Supply chain partnership is seen as an important feature of supply chain management. The same conclusion can be made after studying Cafédirect and its partnership with KNCU. Although both companies can enhance their business relationship by increasing their co-operation one can already see the improvements that both groups had experienced simply because they decided to work together rather than as cutthroat competitors that are unaware that much can be achieved in building partnerships such as working towards common goals and sharing risks.
After the industrial revolution, business activities have been the main issue of most countries around the world as these activities lead them to be developing or developed countries. The increased number of businesses and the improvement of technology-led the commercial competition to be globally rather than locally. Therefore, customizing the process of producing goods and services to several phases with their separate management in order to facilitate production’s operation has become very important. Within organizations, operations management controls those separate management. Specifically, operations management concerns with inputs, such as purchasing material, providing human resources, land, and process these to output that customers want (Hill, 2005).
One of the managements controlled by operations management is supply chain management. The term “supply chain” refers to “series of steps between the origin of the service or product in question and your use or consumption of it” (Hill, 2005). One of these steps is that an organization should be involved in a partnership. This essay will focus on partnership applying clarification and definition, then a theoretical model of partnership. The next section will introduce the importance of partnership providing two features making it essential for organizations. The fourth part is about the management role within partnerships, applying four factors, which are: planning, mutual trust, cooperative environment, and enhancement of technology, that managers should follow to make productive partnerships. Then, the paper will use the partnership example of Cafédirect and the KNCU, followed by recommendations.
Clarification of partnership, and its definition
Partnership is a broad concept and has been used in different fields of knowledge. Thus, this paper is going to discuss partnership from the business point of view. However, before introducing the theory of partnership, we should clarify the concept of partnership of other related concepts to avoid confusion.
Some may think that the concept of partnership is the same as other concepts involved in relationships’ contracts such as ongoing relationships and strategic alliances. According to Lambert, Emmelhainz and Gardner, 1996, there is significant confusion over partnership’s uses and definitions. Lambert and his colleagues, in 1996, deeply studied 18 contracts that were shown as perfect examples of partnership. They found that all those contracts were successful relationships’ contracts, but all of them do not have the main ideas or characteristics of partnership which will be discussed in this paper. The reason to see them as a partnership was that organizations achieve the desired goals of those relationships (Lambert, Emmelhainz and Gardner, 1996). Therefore, Hill, 2007, attempts to distinguish the concept of partnership of other business relationships’ concepts that enhance supply chain such as ongoing relationships, and strategic alliance. Hill, 2007, differentiates them as follows:
- The term “Ongoing relationships” refers to the involvement of creating “medium-term contracts with suppliers and developing relations in terms of information sharing and require sound management by customers”.
- The long-term contract distinguished by the extension of information sharing and trust increase is known as “Partnership”.
- “Strategic alliance- the trend in sourcing is towards strategic alliances that are characterized by the increased depth and the breadth of the whole customer/supplier relationship”.
Hill, 2007, states these three previous concepts of relationships as examples and gave each one of them separate definitions to avoid the confusion which Lambert and his colleagues mention in their research.
Although there are some studies that give different definitions or theories of partnership (such as Hill 2007, Ellram 1995), the Lambert, Emmelhainz and Gardner, 1996, definition of a partnership is seen as the suitable one in terms of conversance (Lambert, Gardner, and Knemeyer, 2004). The definition is as follows:
- “A partnership is a tailored business relationship based on mutual trust, shared risk and shared rewards that result in business performance greater than would be achieved by the two firms working together in the absence of partnership”
The definition customizes the relationship and assets that tailoring effort should generate incremental benefits. Managerial time and talent are consumed by tailoring process which as a result “must yield incremental measurable benefits” (Lambert, Gardner, and Knemeyer, 2004). Therefore, providing a model of partnership could be useful to give an overview of how partnership works.
Some studies have concentrated on developing partnership models. The main aim of these models is to present a structure for the elements which affect partnership creation, management over time, and outcome (Tuten and Urban 2001). Of many partnership models, the model of Lambert Emmelhainz and Gardner is the appropriate one, because of “its high degree of specificity in terms of managerial process and its integration of many theoretical streams” (Lambert, Gardner, and Knemeyer, 2004).
