Buyer- Supplier Relationships

John Blevins430 West Fifth Street

Perrysburg, OH 43551-1507(419)874-1289

John Blevins is currently a senior at Bowling Green State University, Bowling Green, OH, majoring in Supply Chain

Management and Management Information Systems.

Toledo ChapterAPICS ID# 1556491

Full-Time Undergraduate

Drew Bechstein

Adam Snyder

James Sunderhaus

Amanda Szabo

Buyer-Supplier Relationships. The three types of buyer-supplier relationships are discussed;

transactional, collaborative, and alliance. Following are three examples of companies and

how they use these relationships for leverage with suppliers based upon different positions

and sizes. The three companies are GE Transportaton, JS Lighting, a small enterprise, and

Bowling Green State University.

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TABLE OF CONTENTS

Introduction pg. 4

Transactional Relationships pg. 4-5

Collaborative Relationships pg. 6-9

Alliance Relationships pg. 9-10

Porter’s Five Forces Model pg. 11-13

Research Topic pg. 13-14

Buyer/Supplier Relationship from Small Business Standpoint pg. 14-15

Buyer/Supplier Relationship from State Institution Standpoint pg. 16-17

Buyer/Supplier Relationship from Global Corporation Standpoint pg. 17-20

Conclusion/Analysis pg. 20-22

Works Cited pg. 23

Appendix

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Taking the easy path through life is not always the best way to go. Sure it may not be

difficult and there are no real obstacles involved if you take the easy path, but why not try

something different, interesting and more intriguing? There are also benefits involved and

often better results if you take the road that is less traveled and try something different. That

is what we decided to do in this research project.

We decided to research buyer and supplier relationships on three important and unique

companies. There wouldn’t be as much learned if we only focused on one company and took

the easy way out. Instead we decided to look into a privately owned and small company, JS

Lighting Solutions, Bowling Green State University, which is a large public institution, and

last but not least, General Electric Transportation, a well-known and global dominant

business. We researched the three main types of relationships and analyzed the typical

situations in which each type of relationship is appropriate. This information was then used

as the basis of our company research. We were very interested to see how each of the three

companies deal with the buyer and supplier process and what is fundamental for them to

survive in today’s fast paced environment.

Transactional Relationships

Transactional relationships are the most common and the most basic type of

buyer/supplier relationship. This relationship is referred to as an arm’s-length relationship

where neither party is concerned about the other parties well being. There is very little trust

involved in this relationship and it could be a one time transaction between the buyer and

supplier. There are rarely any big savings made in this kind of relationship and it usually takes

very little time and effort by either party to go through with an agreement. When relationships

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like this are involved it is usually an item that is not detrimental to the company, and it is not

as critical if they run out of the item or the shipment is late.

One of the advantages to having a transactional relationship is the lower skill levels of

procurement personnel that are required. There is also less purchasing time and effort put into

determining a price for the item that they are trying to purchase. This means that price is not

really a big concern because it is usually negotiated to be somewhere around the market price

standard.

One disadvantage to having a transactional relationship is that there is a lack of

communication between the buyer and supplier. Buyers must also spend large sums of money

in expediting and in monitoring the quality of the incoming items. This kind of relationship

seems to be inflexible and tends to result in more delivery problems than the other two

relationships. Also, since there is really not much to gain from a relationship like this, the

quality of the product purchased is probably not going to be as good as expected and it is hard

to improve quality in this type of a relationship. In a typical transactional relationship the

supplier is not motivated to put any time and effort in to helping the buyer develop the

product.

Suppliers in a transactional relationship tend to have more leverage than do the buyers

of the product because the buyers have to take what they receive and pay for the product when

it is expedited. Suppliers also feel they should be able to send you a product that meets your

minimum requirements because there is no time and effort put in by either side to develop the

product further. The buyer is out of luck in terms of the quality of the product they receive

because the supplier has the leverage in this situation to send out what meets their minimum

requirements.

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Collaborative Relationships:

A collaborative relationship is one of mutual benefit to both parties. There is a

varying level of trust, but some is required. Companies will work together for increased

savings and future innovations. Often with this type of relationship buyers have early supplier

involvement (ESI) (Burt et al. 83). Most companies have some form of collaborative

relationships, whether they are aware of this or not. Advanced forms of collaborative

relationships are a strategic alliance or a joint

venture.

