PARTNERING | Six Sigma and Beyond: Design for Six Sigma, Volume VI

Partnering and cooperation must be our watchwords. In any industry, better communication up and down the supply chain is mandatory. In the past ” in few instances even today ” U.S. companies have bought almost solely on the basis of price through competitive bidding. We need to change our attitude. Price is important, but it is not the only consideration. Partnering with both customers and suppliers is just as important.

The Japanese have created a competitive edge through vertical integration. We can learn from them by establishing "virtual" vertical integration through partnering with customers and suppliers. Just as in a marriage , we need to give more than we get and believe that it will all work out better in the end. We need to give preferential treatment to local suppliers. We should take a long- term view, understanding their need for profitability and looking beyond this year's buy.

To begin our thinking in that direction we must change our current paradigm. The first paradigm shift must be in the following definitions:

Vendors must be viewed as suppliers.
Procurement must be viewed as business strategy.

These are small changes indeed but they mean totally different things. For example: "supplier" implies working together in a win-win situation, while "vendor" implies a one-time benefit ” usually price. "Procurement" implies price orientation based on bidding of some sort , while "business strategy" takes into account the concern(s) of the entire organization. We all know that price alone is not the sole reason we buy. If we do buy on the basis of price alone, we pay the consequences later on.

So, what is partnering? Partnering is a business culture that fosters open communication and mutually beneficial relationships in a supportive environment built on trust. Partnering relationships stimulate continuous quality improvement and a reduction in the total cost of ownership.

Partnering starts with:

An attitude and behavioral change at the top of the organization
Recognition of long-term mutual dependencies internal and external to the organization
A commitment to this change being understood and valued at all levels within the organization

At the core or basic level, partnering:

Fosters excellence throughout the organization
Encourages open communication in a beneficial, supportive, and non-adversarial environment of mutual trust and respect
Carries this positive environment outward from the organization to its customers and suppliers

At an expanded level, partnering involves:

Teaming
Sharing resources
Melding of customer and supplier
Eliminating the we/they approach to conducting business

By the same token, partnering is not:

A negotiation or purchasing tool to be used as leverage against the supplier
A business guarantee

However, in all cases, partnering promotes:

Customer satisfaction
Mutual profitability
Improved product, service, and operational quality
A desire for and a commitment to excellence through continuous improvements in communication skills, quality, delivery, administration, and service performance
The factors that contribute to customer satisfaction and the lowest total cost of ownership
A situation in which each partner enhances its own competitive position through the knowledge and resources shared by the other

THE PRINCIPLES OF PARTNERING

Effective partnering has its foundation in the basic principles of economics, marketing, business, humanities, and sociology. The customer develops a set of business and technical desires, needs, requirements, and expectations in a competitive global market. The supplier most closely meeting those business and technical needs will be successful.

The supplier asks the customer what is wanted rather than telling the customer what is available. The customer recognizes and understands the supplier's business and technical requirements, allowing the supplier to be a viable and successful source to the industry. All transactions are honorable and fair. The parties are not trying to take advantage of each other.

Functioning interchangeably each day as customer and supplier, internally within the organization and externally with customers and suppliers, every person in a strong supply chain recognizes mutual dependencies. All transactions must be mutually beneficial, with each person encouraging open communication and operating with integrity, mutual trust, cooperation, and respect.

VIEW OF BUYER/SUPPLIER RELATIONSHIP: A PARADIGM SHIFT

Partnering involves an expanded view of the buyer/supplier relationship, as shown here:

Traditional	Expanded
Lowest price	Total cost of ownership
Specification-driven	End customer ”driven
Short-term, reacts to market	Long-term
Trouble avoidance	Opportunity maximization
Purchasing's responsibility	Cross-functional teams and top management involvement
Tactical	Strategic
Little sharing of information on both sides	Both supplier and buyer share short- and long-term plans
	Share risk and opportunity
	Standardization
	Joint venture
	Share data

How can this partnership develop? There are prerequisites. Some are listed here.

