LI5101 Managing SC Partners Relationships

M.Sc.
(Supply Chain Management)
LI5101
Supply Chain Management
Thinking & Practice
Managing Supply Chain

Partners Relationships
Learning objectives
Explain the most important approaches to adopt in a negotiation.

Describe the key elements of a contract and the issues to consider
when contracting.
Apply best practices to managing contracts, including deciding on
the features of a good contract management system.
Explain the main issues to consider in managing customer
relationships as essential to attracting & retaining customers –
including how to understand end customers & business customers,
make effective use of the internet for customer relations, and
optimise the value of different types of customers.
Describe the main elements of supplier relationship management
as a way to obtain best value through targeted approaches adapted
to different suppliers.
Introduction
 A business’ customers & suppliers are often its most
important assets
 Every business needs to know how best to manage its
relationships with its supply chain partners
 This applies when:
 negotiating
 contracting
 managing contracts
 seeking to attract & retain customers
 dealing with suppliers to optimise their
value contributions to the business
SCM for SMEs:U6:6.1-1

Negotiating with suppliers & customers
 A negotiation is often the first opportunity to
create an impression
 Negotiating is complex & challenging
 Some negotiators fail due to overconfidence;
others fail due to lack of trust in themselves
 Negotiations usually involve two sides – but
may sometimes involve other parties

Some important issues to consider
when negotiating
 Win-win vs. win-lose negotiations

 What to negotiate: anything & everything
 Having a BATNA
(BATNA = Best Alternative To a Negotiated Agreement, check out wikipedia)

The negotiation process
Buyer Seller
Planning & Negotiation Planning &
preparation meeting preparation
Agreement /
non-agreement
Evaluation &
follow-up

Planning & preparing for a negotiation
 Understanding the market conditions

 Understanding the other side
 Needs & interests, issues, problems, new opportunities being pursued
 Buyers: estimate the supplier’s cost structure

Planning & preparing for a negotiation (cont’d)
 Setting the negotiation objectives

 Linked to supply & sales objectives
 Determining the negotiation variables

 Defined by the negotiation objectives
 Setting targets for each variable

 Best realistically expected target
 Worst acceptable

Determining the negotiable zone
Variable: delivery
5 days 10 days
Buyer
Negotiable
zone
Seller
7 days 15 days

 Differentiating positions & interests

 Positions are what we tell others that we want
 Interests are what we actually need or wish to
achieve
 Need to look behind the positions to discover the
interests
 Know your business’s core interests & try to
understand those of the other side
How to negotiate an orange...

Developing the negotiation strategy
Your own The positions

negotiation & possible
objectives & interests of the
targets other side
Your
negotiation
strategy
The relative
strengths &
weaknesses of
both sides

 Negotiation strategies typically involve decisions on:

 Whether to adopt a win-win or a win-lose approach
 What your starting positions will be
 When (or whether) to reveal your positions to the other side
 The order of the issues to be negotiated
 Which persuasion techniques & negotiation tactics to use
 Whether to negotiate alone or to organise a team
 The venue, timing & duration of the negotiation
 Your contingency plans & BATNA
 Confirming negotiation authority
 Attitude
The 5 stages of the negotiation
meeting
Opening Testing Proposing Bargaining Agreeing

The negotiation meeting (cont’d)
 The people factor

 Negotiating styles:
 Hard negotiators
 Soft or warm negotiators
 Logical negotiators
 Dealmakers
 Creative negotiators
 People typically adopt a combination of two or more
styles, but one will usually predominate
 Cultural factors are also often critical, especially
when doing business internationally

 Using power in a negotiation

 Power is when one side can – through “rewards” &
“punishments” – influence the other side
 Power comes from different sources: market
power, resource power, time, financial position,
BATNA...
 Personal power comes from reputation,
negotiation skills, experience, knowledge & status
 Gain power through detachment and serenity

 Asking questions
 Open-ended questions
 Closed questions
 Probing questions
 Multiple questions
 Leading questions
 Reflective questions
 Hypothetical questions

 Persuasion techniques
 A combination of different persuasion techniques may be
used, and may change as the negotiation progresses
 Emotional persuasion
 Logical persuasion
 Bargaining
 Compromise
 Threats
SCM for SMEs:U6:6.2 -14

