Introduction
Purchase supplier relationship –Purchase supplier satisfaction matrix
Factors and types of transactions
Nature of relationships
Compare and Contrast partnership and collaboration
Supplier overview and rating
Strategic Alliance
Top industry examples
Role of IT
Key questions for supply manager
Should we
Change our stance on multiple sourcing ?
Move to long term contracts ?
Do more reverse marketing ?
How can we
Improve our relations with suppliers ?
Involve other functions more effectively in supplier relations ?
Initiate partnerships or alliance with our key suppliers ?
Recent trends
Buy instead of make
Outsource instead of continuously make
Improve quality
Lower inventories
Integrate supplier and purchase systems
Supplier Link Internal Link Customer Link
The weakest link determines the strength
of the whole chain, it is important that
the strength of each link in any chain link
be equal and congruent.
Purchaser Supplier Relation
• Nature of relationship-Major influencer- ultimate value and
customer satisfaction
Supplier Goodwill
• Superior sources of supply- important asset
• Sound marketing policy- Develop goodwill
• Goodwill- Brands, advertising and regular calls by sales
person- Relationship Marketing
Congruence in supply chain can be achieved by:
Purchasers maintain friendly relationship with suppliers
Regularly measures satisfaction level of its key suppliers
Best purchasers practice- knowing suppliers business more
than suppliers own employees
The ability to develop effective working relationships with
suppliers will be dependent on supply's ability to develop
effective working relationships internally.
1. Satisfaction with a current supplier relationship can be
assessed, whether it is satisfactory or not.
2. An unsatisfied party (seller or purchaser or both) will
attempt to move to a more satisfactory situation.
3. Attempts to move may affect the stability of the
relationship.
4. Attempts to move may fall in win-lose, as well as the lose-
lose, lose-win and win-win, categories.
5. Purchaser and seller may well have different perceptions of
the same relationship.
6. Many tools and techniques and approaches exist that will
assist either party in moving positions.
Conclusion from the matrix
Diagonal- fairness or stability line
(0,0) position is completely undesirable from either standpoint.
(5,5) position is minimum acceptable goal for both sides.
(10,10) position is rarely found in reality. It requires a degree of
mutual trust and sharing and respect that is difficult to achieve
in our society of “buyer beware”.
Factors for successful interaction
Factors for successful
Buyer Seller interaction
Content of information
Style of exchange
Types of transactions
Ideal
Transaction
Inefficient
Transaction
Inefficient
Transaction
No
Transaction
Types of Transactions
Compatible Style Incompatible Style
Compatible
content
Incompatible
content
Types of Relationships
Transactional
Relationships
Value-added
ExchangesCollaborative/Partnering
Relationships
Transactional Relationship
Focus
Timely exchange of basic product at a competitive price
One time only exchange and less loyalty to particular supplier
Little interest to extent relationship
Transactional relationship preferred when
Availability of many suppliers
Stable supply market
Purchase decision not complex
Purchase considered less important for achievement of firm’s objectives
Example: Stationery materials
Transactional Relationship
Advantages
Relatively less purchasing time and effort required to establish price
Lower skill level of procurement personnel required
Can react quickly to changing market/economic conditions
Disadvantages
Expediting and monitoring incoming quality
Provision of minimum service by suppliers
Supplier not motivated to invest time and energy for development of buyer’s products
Less effective performance by suppliers
Value-added Exchange
Focus
Complete understanding of the present and future
needs of customers and meeting the needs better
than competitors
Groups made by the selling firm
A: Most profit potential customers
B: Between A and C
C: Least profit potential customers
Collaborative Relationship
Focus
Building a strong social, economic service and technical ties between customer and supplier firm
Purpose
Increase value, lower total costs and achieve mutual benefits
Joint problem solving and integration of processes of the two companies
Two important factors: Trust and Commitment
Collaborative Relationships
Advantages
Long term contracts
Reduction of risk for suppliers
Reduction of total costs
Improvement of process
Improvement of products
Increased investment in R&D
Better focus on customer need
Transactional vs Partnership
Short Term Long Term
Selection criteria: Lowest price Selection criteria: Cost of
ownership
No. of suppliers: Many No. of suppliers: One or few
Purchasing department’s
responsibility
Cross functional teams and top
management involvement
Little sharing of information Sharing of short term & long
term plans, risk & opportunity,
data
No technology inflow Inflow of technology takes place
Minimal service provided Greatly improved service
provided
Little contribution to New
Product Development process
Highly involved in New Product
Development process
Less difficult to exit Difficult to exit
Extensive communication between both parties is needed to
maintain satisfaction and stability
Requires substantial coordination work inside purchasers
organisation
Team approach to long term supplier relations
Members of internal team have to deal directly with the
counterparts on supplier side
Immediate action needs to be taken when either side detects
a problem
Awareness of full details of each sides aspiration,
strengths and weakness is necessary
Personnel from both sides need to understand
each other well for mutual benefit
This can come through exposure, discussions,
mutual problem solving etc.
