Total Quality Management and Supplier Partnerships: A Case Study

INTRODUCTION In recent years, a growing number of manufacturing firms in North America have established supplier partnerships and supplier development programs.|1~ The partnering concept has received attention for a variety of reasons, not the least of which is quality. Dr. Edwards Deming has recommended limiting the supply base and forming single source relationships to reduce the sources of variance in incoming product quality.|2~ The Malcolm Baldrige National Quality Award, which includes supply quality criteria, clearly has increased awareness of the importance of supply management. Total quality management (TQM), a system of management whose primary objective is customer satisfaction, has broadened the historical definition of quality to include the quality of supplier produced materials.|3~ Quality management and partnering, or strategic relationships with suppliers, are inexorably linked. Published quantifiable data to support partnership effectiveness is difficult to find, particularly as it relates to quality management. Most partnership studies have been based on surveys of purchasing executive perceptions, have been descriptive in nature, or have used the automotive industry as the unit of analysis.|4~ Several case studies have appeared in the literature that highlight the benefits that can accrue from supplier partnerships. For example, the Campbell Soup Company has acknowledged that its "select supplier" program yielded $2.3 million in savings during the fourth quarter of 1990 alone, through reduced inventory levels, productivity improvements, and cost reductions.|5~ Unfortunately, this and similar case reports do not necessarily prove that supplier partnerships are the cause of the improvement. Management attention to problem areas might be the actual underlying cause of the change. This phenomenon is sometimes referred to as the Hawthorne effect, after the well known study at Western Electric's Hawthorne plant in the 1930s.|6~ The purpose of this study was to examine the interrelationship between total quality management (TQM) and supplier partnering activities outside of the automotive sector. In this study, a carton manufacturer became involved in a TQM program that included supplier partnering activity with a buyer. Prior and post intervention data provide a good illustration of the impact a supplier partnership can have in achieving productivity gains and in achieving continuous improvement. Subsequently, the carton supplier was subjected to traditional purchasing practices by the buyer when an alternative supplier temporarily was utilized. The implications of utilizing traditional purchasing practices are explored, as are the difficulties in developing purchasing partnerships without the commitment of top management. This study has significant implications for managers along several dimensions--supplier selection and management, the role of central purchasing's decision-making criteria within an environment of supplier alliances, and the impact that successful alliances can have on both a supplier's and a buyer's quality improvement process. PARTNERING AS OPPOSED TO TRADITIONAL PURCHASING A partnership represents a purchasing philosophy that expands the relationship with a supplier beyond that typically found in traditional purchasing methodologies. A partnership involves such elements as the use of long-term contracts, a reduced number of supply sources, and a high degree of mutual trust between the two parties. The relationship is long term in nature and involves close collaboration and mutual commitment. Based on U.S. practice, one researcher has defined a strategic partnership as a "mutual, ongoing relationship involving a commitment over an extended period, and a sharing of information and the risks and rewards of the relationship."|7~ Another team of researchers found that cooperative buyer-supplier relationships typically were characterized by five attributes. …