Success Factors And Competitive Advantage Of A Supplier Partnership Business Model

Background

The fundamental reasons behind the success of supplier partnership business ventures like that of BX shoes and the Italian shoe firm compared to other successful and unsuccessful companies were as follows:

The supplier partnership collaboration formed by BX shoes and the Italian shoe company has its own identity before law. BX Shoes was an established shoe maker in India and the Italian shoe company was aiming to enter the Indian shoe market. The memorandum of understanding between the managements of the two companies ensured smooth flow of raw materials, cash and distribution of business risks. This ensured that the logistics network of BX shoes and the Italian shoe company work smoothly which is one of the fundamental reasons responsible for their success in the Indian market. Thus individual identity of the collaborative business ensures smooth of raw materials, goods and knowledge to meet the market demands. This smooth flow of goods and knowledge using the international logistics chain contributed to deep market penetration by the supplier partnership formed by the two companies which generated high revenue. Thus, individual identity of the supplier partnership formed by BX Shoes and the Italian shoe company enabled powerful logistics networking which made them more successful compared to the other business formats like joint ventures.

The supplier partnership between BX Shoes and the Italian shoe company was based on memorandum of understanding signed between the management of the two companies. The memorandum of understanding defined the scope of operations between the two participating companies. BX shoes at first helped the Italian shoe company to distribute its shoes within India using its logistics network and then went on to take procurement of most of the raw materials for the Italian shoe company within India. Thus, this supplier partnership model helped the Italian shoe company establish its own supplier chain and logistics network in India using the network of BX Shoes. This sharing of supply and logistics  network sharing based on the supplier partnership helped the two companies acquire raw, make shoes and distribute them in the Indian market smoothly which accounted for smooth business execution and increasing profits. The partnership even enabled the two firms to deal with defective products and even advertise their products at trade fairs.

The supplier partnership company formed by BX Shoes and the Italian shoe company can maintain its competitive advantage in the following ways:

The partnership contract between BX shoes and the Italian shoe manufacturer was initially restricted the former to distribute the manufactured shoes of the latter in India. The contract extended and BX shoes was able to source raw materials on behalf of the Italian shoe company. The contract also allowed the two partners to resolve the issues of finished product defect and advertise their products in trade fairs under the banner containing names of both the companies. However, the partnership of the two companies have no mention of significant business functions customer service, bulk order procurement or logistics management. The two companies must strengthen these functions in a collaborative way to gain more competitive advantage in the market. Strong logistics management would allow these two companies to achieve deep market penetration and make their footwear products reach customers all over India(Fernie and Sparks 2014). This would make the footwear products available to huge customer base at affordable prices. This availability would account for massive sale of shoes which would generate huge revenue for the supplier partnership business. This would as a result help the partnership to gain competitive advantage in the market (Christopher 2016).

Advantages of Supplier Partnership Business Model

BX Shoes and the Italian shoe company should emphasise on strengthening their marketing mix to gain competitive advantage in the market. The given study shows that the two companies collaborated very little in terms of marketing their products. They must collaborate in deciding the product line, bring about innovations in it and introduce new products to suit the tastes of Indian customers. They should price the products according the purchase power of the Indian customer base. This will allow a huge customer base to buy their affordable products which in turn would boost their logistic strategy due to increased demand for the shoes. They should offer discounts on their shoes to boost up sales. This increase in sales will generate huge profit by selling the shoes and gain the partnership business of the two companies competitive advantage in the market (Marinagi, Trivellas and Sakas 2014). Moreover this increase in revenue will help the company to invest in logistic management which will in turn make shoes readily available in the market. This will help the company to attract a large consumer base and gain its own loyal consumer base. Thus, strengthening marketing mix will help the collaborative business of BX Shoes and the Italian shoe company gain competitive advantage in the market (Pålsson and Kovács 2014).

