Buyer supplier relationship

Buyer Supplier

Relationship

Introduction

Purchase supplier relationship –Purchase supplier satisfaction matrix

Factors and types of transactions

Nature of relationships

Compare and Contrast partnership and collaboration

Supplier overview and rating

Strategic Alliance

Top industry examples

Role of IT

Key questions for supply manager

Should we

Change our stance on multiple sourcing ?

Move to long term contracts ?

Do more reverse marketing ?

How can we

Improve our relations with suppliers ?

Involve other functions more effectively in supplier relations ?

Initiate partnerships or alliance with our key suppliers ?

Total Customer Satisfaction

Suppliers

Quality Cost Other Quantity Delivery

Recent trends

Buy instead of make

Outsource instead of continuously make

Improve quality

Lower inventories

Integrate supplier and purchase systems

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 link

be equal and congruent.

Purchaser Supplier Relation

• Nature of relationship-Major influencer- ultimate value and

customer satisfaction

Supplier Goodwill

• Superior sources of supply- important asset

• Sound marketing policy- Develop goodwill

• Goodwill- Brands, advertising and regular calls by sales

person- Relationship Marketing

Congruence in supply chain can be achieved by:

Purchasers maintain friendly relationship with suppliers

Regularly measures satisfaction level of its key suppliers

Best purchasers practice- knowing suppliers business more

than suppliers own employees

The ability to develop effective working relationships with

suppliers will be dependent on supply's ability to develop

effective working relationships internally.

The Purchaser- Supplier Satisfaction Matrix

1. Satisfaction with a current supplier relationship can be

assessed, whether it is satisfactory or not.

2. An unsatisfied party (seller or purchaser or both) will

attempt to move to a more satisfactory situation.

3. Attempts to move may affect the stability of the

relationship.

4. Attempts to move may fall in win-lose, as well as the lose-

lose, lose-win and win-win, categories.

5. Purchaser and seller may well have different perceptions of

the same relationship.

6. Many tools and techniques and approaches exist that will

assist either party in moving positions.

Conclusion from the matrix

Diagonal- fairness or stability line

(0,0) position is completely undesirable from either standpoint.

(5,5) position is minimum acceptable goal for both sides.

(10,10) position is rarely found in reality. It requires a degree of

mutual trust and sharing and respect that is difficult to achieve

in our society of “buyer beware”.

Buyer Seller

RelationshipInternational Sourcing

Factors for successful interaction

Factors for successful

Buyer Seller interaction

Content of information

Style of exchange

Types of transactions

Ideal

Transaction

Inefficient

Transaction

Inefficient

Transaction

No

Transaction

Types of Transactions

Compatible Style Incompatible Style

Compatible

content

Incompatible

content

Types of Relationships

Transactional

Relationships

Value-added

ExchangesCollaborative/Partnering

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

Value-added Exchange

Focus

Complete understanding of the present and future

needs of customers and meeting the needs better

than competitors

Groups made by the selling firm

A: Most profit potential customers

B: Between A and C

C: Least profit potential customers

Collaborative Relationship

Focus

Building a strong social, economic service and technical ties between customer and supplier firm

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

Transactional vs Partnership

Short Term Long Term

Selection criteria: Lowest price Selection criteria: Cost of

ownership

No. of suppliers: Many No. of suppliers: One or few

Purchasing department’s

responsibility

Cross functional teams and top

management involvement

Little sharing of information Sharing of short term & long

term plans, risk & opportunity,

data

No technology inflow Inflow of technology takes place

Minimal service provided Greatly improved service

provided

Little contribution to New

Product Development process

Highly involved in New Product

Development process

Less difficult to exit Difficult to exit

Purchaser-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

Strategic Alliance

Definition

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.

Majorly technology driven and involves substantial investment

by buyers and sellers to achieve major market breakthroughs

Success factors for Strategic Alliance

Focus: A common vision for the relationship, with agreed strategies and activities

Trust: Open communication and disclosure of business drivers

Performance: Continuous improvement towards agreed targets and KPIs

People: Clearly defined roles and responsibilities

Proactive: Anticipating business needs and providing creative solutions

Profit at Risk: Establishing real metrics to drive behaviour for both

parties

Mistakes

Low commitment

Poor operational planning and integration

Strategic weakness(diverging strategies/under-developed value added propositions, unclear strategic return on investment)

Rigidity or poor adaptability

Unrealistic expectations

Overdependence

Hidden agendas leading to distrust

Legal problems(IPR)

Supplier development

Definition: Working with suppliers to help increase efficiency

and decrease cost, for the benefit of both suppliers and buyers.

Purchaser

Purchaser

Supplier

Marketing initiative

Purchasing response

Supplier

Purchasing initiative

Sales response

Traditional Marketing

context

Supplier development

context

Benefits

Reducing Cost

Improved Quality

Technical, financial and managerial assistance

Reduction of marketing effort

Use of long term forecast

Minimum inventory maintenance

Close working on product specifications

Example

Honda And America Manufacturing Inc.

Supplier Development

Self reliance

Reduced cost

Improved Quality

Leading edge

technology

Starbucks

Starbucks partnered with Barnes and

Nobles bookstores in 1993 to provide

in-house coffee shops, benefiting

both retailers.

In 1996, Starbucks partnered with Pepsico

to bottle, distribute and sell the popular

coffee-based drink, Frappacino.

A Starbucks-United Airlines alliance has

resulted in their coffee being offered on

flights with the Starbucks logo on the

cups.

Apple

Apple partnered recently with Clearwell in order to jointly develop Clearwell's E-

Discovery platform for the Apple iPad. E-Discovery is used by enterprises and legal

entities to obtain documents and information in a "legally defensible" .

Hewlett Packard

and Disney

Hewlett-Packard and Disney have a long-standing alliance. Disney

wanted to develop a virtual attraction called Mission: SPACE, Disney

Imaginers and HP engineers relied on HP's IT architecture, servers and

workstations to create Disney's most technologically advanced

attraction.

The Power matrix of Supplier-Buyer

Relationship

Buyer Dominance

Supplier Dominance

(moral hazard)

Independence

(adverse selection)

Inter-dependence

Low High

Relative utility and scarcity of supplier resources for buyers

Relative utility

and scarcity of

buyer’s

resources for

suppliers

High

Low

Source: Andrew Cox, 2000

Supplier Development Program

Supplier development” is defined as an activity that a buyer

undertakes to improve a supplier’s performance and/or

capabilities to meet the buyer’s short-term supply needs

•Identify critical commodities

•Identify critical suppliers

•Form a cross-functional team

•Meet with supplier top management

•Identify Key projects

•Define details of the agreement

•Monitor status and modify strategies

Role of IT in Supply Chain & Supplier-Buyer

Relation

Supplier CustomerRetailerDistributorManufacturer

Strategic

Planning

OperationalERPPotential

ERP

PotentialERP

Multi Nationals

First tier Second tier Third tier

Nature of relationshipClose familyPartnerInter dependencyHigh trustRelationship based

Nature of relationshipProviderDependency Medium trustSpecification based

Nature of relationshipNo tiesServantdominatedNo trustPrice based

Relationships in conventional supply chains

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.

Thank You !

Madhurya Jain 208

Abhishek Shah 332

Ankit Garg 353

Akhil Gupta 504

Kritika Jain 512

Druvin 608