Chapter 3—Creating and Managing Supplier Relationships

TRUE/FALSE

1. If a company is effectively focusing on its core competencies, its level of outsourcing is likely to
decrease.

ANS: F PTS: 1
BUSPROG: Analytic LO: 3-1 Bloom’s: Knowledge Difficulty: Easy

2. When developing successful partnerships, it is best to avoid inter-personal business relationships

between buyers and suppliers.

ANS: F PTS: 1
BUSPROG: Analytic LO: 3-1 Bloom’s: Knowledge Difficulty: Easy

3. As companies outsource more and more parts, it becomes easier to achieve cost savings internally.

ANS: F PTS: 1
BUSPROG: Analytic LO: 3-1 Bloom’s: Comprehension Difficulty: Easy

4. Building Trust, Shared Vision and Objectives, Personal Business Relationships, Mutual Benefits and
Needs are key factors that contribute to a lasting supplier partnership.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-1 Bloom’s: Knowledge Difficulty: Easy

5. It is critical that buyers and suppliers develop stronger relationships and partnerships based on a
tactical rather than a strategic perspective.

ANS: F PTS: 1
BUSPROG: Analytic LO: 3-2 Bloom’s: Comprehension Difficulty: Easy

6. Successful supplier relationships involve equal decision-making control.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-2 Bloom’s: Comprehension Difficulty: Easy

7. The development of relationships with suppliers brings about changes that must be managed for a
company to stay focused on their core businesses.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-2 Bloom’s: Comprehension Difficulty: Easy

8. A seven-step approach to supplier development might include identifying critical suppliers not
meeting performance requirements.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-2 Bloom’s: Knowledge Difficulty: Easy
 9. Unless an organization has a firm grasp of the key issues surrounding supplier relationships, it cannot
reap the benefits of such relationships.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Knowledge Difficulty: Easy

10. In a Total Cost of Ownership system, certification and training of suppliers would be considered post-
transaction costs.

ANS: F PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Knowledge Difficulty: Easy

11. In a weighted-criteria evaluation system the weights of all the performance dimensions must add up to
more than 1.00 and less than 100.

ANS: F PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Knowledge Difficulty: Easy

12. ISO 14000 is a family of international standards for environmental management.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Knowledge Difficulty: Easy

13. China, which has the largest number of ISO 9001 certificates, issued over 292,000 as of 2017,
representing 28.3 percent of the total certificates issued worldwide.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Knowledge Difficulty: Easy

14. It is illegal for corporations to provide their suppliers appreciation banquets to award performance.

ANS: F PTS: 1
BUSPROG: Analytic LO: 3-4 Bloom’s: Comprehension Difficulty: Easy

15. Offering an awards program to suppliers both motivates the suppliers to commit to a program of
continuous improvement as well as provides role models for other suppliers to follow.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-4 Bloom’s: Comprehension Difficulty: Easy

16. According to the text, only about half of companies recognize excellent performance with supplier
awards and appreciation banquets.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-4 Bloom’s: Comprehension Difficulty: Easy

17. Transactional SRM, allows the company to analyze the complete supplier base.

ANS: F PTS: 1
BUSPROG: Analytic LO: 3-5 Bloom’s: Comprehension Difficulty: Easy

18. A SRM strategy refers to a situation wherein a supplier’s employee is permanently housed in the
purchasing department of the buyer’s organization.
 ANS: F PTS: 1
BUSPROG: Analytic LO: 3-5 Bloom’s: Comprehension Difficulty: Easy

19. Smoother processes, faster cycle times, reduced new product development, and improved time-to-
market are possible benefits from the increased visibility that is offered by SRM software.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-6 Bloom’s: Comprehension Difficulty: Easy

20. Automating procurement activities can lead to significant cost savings as buyers move toward
managing processes by exception.

ANS: T PTS: 1
BUSPROG: Analytic LO: 3-6 Bloom’s: Comprehension Difficulty: Easy

MULTIPLE CHOICE

1. According to the SCM profile Honda ___________ based on a supplier relations index developed by
Planning Perspectives.
a. Ranked lower in 2015 than 2014
b. Ranked near the bottom in 2015
c. Ranked near the top in 2015
d. Ranked fifth in 2015
ANS: C PTS: 1
BUSPROG: Analytic LO: 3-1 Bloom’s: Knowledge Difficulty: Easy