 Negotiation tactics
 Options:
 The building block technique  Using empathy
 Using silence  Re-escalation of demand
 Repeating, repeating & repeating  One more thing
 Recessing  Deadlines
 Using divide and rule  Slicing
 Do: build trust, search for common ground, give credit to the other
side, admit mistakes, remain calm and recognise the other side’s
feelings
 Do not: negotiate in bad faith, practice deception or act aggressively

 Emotions and body language

 Emotions & attitudes are more readily
communicated by body language
 Need to understand what others are expressing
through their body language
 Be aware of what your own body language is
saying to those on the other side
See, for example, 4 Tips for Reading Body Language in a Negotiation, by Carol Kinsey Goman
http://www.forbes.com/sites/carolkinseygoman/2011/03/31/4-tips-for-reading-body-language-in-a-negotiation/
55/38/7: The belief is that 55% of communication is body language, 38% is tone of voice and 7% is actual
words spoken. https://www.psychologytoday.com/us/blog/beyond-words/201109/is-nonverbal-
communication-numbers-game

When negotiations fail
 Because the needs & interests of both sides were
simply too far apart to be bridged
 Because one or both sides did not have the
negotiating skills needed to achieve a breakthrough
 A failure in a negotiation should not mean a
rupture in the relationship
 With the experience gained, the next negotiation
may have a better chance of success

Evaluating the negotiation
 To learn from, and reinforce, good practices
 To understand what went wrong, why, and do better next
time
 Does not need to take long, but should be done thoughtfully
 Write down & file reflections, questions, reminder checklists:
review carefully before the next negotiation
Follow-up
 If successful: prepare the purchase order or draw up the
contract
 If unsuccessful: revert to your BATNA

Contracting
The formal acceptance by both parties of the
terms of a business agreement
Legal advice is a must, but do not leave
drafting entirely to a lawyer
Many businesses have standard terms &
conditions of contract which they propose /
impose on their customers or suppliers
Remember: Everything is negotiable, and
nothing is written in stone
A bad contract is not a contract worth making

What to consider when drafting a contract
 Purpose & coverage
 What your business intends to obtain from the deal
 What your business wishes to avoid
 Which options are available – if things goes wrong – to
protect your business
 What issues should be included in / excluded from the
contract
 The best possible formulations for the contract clauses
 The seller’s obligations

 The buyer’s obligations

The supplier-buyer relationship
& the contract
Spot Regular Call-off Fixed Partner- Joint

purchase trading contracts contracts ship ventures
 Trust based only on the  Trust based on the  Trust based on goodwill &
contract contract and the cooperation
 No personal relationship competence of both sides  Strong personal
 Price orientated  Limited personal relationship
relationship  Total cost of ownership
 Short term
 Price & service orientated orientated
 Performance measured
on the basis of  Medium term  Long term
compliance with the  Performance measured on  Both sides measure each
contract terms the basis of compliance other’s performance &
with the contract terms and jointly develop remedial
supplier / customer action
evaluations
Some key issues in international
contracting
 Different realities
 Legal environment
 Language
 Trade & currency restrictions
 Political or social situation
 Geographic reality, physical infrastructure
 Business culture

contracting (cont’d)
 Applicable law options
 Law of the contract: The buyer’s vs. the supplier’s country’s
law? The supplier’s is where the bulk of the contract is
performed
 If third country law is selected, legal system options:

 Common law
 Civil law
 Islamic (or Shariah) law
 Also regional or international agreements, e.g.: UN Convention

for the International Sale of Goods, Vienna, 1980

 Incoterms 2010
DELIVERY & TRANSFER OF RISK
Cus- Cus-
toms toms
Seller Buyer
EXW FCA FAS FOB DAP DAT DDP

CPT CFR
CIP CIF
Waterborne transport only
INCOTERMS 2010
(International Terms of Sale)
The International Chamber of Commerce created Incoterms

as a worldwide standard to be used in contracts of sale for
expressing the rights and obligations of buyers and sellers –
specifically, regarding the delivery of the goods.
Definitions for two classes of Incoterms, any transport mode

