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

Quality Cost Delivery Quantity Other

Suppliers
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
Relationship
International Sourcing
Factors for successful interaction

Content of Style of
information exchange

Factors for
successful
Buyer Seller
interaction
 Types of transactions
Compatible Style Incompatible Style

Ideal Inefficient
Compatible Transaction Transaction
content

Types of
Transactions
Incompatible
content Inefficient No
Transaction Transaction
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
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
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
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
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.

Marketing initiative

Traditional Marketing Supplier Purchasing response Purchaser

context

Sales response
Supplier development Supplier Purchaser
context Purchasing initiative
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. Self

reliance

Leading
edge
Supplier Reduced
technology Development cost

Improved
Quality
 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
High

Buyer Dominance Inter-dependence

Relative utility
and scarcity of
buyer’s
resources for
suppliers Supplier Dominance
Independence

(adverse selection) (moral hazard)

Low

Low High
Relative utility and scarcity of supplier resources for buyers
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

Strategic

Planning

Potential ERP Potential

Operational ERP ERP

Supplier Manufacturer Distributor Retailer Customer

 Relationships in conventional supply chains

Multi First tier Second tier Third tier

Nationals

Nature of Nature of Nature of

relationship relationship relationship
Close family Provider No ties
Partner Dependency Servant
Inter Medium trust dominated
dependency Specification No trust
High trust based Price based
Relationship
based
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