INNOVATION
Shifts in buyer-seller relationships: A retrospective on Handfield and Bechtel (2002)
There’s a lot of internal resistance to supplier innovation. It is almost as if you are telling engineers they are not good enough, and they are worried their role is going to be outsourced.
One of the most highly cited papers in the Industrial Marketing Management journal was published 17 years ago and proposed a strong linkage in the elements of buyer-seller trust, asset specificity, contracts, and supply chain performance. In this paper, Handfileld and Betchel explore the question of “what has changed”? Highlights include: • Velocity is the new value outcome in supply chains, due to the need for quicker decision-making • Shifts to “big data” and AI have created a “real-time” shift in buyer-seller exchanges of analytics and data • Buyer-seller relationships spanning multiple enterprises is increasing complexity in networked models • Increased reliance on suppliers for analytics as a service will introduce new players into existing supply chains • Industrial buyer-seller relationships will need to align with these major shifts in marketing ecosystems
outsourced. They can get so personal, those kinds of situations.
All these roles will vary in terms of what the supplier does for the buyer as you move along that scale. That’s where it gets tricky: the supplier starts saying: “Look, this is my idea, I want to own the intellectual property.” Well, that doesn’t sit well with a lot of buying organisations that are stuck in the traditional way of thinking. One company we worked with had in its contract that if a supplier shares an idea, the company owned it. But the supplier will say that retaining that IP will be the only way they can cover their costs associated with developing the technology. Then there is the problem of aligning internally. We have found often suppliers will come and say, “This is great, I’m excited about this idea, and I’m going to attend your design team meeting”, and that does not always go well. I remember one time, I had an engineer at a buying company who pointed his finger in my face and said, “There will be a cold day in hell before any supplier tells me how to design my product.” There’s a lot of internal resistance to supplier innovation. It is almost as if you are telling engineers they are not good enough, and they are worried their role is going to be
The work with the GEBN led to a grant from the National Science Foundation, which led to our work being published in the California Management Review and eventually several books. The lessons we found for organisations embarking on supplier innovation are that it requires a lot of alignment inside the buying company and some complex negotiations around intellectual property. Defining the roles and responsibilities is important too. Understanding the supplier’s role On top of that, it is not the same for every supplier. It depends on who they are and how they work with you. We came up with the white box, grey box, black box idea. In the white box, the buyer develops the design, hands it over to the supplier, which produces it exactly to those specifications. In the grey box, you may have the supplier involved in developing those specifications for the product as well, or they may be sitting on the design team. And then the black box is a complete outsource idea, where the supplier designs, produces and ships the product completely.
Harnessing supplier product knowledge
But the fact is suppliers know their technology better than the buying organisation, and it knows its products and market better too. It just makes a lot more sense to exploit that expertise. Earlier this year, I reviewed progress from one of our most cited papers, Handfield & Bechtel (2002). The study helped me understand where supplier relationships are heading, considering the impact of technology on the economy (see box). But there is still naivete from CFOs: they look at purchasing and still see the role as reducing costs and running RFPs and it cannot do anything beyond that. For supplier innovation to work the understanding has to reach across the entire business. I think 85% of it is internal alignment, not external alignment. It is getting everyone in your organisation to understand who the supplier is, what their role is, what the strategy is, and what we’re pursuing together. That’s when innovation can reap rewards.
2019 GLOBAL SRM RESEARCH REPORT
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