Best practices in the formation and implementation of strategic alliances

Abstract

With the objective to reduce their "total cost of ownership", major corporations are making significant changes in traditional purchasing practices. Whether for raw materials, MRO goods, engineering design services, or capital equipment, they are developing and implementing supplier partnerships, many of which take on the name and structure of a strategic alliance. Increasingly, top management at large manufacturers and engineer/constructors have come to believe that reducing their supplier base, and thereby increasing the relevance of the relationship between themselves and the remaining suppliers, will achieve their goals of lowering overall costs while improving service and quality. Encouraged by consultants and studies at a number of business schools, company executives have declared that their purchasing departments will pursue strategic alliances as another element in a growing effort to change "business as usual" mentalities within their companies. This paper reviews the rationale for the formation of a strategic alliance between a major industrial manufacturer and a supplier of engineered electrical products. It focuses on the internal processes that were developed to change the culture within both organizations, and the methods of implementation which help insure success in meeting the goal of reducing the total cost of ownership.