understanding supply chain improvement

Pergamon European Journal of Purchasing & Supply Management Vol 2, No 1, pp. 21-30, 1996

Copyright © 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved

0969-7012/96 $15.00 + 0.00 0969-7012(95)00018-6

Understanding supply chain improvement

Bernard Burnes and Steve New Manchester School of Management, UMIST, Manchester M60 1 QD, UK

This article sets out to explore one particular aspect of partnership sourcing: how suppliers cope with the demands of multiple customers, each of whom has a different style of partnership. The article begins by describing the rationale behind the move to customer-supplier partnership. It then moves on to present and discuss a case study of how one supplier transformed itself to cope with the competitive pressures of the modern business environment and, in so doing, developed the ability to deal effectively with the differing purchasing styles and needs of its customers. The article then proposes three complementary models of supply chain improvement which, taken together, allow for a more differentiated analysis of the phenomenon, and provide a more robust basis for theoretical development. The article concludes that those suppliers who seek/achieve world class status are not only in a position to accommodate the differing approaches of their customers but can also, to a limited extent, choose which customers to supply.

Keywords: partnership, automotive, supply chain

The last decade has seen much interest by Western companies in the concept of partnership sourcing, in contrast to the more traditional adversarial purchasing relationships (Lamming, 1993; Macbeth and Ferguson, 1994). Though this has been led by the automotive and electronics industries seeking an effective response to Japanese penetration of their home markets, its influ- ence has permeated into other sectors as well (Morris and Imrie, 1992; Flood and Issaac, 1993; Lloyd et al, 1994; Partnership Sourcing Ltd, 1991; Schonberger, 1982; Womack et al, 1990). Despite this, it could be that partnerships are not for everyone (or that not everyone is ready for them) and that there may be a tendency towards a "rose tinted glasses" syndrome (A.T. Kearney Ltd, 1994). However, it is certainly the case that the UK has taken to the idea with gusto, at least at the level of government departments, such as the Department of Trade and Industry (DTI), and industry bodies, such as the Confederation of British Industry and Society of Motor Manufacturers and Traders (DTI, 1992; Lamming, 1994; NEDC, 1991 a & b; Partnership Sourcing Ltd, 1992).

Though a considerable amount has been written about partnership sourcing, the subject is under- theorised. One aspect which we believe warrants further exploration is how suppliers cope with the demands of multiple customers, each of whom has a different style of partnership and some who might still

cling to a belief in an adversarial approach. This has particular importance for transfer of 'technology' (taking the term in its broadest sense) throughout the 'chain'.

This article presents and discusses a case study of the development of one company, a supplier to the automotive industry, who over 15 years has transformed itself to cope effectively with the competitive pressures of the modern world. In so doing, it has created structures and processes which allow it to adapt to the different purchasing styles and needs of its customers. We present this case because it does not fit easily with conventional interpretations of supplier development. Consideration of this example has led us to develop a framework of three contrasting models of supply chain improvement.

The article begins by describing the rationale behind the move to customer-supplier partnerships and draws attention to the gap between rhetoric and reality. It then moves on to present and discuss the case study. It argues that conventional interpretations of the partnership concept are unsatisfactory as explanatory devices for this particular case. Instead, three complementary models of the supply chain improvement are proposed which, taken together, allow for a more differentiated analysis of the phenomenon, and provide a more robust basis for theoretical development. The article concludes that those suppliers who

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seek/achieve world class status are not only in a position to accommodate the differing approaches of their customers but can also, to a limited extent, choose which customers to supply.

