Principles of Supply Chain Management (5e)

Chapter 3
CREATING AND
MANAGING SUPPLIER
RELATIONSHIPS

© 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
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 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 supplier development and 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)

Importance of Supplier 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
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 Principles of Supply Chain Management (5e)

Keys to Successful Partnerships , Part 2

Personal Business Relationships

 Interpersonal relationships in buyer–supplier partnerships
are important since it is people who communicate and
make things happen.
 Partnership isn’t really a relationship between companies,
it’s a relationship between specific individuals.
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
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 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
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 Principles of Supply Chain Management (5e)

Keys to Successful Partnerships , Part 4

Hewlett Packard identified several key steps

to ensure better change management:
• Identify internal champions
• Secure executive buy-in
• Coordinate internal communication and
support teams
• Train and survey impacted managers
• Conduct business reviews with key client
groups
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 Principles of Supply Chain Management (5e)

Keys to Successful Partnerships , Part 5

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)

Keys to Successful Partnerships , Part 6

Performance Metrics
You can’t improve what you don’t measure
 Measures related to quality, cost, delivery, & flexibility are used
to evaluate suppliers.
 Metrics should be:1) understandable, 2) easy to measure, & 3)
focused on real value-added results
 A multi-criteria approach is best
 Total cost of ownership (TCO), is made up of all costs
associated with the acquisition, use, & maintenance of a good
or service. TCO provides a proactive approach for
understanding costs and supplier performance leading to
reduced 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)

Keys to Successful Partnerships , Part 7

Continuous Improvement
 Making a series of small improvements over time
results in the elimination of waste in a system
 Buyers & suppliers must be willing to continuously
improve their capabilities in meeting customer
requirements of cost, quality, delivery, sustainability &
technology
 Partners should work proactively toward eliminating
mistakes

© 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 8

Monitoring Supplier Relationships

 The organization should have a firm grasp of the key issues
surrounding supplier relationships which may include:
• Creativity - promoting quality, innovation, and a long-term
approach by encouraging high performance.
• Stability - investment, synchronization of objectives, and
confidence building.
• Communication - frequent, open dialogue and information
sharing.
• Reliability - concentrating on service and product delivery,
lowering joint costs.
• Value - creating a win–win relationship in which each side is
delighted to be a part.

© 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.
 Buyers are able to give constructive feedback via
supplier certificition.
• 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
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 Principles of Supply Chain Management (5e)

Supplier Evaluation & Certification , Part 1

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/Q9000/14001 certified or successfully passing a
recent, on-site quality system evaluation.
 Mutually agreed-upon set of clearly specified quality
performance measures.
 Fully documented process & quality system with cost controls
& continuous improvement capabilities.
 Supplier’s processes stable & in control.
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 Principles of Supply Chain Management (5e)

Supplier Evaluation & Certification, Part 2

The Weighted-Criteria Evaluation System

1. Select key dimensions of performance mutually
acceptable to both customer & supplier.
2. Monitor & collect performance data.
3. Assign weights to each of the dimensions.
4. Evaluate performance measures between 0 & 100.
5. Multiply dimension rating by weight & sum of overall score.
6. Classify vendors based on their overall score:
Unacceptable, Conditional, Certified, & Preferred
7. Audit & perform ongoing certification review.

© 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 , Part 3

Supplier Scorecard Used for the XYZ Company

Performance Rating × Weight = Final Value
Measure
Technology 80 0.10 8.00
Responsiveness 90 0.25 22.50
Delivery 95 0.15 14.25
Cost 80 0.15 12.00
Environmental 90 0.05 4.50
Business 90 0.15 13.50
Empty Cell Total score 1.00 88.25

(Example 3.1. )

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 Principles of Supply Chain Management (5e)

Supplier Evaluation & Certification , Part 4

ISO 9000
 Developed by International Organization for
Standardization (ISO)
 Series of management & quality standards in design,
development, production, installation, & service
 Companies wanting to sell in the global market seek ISO
9001 certification

© 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 , Part 5

Standards in the ISO 9000 family

• ISO 9000:2015 - covers the basic concepts and language
• ISO 9001:2015 - sets out the requirements of a quality
management system
• ISO 9004:2009 - focuses on how to make a quality
management system more efficient and effective
• ISO 19011:2011 - sets out guidance on internal and
external audits of quality management systems

© 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 , Part 6

ISO 14000
 Family of standards for environmental management
 Benefits include:
Reduced energy consumption
Environmental liability
Reduced waste & pollution
Improved community goodwill

© 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

Benefits derived from automating procurement

activities
 Significant cost savings as buyers move toward managing
processes via the SRM software.
 Greater procurement visibility from using SRM software also
translates into:
 smoother processes  streamlined purchasing
 faster cycle times  reduced inventory costs
 improved time to market

© 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.
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