CREATING & MANAGING SUPPLIER

RELATIONSHIPS

Supply Chain Management:

 Learning Objectives

You should be able to:

– Discuss the current state & future challenges of SCM.
– Explain why Supply Chains are becoming more global.
– Describe how firms are expanding their SCM efforts to
second- & third-tier members of their supply chains.
– Discuss why & how supply chains are making greater efforts
to become more environmental responsible.
– Explain how supply chains are becoming faster.
– Explain why firms are outsourcing some or all SCM
processes.
– Describe some of the ways supply chains are reducing total
costs.
 Learning Objectives

You should be able to:

• Explain the importance of supplier partnerships and
strategic alliances
• Understand factors for developing successful partnerships
• Develop a supplier evaluation & certification program
• Explain the importance of a supplier awards program
• Understand the capabilities of supplier relationship
management technology
• Explain the benefits of using SRM software to manage suppliers
 Chapter Outline
• Developing Successful • Performance Metrics
Partnerships • Continuous improvement
• Building Trust
• Supplier Evaluation &
• Shared Vision & Objectives
Certification
• Personal Relationships
• The Weighted-
• Mutual Benefits & Needs
Criteria
• Commitment & Top
Evaluation System
Management Support
• ISO 9000 & ISO
• Change Management
• Information Sharing 14000
• Supplier
& Lines of
communication Development
• Capabilities • Supplier Awards
• Supplier Relationship
Management
Software
 Introduction

“Supply, sourcing, and 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 over
an extended time to work together to the mutual benefit of
both parties, sharing relevant information and the risks and
rewards of the relationship”
Institute for Supply
Management
 Developing Successful Partnerships

Reasons given for failure of alliances:

• Overly optimistic
• Poor communications
• Lack of shared benefits
• Slow payback results
• Lack of financial commitment
• Misunderstood operating principles
• Cultural mismatches
• Lack of alliance experience.

Survey of CEOS- The Conference Board

 Keys to Successful Partnerships

Building Trust
• With trust, partners are more willing to work together, find
compromise solutions to problems, work toward achieving long-
term benefits for both parties, and, in short, go to the extra mile.

Shared Vision and Objectives

• Both partners must share the same vision and have objectives that
are not only clear but mutually agreeable. The focus must move
beyond tactical issues and toward a more strategic path to
corporate success.
 Keys to Successful Partnerships- Cont.

Personal Relationships
• It is people who communicate and make things happen.

Mutual Benefits and Needs

• Partnership should result in a win-win situation, which can only be
achieved if both companies have compatible needs. An alliance
is much like a marriage, and if only one party is happy, then the
marriage is not likely to last.
Louis Vuitton, pioneer in the art of travel, has partnered
with BMW i to create a tailor-made set of luggage crafted
in carbon fiber for the newly launched BMW i8. The four-
piece set of exclusive suitcases and bags have been
carefully designed to follow the sleek lines of the most
progressive sports car: the BMW i
 Keys to Successful Partnerships- Cont.

Commitment and Top Management Support

• Commitment must start at the highest management level.
Partnerships tend to be successful when top executives are
actively supporting the partnership. E-g The board of directors,
president.

Change Management
• Companies must be prepared to manage change that comes
with the formation of new partnerships.

 Implementation of a new technology.

 Mergers & acquisitions.
 Change in leadership.
 Change in organizational culture.
 Keys to Successful Partnerships- Cont.

Information Sharing & Lines of Communication

• Both formal and informal lines of communication should be set up
to facilitate free flow of information. With high trust, information
systems serve more effectively. Confidentiality of sensitive financial,
product, and process information must be maintained.

Full staff meetings.

regular supervisions.
emails.
newsletters.
team development days.
employee surveys.
employee forums.
360 degree feedback.
 Keys to Successful Partnerships- Cont.

Capabilities
• Key suppliers must have the right technology and
capabilities to meet cost, quality, and delivery
requirements. In addition, suppliers must respond
quickly to changing customer requirements.
 Keys to Successful Partnerships- Cont.

You can’t improve what you can’t

measure.
• Measures related to quality, cost, delivery, &
flexibility are used to evaluate suppliers.
• Metrics should be:1) understandable, 2) easy
to measure, and 3) focused on real value-
added results
• A multi-criteria approach is best to measure
performance.
• “If it cannot be measured , it cannot be managed ”
— Peter Drucker
• Total cost of ownership (TCO), made up of all
costs associated acquisition, use, &
maintenance of a good or service
 Keys to Successful Partnerships- Cont.

