Assessing supplier performances under partnership in project‐type procurement

Abstract

PurposeThe purpose of this paper is to investigate the effects of a commercial partnership in a project‐type supply chain. The research focuses on the performance of suppliers who develop a partnering mechanism for procurement of complex manufacturing projects. In total, four supply chain metrics are evaluated: project scope change, ratio of actual‐to‐estimated project costs, gross profit margin, and delay in deliverable shipments. Hypotheses are formulated to contrast partnerships and arms‐length relationships for industrial procurement. Statistical results support the conclusion that supplier performances improve under partnership.Design/methodology/approachFour supply chain metrics were generated through review of literature and in‐depth field study. The authors utilized the supply chain management, project management, and principal‐agent theory literature to develop hypotheses to examine effects of instituting a partnership agreement. A case study approach was employed to collect financial and operational data from 167 projects among a manufacturing supplier and a group of customers that purchase industrial analyzer systems. Statistical techniques were employed for hypothesis testing.FindingsThe findings from the authors' empirical work support the prediction in partnership literature that suppliers' operational and financial performances improve after they and manufacturing customers jointly implement partnerships. A supplementary finding also suggests that a manufacturer should develop partnering mechanisms with suppliers to achieve higher performance for both the individual firms and the entire supply chain.Research limitations/implicationsThis study, like other “before and after” analyses, encounters limitations on causality. Advanced techniques, e.g. cause‐effect investigation with richer data, are hence necessary to validate the causal relationships between performance metrics and their drivers. This study focuses only on the supplier's side of the supply chain and its partnership in a specific industrial setting. Future research may consider studying the joint performance by supplier‐customer dyads in commercial partnerships with variations of partnering agreements.Practical implicationsPartnerships motivate trading partners to engage in higher level of coordination. Transactional hazards can be reduced and performance may improve under the partnering mechanism. The manufacturer may design the procurement partnership as a collaborative mechanism, thus helping a partnering supplier and itself to obtain increased mutual gains.Originality/valueThe paper provides detailed information of a unique case study of the partnership in a project‐type supply chain, which is relatively new in the literature. Research streams on supply chain management, project management, and principal‐agent theory are integrated to evaluate supplier performance. Empirical results confirm partnership impacts on suppliers' business performance.

Changing role of the Slovenian defence industry

“…They are also important formal criteria in public defence procurement activities. This is in line with Cheng and Carrillo (2012) findings on supplier performances under partnership in project‐type procurement. The existence of defence standards and norms in enterprises helps to increase the image of products, increases references for the enterprise, and provides compatibility of protocols from different countries and different suppliers.…”

Improving sustainability performance through supplier relationship management in the tobacco industry

“…Respondents pointed out that supplier performance evaluations gave the supply chain visibility in proactively assessing supplier sustainability risk and developing a mitigation strategy in collaboration with the supplier. One of the challenges within supplier performance management, identified by Cheng and Carrillo (2012), is the lack of quality or timely information. The lack of information is also a common barrier to sustainable supply management (Crespin-Mazet and Dontenwill, 2012; Zailani et al , 2012).…”

Understanding Key Engineering Changes for Materials Management in ETO Environment

“…Unidentified change propagation: Possessing the capabilities to identify change propagation has been recognized as an important and critical skill in the ECM process (Giffin et al 2009) change propagation stems from components being coupled with each other, either directly or indirectly (Eckert et al 2004). Complex products often experiences more change propagation than other products, due to more couplings (Cheng and Carrillo 2012). Other major problem that ECM need's to take into account is the engineering bills of materials (EBOM) needs to be transformed to manufacturing bills of material (MBOM), but MBOM transformation has to be done in such a way that it fit the particularities of each manufacturing sites.…”