Thus the ability of supply’s personnel to develop
effective working relationship internally will be
key determinant of the organization's ability to
get the most out of its supplier force
Unacceptable Suppliers:
Fails to meet operational and strategic needs of the buying organization
Discontinue with the supplier and substitute better ones
Acceptable Suppliers:
Meets current operational needs as required by contract
Provides a performance that others can easily match, hence no basis for competitive edge
Preferred Suppliers:
Purchasers have a process orientation with preferred
suppliers to avoid unnecessary duplication and speed up
transactions
Both parties work towards mutual improvements to eliminate
nonvalue-adding activities
Meets all operational and some of the strategic needs of the
buying organization
Reacts positively to initiatives of the purchaser to improve
the current situation
Exceptional Suppliers:
Anticipates operational and strategic needs of the purchaser and are capable of meeting and exceeding them
They need to be treasured
They can serve as example of what is possible: an opportunity to experiment with new and different approaches to supply base management and as an early indicator of future supply management direction and goals
It requires substantial amount of work from both sides to obtain big rewards of mutual breakthrough
Patience and persistence are required to sustain the investment in relationship building
Definition
A supply strategy based upon joint opportunities, mutual trust,
respect and open & honest communication between the
supplier and the customer.
This strategy is focused on reducing related supply chain costs
and improves the quality of goods and services.
Majorly technology driven and involves substantial investment
by buyers and sellers to achieve major market breakthroughs
Success factors for Strategic Alliance
Focus: A common vision for the relationship, with agreed strategies and activities
Trust: Open communication and disclosure of business drivers
Performance: Continuous improvement towards agreed targets and KPIs
People: Clearly defined roles and responsibilities
Proactive: Anticipating business needs and providing creative solutions
Profit at Risk: Establishing real metrics to drive behaviour for both
parties
Mistakes
Low commitment
Poor operational planning and integration
Strategic weakness(diverging strategies/under-developed value added propositions, unclear strategic return on investment)
Rigidity or poor adaptability
Unrealistic expectations
Overdependence
Hidden agendas leading to distrust
Legal problems(IPR)
Supplier development
Definition: Working with suppliers to help increase efficiency
and decrease cost, for the benefit of both suppliers and buyers.
Purchaser
Purchaser
Supplier
Marketing initiative
Purchasing response
Supplier
Purchasing initiative
Sales response
Traditional Marketing
context
Supplier development
context
Benefits
Reducing Cost
Improved Quality
Technical, financial and managerial assistance
Reduction of marketing effort
Use of long term forecast
Minimum inventory maintenance
Close working on product specifications
Example
Honda And America Manufacturing Inc.
Supplier Development
Self reliance
Reduced cost
Improved Quality
Leading edge
technology
Starbucks
Starbucks partnered with Barnes and
Nobles bookstores in 1993 to provide
in-house coffee shops, benefiting
both retailers.
In 1996, Starbucks partnered with Pepsico
to bottle, distribute and sell the popular
coffee-based drink, Frappacino.
A Starbucks-United Airlines alliance has
resulted in their coffee being offered on
flights with the Starbucks logo on the
cups.
Apple
Apple partnered recently with Clearwell in order to jointly develop Clearwell's E-
Discovery platform for the Apple iPad. E-Discovery is used by enterprises and legal
entities to obtain documents and information in a "legally defensible" .
Hewlett Packard
and Disney
Hewlett-Packard and Disney have a long-standing alliance. Disney
wanted to develop a virtual attraction called Mission: SPACE, Disney
Imaginers and HP engineers relied on HP's IT architecture, servers and
workstations to create Disney's most technologically advanced
attraction.
The Power matrix of Supplier-Buyer
Relationship
Buyer Dominance
Supplier Dominance
(moral hazard)
Independence
(adverse selection)
Inter-dependence
Low High
Relative utility and scarcity of supplier resources for buyers
Relative utility
and scarcity of
buyer’s
resources for
suppliers
High
Low
Source: Andrew Cox, 2000
Supplier Development Program
Supplier development” is defined as an activity that a buyer
undertakes to improve a supplier’s performance and/or
capabilities to meet the buyer’s short-term supply needs
•Identify critical commodities
•Identify critical suppliers
•Form a cross-functional team
•Meet with supplier top management
•Identify Key projects
•Define details of the agreement
•Monitor status and modify strategies
Role of IT in Supply Chain & Supplier-Buyer
Relation
Supplier CustomerRetailerDistributorManufacturer
Strategic
Planning
OperationalERPPotential
ERP
PotentialERP
Multi Nationals
First tier Second tier Third tier
Nature of relationshipClose familyPartnerInter dependencyHigh trustRelationship based
Nature of relationshipProviderDependency Medium trustSpecification based
Nature of relationshipNo tiesServantdominatedNo trustPrice based
Relationships in conventional supply chains
Conclusion
Supplier selection process is very complex now as
environmental, social, political and customer satisfactions
factors have also be considered along with traditional factors
like quality, cost, delivery and service
Partnerships ,strategic alliance, reverse marketing are picking
importance
There is a drive to search for new and better ways of managing
the relationships between buyers and sellers
No single approach to relationship management is inherently
superior.
"Successful supply chain management requires the effective and
efficient management of a portfolio of relationships."
Three environmental factors to consider:
(1) The product exchanged and its technology
(2) The competitive conditions in the upstream market
(3) The capabilities of the suppliers available.
Developing and managing collaborative and alliance relationships
requires skilled professionals who recognize the benefits of
collaboration. These individuals must be able to identify and obtain
necessary data and use the data to exploit and enhance
relationships.
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