and maritime only, along with a chart are provided below.
Source:
http://www.miq.com/resources/info-and-tools/international-
shipping/explanation-incoterms/international-terms-of-sale/
29
TERMS FOR ANY TRANSPORT MODE
• EXW – EX-Works (… named place of delivery)
◦The Seller’s only responsibility is to make the goods available at the Seller’s premises. The Buyer
bears full costs and risks of moving the goods from there to destination.
• FCA – Free CArrier (… named place of delivery)
◦The Seller delivers the goods, cleared for export, to the carrier selected by the Buyer. The Seller loads
the goods if the carrier pickup is at the Seller’s premises. From that point, the Buyer bears the costs
and risks of moving the goods to destination.
• CPT – Carriage Paid To (… named place of destination)
◦The Seller pays for moving the goods to destination. From the time the goods are transferred to the
first carrier, the Buyer bears the risks of loss or damage.
• CIP – Carriage and Insurance Paid to (… named place of destination)
◦The Seller pays for moving the goods to destination. From the time the goods are transferred to the
first carrier, the Buyer bears the risks of loss or damage. The Seller, however, purchases the cargo
insurance.
• DAT – Delivered At Terminal (… named terminal at port or place of destination)
◦The Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at
the Buyer’s disposal at a named terminal at the named port or place of destination. “Terminal” includes
any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo
terminal. The Seller bears all risks involved in bringing the goods to and unloading them at the terminal
at the named port or place of destination.
• DAP – Delivered At Place (… named place of destination)
◦The Seller delivers when the goods are placed at the Buyer’s disposal on the arriving means of
transport ready for unloading at the named place of destination. The Seller bears all risks involved in
bringing the goods to the named place.
• DDP – Delivered Duty Paid (… named place of destination)
◦The Seller delivers the goods -cleared for import – to the Buyer at destination. The Seller bears all
costs and risks of moving the goods to destination, including the payment of Customs duties and taxes.
30
MARITIME-ONLY TERMS
•FAS – Free Alongside Ship (… named port of shipment)

◦The Seller delivers the goods to the origin port. From that point, the Buyer bears all
costs and risks of loss or damage.
•FOB – Free On Board (… named port of shipment)

◦The Seller delivers the goods on board the ship and clears the goods for export. From
that point, the Buyer bears all costs and risks of loss or damage.
•CFR – Cost and FReight (… named port of destination)

◦The Seller clears the goods for export and pays the costs of moving the goods to
destination. The Buyer bears all risks of loss or damage.
•CIF – Cost Insurance and Freight (… named port of destination)

◦The Seller clears the goods for export and pays the costs of moving the goods to the
port of destination. The Buyer bears all risks of loss or damage. The Seller, however,
purchases the cargo insurance.
31
Incoterms Chart
TRANSFER OF COSTS
Cus- Cus-
toms toms
Seller Buyer
EXW FCA FAS FOB DAP DAT DDP: Import

DDP
CFR clearance costs
EXW is the only Incoterm CPT are the seller’s
where export clearance costs CIF responsibility
are the buyer’s responsibility CIP
Waterborne transport only
Under CFR, CIF, CPT, CIP and DDP
unloading costs are the responsibility of
the buyer unless these are paid through the
contract of carriage

Methods of payment
 Methods of payments can affect financing requirements
 Consider payments made in both directions for two reasons:

To simplify the procedure & minimise risks of non-payment
To obtain a financial advantage where possible & match
payments with cash-flow requirements
 The methods of payment and of financing thus need to be

carefully balanced to get the best results
 For payments linked to exports & imports, also careful

attention must be given to exchange risk

The main methods of payment
Local SC Operations International SC Operations

1. Cash payment or cash in advance 1. Irrevocable documentary credit (L/C)
2. Promissory notes 2. Open account
3. Consignment purchase 3. Standby letter of credit
4. Documentary collection
5. Other forms of documentary credit
6. Cash in advance
7. Consignment purchase

The main methods of payment (cont’d)
 The strategy for which method to push

for will generally depend on whether you
are the buyer or the seller, and on the
relationship between the parties
 The best strategy for a good relationship

is to use the method where both sides
are satisfied & comfortable

Local supply chain operations
 Cash payment and cash in advance
 Normally payment in cash, by cheque or by bank transfer,
with or without trade credit terms
 Cash in advance if the seller has doubts about the certainty

of receiving payment
 Promissory notes
 The buyer issues a promissory note on receipt of the goods
 The seller may prefer to issue a bill of exchange to the buyer

specifying the payment date and with a guarantee from the buyer’s bank
 Consignment purchase
 The buyer holds the items in consignment and only pays after they
are sold; the buyer can usually return unsold merchandise
 Unfavourable to the seller but has become a rule in the case where
the buyer has a dominant position (e.g. supermarket chains)
International supply chain operations
 Sellers and buyers do not
necessarily know each other and
take far more risks than in
domestic trade

