Supplier Associations – benefits through supplier collaboration

In light of globalization organizations can find themselves in an increasingly cut-throat trading environment, remaining competitive in such an environment is therefore a key strategy for many businesses. Supplier associations are increasingly becoming a key element of this strategy as various benefits can be realized including cost reduction and increased flexibility.

There have been a variety of studies into Supplier Associations over the years most notably Hines and Rich’s “Outsourcing Competitive advantage” and Ellram & Edis “A Case Study of Successful Partnering Implementation” as a result the definition of such associations are clear – Hines and Rich’s definition is a “group of a company’s most important suppliers bought together ton a regular basis in order to achieve strategic and operational alignment through the development of awareness, education and implementation programmes.

Supplier associations in themselves are nothing new having originated in Japanese manufacturing in the 1950’s through the principle of Kyorioki Kai. These associations were introduced to provide a method of improving the total end-to-end process and co-ordinating subcontractors in order to disseminate best practice – the motivational factors are clear – releasing benefits obtained through supplier collaboration. These benefits may commonly consist of:

Sharing Best Practice

Developing supplier associations can lead to continuous improvement benefits being cascaded through the supplier group. Sharing best practice can result in both reducing waste and increasing value. While many suppliers may not have the structure and tools to develop continuous improvement programs, within a supplier association innovation and training can be diffused from within one firm to the many participants. The overall benefit of improved processes is increased standard working practices and techniques whilst nurturing innovation.

Cost Reduction

A significant benefit that supplier associations offer is that through increased levels of communication waste within organizations can be reduced and with it operational cost. Communication through better forecasting is one way that costs can be reduced, supplier associations may facilitate the sharing of such data allowing for JIT methods to be developed reducing inventories through surplus buffer stocks. Cost reduction can also be targeted through the elimination of defects. Collaboration throughout the process can identify points and causes of failure which can be targeted by improvement programs – reducing rework and associated cost.

Security

Supplier associations are generally built on a principle of mutual trust. There is a predication that organizations can secure their market share over the long term through effective associations. There is also a perception that market share can actually be improved through participation and increased levels of communication between the organizations involved. Certainly a stable supply chain and early views of development schedules can facilitate a better understanding of the parent firm – the development of mutual trust and long term relationships better position collaborating firms against competitors adding greater value than the standard “price and availability” variables.

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