Requirements for a collaborative

relationship are dependent on the product and its

use for the buyer. A minimal level of trust must be possible before considering a

collaborative relationship. Products that are purchased via collaborative relationships should

be strategic to the buying firm regardless of cost. Also there should be some differentiation in

the market place and the supplier should be one of, if not the top producer of the product. If

the product is not strategic then a collaborative relationship might be more effort than the

benefits are worth. Unless spend is considerable on the product then a transactional

relationship is best. If spend is considerable a buyer should determine whether it is more

beneficial to have a collaborative relationship or to purchase based upon a low price. If the

product is fit for competitive bidding this would be a less costly option. If not then a

collaborative relationship might be the answer. Figure 1 explains this pictorially and provides

an idea of when collaborative relationships are possible and when they shouldn’t be pursued.

Collaborative relationships must be supported from the entire organization. A buyer

must have the authority to negotiate with a supplier and come to an agreement that carries

Figure 1

Strategic/DifferentiationNo Yes

Spe

nd

High Possible Collaborative

Collaborative/Strategic Alliance

Low Transactional Possible Collaborative

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mutual trust and benefit. This is not possible if executives push only for cost savings or if the

labor force is unwilling to give up some responsibility to the supplier.

Benefits to collaborative relationships are: lower overall costs, higher quality

products, less time to market due to open communication and improved technology and

innovation. Supply disruptions are also less likely as the relationship is similar to friendship

and suppliers and buyers look out for one another rather than opportunities to take advantage

of one another.

Drawbacks are the amount of time and effort involved. Buyers’ time must be spent

nurturing the relationship opposed to other value adding activities. There must also be time

spent to begin the relationship and earn the trust of the supplier. Also there are higher

switching costs if problems were to arise with the supplier. Lastly there is a sharing of

“proprietary information, strategy, planning, and goals, [and] most firms do not feel

comfortable exposing such elements to other firms, fearing a loss of control.” (Benton 2).

Collaborative relationships might not be desirable when a company has a certain

amount of leverage over its suppliers, or if the suppliers have all the power then the buyer

might not be willing to enter into a relationship. If the buyer is in a disproportionate position

of power they might force suppliers to succumb to their will or be able to switch suppliers

easily regardless of technology and strategic purchasing. Also they might not be willing to

commit to resources to lower costs with a supplier but expect the supplier to go about the

process on their own. The opposite would be true if the supplier held all the leverage. They

would be unwilling to commit resources to a customer that they did not see a particularly

large value. Costs might be more prohibitive than the possibility of losing the business. The

best scenario to explain this is when demand exceeds supply. However large concentrations

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of power are not entirely discouraging to collaborative relationships. According to Benton

“conscious, considerate use of power” can allow power holders to promote integration of the

supply chain and influence better performance from other members of the chain (4). The

better the entire chain performs the more money for all of the parties involved in both sales

and profits. Cox et al. propose that there are 6 types of relationships based upon power,

supplier, buyer, interdependence, and relationship terms, arm’s length and collaborative.

Arm’s length would be considered transactional in this case and collaborative can consist of

both collaborative and alliance relationships. There are two types of relationship in which the

buyer has the power; adversarial arm’s length and adversarial collaborative. The arm’s length

relationship is one in which the buyer exerts control over the supplier and dictates the

situation of the purchase. The adversarial collaborative relationship allows for mutual benefit

and reduced costs, but the buyer takes a larger portion of the surplus value. The two types of

relationships in which the supplier has the power are the exact same with the roles reversed.

We’re mostly interested in the two relationships in the middle. Non-adversarial arm’s length

is a transactional relationship where we’re executing a one time buy or repeated buys of little

consequence with no differentiation. The last type of relationship is non-adversarial

collaborative and is similar to the collaborative relationships discussed above with both

companies benefiting and trusting one another. This is the only possible alliance relationship

out of Cox et al.’s categories (138).

Alliance Relationships

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The third type of buyer-supplier relationship is the alliance relationship. An alliance is

formed for a systematic approach to enhance communication between the two firms. Unlike

collaborative relationships, an alliance is built to have a trust where both firms can be on the

same level and help each other out when there is a time of need or uncertainty. If there is no

motive to have trust or manage it then the alliance will most likely fail, and that is something

that just cannot happen. Having an alliance can be very beneficial as there is asset

specialization and human specialization as well. With human specialization, certain people in

companies have experience working together and they have information that allows them to

communicate with others effectively. Because of this, companies are less likely to have

breakdowns between them that will result in errors (Burt 84). With this enhanced

communication comes the benefit of faster delivery times, lower costs and higher quality.

