Lecture six

Supplier Relationship Management:

 Integrating Suppliers into the E-Value Chain
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Defining Relationships

Definition of relationship
“1. The state of being related....
2. The friendship, contact, communications which exist between
people”
(Collins Concise Dictionary)
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Defining Relationships
Key points:
 Concerned with people, contact and communication.
 Purchasing and supply relationships involve a degree of closeness.
 Entered into for the purpose of mutual benefit.
 Important to establish effective relationships with suppliers.
 The nature of an effective relationship will vary with circumstances
and importance to the buying organisation of the supplier’s product or
service.
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Selection of a Supply Base

Stage Supply base

Innocence The organisation uses a large number of suppliers and selects
them in a random fashion. There is clear scope for improvement.
Awareness The organisation still uses a large number of suppliers, but most
spending is on just a few of them.
Understanding The organisation has reduced the number of its suppliers still
further, and appreciates the benefits of a good working
relationship with suppliers.
Competence There is a partnership with suppliers for key procurement items.
There is multi-sourcing of other (non-key) items.
Excellence There is a continually-reviewed programme to optimise the
supply base so as to achieve strategic objectives.
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Competitive Relationships
 The buying organisation seeks to obtain the best price possible
from the supplier
 The buyer tries to squeeze the supplier’s profit margins
 Can be seen as a win-lose situation
 Should be professional and ethical
 Buyers may argue regularly with the supplier’s representatives
& complain regularly about products or services supplied (some
cases may mean relationship is adversarial)
 Associated with transactional purchasing
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Features of transactional purchasing:

Competitive bidding for contracts

Many competing suppliers

Typically standard products

Wide supply markets

No need for or benefit from a high degree of trust

No supplier power
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Collaborative Relationships
 Benefits of doing business together arise from ideas of sharing as well as
exchanging
 Buying organisation seeks to develop a long-term relationship with supplier
 Both organisations share common interests, both benefit from adding value
in the supply chain
 Supplier participates with buyer looking for improvements and innovations
 Both parties jointly set targets for improvements in cost and quality
 Meet regularly to discuss progress
 Proactive relationship looking for improvements
 NOT a long-term COSY customer-supplier relationship
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Introduction
 Just as companies have multiple interactions over time with their
customers, so do they interact with suppliers – negotiating
contracts, purchasing, managing logistics and delivery,
collaborating on product design, etc.

 The starting point for defining SRM is a recognition that these

various interactions with suppliers are not discrete and independent
.
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 instead they are accurately and usefully thought of as comprising

a relationship, one which can and should be managed in a
coordinated fashion across all functional areas.

 SRM involves working collaboratively with those suppliers that are

vital to the success of your organization, to maximize the potential
value of those relationships.
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 The focus of SRM is to develop two-way, mutually beneficial

relationships with strategic supply partners to deliver
greater levels of innovation and competitive advantage than
could be achieved by operating independently or through a
traditional, transactional purchasing arrangement
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Collaborative relationships benefits (supplier)

Benefits of a collaborative relationship to the supplier

The buyer will appoint a vendor manager to develop the relationship. The supplier will
always know who to deal with in the buyer organisation.

The vendor manager will introduce the supplier to the managers in the organisation
responsible for buying decisions.
The supplier will be kept informed of the buyer’s forward plans.
The supplier will gain a much better understanding of the buyer organisation and its
needs.
The buyer and supplier will set up joint quality-improvement teams, that both parties
will benefit from.
The supplier is likely to get more business from the buyer, as a preferred supplier.
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Collaborative relationships benefits (buyer)

Benefits of a collaborative relationship to the buyer
The buyer focuses attention on improving the relationship with key
suppliers.
The supplier’s awareness of the buyer’s requirements will mean that the
supplier is more likely to be successful in meeting them.
The supplier will be actively involved with the buyer in the quality
improvement process.
The supplier should develop a high level of trust and confidence in the
buyer.
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Collaborative Vs Competitive Relationships

 Competitive approach squeezes the profit margins of the

supplier, and by doing so the buying organisation obtains some
of the value that the supplier would otherwise keep for himself.
 Developing collaborative relationships takes time and effort –
unrealistic to try creating more of these relationships than a
buyer can effectively manage.
 Where a failure in supply would not be damaging it is not worth
the time and effort to create a collaborative relationship.
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Why develop supplier relationships?

why?
 Supply chains compete, not companies.

