Principles of Supply Chain Management (5e)

Chapter 3
CREATING AND
MANAGING SUPPLIER
RELATIONSHIPS

Prepared by Cynthia Wisner, MBA

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

CHAPTER 3
LEARNING OBJECTIVES
You should be able to:
• Explain the importance of supplier partnerships
• Understand the key factors for developing successful
partnerships
• Develop a supplier evaluation & certification program
• Explain the importance of a supplier recognition program
• Understand the capabilities of Supplier Relationship
Management
• Explain the benefits of using SRM software to manage
suppliers
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

CHAPTER OUTLINE

• Introduction
• Developing Supplier Relationships
• Supplier Evaluation & Certification
• Supplier Development
• Supplier Recognition Programs
• Supplier Relationship Management

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Keys to Successful Partnerships

Strong supplier partnerships
• Important to achieving win-win competitive
performance for the buyer and supplier -- these
require a strategic perspective as opposed to a
tactical position
• 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”

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Keys to Successful Partnerships , Part 1

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, &, in short,
go to the extra mile.

Shared Vision & Objectives

 Both partners must share the same vision & have
objectives that are not only clear but mutually
agreeable. The focus must move beyond tactical issues
& toward a more strategic path to corporate success.
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Keys to Successful Partnerships , Part 2

Personal Business Relationships

 It is people who communicate & make things happen
 Whoever is interfacing with the other company, they are
the company

Mutual Benefits & Needs

 Partnership should result in a win-win situation, which
can only be achieved if both companies have
compatible needs. An alliance is like a marriage, if only
one party is happy, then the marriage is not likely to last

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Keys to Successful Partnerships , Part 3

Commitment & Top Management Support

 Both parties must dedicate their time, best people, and
resources to make the partnership succeed
 Partnerships tend to be successful when top executives
are actively supporting the partnership
Change Management
 Companies must be prepared to manage change that
comes with the formation of new partnerships

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Keys to Successful Partnerships , Part 4

Information Sharing & Lines of Communication

 Both formal & informal lines of communication should be
set up to facilitate free flow of information
 Confidentiality of sensitive information must be
maintained
Relationship Capabilities
 Suppliers must have the right technology & capabilities to
meet cost, quality, & delivery requirements
 Suppliers must flexible to respond quickly to changing
customer requirements
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Supplier Evaluation & Certification

 A process to identify best & most reliable suppliers

 Sourcing decisions are made on facts & not on
perception
 Frequent feedback can help avoid surprises & 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

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Supplier Development
Supplier development
Activity buying firm takes to improve a supplier’s performance
and/or capabilities to better meet its needs
Seven-step approach to supplier development
1. Identify critical products & services
2. Identify critical suppliers not meeting performance requirements
3. Form a cross-functional team
4. Meet with top management of supplier
5. Rank supplier development projects
6. Define details of Agreement
7. Monitor status & modify strategies

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Supplier Recognition Programs

Three Attributes –
 Companies should recognize & celebrate the
achievements of their best suppliers
 Award winners exemplify true partnerships
continuous improvement, organizational
commitment, & excellence
 Award-winning suppliers serve as role models for
other suppliers

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Supplier Relationship Management

Supplier Relationship Management (SRM)

• Streamlining processes and communication between
buyer and supplier using software applications
• SRM software automates the exchange of information
resulting in:
• improved procurement efficiency
• lower business costs
• real-time visibility
• faster communication between buyer and seller
• enhanced supply chain collaboration

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Supplier Relationship Management , Part 1

Five key points of an SRM system

1. Automation handles routine transactions
2. Integration spans multiple departments,
processes, & software applications
3. Visibility of information & process flows
4. Collaboration through information sharing
5. Optimization of processes & decision making

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Supplier Relationship Management , Part 2

• Transactional SRM - used to track supplier

interactions such as order planning, order
payment and returns
• focuses on short-term reporting and is event
driven
• Analytic SRM allows the company to
analyze the complete supplier base
• focuses on long-term procurement strategies

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

Supplier Relationship Management , Part 3

Benefits derived from automating procurement

activities
 Significant cost savings as buyers move toward managing
processes by exception
 Greater procurement visibility from using SRM software also
translates into
smoother processes reduced product
development
faster cycle times streamlined purchasing
improved time to market reduced inventory costs

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
 Principles of Supply Chain Management (5e)

End of Chapter 3

© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
16