Background and methods

There is little doubt that customer-supplier partnerships are becoming seen as the most beneficial and effective method of organising the purchase of goods and services (Lamming, 1993). A recent survey conducted by ourselves and A T Kearney Ltd found that over 90% of respondents thought such an approach was relevant to them and over 60% were using/implementing partnership schemes with their suppliers/customers (A. T. Kearney Ltd, 1994). These results are broadly comparable with a survey in the same period by Partnership Sourcing Ltd (Tett, 1994). The partnership concept was introduced into Europe and the USA from Japan; the prime exemplars being the Japanese motor and electronic industries (Bache et al, 1987; Bhote, 1989; Griffiths and Tanabe, 1991; Lloyd et al, 1994; Ishikawa, 1985; NEDC, 1991 a & b; Touche Ross, 1992). In attempting to understand the factors which underpinned the competitiveness of Japanese companies, attention was first directed at their internal arrangements, however, it quickly became apparent that this told only half of the story. Typically, bought in parts and services account for over 70%, and in some cases much more, of the cost of a finished product. Therefore, it became apparent that to understand the advantages that Japanese companies had over their Western counterparts, in terms of costs, quality, time to market, etc., it was necessary to understand the unique relationship they had with their suppliers (Francks, 1992; Schonberger, 1982; Womack et al, 1990).

A number of European companies, notably Philips with its Co-Makership initiative, tried to move in this direction. However, it seems only to have been with the arrival of Japanese transplants, especially the building of the Nissan car plant in the mid-1980s, that interest in customer-supplier partnerships really took off in the UK (Burnes and Whittle, 1995; NEDC, 1991a & b; Lloyd et al, 1994).

There is no universally agreed definition of partnership sourcing, Partnership Sourcing Ltd, the UK body established by government and industry to promte the idea, defines it as:

...where customer and suppliers develop such a close and long-term relationship that the two work together as partners. It isn't philanthropy: the aim is to secure the best possible commercial advantage. The principle is that teamwork is better than combat. If the end- customer is to be best served, then the parties to a deal must work together--and both must win. Partnership sourcing works because both parties have an interest in each other's success (Partnership Sourcing Ltd, 1991:2).

Burnes and Whittle (1995) have sought to expand this definition by arguing that a partnership relationship exists where some or all of the following characteristics are present:

A long-term commitment; Both customers and suppliers are proactive; Both parties are integrating key processes and activities; There is a commitment to developing and maintaining co-operative and close relationships; A clear and well-structured framework for deter- mining cost, price and profit for both sides exists; A win-win philosophy operates--both parties must stand to gain from the partnership approach; Both parties are committed to continuous improvement in all spheres of their activities.

Despite the fact that official bodies, leading companies and the literature would broadly agreed on the above, the reality seems somewhat different from the rhetoric. This was shown by one of the findings from the survey we carried out recently with A. T. Kearney Ltd (1994) which revealed that the term 'partnership' was used in a wide variety of ways, often with ironic undertones. For some, partnership merely meant price discounts for favoured customers; for others, complex risk and revenue-sharing arrangements for new products. In some cases, partnership language appeared to be used to sanitise the brutal use of commercial power. This view concurs with the findings of Lamming (1994): partnership initiatives are often more "rhetoric than reality".

In this article, we do not intend to attempt a general definition of partnership. Rather, we wish to draw attention to what it meant to the case study company. It saw partnership as implying a long-term commitment on behalf of both parties to work together to improve the quality, reduce the cost and improve the reliability of the products they supplied. An important point is that the actual details and ethos of the partnerships it established with vehicle manufacturer varied from customer to customer depending upon each one's particular approach to working with suppliers. The focus here, though, is not primarily on the activities and behaviour of the case study company's customers p e r se. Rather it is concerned with how the supplier in question developed and managed the relationship between itself and its various customers with their different and sometimes conflicting approaches to partnership. As the company built its customer base throughout the 1980s, all of them claimed to want to develop a close working relationship, all were using different approaches, tools and techniques, and all wanted increasing amounts of management attention.

Whilst the move to partnerships may be a welcome change from the "master-servant" approach of the past, no one claims it is without difficulties. However, most of the research on partnerships has tended to

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focus on the role of the customer in establishing/ managing supplier partnerships (eg Bache et al, 1987; Cova and Salle, 1991; Ellram, 1991; Flood and Issaac, 1993; Gait and Dale, 1991; Lascelles and Dale, 1990; Lloyd et al, 1994; Masson, 1986; Morgan, 1993). Writers tend to view the process as one where a single customer has to deal with a multitude of suppliers. Even where writers examine the process from the supplier's perspective, it tends to be in terms of how the supplier can develop a partnership with one of its customers and not how it can cope with all of them (eg Walley, 1993; Partnersip Sourcing Ltd, 1991). The difficulties of managing partnerships from the supplier's perspective seems, therefore, to be a much neglected area. This is of obvious practical importance, but we shall argue below that it is also important for theory.