2. Which of the following is important in developing successful relationships in a partnership?

a. Commitment by top management
b. Interpersonal business relationships between employees of the companies
c. Mutual/compatible needs that result in a win-win situation for the partners
d. All of these
ANS: D PTS: 1
BUSPROG: Analytic LO: 3-1 Bloom’s: Comprehension Difficulty: Easy

3. Which of the following is NOT important in developing a successful strategic alliance?

a. Developing performance metrics
b. Developing cross-functional team capabilities externally and within the company
c. Developing efficient processes that will remain unchanged for the duration of the
partnership
d. Open lines of communication that both promote sharing and secure confidentiality
ANS: C PTS: 1
BUSPROG: Analytic LO: 3-1 Bloom’s: Comprehension Difficulty: Easy

4. According to the text, key ingredients for developing successful supply partnerships include all of the
following EXCEPT:
a. Personal relationships
b. Performance metrics
c. Mutual benefits and needs
d. Individualized objectives
ANS: D PTS: 1
 BUSPROG: Analytic LO: 3-2 Bloom’s: Knowledge Difficulty: Easy

5. According to the text, one of the most basic and successful approaches to protecting trade secrets is:
a. Threat of litigation
b. Working with law makers to increase fines and sentences for those that steal trade secrets
c. Requiring employees and vendors to sign non-disclosure agreements
d. Requiring employees and partners to get ISO 9000 certified
ANS: C PTS: 1
BUSPROG: Analytic LO: 3-2 Bloom’s: Knowledge Difficulty: Easy

6. Costs associated with investigating alternative suppliers and investigating alternative delivery options
can be classified as:
a. Pre-transaction costs
b. Post-transaction costs
c. Transaction costs
d. All of these
ANS: A PTS: 1
BUSPROG: Analytic LO: 3-2 Bloom’s: Knowledge Difficulty: Easy

7. What type of major cost category is considered in the cost associated with placing and receiving the
order?
a. Turnover Cost
b. Supplier-Development Cost
c. Transaction Cost
d. Pre-transaction Cost
ANS: C PTS: 1
BUSPROG: Analytic LO: 3-2 Bloom’s: Knowledge Difficulty: Easy

8. Field failures, loss of goodwill, a decreased reputation, and warranty costs can all be classified as:
a. Pre-transaction costs
b. Post-transaction costs
c. Transaction costs
d. All of these
ANS: B PTS: 1
BUSPROG: Analytic LO: 3-2 Bloom’s: Knowledge Difficulty: Easy

9. Which of the following is TRUE?

a. Performance metrics and personal business relationships are both keys to building
successful partnerships.
b. ISO 75000 is the supplier award given to the highest rated supplier in Japan.
c. The key to successful partnerships is developing performance measures with weights
greater than 3.50.
d. SRM software modules are very affordable (less than $50,000) and can be implemented
with a week.
ANS: A PTS: 1
BUSPROG: Analytic LO: 3-2 Bloom’s: Comprehension Difficulty: Easy

10. According to the text, the goal of a good performance evaluation system is to provide metrics that are:
a. Understandable, easy to measure, focused on value-added results
b. Understandable, quantitative, focused of cost-related results
 c. Understandable, qualitative, focused on short-term results
d. Understandable, quantitative, focused on quality-related results
ANS: A PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Knowledge Difficulty: Easy

11. An organization's process for evaluating the quality systems of key suppliers in an effort to eliminate
incoming inspections can be referred to as:
a. Quality Systems Certification
b. Supply Management
c. Supplier Inspection
d. Supplier Certification
ANS: D PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Knowledge Difficulty: Easy

12. The benefits of implementing an effective supplier certification program include all of the following
EXCEPT:
a. Building long-term beneficial relationships
b. Increasing supplier base
c. Improving responsiveness
d. Recognizing excellence
ANS: B PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Comprehension Difficulty: Easy

13. When using a Weighted Criteria Evaluation System to evaluate suppliers, all of the following are true
EXCEPT:
a. Select the key dimensions of performance based on what is important to the end consumer
b. The weights for all dimensions must sum to 1 or 100%
c. Evaluate each of the performance measures on a rating between zero and one-hundred
d. Multiply the dimension ratings by their respective important weights and then sum to get
an overall weighted score
ANS: A PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Comprehension Difficulty: Easy

14. A company using a weighted-criteria evaluation system has established these 3 categories and the
appropriate weight in parentheses: Quality(0.30), Delivery(0.40), Cost(0.30).

