Managing supplier relationships (Definition of partnership)
A partnership is a tailored business relationship based on mutual trust, openness, shared risk and shared rewards that yields a competitive advantage, resulting in business performance greater than would be achieved by the firms individually.
Types of partnerships. Relationships between organizations can range from arm's length relationships to vertical integration of the two organizations. Most relationships between organizations have been at arm's length where the two organizations conduct business with each other, often over a long period of time and involving multiple exchanges. However, there is no sense of joint commitment or joint operations between the two companies. In arm's length relationships, a seller typically offers standard products/services to a wide range of customers who receive standard terms and conditions. When the exchanges end, the relationship ends. Research has indicated that three types of partnerships exist.
Type I. The organizations involved recognize each other as partners and, on a limited basis, coordinate activities and planning. The partnership usually has a short-term focus and involves only one division or functional area within each organization.
Type II. The organizations involved progress beyond coordination of activities to integration of activities. Although not expected to last "forever," the partnership has a long-term horizon. Multiple divisions and functions within the firm are involved in the partnership.
Type III. The organizations share a significant level of integration. Each party views the other as an extension of their own firm. Typically no "end date" for the partnership exists.
Normally, a firm will have a wide range of relationships spanning the entire spectrum, the majority of which will not be partnerships but arm's length associations. Of the relationships that are partnerships, the largest percentage will be Type I, and only a limited number will be Type III partnerships. Type III partnerships should he reserved for those suppliers or customers who are critical to an organization�s long-term success.