SUPPLY MANAGEMENT (CUSCM 208)

Supplier Relationship Management

Overview
 Learning Objectives
 Introduction
 Definitions
 Benefits of Buyer -Supplier Relationships
 Challenges of Buyer and Supplier relationships
 Types of Buyer-Supplier Relationships
 Supplier Ranking
 Conclusion
Learning Objectives
 Be able to compare and contrast the various types of
buyer - supplier relationships
 Explain the benefits of supplier relationship management
 Explore the various ways of ranking suppliers
Introduction
 Supplier Relationship Management (SRM )is a discipline of
working collaboratively with those suppliers that are vital to
the success of any organization, to maximize the potential
value of those relationships.

 SRM is critical to any organization while suppliers can

directly impact the financial performance and profitability of
a buying enterprise, as they influence product development
costs, inventory levels, manufacturing schedules and the
timeliness of delivery of goods and services.
 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 be equal and
beneficial.
Definitions
 Supplier relationship management is the discipline of
strategically planning for, and managing, all
interactions with third party organizations that supply
goods and/or services to an organization in order to
maximize the value of those interactions.
 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.
Benefits and Challenges of Buyer -supplier
relationships
Group A
 Discuss the benefits of buyer supplier relationships

Group B
 Discuss the challenges of buyer supplier relationships
Types of Relationships

Transactional Value-added Collaborative/Partnering

Relationships Exchanges 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
 Collaborative Relationship

 Focus
◦ Building a strong social, economic service and technical ties
between customer and supplier organisation
 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

◦ Read on Disadvantages
Transactional versus Collaborative
Short Term
Selection criteria: Lowest price
No. of suppliers: Many
Purchasing department’s
responsibility
Little sharing of information
No technology inflow
Minimal service provided
Little contribution to New Product
Development process
Less difficult to exit
Long Term
Selection criteria: Cost of
ownership
No. of suppliers: One or few
Cross functional teams and top
management involvement
Sharing of short term & long term
plans, risk & opportunity, data
Inflow of technology takes place
Greatly improved service provided
Highly involved in New Product
Development process
Difficult to exit
Elements of Buyer-Supplier Relationship
Management
 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
Supplier Ranking
 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
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.
Read about
 Supplier Development and Early Supplier Involvement
References
Happeck, S., (2005). Supply Chain Strategy: The importance of aligning your
strategies. UPS Supply Chain Solutions www.ups-
scs.com/solutions/white_papers/wp_supply_chain.pdf

Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E., (2009). Designing and
Managing the Supply Chain. Mcgraw Hill, Boston

 https://procurementmanagement.pressbooks.com/chapter/supplier-
selection-and-evaluation/
 http://www-personal.umich.edu/~dbeil/Supplier_Selection_Beil-
EORMS.pdf
 http://www.pwc.no/no/publikasjoner/pwc-supplier-relationship-
management.pdf