Defining 'strategic partnerships.' (includes related articles)

Defining |Strategic Partnerships'

The term "strategic partnerships" has slipped into business jargon as a nebulous phrase for what is perceived to be a "new" form of highly desirable relationships between companies. Such alliances are recognized as a key step in the quest for "world-class manufacturing."

But given the broad usage of the phrase, how does a plastic processor recognize a true strategic partnership, or set out to achieve one? How are strategic partnerships distinguished from other species of cooperative business ventures? What factors give rise to such alliances? And why are they believed to be so important for a processor's survival in the 1990s?

This article will examine these questions, isolate the critical elements of a strategic partnership, and provide six case histories of companies now doing business under such parameters. (PLASTICS TECHNOLOGY defined another vague but crucial phrase, "world-class manufacturing," and the contributing role strategic partnerships play in it, in two other articles - see PT, April '91, pp. 84, 96.)

THE DRIVING FORCE

Global competition is raising the stakes for domestic processors and their customers, forcing both of them to keep pace with ever-increasing demands for quality, price, and service as well with shrinking product development times. In this environment, companies realize they cannot go it alone, and now seek assistance through strategic partnerships.

Another factor behind "partnering" is the trend among large plastics-consuming customers to reduce their vendor base - giving more work to fewer suppliers (see PT, Nov. '91, p. 7). As the list of suppliers grows shorter, the relationship with each remaining vendor becomes more important to both parties. In turn, some processors are limiting their customer bases for the same reasons, aligning themselves with fewer "world-class" customers as a way to serve them better (PT, April '91, p. 90).

One of the first elements of a definition can be obtained by thinking of the word "strategic" in the military sense, as contrasted with "tactical." Strategic partnerships are formed to pursue the long-range goals of the partners. While an alliance often may begin with a single, short-term project, the exercise serves as a necessary learning experience for future cooperation in a more strategic, long-term sense.

MORE THAN A 'GOOD FIT'

Executives often ponder strategic partnerships in terms of whether they represent a "good fit" for the respective companies. This good-fit mindset is reminiscent of the merger and acquisition climate in this country just a decade ago. The prevailing wisdom in the early 1980s was for manufacturers to acquire smaller firms or even peer competitors in order to bolster core product lines and obtain strategic technical capabilities. The philosophy was to harmonize independent businesses under one corporate logo.

However, many of these merger and acquisition experiments proved to be fruitless. Companies incurred huge debts to finance these deals, which ultimately stifled profits, growth and flexibility. Attempts to blend independent firms into a unified manufacturing system usually became an unwieldy task.

Today's strategic partnerships seek to fulfill what the mergers and acquisitions of the '80s often failed to do: extend the manufacturing capabilities and technical resources of firms confronting world-class, global competition, while eliminating excessive financial and management burdens for any one company. This is the consensus explanation among processors and their customers of why they chose the strategic partnership route, instead of some other method to achieve their goals.

Russell D. Spencer, technology development program executive for special projects engineering at Chrysler game.

"OEMs recognize the need to change their culture," he told PLASTICS TECHNOLOGY. "We need our partners to help us shorten lead times so we can move faster than our competitors. These days we have tight budgets and very strict capital investment requirements." Citing as an example his company's current efforts to develop a composite-bodied vehicle, he noted, "Chrysler is reluctant to purchase an RTM processing company. We prefer to rely on the expertise of our partners as an independent extension of our operations."

CHANGE IN BUSINESS CULTURE?

Processors cite changes in "business culture" spawned by the drive for strategic partnerships. The cultural difference they refer to is that in the past, maintaining a "territorial" competitive advantage in a customer/supplier relationship meant restricting access to one's proprietary technology, enforcing a distance between product design and manufacturing information, and selecting vendors mainly on the basis of low-price contract bidding. However, strategic partnerships, in order to succeed, now require companies to share their most closely guarded technologies and jointly find ways to reduce costs and enhance profitability for both parties.

Most processors insist this "new culture" is a radical departure from their traditional mode of business relationships, and they see the 1990s as the period of transition that will determine their future success. "We've never done business this way before," many processors say, confessing to a certain awkwardness with the unfamiliar candor demanded by such partnerships.

