Working With the Right Partner

Aug. 1, 2003
In spite of its name, the supply chain is not linear. It's a tightly woven web of inter- and intra-relationships in which everyone has to give a little to get something. And the something in this case is the customer.

While everyone’s definition of partnership differs slightly, a salient question is why enter into a partnership in the first place? The best answer to that question is, by entering a partnership you gain insight and awareness of the entire supply chain, or value stream, as some call the path from raw goods to end user. And by knowing how others work, you can improve your processes — either by not doing something done better by others, or by adding value to what has already been done.

"In trying to craft supply chain partnerships," says Jim Tompkins, Tompkins Associates, "you have to understand how far you and your would-be partners are willing to lean over the fence to shake hands."

As Tompkins points out in his book, No Boundaries: Break Through to Supply Chain Excellence, it’s about more than just shaking hands. He says you can call it caution, reluctance, reserve, propriety or just plain nervousness about the unknown. "It’s not easy to invite someone into your organization and allow them to participate in your continuous improvement process."

Others agree, finding the right partner is not easy. You need a definite plan, not just a signature on a piece of paper, says Ed Reel, senior vice president, Peach State Integrated Technologies.

"If I’m going to establish a partnership," says Reel, "I know I’ll have to dedicate resources — time and dollars — to build an effective partnership. I want to make sure the partnership has a value proposition that I can take to a customer that is different than, and drives greater value than, our competition."

For Reel and principals at Peach State, establishing a measurable program that included three basic steps to establishing a partnership was the beginning of their methodology:

-- Vision. Make sure the potential partnership can bring services, solutions and capabilities to the customer and marketplace that’s of value to both companies and the ultimate customer. "We conduct a visioning session to talk about what the partnership could be, the drivers behind it, and value propositions. How will it leverage our joint capabilities to drive new business for both our companies," says Reel.

-- Planning. These are the steps that help you manage the partnership. In this stage, Peach State puts in specific objectives to include processes for reviews, working with joint customers, leveraging joint capabilities in how they’ll build joint proposals and joint marketing collateral.

-- Execution. The purpose of the partnership is to generate results through the execution and delivery of the joint capabilities. What are the results? Peach State calls results the measures of success. "How do we measure and determine if we’re successful," asks Reel. "If we say things like we’ll drive X-dollars of revenue in this period of time with these strategic services, or, we’re going to make X-number of joint business calls with a partner per quarter, we can measure that."

Why are we doing this?

Why companies enter into partnerships is as varied as the participants. The why question can usually be boiled down to the need for creative alternatives to limited resources — money. While there are fine lines separating partnerships from outright business deals and outsourcing, the differentiation is that with the latter, the company actually makes a purchase of a clearly defined product or service. With a partnership, what you’re getting might not always be so clear. There’s no set structure for a partnership — no set formulas or foolproof techniques. There are, however, components for success:

-- Who. Partners cannot be selected by the lowest bid. Experience and an outstanding track record might be expensive, however worth every penny.

-- Leadership. Commitment from the top. Well-informed leaders minimize misconceptions on everyone’s part.

-- Involvement. Once the partnership is established, you only get out of it what you put into it — no passive or silent partners allowed.

-- Planning. Without a map, any direction you head is acceptable. You’ll never know, however, when you’ve reached your destination.

-- Communication. More people are affected by the partnership than just the managers. Every person with direct or indirect interest in the project has an opinion and misconception.

Strategic partnerships

Strategic partnerships are a subset within the topic. Strategic partnerships are often established with a single vendor, typically for services such as maintenance. While some argue that these arrangements are just purchases, the element that moves the deal into the partnership category is the shared risk factor.

Software companies tend to establish many strategic partnerships on a variety of levels.

As a user of warehouse management software or supply execution products, you probably benefit from some alliance you did not even know was in place.

"We have different types of partnerships," says Rap McBurney, vice president of alliances, Manhattan Associates. "Our relationship with a hardware maker, someone who uses our products, differs from how we work with a software company whose products complement ours."

McBurney says the above kinds of relationships tend to engage the client/end user later in the project. Although there is significant co-marketing with hardware and software partners, the partnership actually touches the client during the implementation phase as hardware and software are brought online. More dynamic are partnerships with third-party integrators or consultants.

"Our alliances with consultants, for example," says McBurney, "provide us with greater visibility into the marketplace. They [consultants] are often way ahead of where our sales staff might be in terms of knowing what’s coming down the pike."

