SUPPLY CHAIN MANAGEMENT
Managing Supplier
Relationships
by Sameer Kumar and Richard Bragg
or more than a decade, many industry
F experts have been advising manufacturers
that judicious use of supply chain manage-
ment (SCM) applications would give them a com-
petitive edge.
Effective supplier management is likely to facili-
tate the building of strategic partnerships.
Developing such partnerships with suppliers is
In 50 Words
Or Less
• A medical device manufacturer introducing new tech-
nology to compete in the changing marketplace
decided to manage close relationships with a few
key suppliers.
• A case study shows how customer demands were
met and cost efficiencies achieved by forming strate-
gic partnerships.
• This enabled the manufacturer to control quality better.
24 I SEPTEMBER 2003 I www.asq.org
vital to a successful supply chain.1 It allows compa-
nies to integrate with their critical suppliers to
streamline order management, replenishment and
fulfillment; inventory management; and engineer-
ing change management.
Many companies have been moving toward
strategic sourcing, a collection of activities preceding
the signing of a contract. Strategic sourcing includes
analyzing expenses, identifying potential suppliers,
requesting quotations and negotiating contracts,
and monitoring and improving suppliers.2
Companies have also started to limit the number
of suppliers they do business with by implement-
ing vendor review programs that identify suppliers
with operational excellence. A close buyer-supplier
relationship is important because suppliers in such
a relationship are easier to work with and provide
better service.3
A close relationship obviously goes against the
standard protocol of getting multiple quotes from
vendors who may be cutting costs just to get a bid
when business is slow only to surprise the buyer
later with price increases or longer lead times.
In the case described in this article, a close rela-
tionship with key suppliers not only ensured the
manufacturer’s competitive position in the market-
place but also fostered a long-term arrangement
that allowed suppliers to participate in learning
and continuous improvement efforts.
Supply chain management business applications,
which can range from demand planning to ware-
house management, have helped many companies
improve their bottom lines by lowering their cost of
doing business or improving customer service.
Supplier Relationship Management
Traditional supply chain management applica-
tions fall short when it comes to helping manufactur-
ers manage one critical element: their relationships
with suppliers. This has created opportunities to
strengthen this business function through supplier
relationship management (SRM) applications.
SRM applications use internet technology to cre-
ate nearly seamless links between trading partners,
allowing the exchange of a broad range of informa-
tion, including product design specifications, cur-
rent inventory levels, production and delivery
schedules, purchase orders and invoices in real
time.
Many industry experts see SRM as part of the
continuing evolution of strategic sourcing, a term
that emerged when manufacturers decided they
wanted to use e-procurement to purchase product
related materials, not just office supplies.
Supplier Rationalization
In many cases, SRM starts with a process known
as supplier rationalization, which is another term
for weeding out suppliers that do not meet a com-
pany’s needs. In addition to supplier rationalization
capabilities, most SRM applications offer the means
for creating and transmitting requests for quotes
(RFQs) and similar documents over the internet.
Typically, companies can attach product specifi-
cations and other supporting documents to an
RFQ, an ability that permits trading partners to
review and agree on matters such as exact product
configurations before contracts are signed.
According to a recent Conference Board research
study, many companies say they have not had their
business operation transformation efforts in place
long enough for these efforts to have had an im-
pact on their suppliers. However, several report
they expect the effects will snowball in future years
as the new processes are fully implemented.4
Organizations are generally moving slowly with
their suppliers, often beginning with top tier or key
ones and rolling out the process down the supplier
tiers. Companies have particular concerns over the
ability of some smaller suppliers.5
Where there has been impact with suppliers,
much closer relationships have been forged, despite
QUALITY PROGRESS I SEPTEMBER 2003 I 25
SUPPLY CHAIN MANAGEMENT