The following case study highlights this issue: how, given their different and developing definitions of partnership, a supplier can accommodate and manage the needs of all its customers. Turnbull et al (1992) have described the tensions generated as Japanese- style manufacturing practices are implemented without the matching industrial 'structure' of dedicated and of semi-dedicated supply. This is a case of a small company dealing with large customers all of whom demand not just that their products should be supplied on time, on cost and to specification but also want the supplier to accept their systems and approaches, their tools and techniques and their offers of 'assistance'.

The company in question is one of a number we have been studying as part of a programme of research initiated between UMIST and the UK National Economic Development Office (NEDO) in 1985 (see Burnes and James, 1992; Burnes and Weekes, 1992 for further details). The study has been examining the way that UK-based companies develop and implement strategy. Since the demise of NEDO in 1992, this programme has come under the auspices of the UMIST Supplier Development Centre. We first began examining the case study company in 1986 and since then have visited it on many occasions and had exten- sive access to senior managers and company documen- tation. We have also had the benefit of discussing the company and its development with both its customers and rivals.

The case study covers the development of the company since 1980 and demonstrates the need to see suppliers as active players in the development of customer-supplier relationships, rather than passive receptors of what their powerful customers require. Furthermore, it suggests an expanded model of supply chain improvement.

The case study

Background

The company was founded in the 1940s as a manufacturer of pressed steel products. In the 1950s it ceased


to be an independent company and joined a small, family-owned, conglomerate. In the 1960s and early 1970s it tended to specialise in providing pressed parts for the white goods industries rather than products of its own. However, with the increasing penetration of the UK market by foreign companies, this work declined. Throughout the previous 40 years, it had remained a small company; employment fluctuated between 50 and 150. Its turnover never exceeded £4m and its profits were equally modest, though even in difficult periods it never made significant losses nor did it require its parent company to provide much in the way of capital investment.

Time for a rethink

Therefore, by the end of the 1970s, like many small UK companies, it survived rather than thrived and it reacted to events rather than seeking to control its own destiny. However, this all began to change in 1980 with the appointment of a new Managing Director. He had been with the company, in a variety of positions, for many years. On taking over, he and his fellow direc- tors carried out a strategic review of the company. This confirmed his worst fears: turnover for 1979/80 was down from £4m to £2.5m and the company's main customers were cutting back their orders. Nor, in the midst of a world economic recession, did there seem to be much likelihood of alternative customers to fill the gap.

The Managing Director and his colleagues concluded that the company could not survive any longer merely as a seller of capacity to whoever required it. It needed to provide a coherent range of products, built around its core competence in pressed metal parts, to an industry whose long-term prospects were secure. In order to achieve this, the company needed to reduce its cost base, improve quality and modernise its production equipment and methods. In addition, they had a loyal, though somewhat appre- hensive workforce, whose goodwill and commitment they had to maintain if they were to transform the company.

The first steps to achieving these challenges were to:

(1) Undertake a market survey in order to identify potential/desired customers and products. This took approximately six months but in the end they targeted the motor vehicle industry as one of their preferred market. Though the UK industry was in a poor state at the time, Talbot Motors was about to fold and Rover Group (at this time still called British Leyland) looked as though it could follow, they believed its long-term future was secure. This industry proved to be a particularly judicious choice given the arrival of the Japanese transplants in the UK in the latter half of the 1980s.

(2) Establish how best to organise the company in order to become a credible force in its chosen

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field. In effect, the company was undertaking a benchmarking exercise to identify world class performance. Though benchmarking activities and the search for world class performance are now common place, this was not so in 1980. In order to establish benchmarks, the Managing Director visited leading companies in Germany and Japan. Whilst he was impressed by the engineering skills of German companies, he found the way that the Japanese organised and applied themselves was a revelation. He found their commitment to quality and the way the whole workforce was involved in eliminating waste and increasing effectiveness particularly impressive. It was clear from this point onwards, if the company was to achieve its vision of becoming a world class automotive supplier, that it was to Japanese standards of excellence that they should aspire.