It is quite easy to understand why companies like to engage in an alliance between

their firms. There are typically lower total costs because of the reductions of direct and

indirect costs from labor, machinery, materials and overhead. There is also the benefit of

reducing the time to design and develop products and services, which leads to larger profit

margin. Improved quality and technology from suppliers can be obtained from the openness

and trust that is built from alliance partners (Burt 85). The benefits from the open and trustful

relationship then lead to successful new products with a lower total cost because improving

quality and other strategic goals are the focus, instead of errors. A study was done that was

based on 69 firms currently involved in a buyer/supplier partnership. This study found that

55% of the firms wanted to engage with a “partner” because it was necessary to have a good

understanding relationship for successful supply chains. This also proves that a paired

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partnership of buyer with supplier is essential to be on the same level and reap the benefits

(Gentry).

The least common and most advanced form of an alliance is a joint venture. A joint

venture is where the two companies actually merge some of their resources to form one entity.

This entity is then owned by the two companies and acts as if it were its own company with

guidance from the parents. The joint venture provides for complete transparency of all

relevant costs and strategies, and for this reason the joint venture is very uncommon and

atypical. Often it is used to limit risk by one of the parent companies when entering a new

market or attempting a totally new strategy that could drastically damage the firm. Many

countries that are developing encourage or require the use of joint ventures. One such

instance is China before joining the World Trade Organization. In order for a business to

open in China’s market, the government required a joint venture, or that the company

produced only products sold in the country itself. This can actually lead to lower cost

improvements and innovation in some cases, as the parent companies might not divulge all of

their secrets to the joint company.

Trust and long-term vision are essential to the success of a multiform relationship, just

as it is to buyer/supplier partnerships. If a conflict arises between firms it should be addressed

and resolved openly so there won’t be any long term problems. It is good to search for the

cause of the problem and not blame it on the other firm because that obviously will not help

out the situation. If one of the sides in the partnership wants to renegotiate an issue then it is

done in such a way so that the result is a win-win situation for all. By negotiating issues this

way, it also goes to show that one side is not out to reap all of the benefits of the alliance

relationship.

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Porter’s Five Forces Model

Although Porter’s five forces model was designed to analyze the supply market, we

are going to use it to evaluate leverage in the buyer/supplier relationship. The five areas that

are assessed in this model are: supply market rivalry, buyers, substitutes, second tier suppliers

and new entrants. Most of the topics discussed in this section will not affect small businesses;

rather the medium sized and larger companies working with suppliers in larger contracts.

Supply Market Rivalry is one of the most important factors in determining leverage in

a relationship. If there are a lot of suppliers competing for the same business that are fairly

equal then obviously the buying company has leverage over the suppliers. They have many

suppliers to choose from that can supply products without much differentiation. However, the

opposite is also true; if there is not much supplier rivalry then buyers are stuck with only a

few options and could possibly have to pay higher prices for products. One thing that could

even out the leverage for the suppliers is the switching costs that the buyers must incur in

order to change suppliers.

The strength of second tier suppliers reduces the leverage that buyers of companies

have when it comes to negotiating with suppliers. If a suppliers’ supplier has control over

them then they can’t guarantee much of anything to a potential or current customer. Prices,

delivery dates and possibly quality of products that are produced for buyers are influenced

greatly by the actions of second tier suppliers. Second tier suppliers have most of the leverage

when there are only a few large companies that control the market for a certain product. A

buyer must be careful when entering into a situation like this and may want to contact the

second tier suppliers before entering into any contracts.

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High barriers to entry into a market reduce the amount of leverage a buyer has in a

relationship. If it is hard for companies to enter a market, the companies already in the market

have established economies of scale and a loyal customer base. Some things that create high

barriers are brand loyalty, high fixed costs and high initial investments. A company in a

market like this has obviously done well for itself and probably will not “need” business, so

they can not be expected to bend over backwards to gain a new customer. At the other end of

the spectrum, if there are low barriers to entry the leverage shifts to the side of the buyer. The

easier it is to enter a market the more suppliers there will be in the market adding to supply

market rivalry and the leverage of buyers.

Availability of substitutes is another factor that adds to the leverage of buyers in the

supply market. If a buyer can choose from a variety of products that will fulfill the same

requirements this will strengthen their position immensely because there are that many more

supplier opportunities that open up to them. The only thing that might limit the amount of

leverage on the buyer’s behalf is switching costs involved in using substitute products.

