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Chapter 9: Nature of Relationship with Suppliers
1. Competitive or Partnership

Competitive

a) Open Competition
Exist when there are multiple suppliers available to fill purchaser specific requirement and
they are willing to vie for purchasers business.
When strong competitive factors exist in the market place, buyers negotiating position is
stronger, and there are greater opportunities for gaining concessions in price as well as
payment terms, service and support.
To continue to foster robust competition, buyer will avoid customization so as many
companies as possible can easily supply the product or service and maintain the widest
possible area of source selection to keep the number of competitors high.

b) Technical or Limited Competition
Technical competition also known as limited competition.
When only a limited number of suppliers are available for a particular product due to patents
or limited production capability.
Competition in particular industry can also be limited to only few suppliers within a
geographical area.

Partnership

Definition: A partnership is a tailored business relationship based on mutual trust,
openness, shared risk and shared rewards that yields a competitive advantage, resulting in
business performance greater than would be achieved by the firms individually.
Organization will form a partnership to create a source of supply when none exist or to
jointly share the expenses of developing new technology.
The interest in supplier partnerships started in 1980s by the studies of Japanese companies
that maintain close relationships with their suppliers.
Early adopters of partnership are; Xerox, Honeywell, Polaroid, Motorola and IBM.
Late 1990s, buying organizations continued to develop closer relationships or partnerships
with suppliers.
For example; CompUSA form a partnership with Wallace, a large printing company, to print
and replenish forms to 210 retail stores. CompUSA consolidated its requirements for other
supplies and purchased them from Wallace at a lower cost. Wallace prints quarterly catalog
of supplies it provides to CompUSA. In the first year, supply expenditures were reduced by 32
percent.

Partner selection
Selecting potential suppliers focus on soft as well as hard factors.
Hard factors: delivery, cost, environment, financial and management stability, risk reduction,
technological accomplishment, etc.
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Soft factors: congruence of management values on issues like customer satisfaction, concern
for quality, employee involvement, supplier relationships, etc.
Can we work well together? Can we respect and trust each other? Do we like each other?
Therefore, more likely those potential partners are found among the organizations
best current suppliers.

2. Collaborative Sourcing

Two statistics highlight the importance of collaborative sourcing between a manufacturer
and suppliers.
Today, typically between 50% - 70% of the spending at the manufacturer comes from
procurement.
Second, it is generally accepted that about 80% of the cost of a purchased part is fixed during
the design stage.
Thus, it is crucial for a manufacturer to collaborate with suppliers in order to product cost are
to be kept low.
Definition: the process by which two or more parties adopt a high level or purposeful
cooperation to maintain trading relationship over time.
The relationship is bilateral; both parties have the power to shape its nature and future
direction over time.
Mutual commitment to the future and a balanced power relationship are essential to the
process.

Characteristics of Collaborative Buyer-Seller Relationship:
1. One or a limited number of suppliers for each purchased item or family of items.
2. A win-win approach to reward sharing.
3. Join efforts to improve supplier performance across all critical performance areas.
4. Join efforts to resolve disputes.
5. Open exchange of information.
6. A credible commitment to work together during difficult times.
7. A commitment to quality, defect-free products having design specifications that are
manufacturable and that the suppliers process is capable of producing.

Two (2) of the most common approaches to collaborative cost management:
1. Target pricing: an innovative approach used in the initial stages of the new-product
development (NPD) cycle to establish a contract price between a
buyer and seller.
2. Cost-savings sharing: approaches require joint identification of the full cost to produce an
item.

Benefits of collaborative sourcing:
1. Both organizations are able to leverage their individual strengths toward the development of
a single process
2. Workload and responsibilities is divide accordingly
3. Technology and expertise pass freely among partners
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4. Knowledge are shared between supplier and manufacturer
5. Based on the benefits listed above, products that are brought to the marketplace are more
likely to add more value, because they are not easily copied and offer greater sustainability.