Making things happen

Having established where they wanted to go, the company now needed to get going. The first step was to win orders from its target market. The first target customers were Ford Motors and Rover Group. The Managing Director and his senior colleagues visited both companies and explained their plans for the future. Though they were impressed enough to give them work on forthcoming models, it was made clear that they would share this work with other suppliers and that future work depended on the company's ability to meet the cost, quality and delivery performance of these other suppliers.

With the Ford and Rover work, the company set itself two objectives: firstly, to exceed the performance of the other suppliers; and, secondly, to become the single source supplier for these components. This in essence became the company's strategy for developing partnerships with customers: outperform the opposi- tion and on that basis take 100% of the available work.

Though it had won the work, it now needed to deliver. The Ford and Rover models were both due to come on stream in 1983. This meant that the management team had 2 years to organise production.

The new equipment worth £1m was purchased and installed and though there were continuing teething problems, the company began delivering parts to Ford and Rover as planned in 1983. In the financial year 1983/4 company turnover increased fivefold over its 1979/80 level which appeared to justify the relatively large investment.

The late 1980s: a turning point

Despite the success with the Ford and Rover work, the Managing Director still felt that the company's performance was well below what it should be, in particular:

• Senior managers were still operating in a reactive rather than pro-active mode.

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• Key operational problems were being "worked round" rather than analysed and solved.

• Costs had grown faster than turnover. • Quality was poor and they were still relying on

inspection to detect and correct this.

Nevertheless, there was good news. The company's reputation as a reliable and innovative supplier was growing and they were attracting additional work from the motor industry. Also, the motor industry was beginning to change its view of customer-supplier relationships. Based on the Japanese experience, vehicle manufacturers were coming to see the merits of developing long-term partnerships.

However, this did not obviate the need to tackle the serious issues identified above. Therefore, the management team set itself six key objectives:

(1) Reduce costs. (2) Reduce stocks and work-in-progress. (3) Acquire new customers in order to gain full

utilization of capital equipment. (4) Re-organise sales and purchasing into one opera-

tion. (5) Move to Just-in-Time manufacturing. (6) Adopt the Deming/Juran approach to quality; as

a first step, introduce SPC.

The adoption of these objectives, especially the latter, began to move the company away from being just another company who had introduced new technology towards one which was truly committed to transforming itself into a world class performer.

The next steps

The progress made so far had been driven by senior managers. The management team believed the company needed to move from having a workforce which accepted management initiatives to one which understood and took a pro-active approach to the company's strategic aims. Without this, the Managing Director believed, they would never match Japanese performance levels, especially in terms of quality.

The key initiative to achieve employee participation began with the introduction of cellular manufacture and the move to team working at all levels. On the shopfloor separate cells (process teams) were created which, in the main, were customer focused. These were supported by the other key processes in the company, ie engineering, purchasing and finance. The cells were, eventually, given responsibility for there own quality, methods and costs. From the onset, they were encouraged to examine critically all aspects of how the cell operated in order to make improvements.

In retrospect, this turned out to be a key move in terms of achieving a step change in performance, although it took some years before the cellular approach began to work as anticipated. Indeed, it was only with the appointment of a new Operations director in 1991

that the difficulties and obstacles began to be tackled in a systematic and committed fashion. Indeed, if the progress made in the 1980s could be attributed to the drive of the Managing Director, then in the progress made in the 1990s owed a similar debt to the commitment and competence of the Operations director. The main difficulties he faced in making the cellular approach work was in getting staff to work in teams and, in particular, getting suitable team leaders. Also, a major retraining effort was needed to ensure the multi- skilling necessary for this approach. A further problem was getting other staff in the company to 'support' the cells. In the past, staff in engineering and purchasing had been more used to telling the shopfloor what to do rather than vice versa. As for finance, previously they had had little to do with the shopfloor whereas under the new arrangement they had a pivotal role in supply- ing information to the cells. Therefore, though the move to cellular manufacture could be characterised as shopfloor reorganisation, it was in fact a sea change for the entire company. The locus of power ceased to be fragmented amongst the various staff functions and moved to the cells. In particular the cell managers came to play a pivotal role in orchestrating the day-to-day life of the company.

