External Partnerships

Outsourcing has become a major trend because it allows companies to bring their products to market faster and at a competitive price, and because it provides benefits to both the customer and the supplier. The relationship between the customer and the supplier is referred to as partnering. Joki and Russett identify three categories of partnering3:

• An approved supplier is the least advanced form of partnering and requires minimal investment in the relationship. The benefits are usually limited, and the suppliers are approved for a project with no guarantees of future work. The group of approved suppliers still competes for the award of the bid, and the establishment and communication of the project objectives is the customer's primary concern. One benefit is that an approved supplier is already in tune with the company'sculture.

• A preferred provider is a more comprehensive form of partnering and requires a greater investment. Consequently, the returns and rewards for both parties are increased. A preferred provider creates a single source for services, as work is available. However, the provider is usually not included in the initial planning, which is a potential lost advantage. Although more investment is created on the customer's side, because the bidding process is gone, the benefits should outweigh the cost. The advantage of lessons learned can be applied to the relationship for continuous improvement since the partners are working together on a continuous basis. Also, the customer typically gets a better product, along with overall cost, schedule, and other savings not associated with an approved supplier relationship.

• A strategic partnership is the most advanced or complete form of partnering. In this type of relationship, the customer and supplier form a team that may or may not become an entity separate from the originating organizations. The strategic partnership team owns the project from start to finish and sometimes helps to make

3. Adapted from Earl Joki and Rose Russett, "Partnering for Success—Maximizing Project Management Value Through a Strategic Partner," Project Management Institute Inc., Files of Change: Proceedings of the 29th Annual Seminars and Symposium, Long Beach, California (1998). All rights reserved. Materials from this publication have been reproduced with the permission of PMI. Unauthorized reproduction of this material is strictly prohibited.

strategic decisions relating to the project or program. The team is involved in the conceptual stage and carries it through to its completion and operation.

The benefits of proper outsourcing can be significant. Joki and Russett provide a list of potential benefits of outsourcing and partnering4:

• Cost reduction: External providers with many customers can be more cost effective. In some cases, costs are reduced by 20 to 40 percent.

• Added expertise: Outsourcing or partnering should provide the company with partners who have proven records of performance. The company can readily tap into additional resources in the form of technical expertise.

• Continuous improvement capability: External providers are typically up on the latest developments and methodologies, allowing a more effective and efficient delivery of services. This allows the outsourcer to focus on improving the professionalism of the service.

• Sharpened company strategic focus: Outsourcing improves strategic business planning and accelerates the benefits of reengineering.

• Ability to penetrate global markets: Broad geographic infrastructure and service capability of a partner can immediately provide delivery options for customers wanting to quickly penetrate new global markets.

• Minimization of company risks: By sharing risks with vendors, outsourcing not only reduces operating costs for an organization but provides money for capital investments. Partnering also helps mitigate risk of resourcing cycles (ups and downs), yet retains expertise.

• Alignment of services: Companies are able to more closely align these services by allocating them to the consuming processes or departments on an activity basis to achieve a more effective and efficient alignment between the consuming departments and the outsourced infrastructure.

• Introduction of proven discipline: A project management partner can introduce a proven discipline to support rigors of using sound project management principles. Many times the outsourcer does not possess the required discipline to operate or maintain a structured program management environment.

• Breakdown of internal barriers: Outsourcing provides the ability for the partner to break down internal obstacles more freely (third party). It can be more effective for an independent, third party that is not caught up in the politics to objectively monitor the progress of a project or program.

• Focus on essential items: Outsourcing frees the customer to focus on internal cultures, politics, growth strategies, barriers, and integration issues. The partner's focus on the project management service allows the customer to focus on core activities, such as engineering or making program decisions.

External partnerships, if properly managed, can provide significant long-term benefits to both the customer and supplier.

The Department of Defense has been conducting research into what constitutes an effective supplier relationship.5 Each Chrysler supplier had a Chrysler person knowledgeable about the supplier's business to contact for all supplier dealings for that commodity. These companies also interacted with key suppliers in close teaming arrangements that facilitated sharing information. Commonly called integrated product teams (IPTs), members worked together so that design, manufacturing, and cost issues were considered together. Team members were encouraged to participate as partners in meeting project goals and to interact frequently. In addition, some companies collocated suppliers with their own people or set up central working facilities with suppliers for working out issues such as how a product might be improved or be made less expensive. Motorola and Xerox saw such teams as a key vehicle for facilitating early supplier involvement in their products—one of their primary strategies. Motorola said key suppliers had building access and came in many times during a week to work with Motorola engineers.

These companies also asked suppliers to meet high standards, then differentiated the types of relationships within their pool of suppliers. Many treated key suppliers—those contributing the most to their product, such as critical parts or unique processes—differently than suppliers for noncritical or standard parts. For example, one Corning division categorized suppliers and developed relationships with them based on the extent of their impact on the customer and performance. Level 1 suppliers have a direct impact on customer satisfaction, level 2 suppliers are important to day-to-day operations, and level 3 suppliers provided commonly available products. DuPont differentiated between alliance partners—suppliers with similar goals and objectives that wish to work with DuPont for mutual benefit—and all other suppliers.

Perhaps more significantly, Chrysler's relationships with its suppliers had evolved to the point that it no longer needed to make large investments in some key technology areas. Instead, the suppliers made the technology investment themselves and had enough confidence in their relationship with Chrysler that they did not fear the long-term commitment that this entailed. For its part, Chrysler trusted the suppliers to make investments that would help keep their vehicles competitive. In this case, both supplier and product developer saw their success as that of the final product and a continuing mutually beneficial relationship.

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