A Case Study of Successful Partnering Implementation

The Eastman Kodak Company is a well-respected leader in the imaging industry. George Fisher, Kodak's CEO, has identified five key operating values for Kodak employees: 1. Respect for the dignity of the individual 2. Uncompromising integrity 3. Trust 4. Credibility 5. Continuous improvement and personal renewal[1] With such values, it is not surprising that when Kodak wanted to improve several key dimensions of its relationships with suppliers, it chose the partnering approach. Following the basic framework proposed by researchers Ellram and Hendrick,[2] a Kodak team took the partnering concept from idea to implementation on a global scale. The purpose of this article is to provide a detailed case study of how Kodak made global partnering work in the purchasing arena. It is hoped that the Kodak experience will provide a guide and answer some key questions for organizations that are considering similar ventures. The presentation proceeds as follows. First, general background information is provided on supplier partnerships and key related issues. Theoretical justification for the partnering concept is also discussed. Next, the approach used by Kodak is detailed, including the initial contact with suppliers, the involvement of various parties, and the evaluation and selection process. An exploration of how the relationship was developed, as well as major benefits experienced by both parties, precedes a discussion of key success factors and the organizations' plans for maintaining vitality in the ongoing relationship. A BACKGROUND SKETCH OF THE PARTNERING CONCEPT Buyer-supplier partnering represents a collaborative approach in which a buying organization and a small number of its key suppliers work together closely, seeking mutual benefits by sharing the risks and rewards of a cooperative relationship that focuses on continuous improvement. A recent study of approximately 100 matched pairs of buyer-supplier partners revealed the following key characteristics of successful partnering ventures. First, the intensity of these relationships limits the number that can be managed effectively, usually to about 1 percent or less of the purchaser's supplier base.[3] Most important, buyer-supplier partnering relationships tend to be oriented around specific, relatively important purchased items, and they tend to involve a supplier with whom the purchaser has been doing business for a number of years. Further, partnerships tend to be developed and managed by a team, with the full support and cooperation of top management. In addition, if the relationship is well managed, most buying organizations experience substantial economic benefits, including improved total cost of ownership, as well as reduced prices. Typically, the performance of the supplier is formally monitored over time. The specific steps a purchasing organization should take in developing a partnership are detailed in Figure 1.[4] Each of these phases is explored in detail in conjunction with the discussion of Kodak's supplier partnership development program. WHAT IS THE RATIONALE FOR PARTNERING? Many practical reasons supporting the use of the partnering concept have been discussed in the sourcing literature. However, one of the more robust explanations comes from the application of transaction cost analysis theory (TCA), which is credited to Oliver Williamson.[5] Transaction cost analysis combines economic theory with management theory to determine the best type of relationship a firm should develop in the marketplace. The ensuing reasoning concludes that an optimal management decision is dependent on the transaction costs associated with various alternatives.[6] For example, vertical integration represents the failure of the free market to handle exchange relationships efficiently. Put another way, TCA considers how closely the purchasing organization should become involved with its suppliers. The level of transaction costs in a specific case depends on a number of factors: * Frequency of the transaction * Level of transaction-specific investments * External and internal uncertainty Only recurring transactions are of interest here, because partnering represents an ongoing relationship. …