None of this was achieved immediately nor is it yet all operating as the company would wish. Nevertheless the company's performance both in terms of meeting customer requirements and its own strategic objectives continues to improve. As an example, in 1990, the company was near the bottom of Nissan's league table of suppliers performance (which in most other cases would make it rather good!) By 1995, it had firmly established itself in the top one-third and was continuing to improve. Table 1 illustrates a range of performance improvements achieved between 1992 and 1994.

Table 1 Performance improvement

Performance indicators End 1992 End 1994

Delivered quality (PPM) 600 25 Die change time (minutes) 240 15 Days of inventory (days) 20 5 Delivery performance (%) 90 100 Cost reduction index 100 85 Design capability (%) (based on 20% 70 grey box design capability)

One of the key lessons it learnt from having Nissan as a customer was the need to incorporate continuous improvement into all its activities.

The situation in 1995

By 1995 the company had been totally transformed from what it was in 1980. Turnover was £80m (1980 = £2.5m) and it employed 850 staff (1980 = 150). Its customer-base was exclusively leading vehicle builders


and its reputation in the industry for quality and performance was high. In addition, an independent survey had shown that it was one of the few UK-based companies which was approaching world class status.

I n some organisations this would have led to complacency, or at least a slackening of the rate of change. However, in 1992 the company's Operations Director spent a month in Japan and one of the key lessons he came back with was the need to introduce a rigorous and systematic benchmarking process (see Camp, 1989, for an explanation of benchmarking). This has now become embedded in the company, with comparisons being made with leading organisations bot inside and outside of the motor industry. This has shown that, despite the significant progress made since 1980, it still has enormous scope for improvement.

D i s c u s s i o n

Any case study that covers such a lengthy period is bound to raise a wide range of issues. In terms of building and maintaining customer-relationships, there are three which seem particularly important.

The first issue relates to strategy. There are few who would dispute the proposition by Johnson and Scholes (1993) that a coherent and clear strategy is essential to the success of modern organisations. However, there are many approaches to strategy; the key ones being resource-driven strategies, which have tended to characterise the Western approach, and ambition-driven strategies, which are more character- istic of the Japanese approach (Burnes, 1992). What is interesting in this case is that the company, appar- ently unconsciously, adopted a Japanese approach. It identified a long-term, ambitious vision for itself. As part of this vision, it determined the core technolo- gies and competencies it would need to develop in order to make this vision a reality. The company did not attempt to plot out its strategy in detail, which would have been impossible given the dynamic environment in which it chose to operate. Rather, it laid down key objectives and milestones which were reviewed and updated on a regular basis. By identi- fying its preferred customers and products, and deter- mining and developing its core competencies and skills, it put itself in a position to take advantage of opportunities and avoid threats. As Hamel and Prahalad (1989) have argued, this is the classic Japanese prescription for success. It is also commen- surate with Mintzberg and Quinn's (1991) theory of emergent strategy.

That the company's approach was appropriate for its situation is demonstrated by its dramatic growth in turnover. Just as significantly, it is also shown by its ability to develop partnerships with the UK-based Japanese transplants. Indeed, although it did not antic- ipate the arrival of the transplants in the UK, few companies were as well placed philosophically and

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organisationally to work with Japanese car makers (see Holden and Burgess, 1994). The lessons learned from visits to Japan, appear to be the key factor.

The second issue relates to partnership being underpinned by performance. The emerging orthodoxy (eg Lamming, 1993; Lascelles and Dale, 1990; Partnership Sourcing Ltd, 1991 & 1992) of partnership sourcing emphasises:

• Its difference from the adversarial approaches to purchasing which have tended to be the norm in the UK and other Western countries, ie that it is about co-operation not conflict, and win-win not win-lose.

• That there are defined steps and measures which need to be taken, by customers in particular, in order to build trust and establish partnerships.