The benefit to the end user, he adds, is that his company can prepare and speed the time to fulfillment of the customer’s needs. The client is able to make a quicker, often more cost-effective decision because he has all the information presented at the same time.

While partnerships are not necessarily an easy thing to establish, says McBurney, in the end, they are a positive thing. "Each partner can bring to the table something the other cannot. And while there might be some agitation, too, it’s worth it to go together to the end user than to go as separate entities."

Another thing that makes partnerships worthwhile is that they are good for business. "My department," he says, "is second only to trade shows in generating business for the company."

Choose wisely

You have to pick your partners wisely. This is particularly important for manufacturers. You want a relationship that mirrors the values of your company.

Lee Gatins, Wesley Pack Mule LLC, a manufacturer of special application pallet trucks, says no matter how you define "partnership," the most crucial part of the partnership deal is communication. "There has to be a free flow of information," says Gatins, "with all parties, including the end user."

Gatins describes it as a circle, with information flowing in all directions. "And the information has to be of a positive as well as negative nature," he explains. "If something happens to our products, or the end user is not satisfied with the distributor, we have to know that."

Gatins says in selecting potential distributors, his company looks for a professionally run business with a good infrastructure. "We want a company that is detail oriented," he says. "We consider a distributor a partner if they, in turn, project our company in an equally professional way, ultimately having a high level of product awareness."

A true partner, adds Gatins, is one that takes the time to have its sales staff completely trained on the product. It can therefore promote the product without the manufacturer having to hold its hand every step of the way.

Another benefit for the manufacturer to finding partners is that in today’s economy, many manufacturers have had to downsize sales staffs in the field.

"Everyone can win," says Gatins. "The manufacturer gains all the distributor’s people in the field. It’s almost like adding a direct sales staff. They become the manufacturer’s eyes and ears in the field." The distributor adds a quality product to its line-up, thus increasing sales and having another reason to make a sales call.

The end user is probably the greatest beneficiary in a manufacturer/distributor partnership. The distributor can give the end user faster, if not better, customer service than the manufacturer because the distributor is closer to any potential problem. Because of the distributor’s smaller size, he can respond to the end user’s problems faster. At the same time, with a free flow of information, the end user can take problems and suggestions directly to the manufacturer.

What have we learned?

Partners dance. Partners play together against an opponent. Partners live together and share something. There is some common good derived, some benefit not ascertainable as an individual. Close cooperation and joint responsibility are hallmarks of partnership. In the end, to benefit all parties, any partnership constructed should be done so with the thought, or goal, of removing waste from the value-creating process that serves the end customer. Experts suggest you start any partnership with definitions. Define your ideas of the partnership and what you hope to achieve. MHM

Forte Industries’ Approach

Evolution and a systematic approach to establishing partnerships are part of the six-point program developed at Forte Industries, Cincinnati.

Partnerships throughout the supply chain encounter many obstacles, leaving operations and financial executives to navigate through a traditionally chaotic and cluttered vendor environment. Businesses want their products delivered in the most efficient and timely fashion, with the lowest possible impact to profits and at the highest levels of service to the outlets that sell them.

In the past, this meant a significant investment of time, as well as taking on risk in working with a variety of vendors and salesman with their own agenda. Each claims to have the best interests of the prospect in mind.

Material handling managers demand the best value with a simple, less stressful way of delivering distribution operations success. A new partnership option has emerged for executives who require objective answers with the least amount of risk. The archaic days of coordinating many different vendors, hoping the right purchasing decisions are made along the way, and holding each individual provider accountable are over. The new methodology is what Forte Industries calls Compass.

Compass is simply a process that guides clients through all six phases in the creation of an optimized distribution operation: Discover, Assess, Plan, Design, Implement and Improve. The methodology enables retailers to navigate through chaotic links in the supply chain, eliminating the need to deal with multiple mechanical and software vendors and pure consultants who lack the ability to physically implement their concepts.

Distribution operations are optimized objectively. Forte Industries experts perform such functions as writing mechanical and software vendor specifications, creating detailed equipment layouts, objectively procuring the proper pieces that best fit a given distribution operation, then designing, integrating and physically implementing the planned design.

