CHAPTER 3

CREATING & MANAGING

SUPPLIER RELATIONSHIPS

Principles of Supply Chain Management:

A Balanced Approach, 2e
Chapter Three Outline
• Introduction
• Developing Supplier Relationships
• Supplier Evaluation & Certification
• Supplier Development
• Supplier Recognition Programs
• Supplier Relationship Management

© 2009 South-Western, a division of Cengage Learning 2

 Introduction
McD’s SRM Approach—segment, meas., manage
Boeing’s Approach—use suppliers in pot. mkts.
“…purchasing professionals in companies
nationwide believe strongly that more and stronger
supplier partnerships are critical to achieving
competitive corporate performance”
Purchasing Magazine
Supplier partnerships involve a mutual commitment;
extended time; working together; mutual benefit;
sharing of information, risks and rewards
Institute for Supply Management

© 2009 South-Western, a division of Cengage Learning 3

Developing Supplier Partnerships
Building Trust
• Buyer/supplier partners are more willing to
work together, find compromise solutions to
problems, work toward achieving long-term
benefits for both parties
Shared Vision and Objectives
• Move beyond tactical issues, toward more
strategic decisions
Personal Relationships
• People make things happen in these
arrangements.
– Can this lead to moral/ethical problems?

© 2009 South-Western, a division of Cengage Learning 4

 Supplier Partnerships - Cont.

Mutual Benefits and Needs

• Should result in a win-win. An alliance is like a
marriage ---The iPhone and AT&T?
Commitment and Top Management Support
• Partnerships are more successful when top
executives actively support them.
– Since mutual strategy development is a
characteristic, this makes sense.

Change Management
• Change comes with the formation of new
partnerships.
– How bills are paid, performance is measured,
strategies are communicated
© 2009 South-Western, a division of Cengage Learning 5
Supplier Partnerships - Cont.

Information Sharing & Lines of

Communication
• Should facilitate free flow of information.
Confidentiality also considered.
• Compatible IS

 Relationship Capabilities
• Key suppliers must have the right (req’d.)
technology, cost, quality, & delivery
capabilities

© 2009 South-Western, a division of Cengage Learning 6

Supplier Partnerships - Cont.

Performance Metrics
You can’t improve what you aren’t measuring
• Quality, cost, delivery, flexibility, environment,
technology, reputation (& other) measures
• Metrics should be:1) understandable, 2) easy to
measure, & 3) focused on customers/results
• A multi-criteria approach
• Total cost of ownership (TCO), is made up of all
costs associated w/acquisition, use, &
maintenance of a good or service

© 2009 South-Western, a division of Cengage Learning 7

Supplier Partnerships - Cont.

Continuous Improvement
• Series of small improvements over time
• Buyers & suppliers must be willing to
continuously improve their capabilities
• Working together to improve both bottom
lines
• More in Ch. 8 about contin. improvement

© 2009 South-Western, a division of Cengage Learning 8

Supplier Evaluation &
Certification
• Identify best suppliers.
• Can be internally generated or external agency
• Periodic certification/feedback to maintain good
relationships, performance.
• Suppliers should also be allowed to provide
feedback to buyer
• Report cards
• Reduce supply base

© 2009 South-Western, a division of Cengage Learning 9

 Supplier Evaluation &
Certification (Cont.)
The Weighted-Criteria Evaluation System
for Certification
1. Select the key dimensions
2. Collect performance data.
3. Assign relative weights to each dimension.
4. Assign relative performance (1-10; 1-100)
5. Multiply performance by weight & sum, for overall
score.
6. Classify vendors based on their overall score:
Unacceptable, Conditional, Certified, & Preferred
7. Audit & perform ongoing certification

© 2009 South-Western, a division of Cengage Learning 10

Supplier Evaluation &
Certification (Cont.)
Supplier Scorecard for XYZ Co.
(Table 3.3. )
Performance Measure Rating x Weight = Final Value
Technology 80 0.10 8.00
Quality 90 0.25 22.50
Responsiveness 95 0.15 14.25
Delivery 90 0.15 13.50
Cost 80 0.15 12.00
Environmental 90 0.05 4.50
Business 90 0.15 13.50
Total score 1.00 88.25

© 2009 South-Western, a division of Cengage Learning 11

 Supplier Evaluation &
Certification (Cont.)
ISO 9000
• Developed by International Organization for
Standardization (ISO) - series of management
& quality standards in design, development,
production, installation, & service, 1987.
• Good for global sales (req’d.)
 

ISO 14000
• Environmental management standards, 1996.

Go to www.iso.org for more info.

© 2009 South-Western, a division of Cengage Learning 12
 Supplier Development
Supplier development – Any management
activity to improve a supplier’s performance
1. Training
2. Loaning money/investing in processes
3. Performance assessment/certification

© 2009 South-Western, a division of Cengage Learning 13

 Supplier Recognition
Programs
- Recognizing supplier performance
- Dinners/plaques/awards
- About ½ companies do this

- Helps cement partnerships, encourages further

improvement
- Award-winning suppliers serve as role
models for other suppliers.

- Hormel, p. 94

© 2009 South-Western, a division of Cengage Learning 14

Supplier Relationship
Management (SRM)
• Using software applications to manage
suppliers more efficiently/effectively
• Should reduce supplier management costs
• Refers to sourcing analytics, sourcing
execution, supplier payments, supplier
performance monitoring (scorecarding).
• Software modules that accompany ERP
software packages
• Data collection, user training can be
problematic

© 2009 South-Western, a division of Cengage Learning 15

Supplier Relationship
Management (Cont.)
SRM Software Suppliers (Table 3.4)
• SAP (http://www.sap.com/)
• Oracle (http://www.oracle.com/) Acquired
PeopleSoft and others in 2005
• EcVision (http://www.ecvision.com/)
• i2 Technologies, Inc.(http://www.i2.com/)
• SAS Institute (http://www.sas.com/)
• SupplyWorks (http://www.supplyworks.com/)

© 2009 South-Western, a division of Cengage Learning 16

Trends in SRM
• Sourcing & procurement are increasing in
importance
• More companies expect more cost reductions
to come from their procurement functions and
SRM.
• Buyers are seen as more strategic

© 2009 South-Western, a division of Cengage Learning 17