What tends to be ignored is the issue of performance. If a supplier fails to meet its customers performance objectives, they will eventually be dropped--partnership or no partnership. However, under partnership, performance tends to have a broader definition and longer time frame than in the past. Nissan uses its QCDDM approach (Quality, Cost, Delivery, Development and Management) in order to measure present performance and future capability. Ford has its long-established Q1 system and Rover has similar schemes introduced as part of the RG2000 programme. These give daily, weekly, monthly and yearly profiles of a supplier's performance on a broad spectrum of measures. They are used to identify concerns, prompt action from suppliers and in the final analysis determine if they get work on new models. In the UK motor industry few can have put more effort in to building partnerships than Nissan but, in some cases, even it has not awarded new contracts to companies whose performance has consistently failed to measure up to expectations.

The point of this is that to achieve appropriate levels of performance over a wide range of measures requires time, effort and commitment. The case study company set out to build partnerships by improving its performance, it did not set out to improve performance by developing partnerships. Customers assisted the supplier in this endeavour; they did not initiate or drive it. In this case, the bedrock of partnership was the supplier's proactive effort to improve performance and not vice versa.

The third issue is the question of how a supplier can cope with the different approaches of its various customers. Traditionally the situation was relatively straightforward. The key interface before an order was placed was between the customer's purchasing department and the supplier's sales department. After an order was placed, it would be between the progress chasing department of the customer and, probably, the supplier's sales department. Therefore, the interface was relatively simple, if not always effective.

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Under partnership, or at least under more stable and co-operative trading relationships, the situation is more complex. Purchasing still plays a pivotal, but immea- surably wider, role for the customer, however, on the supplier side the situation is greatly changed. Senior managers are expected to play a more active and time consuming role in developing the relationship. Also, though sales may have some form of co-ordinating role, there is now moe emphasis on the customer's personnel speaking to, and developing a relationship with, their opposite numbers. What the customer, in effect, expects is strategic and process integration (A.T. Kearney Ltd, 1994). Not only is this complex to manage, for both parties, it is also very time consuming, especially for senior managers who are expected to meet with, and be answerable to, their customers on a regular basis.

Clearly, the customer-supplier relationship under partnership creates many more demands on suppliers than under previous practices (it also should bring greater benefits). Multiply these demands by the number of customers, each with their own demands, approach, assessment methods and offers of 'assistance', and it becomes difficult to see how suppliers have time to do anything other than attend meetings and write reports. This is a common complaint amongst suppliers we have spoken to.

The case study company illustrates how this problem can be overcome. The key action was to develop its strategic objectives, enabling it to take charge of its own destiny. Following this, the introduction of a cellular manufacturing organisation and the emergence of a strategic role for senior managers allowed the firm to proactively seek its own position.

Three points should be stressed. Firstly, the transformation of the company was not undertaken princi- pally to enable it to deal more effectively with the customer-supplier interface question. It was undertaken because it seemed the best way for this company to achieve world class status, however, this process has also created an organisaton which can adopt to the differing needs and varying approaches of its customers.

Secondly, the changes took place over more than a decade. They were not easily devised or implemented, nor did they always work first time. In essence, they emerged as a combination of predetermined strategic objectives, best practices from elsewhere, trial and error, and above all persistent and consistent management.

Lastly, though major organisational and technical changes have been achieved, the key change has been in the behaviour and attitudes of staff at all levels in the company. In effect, the company has experienced a culture change. Changes in attitudes and behaviour throughout the company have taken over a decade and have tended to follow changes in structure, objectives, personnel (the company has taken on over 700 new

staff) and senior management behaviour. The two key changes in this respect are that (a) staff now work co- operatively in teams rather than individually in isola- tion, and (b) they are expected to be pro-active completers rather than reactive buck passers. Though this change of culture was necessary in order to achieve greater internal effectiveness, it has also been crucial in allowing the company to work in a much more cooperative manner with its customers as well.

Towards a model of supply chain improvement

Whilst there are obvious dangers from arguing for a single case, it seems that the experiences of this form do not fit neatly into the emergent orthodoxy of partnership. Whilst the firm has established long-term relationships with customers, these are still some way from the idealised (even sanitised) images of partnership which sometimes emerge in the literature (for example, Carlisle and Parker, 1989); some of its customers still exercise industrial power in fairly crude ways. This again resonates with the outcomes of our work with A.T. Kearney Ltd (1994), in which the threat of withdrawing business to secure low prices seemed widespread even in firms with ostensible partnerships. Further, the case does not match the common notion that improvement in performance is necessarily driven by relationships with more advanced customers; the firm's transformation seems largely due to its own initiative.