International supply chain operations (cont’d)
Checklist to select a method of payment
The seller should ask:
1. What is my risk of not getting paid?
Do I know the buyers well? Can I trust The buyer should consider:
them? Are they financially sound? 1. Will my suppliers deliver? What
2. If they ask me for credit, should I give if the goods arrive late or not at
it to them? all, or if they are sub-standard?
3. How do I manage my finances if I 2. Will my suppliers give me 3 or
don’t get paid right away? 6 months’ credit? Can I pay for
the raw materials after I export?
4. What if the currency of payment
(dollar, euro etc.) drops in value by 3. What if my currency devalues &
the time I am paid? the goods I have to pay for
become too expensive?
5. The transaction looks profitable, but
how do I get credit to buy raw
materials and pay production costs?

a) Irrevocable documentary credit / irrevocable letter of credit (L/C)
 The most frequent method of payment for

imports: costly but secure, as the seller is paid
only upon delivery and the buyer receives the
goods only upon paying
 Neutral parties ensure the transaction is

honoured: normally the buyer’s bank (issuing
bank – issues the L/C) & the seller’s bank
(advising/confirming bank – informs the seller
that the L/C has been issued)
 It is called a “confirmed irrevocable L/C”

when the advising bank confirms /
guarantees payment to the seller

b) Open account
 Simplest method, but only used when the buyer is
well known and there is full trust between both
parties
 The seller sends the goods with the shipping
documents, and the buyer pays the seller by bank
transfer upon receipt
 Reduced administration costs and lower bank
charges, but virtually no security for the exporter
c) Standby letter of credit

 Not really a payment method as such, but acts as a
payment guarantee, e.g. under the open account
payment method

d) Documentary collection (Cash Against Documents – CAD)
 The seller gives the shipping documents to its bank
and asks it to forward them to the buyer’s bank for
release to the buyer only when the invoice is paid
 The seller and its bank keep control of the shipping

documents and hence ownership of the goods until
payment is made by the buyer
 Called documents against acceptance (DAA) when

the seller grants the buyer trade credit by drawing a
bill of exchange to be accepted by the buyer upon
collecting the documents
 Inexpensive and simple to arrange
 The seller can ask its bank to discount the bills, or to

use them as basis for providing pre-export finance
e) Other Documentary Credits
 The revocable L/C, not as secure as L/C because the

buyer can revoke it at any time
 The revolving L/C, allows the same or a similar

transaction to be repeated without issuing a new L/C
 A transferable documentary credit, where the seller

allows the paying bank to pay all or part to another
beneficiary, e.g. to its own lenders, suppliers of raw materials, etc.
 Assignment of proceeds, where the proceeds of a sale are assigned or

promised by the seller to another organization or to a bank
 Back-to-back documentary credit, where the exporter asks its advising

bank – once it has been notified of the original documentary credit – to
issue another documentary credit in favour of the exporter’s supplier.
Useful, as the original documentary credit is often not transferable
f) Cash in advance
 Used if the seller is in doubt of being paid
 May be acceptable to a first-time buyer who
trusts the supplier
 Not to be used in the long run, as buyers will
seek better conditions elsewhere
g) Consignment purchase
 Similar to local consignment purchases,
but risks & financial burden on the
exporter are even greater
 May be used as part of strategy to create
new market niches

The spectrum of payment risks
TLI-AP
MOST CASH IN LEAST

SECURE ADVANCE SECURE
MORE LETTER LESS

SECURE OF CREDIT SECURE
LESS DOCUMEN- MORE

SECURE TARY SECURE
COLLECTION
LEAST MOST
OPEN
SECURE ACCOUNT
SECURE

Contractual default & dispute settlement
 Preparing for the possibility that something may
go wrong
 Foreseeable operational risks: non-performance by one
of the parties
 Foreseeable structural risks: financial & managerial

health of the parties
 Foreseeable & unforeseeable general risks: hardship
 Minimising the risks to avoid default

 The importance of clarity in the contract
 Avoiding default if the risks materialise

 Work out a joint solution and / or renegotiate the contract
Contractual default & dispute settlement (cont’d)
 Settling disputes – what the contract should say:

options
 Adjudicative methods: arbitration and litigation
 Lead to a judgement & award, but are costly

