QS Energy Inc (QSEP)

[alkalinesolution1]

On buyer-supplier relationships - related to QSEP and KMI (updated)

http://novellaqalive2.mhhe.com/sites/dl/free/007000000x/216439/chapter5.pdf

This is a fascinating chapter that discusses the different types of relationships between buyers and vendors, ranging from purely transactional to more partnership/alliance style.

Take a look at the "Continuum of buyer-seller relationships" on p. 80.

It seems to me that "Alliance" more closely defines the relationship that is evolving between KMI and QSEP.

For example, one of the categories is "Open books" and the options are 'no' and 'yes.'

Buchler is in the audit committee of QSEP. He has complete insight into the books.

There is also discussion of the different types, including 'transactional.' Clearly we do not fit into a transactional relationship, which stipulates such conditions as "Little or no basis exists for collaboration and learning... Transactional relationships are inflexible when flexibility may be required..." etc.

Clearly KMI and QSEP are past that.

The "collaborative and alliance relationships" seem much closer to what we're talking about.

p. 84 discusses "supply alliances," which says that

The fundamental difference between collaborative relationships and supply alliances is the presence of institutional trust in alliances.

There is a footnote for the term 'institutional trust', which says:

Institutional trust: The term “trust” has such a wide variety of meanings and interpretations that we have chosen to coin the term “institutional trust.” Institutional trust is the key element that differentiates supply alliances from collaborative relationships. With institutional trust, the parties have access to each other’s strategic plans in the area(s) of the interface. Relevant cost information and forecasts are shared. Risks and rewards are addressed openly. Informal agreements are as good as written ones. Institutional trust is measured and managed

More:

If supply alliances are so attractive, why aren’t they the way to conduct all business? Alliances are a very resource-intense approach to supply management and tend to be reserved for the most critical relationships.

Sound familiar???

The discussion of trust pp. 96-98 also very much worth looking at.

There is discussion of how informal agreements are just as important as formal ones when there is a high level of trust.

Again, sound familiar?? Didn't KMI keep the unit for far longer than the formal agreement said?

I think we can fairly describe this as partnership, guys and gals.

UPDATE: I really recommend everyone read the case study at the end of the chapter, about the partnership between Quaker Oats and Graham Packaging. Quaker found that it was spending too much on its bottles. It wanted a new supplier. They spent a year finding one and nailing down the relationship. (Let's be clear here: A YEAR for a new supplier/partner to manufacture a commodity product - a bottle! In our situation we're talking about a completely new technology in a high profit, highly regulated sector on sensitive pipeline facilities...) The key to the relationship with Graham was an 'open book' situation. So they knew each others costs and ROI expectations.

OK so ask yourself: Is there any question that KMI and QSEP are not approaching that, when Buchler is sitting on the audit committee of QSEP? They basically now have an open book relationship, at least with respect to KMI>QSEP (of course, QSEP does not and does not need to know KMI's books, but after all these years they probably have a lot of information about the profit margins and costs associated with moving oil around.)