The scores for each category are shown below. Which of the following companies has the highest total
score?
a. Company A: Quality(90), Delivery(80), Cost(60)
b. Company C: Quality(70), Delivery(95), Cost(60)
c. Company B: Quality(70), Delivery(80), Cost(80)
d. All companies scored the same.
ANS: B PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Application Difficulty: Easy

15. A company using a weighted-criteria evaluation system has established these 5 categories and the
appropriate weight in parentheses:
Quality (0.25)
Responsiveness (0.10)
Delivery (0.15)
 Cost (0.15)
Technology (0.30)

Company X received the following ratings in each of the five categories: Quality(90),
Responsiveness(90), Delivery(80), Cost(80), Technology(85). What is its total score?
a. 81.0
b. 82.5
c. 83.0
d. 84.5
ANS: A PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Application Difficulty: Easy

16. Direct benefits of ISO 14000 include:

a. Reduced defect rates
b. Improved on-time delivery rates
c. Reduction of pollution emissions
d. All of these
ANS: C PTS: 1
BUSPROG: Ethics LO: 3-3 Bloom’s: Application Difficulty: Easy

17. In general, European companies prefer suppliers:

a. Who employ the most people
b. Whose headquarters are in a developing county
c. Who are in the United States
d. Who have ISO 9001 certifications
ANS: D PTS: 1
BUSPROG: Analytic LO: 3-3 Bloom’s: Comprehension Difficulty: Easy

18. Which of the following is NOT a reason for supplier recognition programs?
a. To help suppliers’ reputation in the marketplace
b. To select the best suppliers
c. To encourage suppliers to be more innovative
d. To reward suppliers for excellent performance
ANS: B PTS: 1
BUSPROG: Analytic LO: 3-4 Bloom’s: Comprehension Difficulty: Easy

19. According to the textbook, Supplier Recognition Programs:

a. Are generally not very effective
b. Are used by 90% of companies
c. Encourage suppliers to keep their performance high
d. Are difficult to implement
ANS: C PTS: 1
BUSPROG: Analytic LO: 3-4 Bloom’s: Knowledge Difficulty: Easy

20. The Hormel company awards their Hormel Food Corporation's No. 1 Award to their top supplier. How
often do they give this award?
a. Every year
b. Every 6 months
c. Every 5 years
d. Every 10 years
 ANS: C PTS: 1
BUSPROG: Analytic LO: 3-4 Bloom’s: Knowledge Difficulty: Easy

21. Before supplier relationship management (SRM), buyers typically spent 40% of their time on
expediting orders. After SRM implementation buyers spent about:
a. 10% of their time on expediting orders
b. 20% of their time on expediting orders
c. 30% of their time on expediting orders
d. None of the these
ANS: A PTS: 1
BUSPROG: Analytic LO: 3-5 Bloom’s: Comprehension Difficulty: Easy

22. Streamlining the processes and communications between the buyer and supplier using software
applications that enable these processes to be managed more efficiently and effectively can be referred
to as:
a. CRM
b. SRM
c. ISO 9000
d. SCSS
ANS: B PTS: 1
BUSPROG: Technology LO: 3-5 Bloom’s: Knowledge Difficulty: Easy

23. SRM software should be capable of:

a. Automating transactional processes
b. Making information flow between partners more visible
c. Integration of the supply chain making it possible to monitor multiple departments and
processes both internally and externally
d. All of these
ANS: D PTS: 1
BUSPROG: Technology LO: 3-5 Bloom’s: Knowledge Difficulty: Easy

24. Summers, Inc. needs to generate a list of good/services purchased per supplier. Which type software
program can the manager consult to obtain this information?
a. ISO 9000
b. MRP
c. SRM
d. SCSS
ANS: C PTS: 1
BUSPROG: Analytic LO: 3-6 Bloom’s: Knowledge Difficulty: Easy

25. Which of the following is NOT a key tenant of an SRM system?

a. Automation
b. Lean operations
c. Visibility
d. Integration
ANS: B PTS: 1
BUSPROG: Analytic LO: 3-6 Bloom’s: Knowledge Difficulty: Easy

26. SRM software can automate procurement activities that lead to significant cost savings as purchasing
professionals move toward:
 a. Collaborative planning
b. Diversifying their hiring
c. Improving capacity
d. Expediting each order
ANS: A PTS: 1
BUSPROG: Analytic LO: 3-6 Bloom’s: Knowledge Difficulty: Easy

SHORT ANSWER

1. Provide a list of four ways companies can motivate their suppliers to improve.

ANS:
a. Develop supplier recognition/awards programs
b. Create supplier development programs
c. Create an internal certification program
d. Motivate suppliers to get a quality certification like ISO 9000
e. Utilize Supplier Relationship Management software
f. Utilize a performance metrics system

PTS: 5
BUSPROG: Reflective Thinking LO: 3-2 Bloom’s: Analysis Difficulty: Moderate

2. What are the two external certification programs discussed in the text? What does each certification
attempt to certify?