The prerequisites for basic partnering include:

Mutual respect
Honesty
Trust
Open and frequent communication
Understanding of each other's needs

Additional prerequisites for expanded partnering include:

Long-term commitment
Recognition of continuing improvement ” objective and factual
Passion to help each other succeed
High priority on relationship
Shared risk and opportunity
Shared strategies/technology road maps
Management commitment

CHARACTERISTICS OF EXPANDED PARTNERING

Expanded partnering promotes dedication, desire, and commitment to product and service excellence through improvements in technology, skills, quality, delivery, administration, responsiveness, and total cost of ownership. All these are imperative requirements for DFSS. In other words, expanded partnering:

Builds on basic partnering
Is a long-term relationship process
Provides focus on mutual strategic and tactical goals
Includes customer/supplier team support to promote mutual success and profitability.

Of course, there are different levels of partnering just as there are different levels of results. For example:

Results	Partnering Focus	Stage
Sale only	Short term	1
Loyalty/trust	Product	2
Secured volumes	Product and service	3
Mutual improvements	Process or system	4
Mutual breakthrough	Continual improvement	5

Why is partnering so important in the DFSS even though it may mean different things to different people? It is because the purposes or goal of most customers who advocate "partnerships" are to reduce the time to get a new product to market by eliminating the bid cycle and to extend the customer's capability without adding personnel.

Partnering is joining together to accomplish an objective that can best be met by two individuals or corporations rather than one. For a partnership to work well, it requires that both partners understand the objective, each partner complements the other in skills necessary to meet the objective, and each recognizes the value of the other in the relationship. A true partnership occurs when both partners make a conscious decision to enter into a unique relationship. As the partnership develops, trust and respect build to a degree that both share the joy and rewards of success and, when things do not go so well, both work hard together to resolve the issues to mutual satisfaction.

In a customer/supplier partnership, the customer must define the objective (or the scope of the project) and identify the needs. The supplier must have the capability to meet the customer's needs and become an extension of the customer's resources. To be more specific, the customer must be able to quantify and share the desired needs in terms of the quantity of services required, the timeline or critical path desired, and targeted costs ” including up-front engineering as well as unit cost and capital investment. The supplier must determine whether it can commit the resources required to meet those needs and whether it is capable of reaching the targets. A mutual commitment must be made early in the program, and it must be for the life of the program.

In a more practical sense, the customer in a customer/supplier partnership must be the leader and be in a position to guide the partners to the objective ” no different than a project leader or a team leader of a program that is 100 percent internal to the customer. The leader also must monitor the progress in terms of cost and time with input from the supplier. Our experience would indicate that longer projects should be broken into "phases" so that there are milestones that are mutually agreed to in advance by the partners and that mark the points at which the supplier is paid for its services.

For a partnership to work well, customer/supplier communications must be open and frequent. With the availability of CAD, e-mail, Internet, Web sites, fax, and voice mail, there should be no reason not to communicate within minutes of recognition of an issue critical to the program, but there is also a need for regular meetings at predetermined intervals at either the customer's or supplier's location (probably with some meetings at each location to expose both partners to as many of the team players as possible).

I am sure there is more to be said as to why partnership and DFSS work in tandem and why both strive for mutual benefits, but I hope these thoughts gave some idea of the significance that both have for each other.

EVALUATING SUPPLIERS AND SELECTING SUPPLIER PARTNERS

There are many schemes to evaluate suppliers, and each of them has advantages and disadvantages. We believe, however, that each organization should take the time to generate its own criteria in at least two dimensions. The first should be the supplier's situation and the second the purchaser's situation. Within each category, levels of satisfaction may be assessed as total dissatisfaction, partial satisfaction, or total satisfaction, or numerical values may be used. The higher the number, the more qualified the supplier is. This may be done with either a questionnaire or a matrix. In either case, this task should be performed by a team of people from various functional areas, such as purchasing, engineering, finance, quality, and legal. The important point is to evaluate key suppliers for a fit with your company's needs.

