Creating & Managing Supplier Relationships: Procurement & Outsourcing 18/05/2015 Buyer-Supplier...
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Transcript of Creating & Managing Supplier Relationships: Procurement & Outsourcing 18/05/2015 Buyer-Supplier...
Creating & Managing Supplier Relationships:
Procurement & Outsourcing
18/04/23Buyer-Supplier Relationshisp 1
Dr Margaret Farrell [email protected]
Instructor: Dr. Nabil El-sakka (PUA University)
Purchaser – Supplier Relations (Leenders, Johnson, Flynn and Fearon, 2006)
18/04/23Buyer-Supplier Relationshisp 2
Supplier GoodwillRelationship marketingCarefully cultivated“no company can be world class if it does not measure on a
regular basis the satisfaction level of its key suppliers and try to improve constantly on its relations with its suppliers”
Satisfaction surveys; ‘ one of the interesting outcomes of supplier satisfaction surveys is the general finding that suppliers believe that the best purchasers are those who know more about the suppliers business than the supplier’s own employees’
Supplier Partnerships Wisner, Tan & Leon, citing the Institute of Supply ManagementA commitment over an extended period of
time to work together to the mutual benefit of both parties, sharing relevant information and the risks & rewards of the relationship. These relationships require a clear understanding of expectations, open communication and information exchange, mutual trust and a common business direction for the future. Such arrangements are a collaborative business activity that does not involve the formation of a legal partnership.
18/04/23Buyer-Supplier Relationshisp 3
Saunder’s view
18/04/23Buyer-Supplier Relationshisp 4
The Adversarial Model The Partnership Model
Arms Length/ formal communication approachAdversarial attitudesLack of trustAggressive ‘win-lose’ approach in negotiations –price focusEmphasis on individual transactions and short term contracts.Little direct contact and involvement in design activitiesReluctance to share informationReliance on goods inwards inspection and defect rectification
A high frequency of both formal and informal communicationsCo-operative attitudesA trusting relationshipProblem solving, ‘win-win’ negotiating styles, with an emphasis on managing total costsLong term business agreementsOpen sharing of information by multi-functional teamsVendor certification and defect prevention approaches
Developing Supplier PartnershipsWisner, Tan & Leong (2009)
Building trust
Shared Vision &
Objectives
Personal Relationships
Mutual Benefits &
Needs
Commitment & Top
Management Support
Change
Management
Information Sharing
& Lines of
Communication
Developing
Relationship
Capabilities18/04/23Buyer-Supplier Relationshisp 5
18/04/23Buyer-Supplier Relationshisp 6
Transactional Collaborative Alliance
Communication High potential for problems Systematic approach to enhance communication
Competitive advantage Low High
Connectedness Independence Interdependence
Continuous improvement Little A focus
Contributions to new product development
Few Many – ESI
Difficulty of exit Low Difficult – high impact
Duration Short Long
Expediting Reactive Proactive
Focus Price Total cost
Level of integration Little or none High or total
Level of trust Low High
Number of suppliers Many One or few
Open books No Yes
Quality Incoming inspection Design quality into system
Relations Inward looking Concern with each others well being
Resources Few-low skill level Professional
Service Minimal Greatly improved
Shared forecasts No Yes
Supply disruptions Possible Unlikely
Technology inflows No Yes
Type of interaction Tactical Strategic synergy
Factors influencing type & intensity of relationships
18/04/23Buyer-Supplier Relationshisp 7
Product/service - a standard or a special?
capital investment needed?a one-off or a continuous
requirement? Make or buy decision?Cost/ annual spend?Requirements levels?Importance/ risk?Geographic factors?
Attitudes & culture of supplier, world class?
End customer perceptions of supply origins?
Security & reliability of supply?
Relative size of buyer & supplier
government regulations?Relationship of supplier with
our competition
Transactional relationships
18/04/23Buyer-Supplier Relationshisp 8
Characterised by;Lack of concern, a series of independent deals,
no sharing of information, price is the focus, little purchasing time given, lend themselves to e-auctions
Advantages;Reduced time to determine price, lower levels of
skills requiredDisadvantages
Potential for communication difficulty, tend to have more delivery problems and supply disruptions, cost of the expediting, lack of flexibility, transaction quality, less effective motivation,
Supplier Alliances
Benefits of Attributes of
Lower total costsReduced time to
marketImproved qualityImproved
technology flow from suppliers
Improved continuity of supply
Focus on continuous improvements and squeezing costs out
High level of interdependence and commitment
Atmosphere of cooperationComplex web of formal and informal
interpersonal connections, ICT and infrastructures
The alliance evolves over timeEthics take precedence over
expediency Relationship is adaptable to the
changing business environmentDFM, DFA, design for quality and
supplier certificationWin-win negotiationsExecutive level support
18/04/23Buyer-Supplier Relationshisp 9
What relationship is appropriate?