Suppliers must be careful of their prices in this case. Chances are a product like this that can

be substituted easily isn’t going to be an essential part of the operation. If this is the situation

then a buyer is most likely to go with the lowest price because they won’t be as concerned

with quality.

The last part of the model has to do with the strength of the buyer. There are quite a

few things that can influence the leverage of a supplier which I have mentioned above. Also

influencing the strength of buyers is large purchase volumes or the purchase of products that

are undifferentiated or involve low switching costs. If a buyer has the money and resources to

do backward integration a supplier is an inferior position. Another issue that increases a

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buyers negotiating power is if the company has small profit margins they can use this to get a

better price from their suppliers.

As you can see there are many things that a buyer and supplier must evaluate when

they are entering a relationship. They need to know who has the control and determine

whether or not it is a relationship that they are going to be able to handle based on their

evaluation. Obviously the more leverage someone has the better off they are going to be

when it comes to working with other companies. Something to be careful of is taking

advantage of the leverage in a buyer/supplier relationship. If you always have to have things

done your way, no negotiating, then you will get a bad reputation in the industry and you

might have a hard time finding suppliers, negating any leverage you had.

Research Topic

Transactional, collaborative, and alliance relationships are established between many

different types of businesses. Although each type of relationship is based on typical

characteristics, in the business world every relationship is different in its own way. Two

factors that influence the type of relationship and the characteristics associated with it are the

size of the business and the type of the business. These two factors have a large impact on the

leverage that the business has established with their suppliers and the way that they relate to

their suppliers.

Bowling Green State University, JS Lighting Solutions, and General Electric

Transportation are three different types of businesses that all handle their supplier

relationships in a unique way. BGSU is a large state institution, while JS Lighting Solutions

is a small local business, and GE Transportation is a large global corporation. Because of the

volume of sales that these businesses are able to provide their suppliers, they each have

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different types of supplier relationships, diverse strategies of purchasing/sourcing items,

variations in the leverage they hold, and different methods of achieving success.

Buyer/Supplier Relationship from Small Business Standpoint

For the purpose of this section of the paper we interviewed Jan Snyder of JS Lighting

Solutions. This company is very new, with only in operation for about a year and a half, and

still quite small. With its sales volume being in the $200,000 range, it gives us a view of the

buyer/supplier relationship from standpoint of a small private business.

Being such a small company, JS Lighting Solutions is working with suppliers who are

usually significantly larger than themselves. They don’t have much of a chance to enter into

any relationships that would be greatly beneficial to themselves and their suppliers so they

don’t have any leverage to work with. As of now pretty much all of the purchases made by

the company are based on a transactional relationship with suppliers. In the future, when the

business grows JS Lighting Solutions will look towards finding suppliers to develop and work

with to get the best prices and products possible.

There is one company that JS works closely with and that is a minority supplier. This

is beneficial to JS because it opens up channels to new customers because many companies

are always looking for minority suppliers to do business with. The other company benefits

because they are based in Detroit, MI so they are getting sales outside of their normal clientele

that they usually would not get. Both companies are happy in the end because they are

getting sales that they wouldn’t necessarily get on their own and each of them takes a

percentage of the profit. Any leverage that JS has is because of this relationship and is the

sole fact that JS is working in conjunction with a minority supplier.

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Almost everyday JS is in contact with suppliers is some form or another, fax, phone,

acquiring pricing or issuing PO’s. Being a smaller company they have smaller orders and do

not keep much on stock, so they have to be in touch with supplier’s to get what they need in a

timely manner. There are a few problems that they run into because of the fact that they are

small and don’t order in large quantities. First of all when working with larger suppliers most

of them have set minimum orders and are not willing to work with companies to fulfill their

needs. Another problem is that some companies charge freight to the purchaser unless a

certain quantity is ordered. JS must figure out what is better for them, buying more and

storing it or just buying less and paying the freight charges. A third problem is trying to

negotiate prices with suppliers. The bigger the suppliers are the less likely they are to

negotiate their prices with a small company making small orders. These problems are things

that not much can be done to correct besides growing the business. Until JS’s orders are of

significant value and suppliers want to compete for the business, JS will struggle with having

any leverage with suppliers. For now JS believes the best thing they can do is to build

personal relationship with the salesmen of their suppliers and hope that will help when it

comes to being treated equally by suppliers.

