Extract from MBA Dissertation by Anton Miedziolka, 1993.
Increasing specialisation and business focus has resulted in many companies having an escalating reliance on a supplier base that is itself specialising and becoming less interchangeable. The risks associated with these trends have led many companies to firstly re-evaluate how they relate to suppliers and secondly to move away from the traditional competitive, arm's length approach.
In addition the steady introduction of lean production methods into Western manufacturing companies has resulted in greater focus on the non-value added costs within the supply chain. Internal costs are being reduced with JIT techniques for example, which in turn impact upon the supplier base and thus on the customer/supplier relationship. Industrial buyers are also keen to ensure that their suppliers are reducing their own non-value added costs. In the UK, as in many other countries, the concept of 'Partnership Sourcing' has been promoted as the 'world class' way to secure specialist external resources and to reduce total acquisition cost. This chapter is a review of the arguments and literature relating to partnership sourcing.
Backward Vertical Integration
One way to reduce risk and to achieve a closer integration with the supplier base is backward vertical integration. This is where customers move up the value chain and purchase the operations of their suppliers. Unfortunately this strategy conflicts with the acknowledged wisdom of business focus and the divesting of non-core businesses. Hence the recent tendency has been to draw back from buying one's suppliers and moved towards a quasi-vertical backward integration with the supplier base (Lamming, 1993). This has allowed companies to be closely involved in the operations and development of their suppliers while receiving all the benefits of an entrepreneurial, specialist supplier base. In Japan the quasi-integration,...