Supplier Partnerships

Supplier partnerships or alliances have been used to control the cost of procurement. They are based on methods developed in Japan, initially in the automobile industry. These methods have been extended into the process industry and for the purchase of such items as compressor trains. Generally as originally conceived, they were intended mainly for commodity items. By using some innovative approaches, the concept of partnerships or alliances has been extended into the purchase of custom equipment.

In this text, partnerships include alliances. Some companies prefer the alternate name. Partnerships are structured in many different ways. They may be project specific, commodity specific, or even company specific. Each company has its own qualification criteria. It is beyond the scope of this book to go into detail on these because that is material for a text of its own. The intent here is to introduce the reader to the concept if it is not known and meld in the negotiation modifiers for both neophyte and veteran.

There is basically one goal for the partnership, with possible side benefits, The goal is to save money. When all the dust settles, that is it. However, there are associated benefits, the best of which is to minimize or even do away with adversarial relationships. It may be wishful thinking to believe that these will be completely eliminated. A related, but very important, benefit is to build trust between the parties. This is necessary to achieve the goal.

One outcome of the partnering arrangement is the minimizing of the supplier base. Some advocates call for single sourcing, others take a more conservative approach and keep two or three potential suppliers, and use criteria to select from the individual companies. The purpose is to lower the bid and bid evaluation cost. Going out for bid to many suppliers is costly to the company and wasteful for the industry and eventually shows up as a cost to the user community. The experienced practitioners of partnering attempt to eliminate bidding and directly negotiate the purchase of the compressor train for the custom-type equipment. For more standard commodity items, a blanket purchasing agreement is worked out for a fixed period of time, such as a year. The elimination of bidding removes a significant step in the procurement process, and the purchaser expects to benefit both from the elimination of the bid evaluation as well as in the negotiated price due to the supplier's savings in bid preparation. Additional savings may be realized in the form of specification standardization. The reduction of variations in specification from project to project can produce significant savings.

The concept of partnering is quite interesting and, when carefully done, does produce benefits for the purchaser and the supplier. It is heavily dependent on people and their ability to engage in a trusting relationship. There are many interesting variations that, while tempting to write about, must be left for another book. While the following steps are still valid, it is hoped that the potential for eliminating or streamlining some steps is possible with a partnering arrangement.

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