IMPLEMENTING PARTNERING

There are five steps to partnering. They are:

1. Establish Top Management Enrollment (Role of Top Management ” Leadership)

The senior management, in the role of an executive customer partner or executive supplier partner (champion):

Serves in a long-term assignment for each expanded partnering relationship
Is available to support prompt issue resolution
Establishes strong counterpart relationships with key customers and suppliers
Provides for and supports decision-making authority at the lowest practical levels
Provides partnering progress updates for executive management review
Encourages and supports prompt responsiveness to communications affecting customer/supplier relationships
Maintains a rapid management approval cycle, providing an ombudsman when required
Commits adequate time to the partnering process
Ensures that cohesive internal, cross-functional teams are in place to support the partnering process

2. Establish Internal Organization

There are several options in this phase. However, the most common are:

Option 1: Supplier Partnering Manager

A staff supplier partnering manager is appointed to a full-time position (for a minimum of two years ). This manager will be responsible for:

Working with purchasing/commodity team management
Instilling the partnering principles into the company culture
Implementing the partnering process with company management and suppliers
Reviewing progress during customer/supplier review sessions
Working the issues specific to the partnering process

Option 2: Supplier Council/Team

A supplier partnering council or team is established within the organizational and operational structure that "owns" the resources required to support the partnering process. The functions are the same as for the supplier partnering manager but are assigned to several individuals.

Typically, the council or team is made up of purchasing, quality, product engineering, and manufacturing management with additional resources available from finance, law, training, and other departments as required.

Option 3: Commodity Management Organization

A line organization consisting of a commodity manager and staff is created to manage the commodity and the partnering activities described in Option 1. Support is received from the operational groups as required.

3. Establish Supplier Involvement

To have an effective partnering involvement is of paramount importance. This involvement may be encouraged and helped to grow by having open communication. Communication may be conducted in a variety of forums or as scheduled periodic meetings ” see Table 1.1.

Table 1.1: Customer/Supplier Expanded Partnering Interface Meetings
Meetings
Internal Preparation Meeting	Kick-off Meeting	Monthly Team Meeting	Quarterly/Semiannual Management Meeting	Annual Management Review
Participants
Customer team ^[a] Supplier team ^[a]	Customer team Supplier team Executive partners (if appointed)	Purchasing Technical Quality /reliability (Other team members )	Purchasing Technical Quality/reliability (Other team members) Executive partners ^[b]	Purchasing Technical Quality/reliability (Other team members) Executive partners
Meeting Topics
Partner meeting Meeting purpose Objectives Issues Participant responsibilities	Introduce program Obtain mutual agreement and commitment Identify teams Introduce/suggest executive partners Present/discuss customer objectives Supplier objectives Proposed objectives Business objectives Definition of responsibilities Expectations	Establish/update mutual key results, goals, objectives, action plans Discuss issues Review performance Review/discuss on-time deliveries Required actions of both parties Quality indicators Quality action plan Business issues	Major issues Performance review "Health check" Objectives Expectations Actual performance Technology trends Business trends Program direction	At supplier location and tour Maintain key contacts Major performance review
^[a] Team includes personnel from Purchasing, Quality, Material Control, Engineering. When needed, also can include personnel from Sales, Safety, Manufacturing, Process Area Management, Planning, Training, Legal, Risk Management, Finance, Project Management. ^[b] Optional as part of quarterly and semiannual meetings.

4. Establish Responsibility for Implementation

Identify roles and responsibilities of the partnering process manager:

Serve as customer representative.
Serve as supplier advocate. (Avoid conflict of interest.)
Focus participants on long-term success.
Accelerate and route communications (good news, bad news).
Perform meeting planning (with supplier) and facilitation function.

Perhaps one of the most important functions in this step is to establish credibility with each other as well as confidentiality requirements. The process of this exchange must be truthful and full of integrity. Some characteristics of this exchange are:

Each party provides the other with the information needed to be successful.
The supplier needs to know the customer's requirements and expectations in order to meet them on a long-term basis.