the fact that much of the communication is being
automated. Some companies are reporting success
with cross functional teams that include suppliers.
Companies are generally working more closely
with suppliers. Honeywell Garrett Engine Boosting
Systems Division is using electronic data inter-
change (EDI), fax and e-mail to communicate pro-
duction information with its suppliers, of which
125 are top tier or key ones. Because of the expense
of using EDI on a global basis, the company turned
to the internet—using a system that requires the
supplier to commit to the order with a specified
delivery time, thereby placing more leveraging
power within the information.
In the United States, about 35 suppliers currently
use the system, in which they view current inven-
tory levels at Honeywell Garrett, fill consignment
levels and set up payment through the company’s
accounts payable system—all online.6
Leveraging information led Gillette, which sells
products such as razors and blades, batteries and
dental care products in 20 countries, to extend its
enterprise resource planning (ERP) system to its
suppliers and customers.
Using a private business-to-business exchange,
the company allows purchasing managers to view
forecasts and actual orders to remain on schedule.
Gillette’s collaborative system includes elements of

ASQ’s Customer-Supplier Division

by Dan Creinin, vice chair, marketing

The American Society for Quality
Customer-Supplier Division’s (CSD)
goal is to promote networking, edu-
cation and industry collaboration as
it relates to quality assurance in cus-
tomer-supplier relationships.
CSD accomplishes these goals
through a variety of educational
mediums ranging from newsletters
to focused conferences. These are
designed to provide tools and tech-
niques that can be immediately
implemented to help improve cus-
tomer-supplier relationships.
CSD members cross industries,
functions and geographic bound-
aries. They perform supplier audits,
measure customer satisfaction or
direct supply chain quality assur-
ance strategies. Being a member
connects you with a peer network of
over 5,000 domestic and internation-
al professionals and allows you to
exchange experiences and tools that
can help transform your customer-
supplier relationships.
CSD sponsors a variety of activi-
ties that promote the exchange of
information and ideas.
• Newsletter—The Partnership
News is the primary link between
the CSD and its membership
community. Each issue brings
articles and suggestions for
improving customer-supplier
relationships. Articles come from
both the membership base and
outside parties interested in shar-
ing their success stories about
customer-supplier management.
• Conferences—Each year, CSD
hosts a conference where indus-
try leaders and CSD members
share experiences in managing
customer and supplier relation-
ships. In addition to providing
ongoing certification credits, the
conference offers great network-
ing opportunities and an industry
perspective that can help partici-
pants develop strategies.
• Courses—These are one- to three-
day educational events that
address a specific functional topic.
Past courses have addressed sup-
plier auditing and supplier certifi-
cation. Proposed courses include
customer satisfaction measure-
ment and value added auditing.
These courses are taught by prac-
ticing quality professionals.
• Website—The CSD website,
www.asqcsd.org, provides event
listings, CSD educational materi-
al, contact information and volun-
teer opportunities for CSD events.