The supplier partnership model followed by BX Shoes and the Italian shoe company are suitable for other companies because it leads to high profits and competitive advantage in the market. First, the partnership model stands on memorandum of understanding where both the parties explicitly mark the areas of responsibilities which helps smooth execution of business processes (Elgammal et al. 2016). Moreover this explicit business contract results in smooth decision making and reduces the chances of conflict of interests and disputes between the partners. This absence of conflict results in an environment in which both the partners stand to profit (Wang and Rajagopalan 2015). Second, the partnership has a separate identity from the partnering business organisations which allows it have it own supply chains and logistics chains. Third, the two partnering business entities enter into the partnership agreement at the apex management level which ensures involvement both the companies to execute the business processes (Goedertier, Vanthienen and Caron 2015). These advantages of supplier partnership  model make it suitable for other body corporate. It is especially appropriate for business organisations which are seeking to explore a new foreign market like emerging economies of India whose business environments diverse and competitive. The partnership model is appropriate competitive yet markets like India which already have powerful companies dominating their markets (Kravets and Sandikci 2014).

Maintaining Competitive Advantage

The concept of sustainability can be defined as the business models which aim to serve the triple bottom line aims of the organisations. These triple bottom lines are achieving capital maximisation, fulfilling the responsibilities of a socially responsible organisation and management of environmental risks. Sustainability requires the companies to restructure their modes of operations and adopt more environment friendly methods of operations like recycling of wastes and sustainable supply chain management. The sustainability also aims towards bring about development of local groups of suppliers like local farmers to encourage healthier and stronger supply chains in the future (Lexicon.ft.com. 2017).

The relevance of sustainability in the case of BX Shoes and the Italian shoe company partnership, finds expression in its supplier chain management. BX shoes acquired the rights to acquire raw materials like leather on behalf of the Italian shoe company from India. This acquiring of raw materials from the Indian suppliers would lead to increase in their income and contribute to their sustenance in the market (Mota et al. 2015). The two companies decided to solve the defects found in the finished products jointly which would possibly result in better and long-lasting solution to the quality issues. The two companies decided to collaboratively promote themselves at the trade fairs which would help both reduce their promotional expenditure and resources required to promote themselves. Thus, sustainability in this case can be related to sharing of costs and resources. Thus, sustainability has three important applications, first, acquiring raw materials from local leather suppliers, second, dealing with defective pieces of finished products in a collaborative manner and third, sharing resources and costs of promoting the partnership in trade fairs.

Cost pressure is forcing the international companies to expand into low cost economies which is increasing international trade  and movements of freight. This increasing flow of goods from one country to another has impacted the present international logistics hubs in the world. The complex nature of international, the growing demand of customers to deliver goods on time and a multiplicity of the goods have impacted the international logistics hubs and led them to adopt the hub-and-spoke model of distribution (Park and O’Kelly 2016). The different raw materials and parts are moved to the main manufacturing centres by ship, train or plane. These raw materials are stored in warehouses at the manufacturing centres or hubs. They are then assembled to form the product like in case of a car or processed to the finished product like in case of FMCG products. This has made the movement of raw materials from the places of their origin to the places of their use easier (Huber et al. 2014). The intense pressure of cost cutting has made the major logistics hub to adopt modern technology to operate and manage freights in collaboration with the emerging logistics hubs like Singapore.

Sustainability in Supplier Partnership Business Model

The increasing pressure on the existing logistics hubs of Europe and America shows that there will be a need of more logistics hubs. While the existing logistics hubs are located in these two continents, the new hubs would be centred to a great extent in Asia. This is because it is an emerging market which is experiencing unprecedented flow of goods and market growth (Lee and Moon 2014).

The following are the distinctions or differences between outsourcing and offshoring:

SL No.	Outsourcing	Offshoring
1.	Outsourcing refers to the processes of a company when they are done by a third party organisation. For example, the multinational companies often outsource their customer care services to call centres.	Offshoring refers to the system of business organisations when they have their processes executed outside the geographical location of their home country. For example, multinational companies may finance and marketing departments in two separate overseas locations.
2.	Outsourcing can take place within the same country as the home country of the outsourcing company	The offshoring operations involves two separate countries
3	Outsourcing involves two separate business identities. For example, an American multinational may outsource its human resource function to a recruitment consultancy with the USA (Oshri, Kotlarsky and Willcocks 2015).	Offshoring does not necessarily involve two separate business entities. Multinational companies set up locations in host countries and offshore business processes in those locations under the supervision of the headquarters(Spring, Araujo and Mason 2013).
4.	Involves passing the business functions to third parties	Involves passing down business functions to offshore branches of the same organisation.
5.	It helps the outsourcing company to take advantage of the expertise and skills of a third party business entity.	It is helps the multinational companies to take advantage of business opportunities in foreign countries.
6.	Outsourcing can be done by both domestic and multinational companies	Offshoring can only be done by multinational companies since it involves business operations in more than one country.

The first most frequently reported problems of outsourcing is post contract processes and ambiguity regarding decision rights between the two parties, the company who hires the outsourcing services(principle) and the outsourcing service providing company (agent). The lack of clarity between the principal and the agent often delays decision making execution of the business processes (Schniederjans, Schniederjans and Schniederjans 2015).

The second most frequently encountered problem in outsourcing is the lack of support and cooperation from the principal. This results in low productivity of the business performances, failure of the outsourcing model or even termination of the outsourcing relationship between the client and the outsourcing service providing firm. This may also result in heavy monetary losses suffered by both the parties (Hien et al. 2016).

The following are the factors that are to be considered in contingency planning in outsourcing arrangements are as follows:

Risk factor:

The principle outsourcing company should consider the risks like sharing crucial information while outsourcing business processes to third party firms. The outsourcing firm should make a contingency plan to backup all the data shared with the third party and secure the data with passwords to prevent misuse of the data by the third party.

Financial strength of the third party firm:

The outsourcing firm should consider the financial power of the outsourcing firm before entering into outsourcing contracts. Strong outsourcing partners help the principal outsourcing firms to carry out their business processes successfully and efficiently.

The following are the distinctions between integration and outsourcing:

	Integration	Outsourcing
1.	Integration refers to the business practices when business organisations control their business functions right from the sourcing of raw materials to the distribution of finished products to the consumers. For example, the firms may acquire the raw materials themselves instead of acquiring it through a third party supplier. They may produce the finished goods and open outlets to sell their products directly to the consumers instead of  outsourcing its distribution to the logistics companies (Kurucz et al. 2017)	The firms outsource their business processes usually the support functions to third party business organisations. The outsourcing firm is the principal and the third party firm is the agent.
2.	Integration leads to strengthening of the parent company’s control over its operations. It leads to expansion of the control of a company over the functions which may have been outsourced in the past.	Outsourcing leads to weakening of a company’s control over its business processes because the processes in reality are controlled by a third party firm over which the principal firm has no direct control.
3.	Integration usually takes place when firms expand their core responsibilities. For example, acquisition of raw materials were done by suppliers. The firm may include acquisition of raw materials in its core business responsibilities and acquire raw materials itself. Thus acquisition of raw materials gets integrated with the core business functions.	The firms usually outsource those business processes which are not considered core business processes like providing customer care services.

The firms can improve their response to a humanitarian disaster by strengthening their vertical and horizontal collaboration. The firms can integrate their business functions vertically to control all the production cycle or actors right from acquiring of raw materials to distributing the finished products. This can allow the firms to eliminate third party like suppliers and distributors and gain total control over the production processes. This will result in acquisition of high quality raw materials and consequent distribution of finished products directly to the customers. This will help the firms minimise wastage of resources on one hand and gain directly access to consumer bases on the other hand (Dunning 2015).

Impact of Logistics Hubs on Supplier Partnership

Horizontal integration will allow the firms to acquire business units of similar or different industries. This allows the firms to gain control of over resources of other industries or companies. This method helps the firm to gain more financial strength, achieve economies of scale or reduce competition (Rahimi, Møller and Hvam 2016).

Conclusion:

It can be summed up from the study that logistics management by companies has emerged as a significant function to ensure that finished goods are made available to the customers at affordable prices. This ensures deep market penetration and high profits by the firms. It can also be summed up that new logistics hubs are helping the existing ones to handle the pressure of the increasing international trade.