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Are there many relatively undifferentiated suppliers providing what amounts to interchangeable commodities
Does the potential supplier possess economic power which it is willing to employ over its customers
Is there recognition by both parties of the potential benefits of an alliance, but adequate qualified HR are not available at one or both firms
A collaborative relationships is typically a step on the road to a strategic alliance
Is one supplier far ahead in terms of the value it provides; price, innovation, ability to adapt, capacity for teamwork, joint risk taking?
Are some suppliers strategic to your business?Benefit of more ‘integrally connected’ business? Eg
locating personnel in other firm, co-location…Do your customers require a high degree of flexibility?
18/04/23Buyer-Supplier Relationshisp 11
A transformation in Relationships
Exploratory StageInvestment of time for
learning & distance reduction, no routines
or commitment
Developing StageIntensive mutual learning building trust through investment & informal adaptation
Stable stageRoutine and institutionalized
Wider experienceChanged requirementsInsufficient resourcesLack of commitment
The development of buyer – seller relationships in business markets
Pre-relationship stage High inertia
Questions: What will we both get?How much investment?
What adaptations?What learning?
Trust?
18/04/23Buyer-Supplier Relationshisp 12
Relationship strategies: Kraljic Matrix
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HIGH Supply Market Complexity
Bottleneck Items Cultivate good
relationships Buyer dependent on
seller
Strategic Items Form strategic alliances Consider partnerships Look for efficiencies in
relationship
includes: Supplier Strength &
Risk
Low
Non critical Items Automate Make purchasing
routine Make user responsible Transactional style
Leverage Items Use commercial power Use competition Resource if necessary Seller depends on buyer
Low High
Company attractiveness/ strength
Relationship strategies: Supply Positioning
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Low
Supply Exposure
Strategic securityLong term contractsHigh inventories –buffer stocksFind alternatives/ substitutesFind/ encourage new suppliersContingency planningMake or buy
Strategic CriticalMedium or long term contractsSupplier development/ partnershipsCost transparency/ analysisPrice ManagementTotal cost of ownershipContinuous review
Vulnerability
High
Tactical AcquisitionMedium term contractsSimplify purchasing proceduresEmpower end userAutomate processes – cards etc.One stop shop – single supplierService contracts
Tactical ProfitShort Term ContractsActive supplier/ source researchUse market knowledgeUse purchasing leverageUse price intelligence / forecastingKeep switching costs low
Low HighProfit Value/ Potential
Relationship Variables
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Length of contractNature of contractFrequency of
contractLevel of contactPeople & functions
involvedJoint problem solving/
task forces
Types of information exchanges
Nature of communications
Co-operationPublic support/
referencesSupplier development
programmes
The suppliers perspective
18/04/23Buyer-Supplier Relationshisp 16
Prompt payment?Customer secretive?Customers supply management personnel
responsive?Are the customers known as professionals?
Questions to be asked before proceeding
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Danger of opportunistic behaviour by supplier?Electronic systems - allow optimum communication between
companies? Is potential partner well equipped in terms of knowledge, expertise
and resources – stay current?Opportunities for joint objective and goal setting?Are they the only possible partners for this commodity; has e-
procurement made others more accessible?Supply manager trained to manage an alliance?Proud of your supply partner?; opportunities for joint marketing? Comfortable with risk associated of reduced supply base?Supplier & buyer alignment with ultimate customer requirementsWill the buyer share the Supplier’s risk in developing new
technologies, systems, processes…?Buyer-supplier aligned in terms of long term strategies &
commitments?Sufficient operational interaction points?
