“Mind the Gap” – Buyer-supplier partnerships: who invests, in what and when?

April 30, 2013  |  Automotive Sector, Buyer-Supplier Partnerships  |  Comments Off on “Mind the Gap” – Buyer-supplier partnerships: who invests, in what and when?

 

Automotive image

 www.freedigitalphotos.net

Lettice F, Wyatt C and Evans S.  2010.  Buyer-supplier partnerships during product design and development in the global automotive sector: who invests, in what and when? International Journal of Production Economics, 127, pp 309-319

pdf-image

Downloadable pdf

This research is based on 25 interviews with 12 global automotive suppliers and 12 interviews within one vehicle manufacturer (VM), making a total of 37 interviews. The VM was based in the UK and the suppliers were based in the UK, mainland Europe, Japan and the USA representing the globally distributed supply base of the VM and the automotive sector.  The suppliers varied in size from small, to medium, to large multi-national organisations and supplied products of varying degrees of complexity and had varying degrees of design responsibility within their partnership with the VM.

Our study investigated the nature of the buyer-supplier partnership and the investment required to maintain the partnership over time.  We looked for common themes across all of the interviewees, and considered both supplier and buyer perspectives.

The supplier perspective

The types of investment that the supplier makes in their relationship with the Vehicle Manufacturer include:

1.  Manpower and time – recruiting engineers to work predominantly with the VM, travel to the customer site to attend meetings, filling in documentation required by the VM (as well as supplying technical knowledge and expertise for development work)

2. Financial – investing in customer-specific equipment, processes and systems; making capital investments to their sites, installing communication links to send data to VM

3. Structural and behavioural – adjusting processes and in-house methods to meet VM needs, learning new development and problem solving techniques, being customer focused and committing to continual investment in the partnership

The investment demands of the VM on suppliers are consistently high (sometimes seen as too high and disregarding of the suppliers’ relationships with other VMs), but the VM levels of investment often fall short of supplier expectations.  It sometimes feels like a one way street.  Suppliers would like continuing investment behaviours, such as two way flow of information, greater access to confidential information and greater accommodation of supplier needs and requirements.

The buyer perspective

The buyer predominantly invests time and effort with their key suppliers to train new suppliers, work with suppliers to improve performance, solve problems and build up their business through their supplier development teams.

The VM acknowledged the level of supplier investment in new equipment, guest engineers and local offices close to the VM site.  The major investment desired of suppliers is to adapt to the VM’s way of operating and the interviewees saw this as a key differentiator between the good and bad suppliers.

They also acknowledge the demands they place on suppliers, but justify it by saying that they place equal demands on their own employees.

The VM does aim to reduce its own levels of investment in the supplier over time, perhaps in contradiction to the partnership philosophy.  However, they expect ongoing high levels of investment from their suppliers in terms of improving performance, accommodating VM requirements and adapting processes to suit the VM.

There are differences in non-partnership relationships from both sides.  Suppliers don’t adapt as much to non-partners and don’t experience such intense relationships.  Non-partner VMs are more aggressive in cost and doing development work is no guarantee of landing the manufacturing contract, which means suppliers can’t capitalise on their earlier investment.  From the VM perspective, they are more willing to invest in education and training for partner suppliers and to listen to them and jointly solve problems.   They are unwilling to damage the bottom line of their suppliers and both parties agree on the ultimate goal of joint profit.

figure-three

Figure: Relative levels of expected investment over time

The graphs 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 first graph shows the expectation on supplier investment in the partnership by both parties.  Before 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 above.

For partnerships to be successful, clear and ongoing expectations need to be formed and communicated.  Vehicle Manufacturers need to consider how they can maintain an equitable partnership with their good suppliers over time, to prevent frustration and dissatisfaction.  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.  A better understanding of the dynamics of the partnership over time can help both partners have more realistic expectations of each other and prevent an expectation gap from growing.