Chapter III CREATING AND MANAGING SUPPLIER RELATIONSHIPS Developing Successful Partnerships Top 8 reasons for fialure of alliance

Overly optimistic Poor communication Lack of shared benefits Slow payback results Lack of finacial commitment Misunderstood operating principles Cultural mismatches Lack of alliance experience

Key ingredients for developing successful partnership

Building trust- enables organizations to share information,devote time and resources to understand each others business,and achieve results beyond what could have been done individually Share Vision and Objectives-All partnership should state the expectations of the buyer and supplier, reasons and objeactives of thepartnership, and plans for the dissolution of therelationship. Personal relationship- Interpersonal relationship in buyer-supplier are important since it is people who communicate and make things happen Mutual benefits needs- Partnering shoulh result in a win-win situation, which can only be achive if both companies have compatible needs. Commitment and toop management spport- Both partner must dedicate their time, best pople, and resources to make the parnership sucseed.
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Change management- Companis must avoid ditractions from their core of business as a resut of the changes brought about the partnership. Information of Sharing and Lines of Communications- Both the formal and informal lines of communication should be set up to facilitate free flows of information. Capabilities- Organizations the have long history of ussing cross-functional teams to solve problems and who have shown that their employees can colaborte successfully internaly have the skills to do so externally. Performance metrics- Measures related to quality, cost, delivery, and flexibility have traditionally been used to evaluate how well suppliers are doing.

Total cost of ownership (TCO) - a board based- TCO is defined asall costassociated with the acquisition, use, andmaintenance of a good service and is comprisedaf pre-transaction, transaction, and post transaction cost.

Three Major categories:

Pretransaction cost-These cost incurred prior to order and reciept of the purchased goods. Transaction-These include the cost of the goods/service and the cost associated with placing and receiving the order. Post-transaction- These cost are incurred after the goods are in the possesion of the companies, agents, or customers.

Continuous improvement- The process of evaluating supliers based on a set of mutually agreed-upon performance measures provides opportunities for continous improvement.

Supplier Evaluation and Certification

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A supplier evaluation and certification process must be in place so that organizations can identify their best and most reliable suppliers.In addition, surcing decisions are made based on factsand not mearly on perception of a suppliers capability. Supplier certification is an extention of supplier evaluation, defined as an organizations process for evaluating the quality systems of key suppliers in an effort to eliminate incomming inspections Criteria used in certification programs No incomming product lot rejections No incoming nonproduct rejections No significant supplier product-related negative incidents for a specified period ISO9000/Q9000 certified or successfully passed the recent, on-site quality system evaluation Mutually agreed upon set of clearlyspecified quality performance measures Fully documented process and quality system with cost controls and continious improvement capabilities. Suppliers process stable and in control.

Supplier Development Supplier Development is defined as any activity that a buyer undertakes to improve a suppliers performance and/or capabilities to meet the buyers short- and/or long term supply needs.

A 7-step approaches to supplier development follows: Identify critical products and services. Identify critical suppliers Form a cross funtional team Meet with top management of suppliers Identify the key projects Define details of agreement
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Monitor status and modify strategies

Supplier Relationships Management Software Is an umbrella ter that includesextended procurement processes such analytics, sourcing execution, procurement execution, paymant and settlement, and closing the feed back loop supplier scorecarding and performance monitoring . Key benefits of SRM

Better internal and external communications providing visibility into various cost components Automated creation, negotiation, execution, and compliance leading to more stratigic, longterm relationships Common and consistent measurements that help focus resources, identify performance glitches, and develop strategies for supply chain improvements. The elimination of time-intensive, costly processes of performing paper based business transaction

Chapter IV

STRATEGIC SOURCING FOR SUCCESSFUL SUPPLY CHAIN MANAGEMENT

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Developing Successful Sourcing Strategies

Dr. Martin Fisher describes two types of supply chains;

Functional products- Items and other commonly purchased supplies. Characterize by low profit margins, relatively stable demands, and high level of competition. Inovative products-Are consumer goods in the past that have been IBM and charcterized by short product life cyles, volatile demand, high profit margins and relatively less comonpetition.

6-step frame work for supply chainstrategy

Step 1
Classify purchased items and suppliers.

Step 2
Define supply chain goals

Step 3
Identify current capabilities and improvement opportunities.

Step 6
Monitor progress and make adjustments.

Step 5
Execute the plans to achive results.

Step 4
Develop detailed workplans linked to goals.

Out sourcing programs

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Firms are outsourcing onocore products and service functions and, in some case, more important items or service that can impact the competitiveness of the firms.Notably, outsourcing gives firms to potential to leverage larger purchase volume to gain quality discounts, particularly if purchases are concentrated among fewer suppliers.

Early Supplier Involvement As the adoption of concurrent enineering and design for manufacturability techiques become more commonplace anf relationships with suppliers become more trusted, relaible, and long term in nature, key suppliers become more heavily involved in the intermal operations of the firms, particularly with respect to the new product and process design. These value engineerig activities help the firms to reduce the cost, improve quality, and reduce new products development time.

Supplier development and Alliance Development Supplier management is concerned with gwting suppliers to do what firms need them to do, while alliance development, an extension of supplier development, refers to increase a key or strategic suppliers capabilities.

Managingand developing second-Tier supplier A recent study by Dr. park and Dr. Hartley confirms that supplier management practice adopt by the first tier suppliers impacted the second-tier supplier performance, which then,in turn, impacted the first tier supplier quality and delivery performance to the focal firms. Using the internet in procurment can create enormous benefits to organizations with mostly paper based procurment system and a large volume of standard; funtional itam; or maintemance, repair, and operating(MRO)suppliers purchase.The use of e-procurment includes the significant cost savings and freeing-up of time for purchasing staff to concentrate on more of the business activity.

Rewarding supplier performance

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When performance meets or exceeds expectations, supliers can b e rewarded in some way.Many formal strategic supplier agreement allows suppliers to benefit in the following ways: Share of the cost reductions resulting from suppliers improvements. Share fo cost savings resulting from suggestions made during early suppliers involvement in the firms product and process design efforts. More business and longer contracts Access to in-house training seminars and other resources Company and public recognition in the forms of awards

These benefits tend to stimulate further capital investment among suppliers to improve their operating capabilities, leading to even greater levels of quality, cost and service performance. Benchmarking Successful Sourcing Practices Benchmarking, or the practice of copying what other business do best, is a very effective way to quickly improve sourcing practices and supply chain performance.With out benchmarking firms must learn through experience the methods and tools that works the best. The center for Advance Purchasing Studies(CAPS), anon-profit indipendent research organization, helps organizations achive advance competitive advantage by providing leading-edge research information regarding strategic purchasing. Three trends that continue to impact companies today A focus on core compitence and technologies with outsourcing of non-core requirements. Pressure to innovate and improve contininously in critical performance areas, including quality, delivery, cycle time,and produst/process cost reduction pressure. The presence of intence,world wide competition with constant cost reduction.

Using Third-Party Supply Chain Management Service Th use of third-party logistics(3PL) and supply chain management provides is a growing trend, as firms seek to gain quick competitive advantage from the
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development of effectve supply chain strategies.As benchmarking, use of 3PL provides allows firms to quickly gain copetitive advantage without gaining the experience beforehand.

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