The following recommendations can be made in the light of the above discussion:

The companies should strengthen their logistic management to ensure that their finished products reach the final consumers and are available to them readily at affordable prices. It will help them to generate huge revenue and enjoy competitive advantages in the market.

The companies should integrate their functions vertically and horizontally to gain more competitiveness in the market. This will help them achieve better control over their resources and minimise their wastages.

References:

Christopher, M., 2016. Logistics & supply chain management. Pearson UK.

Dunning, J.H., 2015. Reappraising the eclectic paradigm in an age of alliance capitalism. In The Eclectic Paradigm (pp. 111-142). Palgrave Macmillan UK.

Elgammal, A., Turetken, O., van den Heuvel, W.J. and Papazoglou, M., 2016. Formalizing and appling compliance patterns for business process compliance. Software & Systems Modeling, 15(1), pp.119-146.

Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new challenges in the retail supply chain. Kogan page publishers.

Goedertier, S., Vanthienen, J. and Caron, F., 2015. Declarative business process modelling: principles and modelling languages. Enterprise Information Systems, 9(2), pp.161-185.

Hien, N.T.T., Nhung, N.T.T., Nghien, N.V. and Lebailly, P., 2016. Cooperation-Competition relationship between small traditional handicraft enterprises in the proximity context: Case study in the periphery of Hanoi-Vietnam. Intl J Bus Soc Sci, 7(8), pp.121-127.

Huber, S., Klauenberg, J., Luft, D. and Thaller, C., 2014. Integration of Transport Logistics Hubs in Freight Transport Demand Modelling.

Kravets, O. and Sandikci, O., 2014. Competently ordinary: New middle class consumers in the emerging markets. Journal of Marketing, 78(4), pp.125-140.

Kurucz, E.C., Colbert, B.A., Lüdeke-Freund, F., Upward, A. and Willard, B., 2017. Relational leadership for strategic sustainability: practices and capabilities to advance the design and assessment of sustainable business models. Journal of Cleaner Production, 140, pp.189-204.

Lee, J.H. and Moon, I., 2014. A hybrid hub-and-spoke postal logistics network with realistic restrictions: A case study of Korea Post. Expert systems with applications, 41(11), pp.5509-5519.

Lexicon.ft.com. (2017). Business Sustainability Definition from Financial Times Lexicon. [online] Available at: https://lexicon.ft.com/Term?term=business-sustainability [Accessed 13 Aug. 2017].

Marinagi, C., Trivellas, P. and Sakas, D.P., 2014. The impact of information technology on the development of supply chain competitive advantage. Procedia-Social and Behavioral Sciences, 147, pp.586-591.

Mota, B., Gomes, M.I., Carvalho, A. and Barbosa-Povoa, A.P., 2015. Towards supply chain sustainability: economic, environmental and social design and planning. Journal of Cleaner Production, 105, pp.14-27.

Oshri, I., Kotlarsky, J. and Willcocks, L.P., 2015. The Handbook of Global Outsourcing and Offshoring 3rd Edition. Springer.

Pålsson, H. and Kovács, G., 2014. Reducing transportation emissions: A reaction to stakeholder pressure or a strategy to increase competitive advantage. International Journal of Physical Distribution & Logistics Management, 44(4), pp.283-304.

Park, Y. and O’Kelly, M.E., 2016. Origin–destination synthesis for aviation network data: examining hub operations in the domestic and international US markets. Journal of Advanced Transportation, 50(8), pp.2288-2305.

Rahimi, F., Møller, C. and Hvam, L., 2016. Business process management and IT management: The missing integration. International Journal of Information Management, 36(1), pp.142-154.

Schniederjans, M.J., Schniederjans, A.M. and Schniederjans, D.G., 2015. Outsourcing and insourcing in an international context. Routledge.

Spring, M., Araujo, L. and Mason, K., 2013. Offshoring and outsourcing of administrative and technical services: a modularity perspective. Managing Services: Challenges and Innovation, p.154.

Wang, Y. and Rajagopalan, N., 2015. Alliance capabilities: review and research agenda. Journal of management, 41(1), pp.236-260.