., Lemke, F., Gofn, K., 2005. Manufacturersupplier relationships: an empirical study of German manufacturing companies. International Journal of Operations and Production Management 25 (9), 875897. Taylor, M., Taylor, A., 2008. Operations management research and the automotive sector: some contemporary issues and future directions, Editorial. International Journal of Operations and Production Management 28 (6), 480489. Thomas, R., Oliver, N., 1991. Components supplier patterns in the UK motor industry. OMEGA International Journal of Management Science 19 (6), 609616. Turnbull, P., Delbridge, R., Oliver, N., Wilkinson, B., 1993. Winners and losersthe tiering of component suppliers in the UK automotive industry. Journal of General Management 19 (1 Autumn), 4863. Turnbull, P., Ford, D., Cunningham, M., 1996. Interaction, relationships and networks in business markets: an evolving perspective. Journal of Business and Industrial Marketing 11 (3/4), 4462. Turnbull, P., Oliver, N., Wilkinson, B., 1992. Buyersupplier relations in the UK automotive industry: strategic implications of the Japanese manufacturing model. Strategic Management Journal 13, 159168. Turnbull, P.W., Wilson, D.T., 1989. Developing and protecting protable customer relationships. Industrial marketing Management 18, 233238. Twigg, D., 1998. Managing product development within a design chain. International Journal of Operations and Production Management 18 (5), 508524. van der Vaart, T., van Donk, D.P., 2008. A critical review of survey-based research in supply chain integration. International Journal of Production Economics 111 (1), 4255. Vonderembse, M.A., Uppal, M., Huang, S.H., Dismukes, J.P., 2006. Designing supply chains: towards theory development. International Journal of Production Economics 100 (2), 223238. Wasti, S.N., Kozan, M.K., Kuman, A., 2006. Buyersupplier relationships in the Turkish automotive industry. International Journal of Operations and Production Management 26 (9), 947970. Womack, J.P., Jones, D.T., Roos, D., 1990. The Machine that Changed the World. Macmillan, New York.

You might also like