 Arbitration preferred: awards enforced worldwide;
no need to select a court; faster process;
confidentiality protected; cost is lower
 Non-adjudicative methods: mediation / conciliation,
expertise & negotiation
 Help to avoid hardening positions, but decisions
cannot be enforced
 Mediation: mediator can help to unblock a difficulty
 Methods can be mixed for tailored solutions
Managing the contract
 Involves planning & assessment of contract risks,
monitoring of key activities & milestones, and
setting & monitoring required remedial actions
 Essential to keeping contracts & business relationships on track
 Should have at least one person responsible
 The approach depends on:
 The nature of the contract:
o Items delivered from existing stocks
o Items designed-to-order, made-to-order or
assembled-to-order
o Projects
 The nature of the relationship

Planning for contract management
Preparing the contract schedule
Identify the activities & key milestones
Lay out & sequence the activities & milestones
Make time estimates
Allocate responsibilities for the activities & milestones
 Stages: planned, revised & actual schedules

 For operational contracts involving production, the schedule
needs to be converted into a production plan (e.g. MPS)

Planning for contract management (cont’d)
 The contract budget

 The contract quality plan
 The risk register
 Schedule risks
 Cost risks
 Quality risks
 Commercial risks

The contract management system
 Purpose: to record the contract plan & monitor
implementation, to take action as needed
 Simplest form: printed master card for each
contract, with additional cards to track activities
& milestones by dates
 PC-based software packages: offer good
solutions, but usually involve a cost
 PC-based spreadsheet package, if necessary
complemented by standard calendar & task
management application

Example: contract activities & milestones
A/M ID: Dependency Description
A1 Start Finalise design
M1 Design submitted to school Board
A2 A1 Review of design by school Board
M2 Design approved by school Board
A3 A2 Build prototype
M3 Prototype ready for review by school director
A4 A3 Review of prototype by school director
M4 Prototype approved by school director
A5 A4 Purchase wood, varnish, fixtures, etc.
M5 Wood, varnish, fixtures, etc. delivered
A6 A5 Cut wood
M6 Wood parts & other supplies ready
A7 A6 Assemble & varnish batch No. 1 (25 units)
M7 Batch No. 1 completed
A8 A7 Deliver batch No. 1
M8 Delivery receipt batch No. 1
A10 A8, A9 Deliver batch No. 2
A13 A8, A9 Assemble & varnish batch No. 4 (25 units)
A15 A14 Prepare invoice
M15 Invoice submitted to customer
A16 A15 Processing of payment
M16 Payment received SCM for SMEs:U6:6.4-5
Contract Management System (on a spreadsheet)
Contract No: SF-A6-0325 Date: 2012-04-30 CONTRACT MANAGEMENT SYSTEM When costs are significant, use separate rows for
Mark with "x" Purchase: Sale: x Description: Manufacture & supply of 100 wooden school desks with chairs different cost types: Materials, Labour and Other.
Customer: South Alba School District Value: 15,000 XY$ Currency 2012-06-04 Current date Enter overheads percentage (%) at page bottom.
ACTIVITIES (A) / MILESTONES (M) PLANNED SCHEDULE REVISED / ACTUAL SCHEDULE QUANTITIES COSTS - currency: XY$ MAIN RISKS
Depend- Description PATHS (mark "x" for A only) End date Revised Excess / Actual Saving / PLANNED
Start date End date Dura- Start date End date Dura- Budgeted
(Total cost over- QUALITY To To To COMMENTS
A/M ent on (Critical path = the longest duration) A B C D E F G Respons- early / Planned /deliv- shortfall Type: (Total includes
yyyy-mm- yyyy-mm- tion yyyy-mm- yyyy-mm- tion includes run (Tot. Incl Other
ID: (previous Planned path duration 70 69 67 66 0 0 0 ible
dd dd (days) dd dd (days)
delayed ered /balance M/L/O overheads)
overheads) overheads) ACTIONS schedule costs quality
activity): (days)
Revised / actual path duration 31 28 28 28 0 0 0 100 25 -75 13,198 9,590 40
A1 Start Finalise design x x x x AL 2012-05-03 2012-05-05 2 2012-05-03 2012-05-05 2 0 L 100 100 0
M1 Design submitted to school Board AL 2012-05-05 2012-05-05 0
A2 A1 Review of design by school Board X X X X Customer 2012-05-05 2012-05-12 7 2012-05-05 2012-05-15 10 3
Delay in Board
M2 Design approved by school Board Customer 2012-05-12 2012-05-15 3 approval
A3 A2 Build prototype X X X X FT 2012-05-12 2012-05-15 3 2012-05-15 2012-05-17 2 2 M/L 120 130 -10
Prototype ready for review by school
M3 FT 2012-05-15 2012-05-17 2
director
A4 A3 Review of prototype by school director X X X X Customer 2012-05-15 2012-05-17 2 2012-05-17 2012-05-19 2 2
Delay in direc-tor's
M4 Prototype approved by school director Customer 2012-05-17 2012-05-19 2 approval
Wood certified from Certified wood Higher cost of Certified wood Contact Depart-ment of
A5 A4 Purchase wood, varnish, fixtures, etc. X X X X JG 2012-05-17 2012-05-22 5 2012-05-19 2012-05-23 4 1 M 5,200 5,100 100 sustainable forests unavailable certified wood unavailable Forestries
M5 Wood, varnish, fixtures, etc. delivered Suppliers 2012-05-22 2012-05-23 1