To be successful in this exchange requires time. The reason for this is that building trust is a function of time. The longer you work with someone the more you get to know that person. To expedite the process of gaining trust, suppliers and customers may want to share in:

Non-disclosure agreements
Quality improvement process
Technology development roadmaps
Specification development
Should-cost/Total-cost model
Forecasts/Frozen schedules
Executive partners
Job rotation with suppliers

Be aware of, adhere to, and respect the sensitive/confidential nature of proprietary information, both yours and your partner's. Always remember: recognize the differences in company cultures. Find ways to do things without imposing your value system.

Compromise...
- Find the common ground...
  - Work out the differences...
    - Move forward...
      - Negotiate...
        
        COOPERATE!

5. Reevaluate the Partnering Process

People cannot improve unless they know where they are. Evaluation of the partnering process is a way to benchmark the progress of the relationship and to set priorities for future improvement. Questionnaires with five-point rating criteria provide a means for this evaluation in which both customers and suppliers take an active role. A typical questionnaire may look like Table 1.2.

Table 1.2: A Typical Questionnaire
Please select one of the following ratings for each question:
Ratings:
(1) Does not meet (2) Marginally meets (3) Meets (4) Exceeds (5) Superior
Rate the relationship's impact in focusing both parties on strategic and tactical goals to foster mutual success.
Strategic	1	2	3	4	5
Tactical	1	2	3	4	5
Comments:
Have all established communication channels within Intel, from executive sponsor down, enabled the partners to improve their effectiveness/ competitiveness as a company?
Technical Issues	1	2	3	4	5
Business Issues	1	2	3	4	5
Comments:
Rate the effectiveness of the team structure.
Management Team	1	2	3	4	5
Working Team	1	2	3	4	5
Performance Reviews (Both Parties)	1	2	3	4	5
Follow-Up on Action Items	1	2	3	4	5
Comments:
Rate the effectiveness of the Key Supplier Program team in generating high quality solutions.
Time of Solutions	1	2	3	4	5
Quality of Solutions	1	2	3	4	5
Cost-Effective Solutions	1	2	3	4	5
Comments:
Does the Executive Partner provide meaningful support?
Customer	1	2	3	4	5
Supplier	1	2	3	4	5
Comments:
Is the Key Supplier Program process formally managed in an effective manner?
Customer Resource Commitment	1	2	3	4	5
Supplier Resource Commitment	1	2	3.	4	5
Formal Communication Tools	1	2	3	4	5
Information Sharing	1	2	3	4	5
Total Cost Focus	1	2	3	4	5
Dealing with "Me Best"	1	2	3	4	5
Comments:

Sometimes the questionnaires provide detailed definitions of certain words or criteria that are being used in the instrument. The following is a brief supplement to explain/define the rating categories and some of the terms used in Table 1.2:

Ratings

Does not meet ” Failing to satisfy requirements, unacceptable performance
Marginally meets ” Performance is not fully acceptable, needs improvement
Meets ” Fulfills basic requirements, satisfactory
Exceeds ” Surpasses normal requirements
Superior ” Consistently excels above and beyond expectations, "world-class" performance

Terms Used in Specific Questions

Question 1

Strategic Goals ” Long-range objectives (i.e., next -generation technology)
Tactical Goals ” Operational, day-to-day problem solving, etc.

Question 3

Management Team ” Executive sponsors plus upper/middle managers
Working Team ” Commodity/product teams, task forces, user groups
Performance Reviews ” Grading joint MBOs, other indicators (e.g., quality, customer satisfaction survey)

Question 4

Time of Solution ” Meets or exceeds time requirements/expectations
Quality of Solution ” Meets or exceeds quality requirements/expectations
Cost-Effective Solution ” Improves total cost effectiveness/fosters mutual profitability

Question 5

Meaningful Support ” Active participation and involvement during and between business meetings

Question 6

Resource Commitment ” Adequate support (people, tools, space...) to allow successful results
Formal Communication Tools ” Meetings, reports , MBO's technology exchange; correct topics, timely , worthwhile
Information Sharing ” Plans, technology, data; useful, timely, fosters profitability
Total Cost Focus ” Model in place and used to support decisions to apply resources
Dealing with "The Best" ” Process contributes to world-class performance

Another general questionnaire evaluating the partnering process is shown in Table 1.3.