This model consists of four steps. The first one is drivers or the causes that encourage organizations to be involved in partnership contracts such as increased market shares or reduce production costs. The second step is facilitators which means that characteristics of two firms will help to improve or prevent partnership. The next step is components. The components are controllable elements used by management at various levels of partnership to achieve the desired goal of that kind of relationship. Outcome is the final step in which the firm reviews what they gained from the partnership and have achieved the expected performance (Lambert, Gardner, and Knemeyer, 2004).
The importance of partnership can be observed from the first two steps, whereas the third one can affect the outcome through each action. Thus, the following two sections will discuss the importance of partnership, and the role of leadership in partnership.
The importance of partnership
Partnership has become an important topic for several organizations. There is awareness of some companies toward their performance which leads them to be involved with other supply chain partners (Wong, 2001). In addition, customer expectations and mass competition lead some organizations to make partnerships. According to Lambert, Emmelhainz and Gardner, 1996, making partnership in a world characterized by the scarcity of resources, high customer expectations, and a fierce competition has become very essential to enhance the efficiency not only of the operation per se but also the components with a supply chain partnership. Moreover, partnership leads to improvement of supply chain efficiency. Duffy and fearne, 2004, assert that there is enough evidence to show that it is beneficial to engage in long-term partnerships with other firms because it will help improve the efficiency of the supply chain within one’s own company and also of the partner. Therefore, partnership explicitly becomes very important for many organizations, and it observes its importance through many aspects. Here are some of them:
Partnership plays an important role in terms of cost reduction. Lambert, Emmelhainz, and Gardner, 1996, point out that integrated activities would result in reduction in “transaction cost, handling cost, packaging cost, information cost, or product cost and may increase managerial efficiencies”. In addition, partnership may support parties to use each other equipment which will consequently lead to cost reduction (Lambert, Emmelhainz and Gardner, 1996). An example of cost reduction is that MacDonald makes a partnership with regional distributors to deliver products to every single store which as a result reduces delivering and ordering costs (Williamston, et al, 1975). Therefore, it is easy to understand how a firm can enjoy a significant amount of saving when studying the impact of partnership and what benefits it can do to one’s company (Lambert, Gardner, and Knemeyer, 2004).
Sharing information is another factor making partnership essential for organizations. According to Lambert et al, 2004, sharing information is a key factor leading businesses to be involved in partnership contracts. It is a key because operational time can be reduced through sharing information between parties (Saunders et al,). As a consequence, supply chain flexibility will be increased, and the organization can adapt to market changes (Gosain et al, 2004). Therefore, a successful business is the business that shares information with others through partnership to adapt to market conditions.
There is a need to plan before one goes into partnership and after two firms had already made the decision to work together towards a common goal. This is perhaps the need to reduce cost, enhance a product, or share information. Planning is needed at the very beginning because this activity will generate the needed information that managers will have to look into for making the correct decision to engage in partnership and to continue with it. After deciding to go into supply chain partnership the two firms will have to plan ahead and determine how components of their respective companies can be joined together to build and sustain the said partnership (Lambert, Gardner, and Knemeyer, 2004). Researchers were also able to discover the link between planning and manager satisfaction (Walton, 1996).
Although two firms can benefit from the creation of a strategic partnership between them, this does not assure success. In order to benefit greatly from supply chain partnership, there must be mutual trust between the two companies (Wynarczyk & Watson, 2005). But this is easier said than done simply because the goal of each firm is profit maximization and this is why even if there is increasing interest in supply chain partnership as a management strategy there are only a few examples of success (Walton, 1996). In this regard, it is really important to develop mutual trust and this can be achieved by focusing on commitment, performance, and communication (Lambert, Gardner, and Knemeyer, 2004).
Two heads are better than one and the mere fact that this proverb has been in existence for so long is also the evidence that we are well aware that working in a cooperative environment is much better than having to deal with all the challenges of the business without the ability to share risk and to manage cost with the help of a partner. However, cooperation does not come automatically in a partnership; business leaders in each company must become more proactive in creating a cooperative environment. The best way to do this is to develop cooperative goals (Wong, 2001) By doing so each firm will realize that there is something in common between them and if they work together they can efficiently achieve their goals.
Business partnerships can be made successful with the use of technology developed through this type of relationship. In fact, supply chain partnerships are created because of the need for technology enhancement (Malhotra, Gosain, & El Sawy, 2007). This is in response to a highly competitive environment and the need to have ready access to information. Thus, the most common form of technology enhancement is related to communication and information technology. But before a company will engage in partnership with another to produce sophisticated communication technology software or hardware their leaders must realize that this can only be productive if there is a close and long-term cooperative relationship between the two firms. (Lambert, Gardner, and Knemeyer, 2004).