 Most opportunities for reducing costs and enhancing value in the supply

chain occur at the interface between supply chain partners.

 Adding to the competitiveness of a supply chain calls for a value-added

exchange of information between the supply chain partners

 The integration of the supply chain implies the integration of process in

the supply chain.

 Achieving supply chain competitiveness requires a collective determination

of strategy by the supply chain partners.

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Supplier Relationship Management

 Reactive approach – where companies start managing the
supplier relationships only when unpleasant situations with
suppliers occur, and try to figure out how to improve the
performance of unreliable suppliers.

 This approach consumes quite a lot of time and resources,

which could have been better spent on more important
business processes.
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Supplier Relationship Management

 Strategic Approach – where supplier relationship management
starts even before an agreement with supplier is signed, in order
to ensure the competitive advantage of the company in the long
run.

 This is a forward-focused approach, which can lead to a

successful relationship even in the early stages.
 Customer-supplier relationship develops over time,
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through:

Growing trust, length of relationship provides reassurance

Customer reducing the number of suppliers it deals with

Supplier assigning specific assets to the exclusive use of working

on orders for that customer
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 Critical to any organization directly impact the

1. Financial performance
2. Profitability of a buying enterprise,
3. Product development costs,
4. Inventory levels,
5. Manufacturing schedules
6. Timeliness of delivery of goods and services
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Evaluation of Suppliers

Suppliers already known to organisation from previous dealings can be evaluated on

the basis of their track record. This type of evaluation is known as “vendor rating”

When the supplier is not known to the organisation there is a need to judge his
capabilities in a different way and on the basis of different information such as:

 Financial stability
 Commercial capabilities
 Management skills
 History
 Who they trade with
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Components of SRM
 Organizational structure: The purpose is to facilitate and
coordinate SRM activities across functions and business units.

 Governance: Top level support and recognition of key

officers to manage affairs between the organisation and
suppliers.

 Value proposition: SRM delivers a competitive advantage by

harnessing talent and ideas from key supply partners and
translates this into product and service offerings for end
customers
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 Technology and systems

 There are a myriad of technology solutions which are purported to
enable SRM.

 These systems can be used to gather and track supplier

performance data across sites, business units or regions.

 The benefit is a more comprehensive and objective picture of

supplier performance, which can be used to make better sourcing
decisions, as well as identify and address systemic supplier
performance problems.
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 Supplier engagement model:

 Effective supplier relationship management requires an
enterprise-wide analysis of what
activities to engage in with each supplier.

 The common practice of implementing a “one

size fits all” approach to managing suppliers can stretch
resources and limit the potential value that can be derived
from strategic supplier relationships
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Applying Technology to the Management of

Suppliers
 The first major technology employed was the telephone.
Today, with the application of the Internet to managing
diverse suppliers and the relationships, purchasers have
been able to leverage new forms of procurement
functions, such as on-line catalogues, interactive auction
sites, radically new opportunities for sourcing and
supplier management.
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Cont’d
 Web-based tools that provide for the real-time,
simultaneous synchronization of demand and supply
from anywhere, anytime in the supply chain network.
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E-SRM Cont’d
 Finding the right supplier is the first step to any successful
business partnership, but searching manually takes time and
increases the chance of overlooking important details.

 Businesses looking to enhance their supplier relations should

consider implementing different technologies to advance these
key areas in the buyer-supplier relationships:
 e-sourcing,

 communication and

 payment systems
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E-Sourcing
 E-Sourcing is the process of obtaining bids from different
suppliers via a single online portal.

 The benefits of eSourcing include streamlining the sourcing

process, reducing prices by maximizing supplier competition, and
creating a repository for supplier information.