As far as favoring certain suppliers, JS says they definitely do based on two main

criteria. First of all price, if they find a supplier that has consistently low prices they will stick

with them without sending out a bunch of RFQ’s. The other aspect they feel is important is

delivery performance, as I mentioned earlier being a small company with not much inventory

it is critical that they receive orders in a timely manner. If they receive products on time and

there are not many problems with the order then that supplier looks good for future orders in

the eyes of JS.

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Buyer/Supplier Relationship from State Institution Standpoint

Bowling Green State University is a public institution, which must follow state

guidelines regarding their buyer/supplier relationships. Because BGSU is a public institution,

the purchasing function is handled much differently than it would be in private business. A

private business typically has a common family of items that they purchase on a regular basis,

while BGSU purchases a wide variety of items on various schedules. The vast array of items

to be purchased causes the BGSU purchasing staff to use many types of purchasing strategies

and have a broad range of relationship types.

The BGSU purchasing department has a history of conducting competitive purchasing

instead of using more strategic initiatives, yet they are currently beginning to move to more

long term relationships. The type of relationship established with a supplier varies with the

type of item and is very diverse across the board. There are many collaborative relationships,

and also many transactional, but no alliance. The purchasing staff is very unspecialized and

they have a limited knowledge, but they have knowledge on numerous types of items. Some

items require communication with suppliers on nearly a daily basis, while others may only

require communication once every few years.

Many of the problems that BGSU has faced with suppliers deal with delivery. They

have faced issues regarding the quality of a product when it arrives, long lead times, lost

deliveries, etc. These are issues that could be easily solved if BGSU had a collaborative or

alliance relationship with these suppliers, yet it seems as if many of the problems occur where

a transactional relationship is in place. Because of the nature of the relationship, there is not

effort placed into developing long term solutions to these problems. Instead, the supplier is

usually just not given any more business from the University.

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Although BGSU has had its problem suppliers, they have many good suppliers in

which there is a positive relationship. Many of BGSU’s main suppliers often make the

purchasing staff feel as if BGSU’s business is very important to their company. They often

take problems very seriously and will personally come to make visits and resolve issue. Even

though many companies may attempt to develop strong relationships, the University still

favors suppliers based on service and price. Repeat orders tend to go to the suppliers that have

provided a history of high service and low prices. In many cases BGSU is forced to go with

the lowest priced supplier because of state law, despite service level. The lowest priced

supplier may have weak service levels and no relationship with the University, while another

supplier has a strong relationship, yet state law does not allow this to be considered.

The leverage that BGSU has with its suppliers varies across the board as well. BGSU

has much more leverage when dealing with companies where they represent a large

percentage of those companies’ sales. BGSU is attempting to find ways to gain leverage with

companies, yet there are many cases where their leverage is minimal. These situations often

exist because of state mandated regulations, such as MBE and EDGE spending requirements.

Because the University is forced to spend a percentage with MBE and EDGE certified

suppliers, they often lose leverage in these situations. When handling suppliers in situations

such as these, where there is a low level of control, the purchasing department must take what

they are offered. These situations also often require a much greater deal of time spent on

follow-up and encouragement.

Buyer/Supplier Relationship from Global Corporation Standpoint

General Electric Transportation is a large global corporation. They are the worlds

leading producer of jet engines, which are used in commercial aircraft, military aircraft, and

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marine applications. They have very strategic initiatives and work with their suppliers very

differently than a small business or a state institution. When making a purchase for GE there

is always a strong strategic initiative involved. GE is very much concerned with developing

good relationships and having suppliers with thorough understanding of the engines.

Because of the size of GE, most of their suppliers tend to be smaller than they are.

Although many suppliers are smaller, they do business with some large suppliers as well.

Some of their larger suppliers include Hamilton Sundstrand, BAE, and Honeywell. These

suppliers provide GE with very high dollar components; therefore, all procurements that take

place have a strategic plan behind them.

GE has developed a specific procurement policy/procedure that they follow when

conducting all negotiations. Once the negotiation is complete and a supplier is set, GE works

with these suppliers on a regular basis. The suppliers are critical to the success of the engine

and GE can not afford not to stay in close touch with them. Although all the suppliers are

considered to be important, some have more of a collaborative relationship, while others have

an alliance relationship. Within their collaborative relationships, the purchases are more

direct and follow the guidelines of GE’s procurement system. The alliance relationships are

prevalent in cases where GE actually shares a product program with the supplier and becomes

partners with them. In these cases the alliance relationships are labeled as “revenue share

programs,” also known as joint ventures. Within the revenue share programs GE and the

supplier share the costs of the engine. Whether it is a collaborative or an alliance relationship,

GE believes that communication is the key to a successful relationship and both businesses

must be clear in their understanding of the ultimate goal and expectation.