Situations where alliances may not be appropriate
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Stability of the prices, market and buyers demandPrice volatilityDemand volatilityHigh switching likelihood with
high switching costs Capability of potential
suppliersNo partnerships/ alliance
capable supplier for an item Capable in the geo area
Rapid technological changeMismatch of clock speed
Competition in the supply marketNon-competitive marketSupplier dependency creationNeglected areasSuppliers seeking to reduce
competition Benefits to the buying
firm from the relationshipNo leverage from partnershipNo hard savings from
partnership Internal buy-in to
partnership
The Purchaser–Supplier Satisfaction Matrix (Leenders, Johnson, Flynn and Fearon, 2006)
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Is the current relationship satisfactory?Assumptions for the matrix
Satisfaction with a current supplier relationship can be assessed, whether it is satisfied or not
An unsatisfactory party ( seller or purchaser or both) will attempt to move to a more satisfactory situation
Attempts to move may affect the stability of the relationshipAttempts to move may fall in the win-lose, as well as the lose-lose,
lose-win and win-win categoriesPurchaser and seller may well have different perceptions of the same
relationshipMany tool and techniques and approaches exist that will assist either
party in moving positions and improving stability
Complete satisfaction
Marginal satisfaction
Complete satisfaction
CPurchaser dissatisfied
Supplier satisfied fairness /stability line
requires mutual trust, sharing & respect
Desirable region
APurchaser satisfiedSupplier satisfied
Min acceptable goal for both sides
DPurchaser dissatisfied
Supplier dissatisfied
BPurchaser satisfiedSupplier dissatisfied
Rem. to consider perceptions of both
Total Marginal Complete.Dissatisfaction Satisfaction Satisfaction
Purchaser's SATISFACTION .
18/04/23 Buyer-Supplier Relationshisp 20
SUPPLIER
SATISFACTION
Leenders, Johnson, Flynn & Fearon; 2006
Tools and Techniques for Moving Positions
Crunch tool for the purchaserComplete severance of
purchases without advance notice
Refusal to pay billsRefusal to accept
shipmentsUse or threat of legal
action
Crunch tools for the supplierRefusal to send shipments as
promisedUnilateral price increases,
without noticeInsistence on unreasonable
length of contract, take or pay commitments, onerous escalation clauses or other unreasonable terms and conditions and use of take it or leave it propositions
18/04/23Buyer-Supplier Relationshisp 21
Tools &Techniques for Moving Positions ctd‘persuading’ techniques: by purchaser
Granting of substantial volume of business, long run commitments, or 100 percent requirements contracts
Sharing of internal information on forecasts, problems and opportunities to invite a mutual search for alternatives
Evidence of willingness and ability to work toward changed behaviour in the purchasing organisation to improve the sellers position
Rapid positive response to requests from suppliers for discussions and adjustments in price, quality, delivery and service.
‘persuading’ techniques: By the supplier
Willingness and ability to make rapid price, delivery and quantity adjustments in response to purchase requests without a major hassle
Invitation to the purchaser to discuss mutual problems and opportunities
The giving of notice substantially in advance of pending changes in price, lead times and availability to allow the purchaser maximum time to plan ahead
18/04/23Buyer-Supplier Relationshisp 22
Supplier Ranking
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Unacceptable suppliersAcceptable suppliersPreferred suppliersExceptional suppliers
Partnerships vs strategic alliances
Some readings and analysis
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Strategic Partnerships
Transaction relationships
Information sharing alliances
Collaborative operations alliances
Collaborative network alliances
Partner-ships Vertical integration
Goals Different Some shared interest in improving process
Some similar goals to improve logistics flows & new products
Some similar goals to improve network operations
Some, most goals are common
All goals are common
Time Frame
Short term, as long as the transaction
Short term, as long as the process
Med-long term, dependent on shared investment in mutual assets & processes
Long term LT, limited by structure of ownership (possible to sell minority share)
Long term
Structure Two separate entities
Two separate entities
Two separate entities
Two separate entities, some shared assets
Multiple entities with equity
One owner
Descript of Relationship
Competitive, arms length
Passively collaborative- sharing information only
Actively collab – mutual efforts to improve common processes
Make joint investment in asset and resources
High level of risk sharing & active collaborative effort
One integrated entity
Activities by co-ord method
Buy & sell product & services
Buy & sell prod/ svces share info, active co-ord,
Buy & sell prod/ svces share info, active co-ord & Plng systems & processes
LT aggmnts, share key info, active coord, mutual invests & balanced risk
Run the business with other Part Owners (partners)
Run the business as owner
Instr. For mediating risk
Price Price Price, LT contracts, contingency contracts, hostages
Shared goals, LT & contingency contracts, ‘hostages’
Partial control via partial ownership
Control as owner
2518/04/23 Buyer-Supplier Relationshisp
Building SC collaboration; a typology Building SC collaboration; a typology of collaborative approachesof collaborative approaches
18/04/23Buyer-Supplier Relationshisp 26
Whipple and Russell, The International Journal of Logistics Management, vol18, No.2, 2007
‘assumption that closer inter-enterprise relationships and enhanced information exchange will improve the quality of decision making, reduce demand uncertainty, and ultimately improve supply chain performance’
‘Recent research studies have shown that collaboration offers promise for improved supply chain performances in several core areas, including increased sales, improved forecasts, more accurate and timely information, reduced costs, reduced inventory, & improved customer service…’
CPFR – Collaborative Planning, CPFR – Collaborative Planning, Forecasting & Replenishment Forecasting & Replenishment
18/04/23Buyer-Supplier Relationshisp 27
Core expected benefits‘….to increase the accuracy of demand forecasts and
replenishment forecasts and replenishment plans necessary to lower inventories across the SC and attain high service levels of the right products in the right locations.’