 Such portals allows companies to connect, pre-qualify and

shortlist suppliers, irrespective of whether they are present at the
same location or at the same time
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 The Chartered Institute of Procurement and Supply define e-

Sourcing as;
 “the Sourcing process enabled with the appropriate web-
enabled, collaborative technology to facilitate the full
life-cycle of the procurement process for both buyers and
suppliers.”

 E sourcing allows real time negotiations, between a buyer and a

group of pre qualified suppliers, each competing against each
other to win the buyer, through the use of a B2B sourcing
platform
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 E-sourcing tools allow companies to easily compare suppliers,

making the selection process more efficient and effective.

 With e-sourcing solutions, buyers no longer have to rely on the

seller’s word or old contracts when choosing their supplier.

 Instead, all the necessary information is available in one place.

This type of platform allows procurement leaders to view
suppliers side by side and determine the best fit
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Benefits of e-sourcing
 Reduce costs: Whilst saving money is only one aspect of
good procurement practice, it’s a main driver of e-Sourcing.
The ability to access a broader range of suppliers competing
against each other drive down prices.

 Speed: e-Sourcing systems also speed up procurement

processes – reducing the total time of a tender process
and cutting the number of hours procurement managers spend
on tendering –
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 In addition, the process efficiencies that these systems bring,

reduces expenses for both buyers and sellers particularly in print
and paper costs.

 Improve Supplier Relations: E-Sourcing can bring huge

improvements in transparency and openness between buyers and
suppliers.

 The systems provide a portal through which suppliers can see all
tender opportunities from a supplier, with deadlines, their current
statuses and the final outcomes all clearly presented.
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Communication
 Communication between buyers and their suppliers can
suffer from noise, which leads to unnecessary friction
between the two parties.

 Opening up new channels for correspondence can help

establish transparency and prevent miscommunication.

 Communication platforms that allow buyers and suppliers

to communicate in real-time make the transaction process
more fluid and efficient
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Cont’d
 Communication can be defined as "the formal as well as informal
sharing of meaningful and timely information between firms“.

 Communication is a basic requirement for cooperation in buyer-

supplier relationship.

 It serves as the antecedent to establishing trust and transparency

buyer-supplier relationship.

 Effective communication is therefore essential for successful

collaboration
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Cont’d
 The requirement to communicate is driven by
two forces:

 the need to reduce uncertainty, where there is an

absence of information that would produce
certainty;

 and the need to resolve equivocality: where

information is known but ambiguous and open to
different interpretations (Daft and Lengel, 1986)
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The choice of communication media

 There are so many communication channels available.
The choice of medium will depend on the stage in the
relationship with the supplier and the nature of the
product or service required.

 According to the media richness theory, managers will

use communication channels with the appropriate level of
richness for the particular purpose.
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Cont’d
 At the most abstracted level, the function of the communication
activity is to reduce uncertainty and/or clarify ambiguity.

 Clarifying ambiguity requires the ability to communicate complex

phenomena, to easily combine multiple perspectives, and to quickly
establish understanding and learning between parties.

 This will require media (such as skype, webex etc) that enable
instant feedback to allow interaction between communicator and
receiver to establish understanding
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Cont’d
 On the other hand, where there is uncertainty because
of lack of information, adopting a basic medium to
share information will be enough.

 In this less ambiguous environment, communication

can be managed using less rich media (Donabedian,
2006).
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E-Payment Systems
 An e-payment system can be described as a way of
making transactions or paying for goods
and services through an electronic medium. It
eliminates the cash usage, thus the cash
processing.

 The globalization of supply chains and networks,

brings many challenges: different currencies,
changing exchange rates and information flows
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 These challenges and present challenges of the

industry are increasing the importance of e-payments
for B2B.

 Technology can optimize and ease the stress of the

payment process by tracking invoices and storing
payment information.
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 Methods of electronic payment

– Electronic cash, software wallets, smart cards,
and credit/debit cards

 Requirements for e-payments

 Atomicity: Money is not lost or created during a
transfer
 Non-repudiation: No party can deny its role in
the transaction
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 Types of E-payments
 Mobile money
 Electronic wallets
 Credit card
 Bank transfers
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