A6 A5 Cut wood X X X X PN 2012-05-22 2012-05-25 3 2012-05-23 2012-05-26 3 1 L 800 800 0
M6 Wood parts & other supplies ready PN & JG 2012-05-25 2012-05-26 1
Assemble & varnish batch No. 1 (25
A7 A6 X X Team 1 2012-05-25 2012-05-30 5 2012-05-26 2012-05-31 5 1 L 1,200 1,200 0
units)
Transport service
M7 Batch No. 1 completed Team 1 2012-05-30 2012-05-31 1 delay
Transport service
A8 A7 Deliver batch No. 1 X JG 2012-05-30 2012-06-02 3 2012-05-31 2012-06-03 3 1 25 25 0 O 300 350 -50 delay
Quality certified as acceptable
M8 Delivery receipt batch No. 1 Customer 2012-06-02 2012-06-03 1 by buyer
A9 A6
units)
X X Team 1 2012-05-28 2012-06-02 5 2012-05-29 2012-06-03 5 1 L 1,200 1,200 0
Transport service
M9 Batch No. 2 completed Team 1 2012-06-02
delay
Transport service
A10 A8, A9 Deliver batch No. 2 X X JG 2012-06-02 2012-06-05 3 25 -25 O 300 delay
M10 Delivery receipt batch No. 2 Customer 2012-06-05
by buyer
A11 A7 X Team 1 2012-05-31 2012-06-05 5 2012-06-01 L 1,200
units)
Transport service
delay
Transport service
A12 A10, A11 Deliver batch No. 3 X X X JG 2012-06-05 2012-06-08 3 25 -25 O 300 delay
by buyer
A13 A8, A9 X Team 1 2012-06-03 2012-06-08 5 L 1,200
units)
Transport service
delay
Transport service
A14 A12, A13 Deliver batch No. 4 X X X X JG 2012-06-08 2012-06-11 3 25 -25 O 300 delay
by buyer
A15 A14 Prepare invoice X X X X JG 2012-06-11 2012-06-12 1

M15 Invoice submitted to customer JG 2012-06-12
A16 A15 Processing of payment X X X X Customer 2012-06-12 2012-07-12 30 Delay in payment
M16 Payment received Customer 2012-07-12 Delay in payment
Overheads: 8.0% 978 710

The contract flow:
sequences of activities & milestones
Activity
Milestone
A1 A2 A3 A4 A5 A6 A7 A8 A13 A14 A15 A16

Start M1 M2 M3 M4 M5 M6 M7 M8 M9A M13 M14 M15 M16
2 7 3 2 5 3 5 3 5 3 1 30
(0)
(1)
(3)
A9 A10
Duration Dependency M6A M9 M10
(0)
w/out activity 5 3
(1) (0)
A11 A12
Slack time M7A M11 M12
5 3
Path A = Start, A1, A2, A3, A4, A5, A6, A7, A8, A10, A12, A14, A15, A16 = 70 days Critical path
Path B = Start, A1, A2, A3, A4, A5, A6, A7, A11, A12, A14, A15, A16 = 69 days
Path C = Start, A1, A2, A3, A4, A5, A6, A9, A10, A12, A14, A15, A16 = 67 days
Path D = Start, A1, A2, A3, A4, A5, A6, A9, A13, A14, A15, A16 = 66 days