Some processors remain highly skeptical about this new protocol of strategic information sharing, with years of adversarial customer relations apparently tempering their optimism. Worries also persist that parts vendors inevitably will be dominated by the whims of a powerful customer, despite the comforting assurances of a "new culture" (see sidebar).

Processors also recognize there is a dark side to the strategic partnership trend. Should the dynamic forces guiding strategic partnerships continue to play out, many processors - by the very logic of the process - will be left out of the loop. Most processors acknowledge the trend will be a more exclusive than inclusive phenomenon as global competition intensifies during the next nine years and big end users continue to shrink their vendor bases.

FIVE KEY TRAITS

Every company puts its own spin on the meaning of a strategic partnership. But interviews with several plastics firms that are successful practitioners of this "art" reveal five defining elements that set it apart from other business relationships. These are described below from the perspective of a strategic partnership between processor and end user, although they apply equally to partnerships between different processors or among processors and machinery and resin suppliers.

1. There is full, up-front involvement and open disclosure between partners regarding design, development, manufacturing, quality, marketing and cost information on a program.

More than any other point, this represents the true test for identifying a strategic partnership. Companies must agree to shed traditional customer/supplier barriers and "proprietary" restrictions and to share "front-end" design and development information in order to streamline the manufacturing process. Partners share responsibility for success of the entire program.

Information in a strategic partnership becomes an interactive, synergistic resource, allowing partners to optimize a host of manufacturing factors in the early planning stages. World-class concepts such as concurrent engineering, just-in-time delivery, total quality management and design-for-assembly are thereby given an environment in which they stand the best chance of being put into practice.

Benefits for the end user include reducing time to market with new products, increasing market share, and maintaining a high profile as a quality player in tough business sectors. For the processor, benefits include having early input on mold, part and manufacturing considerations, cost analysis, and the promise of expanded participation in future programs.

2. There is cooperative effort to reduce costs and waste without penalty to any single partner. Contracts within the program are awarded to the appropriate partner with no threat of being undercut by a lower bidding competitor.

This is the most sensitive and revealing area of strategic partnership, as it requires partners to demonstrate their trust and cooperation at the bottom line. Strategic partners form a covenant forsaking the typical competitive pressures of low-price contract bidding against outside firms. Higher quality, reduced lead times, and lower "total program" cost become the key selling points, instead of simply a lower per-part price quote.

All partners, acting in good faith, share equally in the responsibility and benefits of containing costs and reducing inefficiencies in the development/production cycle. No one partner is "bullied" into accepting the price demands of the other. Cooperation and compromise with regard to cost reduction demonstrate the sincerity of the partnership.

Jeff Somple, sales manager for Mack Molding Co., a custom injection molder based in Arlington, Vt., says strategic partnerships offer real opportunities for firms to cooperate in order to reduce waste, improve quality and contain costs. "Both parties must share in the benefits of reducing cost in order to make the end product more competitive," he says. "It's not a case of one partner cutting its profit margins just to satisfy the cost demands of the other. It's understood that you [the processor] will often win the contract without quoting prices."

3. Partners synchronize their operations, identify common strategic goals and see the "good fit" in working together on a long-term scale.

Companies select those fields in which they will strive to attain world-class status, and then coordinate those efforts to support the needs of their strategic partner(s). Long-range business decisions affecting one partner - such as what kind of processing equipment to purchase, or where to open a new facility - become intertwined with the other partner's plans. Processors refer to this as "synchronizing" their operations to address the needs of their partners.

Under optimum circumstances, companies function as independent extensions of their partner's operations, with planning always focused on long-range targets. The success of one partner becomes the shared strategic interest of the other. Teamwork is crucial, and partners often describe the relationship as almost behaving as a company unto itself.

4. The relationship, adhering to the world-class philosophy of continuous process improvement, "stretches" partners' talents into greater manufacturing technology expertise or access to new market sectors.

The thrust behind any strategic partnership is to foster a synergy that leads to enhanced long-term opportunities for all parties. In many cases, the initial project of a strategic partnership only hints at the potential gains from long-term cooperation. However, this first step is important, allowing the partners to become familiar with the dynamics of their teamwork. Dedication to continuous process improvement is the key to taking the relationship further.