ANS:
a. ISO 9000  ISO 9000 certifies an organization's management structure and practices and
their quality output in the areas of design, development, production, installation, and
service.

b. ISO 14000  ISO 14000 certifies an organization's environmental management. ISO

14000 maintains standards in energy consumption, resource consumption, environmental
liability and risk, waste and pollution generation, and community goodwill.

PTS: 5
BUSPROG: Communication LO: 3-3 Bloom’s: Comprehension Difficulty: Moderate

3. A company using a weighted-criteria evaluation system has established these 4 categories and the
appropriate weight in parentheses: Technology(0.25), Quality(0.30), Environmental (0.20), Cost(0.25).
Currently they use supplier ABC that presently has a supplier score of 85. Calculate supplier XYZ’s
total score and decide (based on supplier score) if the company should change suppliers.

The scores for supplier XYZ are shown below for each category.
Performance Measure Score
Technology 80
Quality 75
Environmental 90
Cost 85

ANS:
 SCORE for Company XYZ: (0.25 x 80) + (0.30 x 75) + (0.20 x 90) + (0.25 x 85)
20 + 22.5 + 18 + 21.25 = 81.75
Based on supplier score they should continue to purchase supplies from Company ABC since they
have a higher supplier score. It should be noted that quality performance is most important to this
company and supplier XYZ scored lowest in that category.

PTS: 5
BUSPROG: Analytic LO: 3-3 Bloom’s: Application Difficulty: Moderate

4. According to the textbook, SRM software varies based on capabilities offered. AMR research has
identified 5 areas of distinction for an SRM system. Provide three of these key tenets of SRM and
explain how it is used.

ANS: The key tenents of supplier relationship management software are:

 Automation of transactional processes between an organization and its suppliers.
 Integration that provides a view of the supply chain that spans multiple departments,
processes, and software applications for internal users and external partners.
 Visibility of information and process flows in and between organizations. Views are
customized by role and aggregated via a single portal.
 Collaboration through information sharing and suppliers’ ability to input information directly
into an organization’s supply chain information system.
 Optimization of processes and decision-making through enhanced analytical tools such as data
warehouse and Online Analytical Processing (OLAP) tools with the migration towards more
dynamic optimization tools in the future.

PTS: 5
BUSPROG: Communication LO:3-6 Bloom’s: Comprehension Difficulty: Difficult

ESSAY

1. Suppose your organization is attempting to set up a new strategic alliance with a supplier. You are
considered the key manager from your organization to manage this alliance. What would be your goals
for the planning stages of this proposed alliance? What would be your goals for the first few months of
the alliance? What would be your long-term goals for the alliance?

ANS:
What would be your goals for the planning stages of this proposed alliance?
One of the most important goals in developing this type of relationship is to ensure that the vision and
objectives of the proposed alliance can be agreed upon by those parties involved. Also, it is important
to create interpersonal business relationships in the buyer-supplier partnerships since it is the people
who communicate and make things happen. Make sure that both organization's needs will be met and
the benefits will be shared as this will keep the relationship productive and long-lasting. Be sure to get
support and commitment from top management so you can dedicate your time, best people and
resources to make the partnership succeed. It is also important that all parties communicate the
constant need to share information and support programs of continuous improvement. While not all of
these things will be accomplished during the planning stages it is vital that they are all discussed into
certain degree agreed upon before the alliance gets off the ground.

What would be your goals for the first few months of the alliance?
 The goals for the first few months of the alliance would center around the partnering organizations
communicating to their employees their support for the alliance. In addition it would be important for
management to communicate the objectives, the benefits, and the changes that are sought via the
alliance. This would also include communicating the goal of continuous improvement to all the parties
involved

Also during these first few months personal relationships and trust must continue to be nurtured. In
terms of physical changes, the organizations would need to make the required changes to their rules
and regulations, their information systems, and their processes that would facilitate the success of the
alliance.

What would be your long-term goals for the alliance?