26 I SEPTEMBER 2003 I www.asq.org

supply chain, manufacturing, marketing and sales
and customer service. The system allows quick
changes that are communicated throughout the
entire system. Five years into implementation, the
ERP system is about 80% complete. One success
factor is having consistent definitions for how to
use the ERP system.7
Challenges
Success in bringing suppliers on board has been
easy for some companies, although Conference
Board survey respondents generally noted it was
too soon to tell the ultimate effect of SCM transfor-
mation efforts on key, long-term suppliers or on
smaller suppliers.
The key to any successful SCM effort is the
involvement of top tier suppliers, which often
account for a large percentage of a company’s
spending. SCM allows a company to plan on the
basis of a longer lead time, becoming more efficient
by working with the best suppliers and developing
a better strategic sourcing capability.8
Possible barriers to such a relationship are the
risk of sharing information that could be linked too
closely to attributes of a proprietary nature for
either partner, so the strength of the contractual
agreement is a key to success.
Outsourcing continues to be a response to de-
crease costs, particularly in noncore areas, and to
keep up to date on technology in areas in which
direct investment does not make strategic sense.
The areas being targeted for outsourcing include
logistics and distribution; manufacturing areas such
as component assembly, IT, maintenance and repair
operation; and purchasing, printing, parking and
fulfillment.
Finally, and perhaps most important, SRM appli-
cations facilitate ongoing collaboration among
trading partners after contracts have been signed.
Case Study
A manufacturing company has been in the med-
ical diagnostic devices business for more than 30
years. With the advancement of enabling technolo-
gies and a changing market, the company invested
in developing a new product offering that featured
state-of-the-art technology.
The new offering would be in keeping with the
company’s core competency of providing quality
FIGURE 1 Standard Stethoscope
Diaphragm
Bell
diagnostic equipment to the medical industry. The
success of the new product could change the com-
pany’s competitive position as a provider of elec-
tronic capability during a period in which potential
users were becoming more computer savvy.
In fall 1999, the company introduced a new elec-
tronic stethoscope. The standard (nonelectronic)
stethoscope is simply a chest piece with a bell
shaped fixture on one side and a shallow drum with
a diaphragm on the opposite side (see Figure 1).
The bell allows doctors to hear low frequency heart
sounds when it is applied lightly to the sternum area.
The diaphragm is applied with light pressure to listen
to high frequency sounds, such as those from the
lungs. The sounds travel through rubber tubing from
the chest piece to a headset with earpieces that fit
inside the listener’s ear canals.
An electronic stethoscope is similar to a standard
one—using a microphone to receive the sounds
from beneath a diaphragm. Electronic circuits pro-
vide additional functions, which include a means to
filter frequencies to produce the bell and diaphragm
sounds. The sounds are transmitted to a speaker in
the headset.
The Problem
After the electronic stethoscope’s introduction,
customer complaints rose for what appeared to be
a malfunctioning assembly on the device. This
problem first appeared as customer feedback
because the nature of the problem was intermittent
enough to pass through outgoing quality control
on the plant floor prior to shipment.
Although the devices are assembled and tested
within the company owned manufacturing plant,
the company depends on outside suppliers for a
number of components used on the circuit board
assembly and other specially fabricated parts. The
QUALITY PROGRESS I SEPTEMBER 2003 I 27
SUPPLY CHAIN MANAGEMENT

