Slide 6.

Part 2
Supplier relationships, legal & contractual
management, quality management,
sourcing, supplier selection, price
management and long-term cost in use

Chapter 6
Supplier relationships and partnering

Lysons & Farrington, Procurement and Supply Chain Management, 9e © Pearson Education Limited 2016
Slide 6.2

Learning Outcomes
This chapter aims to provide an understanding of:
• planning relationship procurement
• comparison of transactional and relationship procurement
• the strategic nature of buyer–seller relationships
• models of supplier relationships
• legal considerations
• skills and knowledge requirements
• the benefits of long-term relationships
• the termination of supplier relationships
• analysing relationship breakdowns.

Lysons & Farrington, Procurement and Supply Chain Management, 9e © Pearson Education Limited 2016
Slide 6.3

Key Ideas
 Effective planning to create positive relationships.
 Key considerations of transactional and relationship procurement.
 Relationship formation.
 Classification and analysis of supplier relationships.
 Contract governance principles and application.
 The business usefulness of supplier relationship models.
 Evaluating the mutuality of benefits from the relationship.
 Factors to consider when terminating relationships.

Lysons & Farrington, Procurement and Supply Chain Management, 9e © Pearson Education Limited 2016
Slide 6.4

Supplier Relationship Management (SRM)

Why?
Unilever Partner with Purpose Awards 2020
Source: https://www.unilever.com/suppliers/working-together/partner-with-purpose/

Lysons & Farrington, Procurement and Supply Chain Management, 9e © Pearson Education Limited 2016
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Supplier relationships and partnering

Definition of a relationship ‘A connection or association’

Relationship marketing Relationship procurement

1 1 2
Secures
Long-term Long-term
mutual
strategy strategy
benefits

2 3
Not one
sale at Requires
a time! focus

Lysons & Farrington, Procurement and Supply Chain Management, 9e © Pearson Education Limited 2016
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Supplier relationships and partnering

Table 6.1 Main differences between transactional and relationship procurement
Transactional Relationship
Focus on short, discrete procurement Focus on supplier retention
Short-term orientation Long-term orientation
Arms length Closeness
Simple buyer–seller relationship Complex, including internal relationships
Emphasis on price, quality and delivery in the Emphasis on improving price, quality, delivery
offered product and other factors such as innovative design
No innovation as a collaborative exercise between
purchaser and supplier
Moderate supplier contact High supplier contact with each contact being
used to gain information and strengthen the
relationship
Little sharing of information; opaqueness Significant sharing of information including
cost information, transparency
Reverse auctions may be applicable Reverse auctions generally inapplicable

Lysons & Farrington, Procurement and Supply Chain Management, 9e © Pearson Education Limited 2016
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Supplier relationships and partnering

PAS 11000 (BS 11000) (ISO 44001)
Strategic framework to improve
Collaborative Business Relationships
Eight key stages

1. Awareness
2. Knowledge
3. Internal assessment
4. Partner selection
5. Working relationship
6. Additional value creation
7. Staying together
8. Exit strategy

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Supplier relationships and partnering

Relationship formation
Holmlund and Strandvik – the five aggregation
levels of interactions between 2 or more enterprises
1 Actions – Individual initiatives (e.g. meeting, phone call,
site visit)
2 Episodes – Groups of interrelated actions (e.g. negotiation)

3 Sequences – More extensive entities of interactions

(e.g. Contract, campaign, product, project)
4 Relationships – Comprise all sequences in one relationship

5 Partner base – Relationship portfolio

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Supplier relationships and partnering

Models of Supplier Relationships
A stepladder of external and internal contractual relationships

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Supplier relationships and partnering

Models of Supplier Relationships
Supplier’s specific investment – The Bensaou Model

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Supplier relationships and partnering

Supplier relationship management

The Bayer Group – SUPREME analysis model
Refer to Figure 6.4 for detail

Spend Supplier Collaboration Performance Risk

visibility segmentation Management
Leveraging How The process of Enables The extent to which The
SRM Money Is dividing continuous supplier compliance identification
Moving suppliers into improvement of and excellence are and
Utilising SRM Through distinct groups operations. through profitable, especially management
Your based on long-term as an investment in of supplier
Implemented Company – needs, relationships with relation to a well- risk.
SRM Tracking characteristic suppliers, allowing defined plan and key
Spending. or behavior. for the creation of a areas of Opportunity
Need
more effective and. for Improvement.
identified
efficient supply
Limited/ chain.
none

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Supplier relationships and partnering

Supplier relationship management
The Bayer Group – SUPREME analysis model – Figure 6.4

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Supplier relationships and partnering

Termination – Reasons for termination

• changes in business direction(s) –if either organisation shifted its strategic direction

• product obsolescence – product/service becoming obsolete, no replacement options

• the supplier is unable to meet service levels – partnership objectives no longer met

• short-term attitude – long-term partnership not been realised quickly or insufficient

• economic factors – partner becoming ‘at risk’ financially, with danger of potential liquidation

• external economics – e.g. a recession (cut back prod. Dev., training, prod. Eng., etc.)

• mergers and acquisitions – ventures can create new business models for either parties

• corporate divestiture – parts of business sold  can no longer provide a product or service

• instability and inconsistency – acquisitions, disposals, rapid changes in key personnel or

organisational philosophy often adversely affect years of previous relationship building
based on trust and stability.
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Supplier relationships and partnering

Termination – Legal considerations

Financial consequences

Confidentiality agreements

Intellectual property rights

Capital assets

Security issues

Employee rights (if under TUPE)

Signed record of settlement

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Supplier relationships and partnering

Relationship breakdown on an IT project –

Queensland Health & IBM Australia Ltd – Payroll
System
Tender process had deficiencies

Serious misconduct by IBM’s

employees (Queensland health
payroll system project)

No serious analysis of best vendor

engagement model

Evidence of haste

Request for proposal (RFP) was a

brief email

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Sourcing vs. Procurement

Thank You

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