The contract schedule as a Gantt chart
Activity Depen-
ID dency Activity title Start date End date 30 Apr -
6 May
7 May -
13 May
14 May - 21 May - 28 May - 4 Jun -
20 May 27 May 3 Jun 10 Jun
11 Jun -
17 Jun
18 Jun -
24 Jun
25 Jun -
1 Jul
2 Jul -
8 Jul
9 Jul -
15 Jul
A1 Start Finalise design 2012-05-03 2012-05-05
A2 A1 Review of design by school Board 2012-05-05 2012-05-12
A3 A2 Build prototype 2012-05-12 2012-05-15
A4 A3 Review of prototype by school director 2012-05-15 2012-05-17 = Critical path

A5 A4 Purchase wood, varnish, fixtures, etc. 2012-05-17 2012-05-22
A6 A5 Cut wood 2012-05-22 2012-05-25
A7 A6 Assemble & varnish batch No. 1 (25 units) 2012-05-25 2012-05-30
A8 A7 Deliver batch No. 1 2012-05-30 2012-06-02
A10 A8, A9 Deliver batch No. 2 2012-06-02 2012-06-05
A15 A14 Prepare invoice 2012-06-11 2012-06-12
A16 A15 Processing of payment 2012-06-12 2012-07-12

Tackling issues that arise during
contract implementation
 Identify deviations:
 How important is it and do we need to do
something about it?
 What impact is it likely to have on the contract?
 What caused the deviation, and why?
 Corrective actions? Consequences?
 Organise contract review meetings as necessary

 Difficulties during contract implementation should
become opportunities for collaboration & joint
problem-solving – not for recriminations

Managing relationships with customers
 CRM means giving priority to the customer with the aim of:
 Attracting more prospective customers, more quickly.
 Converting prospective customers into actual customers more
rapidly.
 Nurturing customers, and so retaining more customers for longer
 Carrying out these efforts efficiently & cost-effectively
 It requires understanding:
 Who are our customers?
 What are their expectations? How valuable
are they to our business

Information support to customer
relationship management
 Focus on CRM systems that allow keeping track of
interactions with customers through different channels
 These systems typically capture, e.g.:
 Information on potential customer interests & enquiries
 Information on pipeline sales conversion into confirmed sales
 Information on current & past orders, purchases & contracts
and their implementation, including information on customer
satisfaction & retention
 Information on customers’ queries for service & technical
support and resulting levels of customer satisfaction
 Options
range from manual systems to specialised software
packages: assess the advantages

Understanding & dealing with
end customers
 Core business strategy: to satisfy – and ideally to “delight” –
the end customer
 Customers have different expectations & constraints –
depending on the kind of customer and the type of product or
service
 They cannot, therefore, be treated in the same ways
 This applies especially to retailers, but also to businesses
upstream in the supply chain
 Understanding customers requires dialogue with them
through different channels
 In this world where the customer is king, supply options are
innumerable and online information tools predominate – a
question arises: Will customers find us? And if they do, will
they want us?
Understanding & dealing with
business customers
 Businesses upstream in the supply chain will be also
concerned with their immediate business customers
 These will be no less complex than the supply chain’s
end customers
C
Bottleneck Strategic
 They will also be applying supply positioning models to H
their purchases and seeking supplier relationships Impact/

supply
Routine Leverage
ranging from arms-length to long-term partnerships

risk M
Your business (as a supplier) will tend to view its

80% of items = 20% of spend 20% of items = 80% of spend
 Spend
business customers either as marginal, to exploit, to

develop, or as core

Retaining customers
 Existing customers involve more business & lower
costs than new customers
 A business needs to retain as many of its existing

customers as possible
 To ensure customer satisfaction, set down customer

service standards and then comply with these – e.g.
quality compliance, order cycle time, reliability,
avoidance of cost surcharges, etc.
 Measure the effectiveness of customer retention efforts,

and compare with data for new customers

Customer value: approaches to
customer development
 Existing customers involve more business & lower costs than
new customers
 Understand how valuable customers are, and why
 Basis for business’ targeted efforts to retain & develop its

