From product to performance: creating business relationships

This paper elaborates on why and how business relationships develop through an indepth study of a world-leading industrial tooling company (ITC). The study of the ITC focuses on the development of a “preferred supplier” concept, developed in the UK subsidiary since the mid-1990’s. The aim was to capture business volume at customers through greatly increased embeddedness from a legal, technical and social point of view. In brief, the ITC offers greater productivity at the customer plant through productivity analysis using its network knowledge of cutting, milling and drilling operations and the tools involved. This has been codified in a software package. The ICT also offers automated, real-time stock control and consignment stocks. The case study highlights some important implications of business relationships. It shows that strong ties can be built relatively fast if a working methodology exists and if buyers are willing to give suppliers a greater role. The main driver for the relationship in general, commitment, investments and trust, is the explicit methodology and documentation of achievements in terms of productivity gains and cost savings. It is the network knowledge of the ITC that is exchanged, not the tools themselves but rather the optimization of the activities that they perform. For the ITC, what was previously a fragmented but stable market is becoming a winner-takes-all market, at the customer level. This indicates that increased levels of supplier-customer embeddedness can lead to fierce competition among suppliers.