Examples of Performance Metrics

• Cost/Price- Competitive price & availability of cost breakdowns
• Quality- Zero defects, Fit for use, ISO 9000
• Delivery- Fast, Reliable/on time
• Responsiveness & Flexibility- Responsiveness to customers &
to changing situations
• Environment- Environmentally responsible, ISO 14000
• Technology- Superior product/service design
• Business Metrics- Reputation, information sharing
• Total Cost of Ownership
 Keys to Successful Partnerships- Cont.

Continuous Improvement
• The process of evaluating suppliers based on a set of mutually
agreed-upon performance measures provides opportunities for
continuous improvement making a series of small
improvements over time results in the elimination of waste in a
system.
• Buyers and suppliers must be willing to continuously improve
their capabilities in meeting customer requirements of cost,
quality, delivery, and technology.
 Supplier Evaluation and Certification

• A process to identify best and most reliable suppliers.

• Sourcing decisions are made based on facts and not merely
on perception.
• Providing frequent feedback on supplier performance can help
avoid surprises and maintain good relationships.
• Suppliers should be allowed to provide constructive feedback to the
customer
• Supplier Certification refers to “an organization’s process for
evaluating the quality systems of key suppliers in an effort to
eliminate incoming inspections.” -Institute for Supply Management.
 Supplier Evaluation and
Certification- Cont.
Criteria Used in Certification Programs
• No incoming product lot rejections (e.g., less than 0.5
percent defective) for a specified time period.
• No incoming non-product rejections (e.g., late delivery) for
a specified time period
• No significant supplier production-related negative incidents for
a specified time period
• ISO 9000/Q9000 certified or successfully passing a recent, on-
site quality system evaluation
• Mutually agreed-upon set of clearly specified quality
performance measures
• Fully documented process and quality system with cost controls
and continuous improvement capabilities
• Supplier’s processes stable and in control
 Supplier Evaluation and
Certification- Cont.
The Weighted-Criteria Evaluation System
1. Select the key dimensions of performance mutually acceptable
to both customer and supplier.
2. Monitor and collect performance data.
3. Assign weights to each of the dimensions.
4. Evaluate performance measures between 0 and 100.
5. Multiply dimension rating by weight and sum overall score.
6. Classify vendors based on their overall score:
Unacceptable, Conditional, Certified, & Preferred
7. Audit and perform ongoing certification review.
Supplier Evaluation and
Certification- Cont.
 Supplier Evaluation and
Certification- Cont.
ISO 9000
• Developed by International Organization for Standardization (ISO)- series
of management & quality standards in design, development, production,
installation, and service.
• U.S. companies wanting to sell in the global market seek ISO 9000
certification.

ISO 14000
• A family of standards for environmental management.
• The benefits include reduced energy consumption, environmental liability,
waste and pollution, and improved community goodwill.
 Supplier Development

Supplier development refers to buyer’s

activities undertakes to improve a supplier’s
performance and/or capabilities based on
the following approach:
1. Identify critical products and services
2. Identify critical suppliers
3. Form a cross-functional team
4. Meet with top management of supplier
5. Identify key projects
6. Define details of Agreement
7. Monitor status and modify strategies
 Supplier Awards

Companies should recognize and celebrate

the achievements of their best suppliers.

Award winners exemplify true

partnerships continuous improvement,
organizational commitment, and
excellence.

Award-winning suppliers serve as role models

for other suppliers.
 Supplier Relationship Management
Software
Supplier relationship management (SRM) software
improves profits and reduces costs.

What is SRM software used for?

Supplier relationship management (SRM) software centralizes
supplier-related data, helps select fitting suppliers, analyzes their
performance, and identifies related risks to improve supplier
collaboration planning and management.

SRM refers to “extended procurement processes such as

sourcing analytics (e.g., spend analysis), sourcing execution,
procurement execution payment and settlement, and-closing the
feedback loop- supplier scorecarding and performance
monitoring.”
 Supplier Relationship Management
Software- Cont.
Five key points of an SRM system:
• Automation
• Integration spans multiple departments, processes, and
software applications.
• Visibility of information and process flows
• Collaboration through information sharing
• Optimization of processes and decision making