Slower to be implement due to;Costs, technological barriers, lack of easy plug and
play format, lack of documentation regarding the ROI, confusion about what CPFR really is
Collaboration Collaboration
18/04/23Buyer-Supplier Relationshisp 28
“two of more independent companies working jointly to plan and execute supply chain operations with greater success than when acting in isolation” Joint planningReal time information exchange Exchange of tacit knowledgeTrust
Which relationships will provide the greatest payoffThose that are strategically important to your companySegmentation of relationships, but need to examine the range of
relationship types Strategic collaborative initiatives
ECRVMICRCPFRScorecard
Type 1; collaborative transaction mgt
Type II; collaborative event management
Type III; collaborative process mgt
People characteristics
Ltd. person to person interaction Person to person interaction focussed on joint decision regarding events & items of collaborative focus
Person to person interaction focussed on joint problem, LT business planning & developing cross functional processes. More embedded relationships
Process characteristics
Focus is on data exchange & task alignment. Creation of standardised data fro inter-enterprise exchange purposes. ‘Hand-over’ then ‘hand-back’ processes
Focus is on joint planning & decision making processes assoc with specif. events and/or issues. Mix of tacit & explicit knowledge surrounding the process
Fully integrated processes. Higher level of tacit & explicit knowledge surrounding the process. Simultaneity of exchange
Technology characteristics
Technology configured to manage large volumes of transactional data being exchanged automatically
Techn. config. to combine data associated with events; sometimes outside of each individual trading partners enterprise mgt system
Tech in place to facilitate flow through of inform across trading partners regarding SC mgt activities
Decision making – degree of involvement
Individual dependent, monitored & managed generally by 1 or a very small number of individuals
Dept or organisational – structured interaction thro the identified ‘team’. Bulk of team may reside in supplying firm
Social network or relational – multi-disciplinary team, senior level support within & across each org. active participation by network as whole
Collaboration focus
Co-ordination of info with focus on problem solving generally at the supplier level
Collaboration on SC disruptions; main focus on SC efficiencies between supplier & retailer shelf
Collab on SC efficiencies as well as strategic effectiveness. Committed order buys
18/04/23 Buyer-Supplier Relationshisp 29
Type 1; collaborative transaction mgt
Type II; collaborative event management
Type III; collaborative process mgt
Time horizon Short term – analytical in order to obtain problem resolution. Lwr levels of front end planning/ more task driven
Medium range – more prob solving focus, create incremental impact at store level. More front end plan over specific event / time horizon
Long term – focus on future plan for adv SC performance. Highest level of front end planning that is information / decision driven
Classification of return on relationship
reduced probs &/or errors on tasks (eg time delivery, fill rate to DC, inv turns, adequately servicing promos
Improve forecast & trend data. Perf improv more impact orientated (lost sales, promo success). Include more focus on store level impact by anticipating/ adapt to environmental fluctuations
Perf improv. focus on future events (increase sales, new prod/ solutions/ ideas, reduced working capital, category growth). Ration activities, prioritise where the greatest results will arise
Organisation level
Operational – meeting todays needs
Tactical/ managerial; focus on execution of the plan
Strategic –focus on LT improvement plans
Information domain
Large amounts of data often at DC level. More proactive/ less proactive data
Data typically exception based. Focus more proactive/ problem solving
More future focused & proactive. May include a central data repository where both parties can access information
Knowledge level Explicit knowledge Explicit, some level of tacit knowledge Explicit. High levels of tacit knowledge
examples Scorecard collaboration VMI Initial CPFREvent collaboration
Advanced CPFR30
18/04/23 Buyer-Supplier Relationshisp
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A managerial guideline for the development & implementation of Purchasing partnerships by Lisa Ellram; August 1991, National Association of Purchasing Management
The role of purchasing in a partnering relationship by Doughlas Macbeth, European Journal of Purchasing and Supply, 1994, 1.
Relationship & performance of trade intermediaries, an exploratory study by Fung, Chen and Yip, European Journal of Marketing, vol 41, No ½, 2007