Processors say their strategic partnerships have provided a means to achieve new levels of manufacturing sophistication, which wouldn't have been possible to attain in any other way. In effect, they admit being "forced" into mastering world-class disciplines as a result of their partnerships.

Brian Stanley Jones, v.p. of quality for Nypro Inc., a custom injection molder based in Clinton, Mass., says strategic partnerships are driven by the demand for world-class quality. "It requires that a company make a commitment to things like continuous quality improvement. These are a series of structures that take time to develop, and demand long-range planning." Nypro is currently negotiating with strategic customers to set quality benchmarks that will be required for doing business in 1997.

5. A system of both formal and informal communications is established between partners, linking company counterparts and providing services for order entry, billing, and on-line access to quality and manufacturing data.

All processors interviewed say they maintain at least a quarterly schedule of formal meetings with their strategic partners, usually alternating visits between respective company sites. Several processors also have established annual executive reviews, where top executives of each firm meet to discuss future product goals, capital investments, technology advances and market trends.

But even more important than the formal meeting schedules are the frequent informal conversations between partners, they say. These communication links perhaps best symbolize the team spirit of the strategic partnership. Processors speak of regular, off-the-cuff calls between company counterparts representing quality, design, marketing and manufacturing areas. Once again, traditional barriers between companies are eliminated.

Many strategic partners have installed communication networks for electronic data interchange (EDI) - that is, direct computer-to-computer order entry, billing and inventory tracking. Some share computer passwords that allow partners to monitor each other's quality and manufacturing statistical information.

THERE'S NO PERFECT MARRIAGE

Despite the opportunities created by a strategic partnership, there is still no such thing as the perfect marriage. Like any intimate relationship, partners can disagree, air grievances and question decisions. But the partnership should provide an open forum for disagreement without recrimination.

Conflict actually plays an important role in strategic partnerships as a natural screening mechanism allowing the survival of only the fittest ideas. "I relish the conflicting viewpoints," confesses Chrysler's Spencer. "When ideas don't match, then we resolve them by experiment to arrive at the best solution." By this means, he adds, the strategic partnership "process" becomes a springboard for future projects.

Somple of Mack Molding says a "flash point" usually will develop in the formative stages of a strategic partnership - a hidden production problem or an unexpected cost overrun - that becomes the telling moment in the relationship. "Either the partners come through for each other and solve the problem, or the relationship falls apart."

HOW TO GET 'STRATEGIC?'

There is no simple formula for landing a strategic partnership. Some processors already may have achieved that state of grace with a key customer, but have not yet made the relationship official. Some partners base the alliance on a handshake, others sign extensive trade and secrecy agreements.

Processors say strategic bonding usually evolves from an extended relationship with an important customer, with the two companies gradually forming closer ties during successive years of business. But occasionally, it's love at first sight. George Freeborn, president of Textek Plastics Inc., a custom injection molder in San Antonio, Texas, says he went to the K'89 show in Germany to find a European molding partner, in order to gain access to opportunities in the European Economic Community. An associate introduced him to a Dutch molding firm looking for an American processing partner to represent in the European market. The "fit" was identified, the personalities clicked, and a partnership was formed within months (see box for more details).

STRATEGIC 'BREAKPOINTS'

William A. Wheeler III, who heads international manufacturing strategy for Coopers & Lybrand, a New York-based accounting and consulting group, says processors can make themselves a strategic-partnership candidate by implementing key "breakpoints" within their organization - qualities that differentiate leading manufacturers in a given field. Providing shorter lead times and flexible manufacturing capabilities are the two essential breakpoints Wheeler identifies for processors in the 1990s. (World-class quality is a given, not a distinguishing breakpoint, he adds). "If a processor is synchronous with a customer, the processor should have the speed and flexibility to make any product, any day, everyday" - and to deliver it where and when the customer needs it.

Wheeler says processors should reengineer their operations to reduce changeover times, improve tool and machine maintenance, upgrade statistical process and quality monitoring systems, and establish EDI links with strategic partners in such areas as order entry, billing, inventory, and part design.