customers
 Different kinds of customers offer different kinds of value, and

require different approaches:
 “Shoppers”
 Regular customers
 Special customers, more interested in the buying experience
 “Partnership” customers, collaborating in a business’s innovation
strategies
 Every customer must be profitable
Using the internet to reach out & INTERNET
listen to customers
 The enterprise’s website needs to become a
“listening” website
 Use YouTube and similar video-sharing websites

to attract customers & potential customers
 Link to customers & capture suggestions through the web’s

social media & sector websites
 Internet openness is changing the business environment &

culture across the globe, focusing on:
 Collaboration
 Transparency
 Sharing knowledge, information & other resources
 Empowering customers & business partners
Managing relationships with suppliers
Purpose: to strategically plan & manage relations with
suppliers and obtain from them the best possible value
SRM aims to:
 Assess the value provided by different suppliers
 Develop targeted approaches towards different kinds of
suppliers
 Manage interactions with its suppliers in line with these
approaches
May be supported by IT-based SRM systems, linked to

ERP systems

The Supply Positioning Model
C
Bottleneck Strategic
Impact/
Routine Leverage
supply
risk M
L
80% of items = 20% of spend 20% of items = 80% of spend
Spend
The supplier-buyer
relationship continuum
Spot Regular Call-off Fixed Partner- Joint

purchasing trading contracting contracting ships ventures

Managing relationships with suppliers (cont’d)
 Arms-length relationships: focus on contract-compliance

 Strategic relationships are collaborative, e.g.: supplier-
managed inventory, joint continuous improvement
programmes, joint product design & development
 In between these extremes, a full range of relationship
options will be available to a business and its suppliers,
tailored to the needs & interests of both sides
 Failure in SRM will mean lost business & lost profit

LI5101 Managing SC Partners Relationships

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M.Sc.

(Supply Chain Management)

Managing Supply Chain

Explain the most important approaches to adopt in a negotiation.

SCM for SMEs:U6:6.1-1

SCM for SMEs:U6:6.2-1

 Win-win vs. win-lose negotiations

(BATNA = Best Alternative To a Negotiated Agreement, check out wikipedia)

SCM for SMEs:U6:6.2-2

SCM for SMEs:U6:6.2-3

 Understanding the market conditions

SCM for SMEs:U6:6.2-4

 Setting the negotiation objectives

 Determining the negotiation variables

 Setting targets for each variable

SCM for SMEs:U6:6.2-5

SCM for SMEs:U6:6.2-6

 Differentiating positions & interests

How to negotiate an orange...

SCM for SMEs:U6:6.2-7

Your own The positions

SCM for SMEs:U6:6.2-8

 Negotiation strategies typically involve decisions on:

Opening Testing Proposing Bargaining Agreeing

SCM for SMEs:U6:6.2-10

 The people factor

SCM for SMEs:U6:6.2-11

 Using power in a negotiation

SCM for SMEs:U6:6.2-12

SCM for SMEs:U6:6.2-13

SCM for SMEs:U6:6.2 -14

SCM for SMEs:U6:6.2-15

 Emotions and body language

SCM for SMEs:U6:6.2-16

SCM for SMEs:U6:6.2-17

SCM for SMEs:U6:6.2-18

SCM for SMEs:U6:6.3-1

 The seller’s obligations

SCM for SMEs:U6:6.3-2

Spot Regular Call-off Fixed Partner- Joint

SCM for SMEs:U6:6.3-4

 If third country law is selected, legal system options:

 Also regional or international agreements, e.g.: UN Convention

SCM for SMEs:U6:6.3-5

DELIVERY & TRANSFER OF RISK

EXW FCA FAS FOB DAP DAT DDP

The International Chamber of Commerce created Incoterms

Definitions for two classes of Incoterms, any transport mode

•FAS – Free Alongside Ship (… named port of shipment)

•FOB – Free On Board (… named port of shipment)

•CFR – Cost and FReight (… named port of destination)

•CIF – Cost Insurance and Freight (… named port of destination)

EXW FCA FAS FOB DAP DAT DDP: Import

SCM for SMEs:U6:6.3-7

 Consider payments made in both directions for two reasons:

 The methods of payment and of financing thus need to be

 For payments linked to exports & imports, also careful

SCM for SMEs:U6:6.3-8

Local SC Operations International SC Operations

SCM for SMEs:U6:6.3-9

 The strategy for which method to push

 The best strategy for a good relationship

SCM for SMEs:U6:6.3-10