Burns and New (1995) have developed a simple taxonomy which helps untangle these ideas (see Table 2). Three models of supply chain improvement are identified, and whilst these are complementary, they allow a more subtle analysis of "glory stories" of supply chain management (see New, 1994a).

In Model One, supply chain improvement is achieved by firms working to remove the waste generated at the interface between customer and supplier. This is the standard model of partnership sourcing, and leads to the standard injunction that what is needed to improve industrial performance is more trust (Sako, 1992; Lamming, 1994). The key lesson for the buying company is that adversarial purchasing behaviour


needs to be substituted by more cooperative stance. An argument can be made that this reduces the trans- action costs (in the Williamson, 1975, sense) generated at the commercial boundary. A recent paper by Bessant et al (1994) partially reflects this approach, and explores how the customer-supplier relationship is reified as a 'quasi-firm' in its own right, and how this may itself create the context for the evolution of Total Quality.

Model One clearly has great merits, but, as it tends to neglect the actual performance of the organisations involved, is an incomplete model of industrial improvement. This model, for example, allows poorly performing firms to eliminate some of the problems at the interface, yet remain fundamentally poor companies.

By focusing on the trusting relationship, discussions of Model One-type partnership generally fail to address the thorny issue of single sourcing and the use of threats of withdrawing business. In the automotive industry, for example, the emerging standard model is of parallel sourcing (Richardson, 1993), but this sits uneasily with the spirit of mutual commitment typically encouraged within the relationship perspective (eg Deming, 1986).

Model Two assumes an active partner who improves the other. This is the model most closely associated with established notions of supplier development, in which big, advanced and resourceful firms improve the performance of smaller, less advanced suppliers (Burt, 1987; Hyun, 1994). This approach is often conflated with the ideas of partnership as in Model One, and finds its clearest expression in the use of the word 'partnering' as an active verb: something one firm does to another. Hines (1994: 106-107) highlights how this may entail actively encouraging suppliers to work together and learn from each other. In this model, what is needed is a greater willingness on the part of the purchaser to invest in the internal operations of suppliers, and for suppliers to be willing to cooperate in the process.

The difficulty with this model is that it may pull suppliers in many directions. In one of the Delphi meetings organised as part of our research with A.T.

Table 2 A framework for supply chain improvement

Model Mechanism for Focus supply chain improvement

Partnership and cooperation to eliminate waste at interface

Supplier development for technology transfer from customer to supplier

Best practice firms work with best practice firms: survival of the fittest

Model one

Model two

Model three

Key Key requirement metaphor

relationship trust marriage

knowledge/skill communication paternalism

performance strategic clarity evolution/chemical kinetics

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Kearney Ltd, a manager from an automotive assem- bler expressed sympathy with vendors in this regard:

For every initiative we have in place...[several competi- tors]..will have something that is similar but different. The suppliers are having to respond to all those various requirements and still be relatively efficient in the way they deliver a service.

Furthermore, it is an approach which relies on the continuing commitment of the buying companies to invest in the process, which may be difficult to sustain in periods of economic downturn, or when budgets are stretched. In our work with several automotive firms which practice supplier development, we know of none which has found a way of effectively accounting for the activity; typically it is absorbed in a general overhead budget (see New, 1994b, case two). A further problem is that the model may well be industry-specific; little is known about how different industry characteristics affect supply chain management practice (New, 1994a; Payne, 1994).

Model Three offers a different perspective on supply chain improvement. Here, the development of effective partnership is driven by a process of almost Darwinian evolution. Firms which can independently pursue best practice are then 'fitter' to be trading partners with other firms with similar aspirations. In this model, there is no necessary assumption that best practice filters down an existing chain. In the flux of commercial relationships, best practice forms the 'bond' (shifting the metaphor from biology to chemistry) which links partners.