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Even though GE has strong relationships with their suppliers they still experience

problems at times. Sometimes they run in to situations where the supplier is not able to fulfill

their contractual obligation that was negotiated early in the process. This could happen

because the supplier ends up not being able to meet target price, delivery requirements,

quality standards or the necessary level of technology needed. These problems often occur

because the supplier is only looking at the short term benefits, instead of looking at the long

term benefits of the relationship. The supplier may just not understand the long term goal,

they may feel that they can slack because they have no competition, or they may just choose

to disregard the needs of GE because they are not customer focused. When these situations

occur GE has to decide if they want to work with the problem supplier to resolve the issue, or

if they want to find a new supplier. They would like to work to improve the relationship, but

that is only possible when the supplier is willing to work with GE and make necessary

improvements. If a supplier is going to have a successful relationship with GE, they must be

willing to utilize tools like Six Sigma and Lean Manufacturing in order to help them become

more efficient.

Although GE maintains very close relationships with their suppliers, they make sure

that they are strictly business relationships. There is no favoritism that exits when sourcing a

part. When suppliers show GE respect and prove themselves with their performance, they

gain a reputation and may become part of a future supplier strategy. Although this does

occur, these suppliers are seen as having earned their right to be in such a position. When

working with suppliers, GE looks for a relationship built on respect. This respect is gained by

the suppliers recognizing the importance of GE’s business and letting GE’s representative see

the acknowledged importance. One way that suppliers show this respect is by giving GE the

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proper attention, showing a strong customer focus, and responding to their contractual

obligations.

Because of the size of GE and the dollar amounts that they purchase they have a large

amount of leverage. Although this leverage exists, GE does not really view themselves as

taking advantage of leverage because of the type of relationships they have established. They

are more interested in working with the suppliers to have a clear vision and understanding of

the business goals, then using leverage to reduce price. In any business volume and

competition are going to influence leverage, but GE believes the key is having a professional

relationship established that is a win/win situation for both parties.

Conclusion/Analysis

JS Lighting Solutions, Bowling Green State University and General Electric

Transportation all have different ways of conducting their supplier relationships. Between the

three companies, instances of transactional, collaborative, and alliance relationship were all

observed. Based on the research done, it became clear to see why these different types of

relationships were efficient in each company’s situation. JS, BGSU, and GE all used their

own style of supplier relationships to help them maintain success within their market.

The elements of Porters Five Forces Model that affect leverage were evident in all

three business examined. It became very clear that Porters model really does factor into real

world companies and their buyer/supplier situations. JS and BGSU are in similar situations

and primarily have transactional relationships with their suppliers. After interviewing

representatives from each of these two companies, we could see that the main reason they

were maintaining transactional relationships was due to their size and the types of purchases

they were making. They did not have the need to purchase large volumes, and the items they

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commonly purchase are products that are undifferentiated or involve low switching costs.

These forces lead to the supplier having more leverage in most cases. Both JS and BGSU

realize their lack of control and are making attempts to gain more leverage, which would

potentially give them better future prices with suppliers. JS is attempting to increase leverage

by working with a minority business supplier, while BGSU in entering into a consortium with

other area schools. By working with a minority supplier JS will receive larger amounts of

business, due to the requirements placed on organizations such as BGSU, to have specific

levels of minority spend. BGSU’s attempts to partner with other schools will increase their

purchase volumes and give them more leverage when negotiating prices.

Although GE’s situation was much different than that of JS and BGSU, the elements

of Porters model were still apparent. GE’s size and large purchase volume capability leads to

a large amount of leverage that they hold with their suppliers. The interesting part is that even

though GE holds a lot of leverage with their suppliers, they really do not focus on leverage

because of the nature of their relationships. The strong collaborative and alliance

relationships that GE maintains, lead to a more open, sharing relationship. Neither side is

then concerned with who has more leverage over the other, but more about how they can help

each other reach their business goals and result in a win/win situation.

Through this research we have learned a lot about how companies deal with their

suppliers. There is not one set way to conduct supplier relationships that will produce

successful results. There are many factors that must play into the situation and be considered

when establishing effective supplier relationships. Different types of businesses must find

their own ways of achieving success based on their size, type of items purchased, market

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position, etc., and realize that there is always room to improve their relationships. In today’s

competitive market having strong, stable supplier relationships are the key to success.

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