problem was traced to one of the suppliers, which rested on a human factor. Secondly, the operator did
was unaware of the quality issue and unsure of the inspection as a simple visual check, when it
how to address the problem. should actually have involved a microscope, consid-
Considering the intermittent nature of the prob- ering the size of the wire being used.
lem (defective only part of the time) and the vague-
ness of the complaint (doesn’t work), further The Solution
investigation was needed to find the cause before The first step to resolve this dilemma was to eval-
considering any solution. uate the design and consider how the human ele-
After analyzing a defective product, the quality ment could be removed without compromising the
assurance laboratory determined a poor wire crimp product quality and claims made about the product
on the connector that electrically connects the micro- or adding significant cost. The solutions and trade-
phone to the circuit board was making electrical con- offs shown in Table 1 were considered.
tact only periodically. To verify this defect was not After considering these options and working
being created during the assembly process, the labo- with the supplier to evaluate each alternative, the
ratory analyzed a random sample from an outgoing manufacturer needed to see what other suppliers
supplier lot. The problem was found in relatively were using and compare the different processes to
small quantities (about 1% of the entire product line the cost of doing business.
output), but this percentage can be significant when In the meantime, the current supplier agreed to
the company’s quality and reputation are at stake. provide 100% visual inspection of parts using a
At this point, the manufacturer met with the sup- microscope prior to shipment and to rent a more
plier on site to discuss the problem. The supplier automated machine that could measure the force
then described and illustrated the assembly process. applied to the crimping process and determine an
During this meeting, the investigators realized the acceptable crimp (the connector is attached to the
limitations for quality. Because the process involved bare wire as opposed to the insulation).
a manual maneuver by the operator—inserting the The current supplier was reluctant to invest in the
wire into the crimp machine (a crimp machine grips new machinery because the projected revenues
the connector to the wire)—the possibility for error would not justify the capital expenditure. With that
understanding, the manufacturer began searching
for alternative suppliers that might be able to offer
TABLE 1 Solution Pros and Cons such capabilities. This entailed getting quotes for fin-
ished goods, taking into account other components.
Possible change Pro Con The same supplier would provide subassemblies.
Use larger wire size Enables use of automated Requires change in The investigators were amazed to find there
process other parts, possible would be a considerable cost reduction (up to 50%)
compromise on product if a semiautomated process that could offer a
claims load test were used. An alternative supplier also
Test load for good crimp Reduces human error Is not available at claimed it could identify and prevent the problem.
supplier During the investigation of new suppliers, the
Change wire insulation Automates process Physical size, insulating company received significantly fewer complaints
type difference related to the microphone assembly because of the
short-term corrective action in place. This reinforced
Conduct electrical testing Provides better than Adds time and does not
(supplier) visual check resolve intermittent the manufacturer’s immediate fix for the time being.
defects Figure 2 illustrates the changes that occurred
between March 1999 and September 2000 as a result
Convince supplier to Automates process and Order quantities do not
invest in automated eliminates need for support the machinery of working with the supplier to pay close attention
machinery visual check cost to assembly procedures and finished inspection.
During that time, there were three main sources
Look for new supplier Lowers costs (have Need to qualify supplier
automated machinery and arrange change- of complaints—the circuit board, switch covers and
we need) over microphone assembly. The corrective action had

28 I SEPTEMBER 2003 I www.asq.org

been started in September 1999, and the FIGURE 2 Monthly Percentage of Complaints
customer complaint trend was tracked
for one year to ensure the corrective
action was effective. The only com-
Circuit board
plaints pertaining to the microphone Microphone assembly

Percentage of total product complaints

assembly that occurred after the correc- Switch cover
tive action in February 2000 were not
traceable to the new assemblies that
incorporated the added inspection pro-
cedures and were therefore part of the
older faulty parts.
The decision was made to pursue the
alternative supplier, and arrangements
were made with the current supplier to
produce and maintain an in-ventory of
assemblies using a borrowed machine
from the vendor. This plan would
allow the manufacturer to purchase
further assemblies as needed using this
methodology, until the alternative sup- Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
plier could be qualified. As of this writ- 1999 2000
ing, agreements are currently under Monthly complaints by cause
way and samples are being ordered for
qualification testing in the laboratory
and at the plant. manufacturer is based more on inventory manage-
ment than on information sharing or establishment
Follow-Up of an organizational relationship.
Given the results described in the study, compa- At minimum, such a relationship requires partner-
nies should consider a number of issues when ships in a number of areas, such as full disclosure
dealing with suppliers. Although there is a push of financial information, gain sharing, joint design
to consolidate suppliers to reduce complicated work and comparable work cultures.
information sharing, companies must be cautious Due to the multiple divisions within the organi-
not to rely too heavily on the promises of a suppli- zation, it becomes very difficult to maintain com-
er without doing periodic checking to ensure it is munications internally—something that would
the right choice. resolve some issues with suppliers. For example,
This follow-up is one of the many aspects of other divisions within the company might need
SCM that should not be considered a passing fad. similar machines to manufacture parts and could
Although in this example the decision was made to share the cost of a new machine used by a supplier.
change suppliers, the most important point is that IT could and should be leveraged to allow effi-
by working together, the manufacturer and suppli- cient transfer of pertinent information between an
er were able to better understand the limitations of organization and its suppliers as well as to provide
the needs and capabilities. This understanding accurate tracking of data for purposes of reducing
offered long-term benefits to both parties. inventory and automating paper processes.10
The name may change, but the underlying issues IT resources can join internal division efforts and
of establishing and maintaining a long-term rela- enable sharing of resources (such as common sup-
tionship with suppliers will go a long way toward pliers across different business units), which would
providing better communications, shared resources reduce the complexity of multiple sources while
and shared rewards.9 allowing creation of long-term relationships.11
The current supply chain philosophy at this Currently, the minimum requirements this medical