This third model is useful in that it helps explain how firms such as the one discussed above have managed to survive the rigours of dealing with multiple proactive customers. By maintaining its own independent sense of strategic direction and business improvement, effective 'partnerships' can be maintained without member- ship of a keiretsu-type family or dedicated supply (see Gerlach, 1992; Burt and Doyle, 1993; Nishiguchi, 1994). The basis of the partnership is performance and strategic clarity; the discriminating feature is the quality of the partners, not just the quality of the relationship. This is reflected in a description of Rolls-Royce Motors experience of suppliers, working with other (Japanese) customers (Griffiths, 1993).

It is important to stress that the outcome of Model Three may look like the idea of "'Japanese' manufacturing practices...filtering up the supply chain" (Thomas and Oliver, 1991: 611). The process, however, is not that the techniques and attitudes are being transferred in dyadic relationships (as Model Two) but that of discerning customers obsessed with quality (Holden and Burgess, 1994) only wanting to deal with those suppliers who share the obsession (Carr and Truesdale, 1992).

The decomposition of partnership ideas into these three models has interesting implications for purchasing

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practice. All three facilitate supply chain improvement, but each places different demands on purchasing organisations. For model one, the key skills are developing trust, cooperative attitudes and consistency amongst those at the interface. For model two, the emphasis shifts towards establishing mechanisms by which knowledge and skill can be transferred effectively. Model three leads to a sharper focus on the selection of evaluation of suppliers. There is recent evidence from the United States that there remains considerable scope for improving performance in these last areas (Purdy et al,

1994). This is particularly the case as it seems often that suppliers need to be selected on the basis of the expec- tation of future progress rather than current performance (as in Honda's selection of Oxford Automotive Components, described in Bowen, 1993).

For policy, the conclusion is that the dynamics of industrial development may operate in several ways. It may be, for example, that the mechanism whereby Japanese transplants improve industrial performance- may be more in giving good local suppliers the oppor- tunity to flourish rather than in necessarily transferring good practice directly. This has ramifications for the complex debate about the impact of foreign direct investment in manufacturing (see Oliver, 1993; Garrahan and Stewart, 1992).

Conclusions

The emergence of new attitudes to customer-supplier relations in the UK is to be welcomed but, as this case study demonstrates, there is a need to differentiate between different modes of cooperation. We have presented a case study which suggests a process of supply chain improvement which differs from the relationship focus of writing on partnership, and from the technology transfer model of supplier development.

We do not presume that any of the three models in our analysis is better or even "more true" than the others. Indeed, they are not even mutually exclusive; many and perhaps most situations may entail some combination. All three are implicit in Lamming's (1993) model of Lean Supply, and Hines' (1994) account of Network Sourcing. Macbeth and Ferguson (1994) interweave models one and two in their treat- ment of partnership. We have encountered situations which reflect all three models.

The important point, however, is that the concepts are separable, and that evidence for one should not be confused as support for another. Our recent work has suggested that firms may work effectively and reinforce one another's success without necessarily adopting partnerships in the accepted sense. There is a need for a "new realism" which considers the practical difficulties of integrating operations and the nature of competition and power in the supply chain (A.T. Kearney Ltd, 1994; New, 1994c).

The case study presented in this article gives a strong indication of how suppliers can contribute to the development of this new realism. Firstly, though suppliers may have to accept the ground rules for "partnership" established by their customers, this should not and does not inhibit them from pro-actively pursuing their own destiny.

Secondly, a crucial aspect of such a pursuit is to aspire to world class levels of performance. Not only does world class status allow suppliers to satisfy all their stakeholders but the steps which manufacturing companies need to take in order to achieve it (especially the move to process focus and cellular manufacture) enable them to cope effectively with the conflicting needs of their customers, whichever model of partnership they are following.

Lastly, partnership sourcing may not always be the only way forward for supply chain improvement. In competitive and increasingly global industries, suppliers who prosper will be the ones who can achieve world class performance regardless of the orientation of their customers. This may be essential in a perod in which the European automotive components industry is likely to experience severe rationalisation (Done, 1994). Furthermore, those judged to be the best suppliers may not only find that they are everybody's preferred supplier but also they find that this gives them the leverage to choose their preferred customers.

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