The long-term goals of the alliance would be to serve the customer by offering them high quality
products in the most effective and efficient manner possible. This would be achieved by the
organization’s long-term commitment to building trust, sharing information, teaching each other,
measuring progress, reevaluating the vision and objectives of the alliance from time to time, and
continuing the support of continuous improvement programs.

PTS: 10
BUSPROG: Communication LO:3-2 Bloom’s: Application Difficulty: Difficult

2. The TCO as defined in the textbook adds "all costs associated with the acquisition, use, and
maintenance of a good or service."

The TCO is then broken up into three major cost categories. List the three cost categories, provide a
definition of each, and then provide two examples of each of the three types of costs.

ANS:
a. Pre-transaction Costs  Costs incurred before the order and receipt of the purchased
goods.
Examples: supplier certification, supplier training, investigating delivery options for new
suppliers, cost associated with finding a new supplier, costs associated with comparing
suppliers and their supplies...

b. Transaction Costs  Costs of goods/services and cost associated with placing and
receiving the order.
Examples: purchase price of the product, order preparation, delivery costs, insurance,
packaging, costs associated with requesting the order...

c. Post-Transaction Costs  Costs incurred after goods are in possession of the company.
Examples: Field failures, defective items delivered to the customer, damage to the
company’s reputation, costs with maintaining broken items, warranty costs, legal costs,
fines, and logistical costs associated with retrieving damaged or defective items in the
field.

PTS: 10
BUSPROG: Communication LO:3-2 Bloom’s: Application Difficulty: Difficult

3. Blaize Manufacturing Company is using a weighted criteria evaluation system to certify suppliers.
a. Determine the total weighted score for the supplier shown below.
b. Based on the evaluation system and weights used by this firm, what is their purchasing objective?
c. Give an example of a real company that might be using this type of strategy.
d. If Blaize Mfg. classifies their vendors based on the following scores, how well is this supplier
doing?
 Unacceptable (less than 50)
 Conditional (between 50 and 70)
 Certified (between 70 and 90)
 Preferred (greater than 90)

Performance Criteria Weight Score (0-100)

Technology 25% 85
Quality 20% 90
Environmental 15% 84
Responsibility
Price 15% 77
On-time deliveries 10% 86
Flexibility 5% 84
Customer Service 10% 83

ANS:
a. Total weighted score = (.25) x 85 + (.20) x 90 + (.15) x 84 + (.15) x 77 + (.10) x 86 + (.05) x
84 + (.10) x 83 = 21.25 + 18 + 12.6 + 11.55 + 8.6 + 4.2 + 8.3 = 84.5

b. Their purchasing objective seems to value Technology and Quality very high. Environmental
responsibility is also relatively important to this company as well as product price.

c. Answers will vary, but some examples might include tech companies like Honeywell, Intel
and Apple.

d. With a score of 84.5 this supplier meets the firms intended purpose. Blaize would certify this
supplier since the score is between 70 and 90. They might not consider this supplier for new
product development or opportunities for more business unless it can raise its score above 90.

PTS: 10
BUSPROG: Communication LO:3-3 Bloom’s: Application Difficulty: Difficult

4. For each of the following programs, processes, certifications, etc. explain how they can be
useful in improving supplier relationships and motivating business partners to provide the best
possible products and services.
a. ISO 9000
b. TCO
c. Supplier development programs
d. Supplier recognition programs

ANS:
a. ISO 9000  ISO 9000 is a certification that proves an organization is committed to
quality and has a quality management system in place that is dedicated to monitoring
and improving quality. Companies that are ISO 9000 certified are more likely to
experience a reduction in production cost due to an improvement in quality made.

b. TCO  TCO is a performance metric system designed to isolate the total cost of
purchases, which can include costs that are incurred before, during and after a
transaction. This then allows companies to identify inefficiencies and key cost drivers.

c. Supplier development programs  These programs allow buyers to share programs,

 ideas, and recommendations in an effort to not only improve the output purchased by the
buyer, but it ultimately also helps the supplier improve in ways that will make it more
competitive in the eyes of other potential buyers. This strengthens relationships and
facilitates in fostering open communication lines between these companies.

d. Supplier recognition programs  People like to be recognized and awarded for their
accomplishments. Supplier recognition programs help communicate what buyers value
and they also communicate whether or not a supplier's efforts are being appreciated.
Winners know they should continue on their present path, those who do not win may be
motivated to change in positive ways.

PTS: 10
BUSPROG: Communication LO:3-4 Bloom’s: Comprehension Difficulty: Difficult