By working closely together, companies and their suppliers can create highly competitive supply chains. Failing to collaborate results in the distortion of information as it moves through a supply chain, which, in turn, can lead to costly inefficiencies. Lee et al. described this “bullwhip effect,” which results in excess inventories, slow response, and lost profits.1 Through the more open, frequent, and accurate exchange of information typical of a long-term supply-chain partnership, companies can eliminate many of these problems and ensure ongoing improvement. Examples of successful customer-supplier partnerships include those between Baxter Healthcare Corporation and American Hospital Supply Corporation or between Toyota and its first-tier suppliers.2
These partnerships yield major benefits: increased market share, inventory reductions, improved delivery service, improved quality, and shorter product development cycles. Chrysler Corporation, realizing that merely overhauling its supplier base was insufficient, successfully transformed its traditionally adversarial supplier relationships into partnerships.3 Even more modest partnerships lead to rapid improvements in logistics facilitated by candid information exchange and better coordination. Given the effort involved in creating and sustaining partnerships, clearly a firm must focus on the trading partners it considers most important in the long run. This type of partnership differs from a strategic alliance or project-based partnership in which two firms may work toward... To read the complete article, login or sign-up using the form below.
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