Table 1.3: A General Questionnaire
Evaluate the following categories based on a rating of 1 to 5, with 1 being low and 5 being excellent . (Yet another variation of the criteria may be 1 = Much improvement needed, 5 = Little or no improvement needed.)
Executive commitment to the process Recognition of mutual dependencies Mutually defined and shared expectations/objectives Executive partners/sponsors Quick issue resolution (break down roadblocks ) Understanding and sharing of risks Sharing of technical roadmaps/competitive analysis/business plans Openness, honesty, respect Formal and frequent communication/feedback process Access to data Establish clear definition of responsibility (project leadership)

MAJOR ISSUES WITH SUPPLIER PARTNERING RELATIONSHIPS

In any relationship that one may think of, issues and concerns exist. Partnering is no different. Some of the areas that might be of general concern include the following:

Issues or concerns within the customer's company
Issues or concerns within the supplier's company
Issues or concerns of a competitive nature
Issues or concerns of a political or legal nature
Issues or concerns of a technological nature
Other

Issues or concerns of specific nature may develop when any of the following situations exist:

Support on either side is insufficient.
Something has caused one party to consider abandoning the partnering relationship.
A "better deal" or innovation threatens the partnering relationship.
Unequal benefits or conflicting incentives exist.
There are forced requirements under the guise of a partnering relationship and fear on the part of the supplier to decline or dissent, particularly if the supplier is small.
Key players change or there is a change of ownership.

HOW CAN WE IMPROVE?

A fundamental question that needs to be answered from a customer's perspective is "How can we improve?" The answer is by establishing a process with strategic importance of "key" relationships. Once this process is identified then it needs recognition - the more the better. How do we do that? We can do it by:

Establishing upper management involvement
Sharing information: technology exchanges
Showing suppliers how to use the data
Educating suppliers in tools and methodologies

We can benefit from creating a "mentoring" attitude toward our suppliers. Traditionally we say, "Do this because we need it." Start saying (and thinking), "Do this because it will make you a stronger company, and that will in turn make us a stronger company." Become a mentor in the Partnering for Total Quality assessment process with your suppliers.

Clearly define expectations by:

Mutually developing short- and long-term objectives for each relationship
Increasing the concentration on areas for mutual success; reducing the concentration on terms and conditions
Making decisions based on total cost; increasing the involvement and awareness of suppliers in this process

In the final analysis, in order for a successful partnership to flourish both partners ” customer and supplier ” must recognize that change is imminent, at least in the following areas:

Organization itself
Internal, interfunctional communication
Customer orientation
World-class definition
Skills development

Are there indicators of a successful partnering process? We believe that there are. Typical indicators are the existence of:

Formal communication processes
Commitment to the suppliers' success
Stable relationships, not dependent on a few personalities
Consistent and specific feedback on supplier performance
Realistic expectations
Employee accountability for ethical business conduct
Meaningful information sharing
Guidance to supplier in defining improvement efforts
Non-adversarial negotiations and decisions based on total cost of ownership
Employees empowered to do the right thing

BASIC PARTNERING CHECKLIST

The basic partnering principles below may be applied to any customer/supplier relationship, regardless of size of company and number of employees. The principles also apply to relationships within the organization. The investment is primarily an attitude and behavioral change to bring about six sigma quality and beyond.

1. Leadership

Our management:

Is personally committed to the principles of the partnering process
Has directed organization-wide commitment, adoption, and execution of the partnering principles and philosophy
Is committed to generating accurate forecasts to improve delivery schedule stability with our suppliers
Ensures that the partnering principles flourish even in stressful times
Seeks mutually profitable arrangements with our suppliers
Is involved in high-level review of the partnering process.