Through the establishment of key performance indicators, measured on an ongoing basis, the metrics provide actionable information that allows executives to constantly improve operations. This continuous process improvement leads to the ability to be responsive to the variables in consumer and client demands, ultimately creating a competitive advantage for retailers and mass merchandisers.

Material handling managers must address critical issues such as the rapid proliferation of SKUs, the need to have labor balance and shipment compliance. Add into the mix demands of reverse logistics, the push for more lean manufacturing and sweeping inventory cycles, and you have a prime breeding ground for waste, inefficiencies and inaccuracies. The Compass Methodology helps businesses navigate through all six phases of creating an optimized distribution center.

How They Do It

About three years ago, when Exel set out to transform itself from a capable, traditional freight forwarding company into a global logistics management company, it determined partnering with the right companies was the route it should take. (Exel did about $7 billion last year, and employs 67,000 people at 1,600 locations in 130 countries.)

"We wanted airfreight to become an enabler in the supply chain proposition," says Ole Ringheim, vice president global airfreight, Exel. "It [airfreight] had been an afterthought for many companies and we saw how the world was changing."

Part of this change, he says, was that many companies had similar needs in the global marketplace, and their expectations were increasing. Exel created a description of what it felt were all the things it would be looking for in an airline partner:

-- Carriers operating in the global marketplace or having a strong presence in one of the three major operating regions it served.

-- Carriers with a commitment to the cargo business. These were airlines with a separate management team in place to drive the cargo business.

-- Carriers to give Exel preferential status within the airline. In this business, your status with a carrier can vary based on your ability to deliver capacity for that carrier and timeliness of delivery.

-- Partners that had a vision and people actually concerned with product development, quality, security and electronic data interchange (EDI) capabilities on a daily basis.

"We also sensed many airlines were looking in the mirror and saying, ‘how we operate today is not how we’ll operate in the future,’" says Ringheim.

Meanwhile, Lufthansa Cargo had a business partner program of its own. (Lufthansa moved more than 1.63 million tons of freight and mail last year.) Exel met with them and learned there was a shared view on how to work together. Lufthansa already had criteria in place to measure growth of business and use of special products. It was looking for a forwarder interested in working with them, selling and developing special products for specific companies that had special needs.

A major global partnership was formed. In moving into the relationship, Ringheim says "We wanted to find a way to differentiate ourselves and our airfreight offerings in the marketplace."

The program the two companies have forged is constantly evolving. Ringheim says each year the process begins with creating a budget together. It starts with a high level of expectations for growth. "Then we break down that budget into route-specific plans to align what our needs would be on critical routes and share the info with Lufthansa," he says.

This approach also allows Lufthansa to make route and development plans.

After looking at the financial aspects, a business plan is developed. "It [the business plan] might go as far as contractual agreements to support Lufthansa on routes where they require greater loads," adds Ringheim.

He says Exel has mirrored its company organization to Lufthansa’s, using the same regional structure and management. These people are then accountable and responsible for delivering the budgets and objectives.

Ringheim says the visibility to each other’s business has increased over the years. "By having the mirrored organizations," he says, "you develop a more honest relationship because there is a dialog on an ongoing basis." He adds that at the end of the day, it still takes people to make it happen.

Ringheim candidly admits, however, that most customers don’t realize — or care — that on a long-term basis this structure will meet two objectives. "One, that we make money," he says. "If we don’t, we won’t be in business.

"Second, we help in the capacity management area, which in turn helps Lufthansa make money and keep costs under control for all participants in that region."

He notes that, in general, Exel’s customers are better off with a healthy airfreight business. While most people worry about the next quarter or the next year, ultimately customers are better off with a group of airlines with the ability to invest in the future.

"Our customers also benefit from the performance," says Ringheim. "It’s improved our ability to move freight on time, all the time. Not only do we have a competitive price on the table, we have the freight where they want it, when they want it."

Partnerships and EDI have also helped Exel improve its level of customer service. Being able to quickly exchange information among carriers, forwarders and others in the supply chain has given Exel’s clients better visibility into shipments. "We can at least advise the customer that there might be a problem, rather than having to react to an adverse situation," he says.

Ringheim notes that a typical forwarder in a traditional arrangement could spend about one-third of his time on the phone with airlines tracking shipments. Now that time is better spent taking care of the customers.



Forte Industries

Lufthansa Cargo

Manhattan Associates

Peach State Integrated Technologies

Tompkins Associates

Wesley Pack Mule LLC 880-241-2869