QUALITY PROGRESS I SEPTEMBER 2003 I 29

SUPPLY CHAIN MANAGEMENT
device manufacturer has for its suppliers include a
written supplier agreement drafted by the organi-
zation and proof of having an accepted quality sys-
tem in place.
Third-party logistics can play a role in managing
the information on a common platform used by the
manufacturer and its business partners.11 This plat-
form would require a significant investment by
both parties but would cement a long-term rela-
tionship vs. a short-term agreement.
Whether called supplier relationship management,
strategic partnerships, supply chain management,
supplier rationalization or strategic sourcing, activi-
ties preceding the signing of a contract that limit the
number of suppliers an organization does business
The name may change,
but establishing and
maintaining a long-term
relationship with suppliers
will go a long way toward
providing better communi-
cations and shared
resources and rewards.
with are becoming a necessary way of doing business
in today’s competitive global marketplace.
Progressive firms have little doubt about impact
of procurement and sourcing process on total quali-
ty, cost, delivery, technology and responsiveness to
the needs of external customers. Realizing advan-
tages in these areas requires shifting our view of
procurement and sourcing from a tactical activity to
one focusing on strategic supply management.
Strategic supply management involves develop-
ing the strategies, approaches and improvement
from the procurement and sourcing process, partic-
ularly through direct involvement and interaction
with suppliers.
30 I SEPTEMBER 2003 I www.asq.org
REFERENCES
1. Richard C. Insinga and Michael J. Werle, “Linking
Outsourcing to Business Strategy,” Academy of Management
Executive, November 2000.
2. Martha Craumer, “How To Think Strategically About
Outsourcing,” Harvard Management Update, May 2002.
3. Christy Geiger, Joel Honeyman and Frank Dooley,
Supply Chain Management: Implications for Small and Rural
Suppliers and Manufacturers, Transportation Research, Upper
Great Plains Transportation Institute, March 1997, pp. 1-18.
4. Anna S. Powell, Transforming the Supply Chain, The
Conference Board, 2002, pp. 3-45.
5. Ibid.
6. Doug Bartholomew, “Turbocharging the Supply
Chain,” IndustryWeek, Vol. 250, No. 12, 2001, p. 59.
7. “Gillette Sharpens Collaboration,” IndustryWeek, Vol.
250, No. 8, 2001, p. 22.
8. Powell, Transforming the Supply Chain, see reference 4.
9. Martin Christopher, The Problems With Conventional
Organizations, Logistics and Supply Chain Management, second
edition, Financial Times Professional Limited, 1998, pp. 216-225.
10. David A. Riggs and Sharon L. Robbins, “Titanium
Dioxide Case Study,” Executives Guide to Supply Management
Strategies, American Management Association, 1997, pp. 27-30.
11. Charles C. Pourier and Stephen E. Reiter, A New Look
at Business Partnering, Supply Chain Optimization, Berrett-
Koehler Publishers, 1996, pp. 80-105.
12. Donald J. Bowersox and David J. Closs, Logistical
Management, McGraw-Hill Companies, 1996, pp. 103-106.
SAMEER KUMAR is a professor and Qwest endowed chair
in global communications and technology management at
the University of St. Thomas, Minneapolis. He previously
had had 18 years of experience in industry in operations
management. Kumar earned a doctorate in industrial engi-
neering from the University of Minnesota.
RICHARD BRAGG is a senior product development engi-
neer in the medical device industry. He earned a master’s
degree in technology management from the University of
St. Thomas, Minneapolis, in 2002.
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