The Cafédirect Case
In the case of Cafédirect one can clearly see that business partnership if done the right way can benefit two entities. In the past, Cafédirect is expected to succeed in a highly competitive world of coffee farming and consumption doing everything it can to lower cost and to increase efficiency without regard to other firms and even to their suppliers. But Cafédirect represented by Twin Trading and its business partner – producers of coffee beans in Africa – the cooperative named KNCU realized that they increase their efficiency and their profit by working as partners and not as competitors.
The use of planning is very crucial in deciding to engage in partnership and also as a means to determine if they must continue as strategic partners. One of the things that they discovered is that by going into supply chain partnership they can stabilize the price of the goods, they can enter into long-term business relationships, and the suppliers have access to resources that can enable them to produce quality products at a reasonable price, and deliver it on time. In fact the moment KNCU was able to demonstrate their capability in these aspects they can request pre-financing from their partners and this empowers them to reach levels of excellence unknown to them before Cafédirect and particularly Twin Trading became a part of their business life. Planning was made possible by conducting a series of meetings within the organization of Cafédirect and so it has been pointed out that this can be enhanced by encouraging KNCU to participate in these types of meetings by sending their representatives and strengthen the partnership with their major trade partner.
Mutual trust is needed for this partnership to grow and based on their history they were able to develop it by proving to each other that they can deliver what they had promised. If KNCU did not find ways to improve its yield then it can be said that there would have been no success story that is being discussed right now. In the same manner, if Twin Trading was unable to help KNCU experience surplus in their production and then assure them that there is a mechanism in place that will assure them of reasonable prices for their goods then KNCU would have gone the other way and either return to their old method of selling in without regard to a business partnership or sell their produce to the open market where there can be no stability in terms of prices and demand for their coffee.
The absence of technological enhancement will suggest that even if KNCU and Twin Trading have reached a level of success that is the envy of other suppliers and traders, much can still be done to improve their partnership. The absence of technological enhancement can mean that KNCU and Twin Trading are not yet ready for close and long-term relationships that can help them create a more efficient system when it comes to information sharing and other technological interfaces that can help them solve problems and increase knowledge of their shared business.
It has been said that KNCU is seen more as a resource rather than a partner. This image must change. The change in perspective must come from both parties. Cafédirect must strive to create a partnership that is long-lasting and therefore it can justify added investment to improve the production of coffee farmers that are under the KNCU organization. One way to do it is to invest in technology that can enhance communication that in turn will allow easy access to information and therefore can result in better decision-making processes.
On the part of KNCU, it is time to think out of the box and to change the way they see themselves as a mere supplier of raw material. They can communicate their needs much clearly to their business partner and find ways to develop a more close-knit relationship based on mutual trust and shared goals.
Even if the relationship that exists between KNCU and Cafédirect is not perfect one can already see significant improvements in the way they do business simply because they decided to work in partnership and not against each other as a competitor. For many decades African farmers are vulnerable to exploitation because many farmers and cooperatives can directly trade with multiple buyers on a global scale. As a result, there is no stability in pricing and as direct consequence farmers are not empowered to improve their ability to supply high-quality produce. By engaging in supply chain partnerships both organizations can achieve their shared goals with more efficiency and increased profit.
Lambert, D. M. Knemeyer, & J. Gardner. (2004) Supply Chain Partnerships: Model Validation and Implementation. Journal of Business Logistics. 25(2) p. 21-41.
Walton, L. (1996). Partnership satisfaction: Using the Underlying Dimensions of Supply Chain Partnership to Measure Current and Expected Levels of Satisfaction. Journal of Business Logistics. 17(2) 57-74.
Wong, A. (2001) Leadership for Effective Supply Chain Partnership. Total Quality Management. 12(7) p. 913-919.
Wynarczyk, P. & R. Watson. (2005) Firm Growth and Supply Chain Partnerships: An Empirical Analysis of U.K. SME subcontractors. Small Business Economics 24 p. 39-51.
Malhorta, A., S. Gosain, O. El Sawy. (2007) Leveraging Standard Electronic Business Interfaces to Enable Adaptive Supply Chain Partnerships. Information System Research. 18(3) p. 260-279.