2. Information and Analysis

Our organization:

Has standardized measurements and performance for products, processes, service, and administration
Respects the protection of intellectual property
Treats information gained in open exchanges with respect and confidentiality
Provides consistent and specific feedback on supplier performance

3. Strategic Quality Planning

Our organization:

Avoids short-term solutions at the expense of long-term viability
Places more emphasis on overall needs and mutual expectations, less on legal or formal aspects of the relationship
Uses reasonable and realistic expectations and milestones with our customers and suppliers
Demonstrates a commitment to continuous improvement in all facets of our business

4. Human Resource Development and Management

Our organization:

Promotes employee accountability for ethical business conduct through performance reviews, holding supervisors accountable for promoting such practices
Helps employees understand their roles as customer and supplier internal and external to the organization
Trains employees on business practices that are ethical, open, professional, and of high integrity
Provides position descriptions with a clear definition of responsibility
Supports decision-making authority at the lowest practical level

5. Management of Process Quality

Our organization:

Shares basic evaluation criteria with our customers and suppliers
Has methods for ensuring quality of components , processes, administration, service, and final product.
Checks periodically with our customers to verify that our quality meets their expectations

6. Quality and Operational Results

Our organization:

Shares meaningful information and data with our customers and suppliers, with frequent and timely feedback on problems as well as successes
Provides guidance to suppliers in defining improvement efforts that address all problems

7. Customer Focus and Satisfaction

Our organization:

Recognizes mutual dependencies with our customers and the need to work together; understands that partnering does not end with the signing of the purchase order.
Engages in win/win, non-adversarial negotiations and purchasing decisions based on total cost of ownership
Provides prompt disclosure to customers of any inability of the organization to meet current or future requirements; makes realistic commitments to customers

EXPANDED PARTNERING CHECKLIST

In addition to the basic partnering principles, expanded partnering recognizes the need for mutual support based on such factors as cost, risk, criticalness, and actual performance. The investment involves an application of resources from both the customer and the supplier. Customer resource availability limits the number of expanded partnering relationships in which any organization can be simultaneously engaged.

1. Leadership

Our senior management, in the role of an executive customer partner or executive supplier partner (champion):

Serves in a long-term assignment for each expanded partner relationship
Is available to support prompt issue resolution
Establishes strong counterpoint relationships with our key customers and suppliers
Provides for and supports decision-making authority at the lowest practical levels
Encourages and supports prompt responsiveness to communications affecting customer/supplier relationships
Maintains a rapid management approval cycle, providing an ombudsman when required
Commits adequate time to the partnering process
Ensures that cohesive, internal, cross-functional teams are in place to support the partnering process

2. Information and Analysis

Our organization, with our suppliers:

Uses positive encouragement and support to improve performance and total cost of ownership
Participates in joint information-sharing activities to develop value analysis models
Shares technical roadmaps, competitive analyses, and plans
Focuses on clearly defined, complete, achievable requirements, with less emphasis on contractual terms and conditions
Ensures that suppliers understand our long-term procurement strategy

3. Strategic Quality Planning

Our organization:

Shares short- and long-term improvement plans and priorities with suppliers and customers
Works with customers and suppliers to understand their quality needs and plans for continuous improvements

4. Human Resource Development and Management

Our company management:

Has established technical advisory boards to support supplier activities
Communicates regularly with customer and supplier management to understand mutual needs and possible areas for cooperation
Encourages employees to submit suggestions for continuous quality improvements
Offers the same quality training to supplier personnel as we provide to our own employees

5. Management of Process Quality

Our organization works with customers and suppliers to:

Share mutual joint performance measures that are written, measured, and tracked
Work toward standardization of quality and certification programs
Develop and implement valid quality assurance systems for products, processes, service, and administration

6. Quality and Operational Results

Our organization works with customers and suppliers to:

Develop joint quality and yield improvement processes
Provide access to process data for tool and material development and refinement

7. Customer Focus and Satisfaction

Our organization works with customers to:

Mutually define expectations, understand mutual requirements, and share risks
Ensure that partnering survives lapses in missed generation orders
Establish formal, frequent communications as part of the management process