In supply chain literature, as well as in business environments, supplier relationship management (SRM) and buyer-supplier relationships have multiple definitions, shapes and extensions, owed to the fact that the determinants and perceptions of these fields have evolved over time. With increasing globalisation, and economic and political turmoil, stable and focused SRM is more important than ever.
Sinbl Hawro Yakoob, responsible for handling bottleneck products in the Critical Parts Management Department at Mercedes-Benz in Maastricht, the Netherlands, describes the benefits, key approaches and techniques that enhance buyer-supplier relationships, in this month’s SmartProcurement.
Requirements and objectives of buyer-supplier relationships vary and these relationships are not static, being cultivated over time. As such, SRM has gained relevance in order to maximise supply chain efficiency, cost-effectiveness, operational progress, breakthroughs and joint innovation for mutual benefit: corporations offer seminars and training to demonstrate how to improve SRM.
Research from 2015 indicates that SRM augments faster time to market, transactional efficiency, competitiveness and financial benefits, which is why enterprise resource system providers added tools and applications to their programs, to facilitate an overview of supplier databases. Consequently, SRM technology provides unparalleled visibility and assists in reducing and sharing risks, which yields a strategic point of view for sourcing in supply chains.
Depending on the level of required service and the nature of products – organisations invest a great deal of time and money in their suppliers, as the goods and services they source not only affect the procurement division, but the entire operation. Organisations need to be selective about whom they collaborate with, as both sides need to select the best strategic partners.
Six steps to establish and optimise supplier relationships
In order to develop buyer supplier relationships, Liker & Choi (2004) developed ‘The Supplier-Partnering Hierarchy’. While conducting research on Toyota and Honda, Liker and Choi found that the Japanese carmakers have an identical infrastructure for building partnerships with their suppliers. The hierarchical model alongside is a six-step instruction that may help to realise the potential of buyer-supplier relationships.
It is recommended that buyers use these steps to build and cultivate strong SRM. A pre-condition of a well-established buyer-supplier relationship is that suppliers are committed to satisfy their customers’ needs, so as to obtain preferred status, and create value along the chain.
Elements of supplier relationships
In general, it can be stated that the relationship level with a supplier depends on how long, and often, their interaction takes place. So, with some suppliers – where they collaborate daily – the relationship is closer, compared with suppliers that are only occasionally referred to. In order to identify the features and suitability of suppliers, several buyers apply Kraljic’s matrix. The ‘Kraljic Matrix’ is a supplier-stratification and segmentation tool used to identify terms of the product specifications, extent of power or involvement of cost. Depending on how suppliers are categorised, each supplier base has its own challenges, problems and risks, pertaining to technical-, demand- and administration terms.
Harland (2013) reported that when the buyer has high and the supplier low power resources the buyer is in a position to dominate the supplier, and vice versa. However, regardless of the level of power, the parties remain independent, and by having high power resources, a strategic alliance and competitiveness can be established.
In the same context, Gadde (2010) (see image alongside) refers to ‘spend analysis’, which relates to investment in suppliers, and correspondingly determines the position of the relationship.
When costs are low, the convergence requires low involvement and the buyer-supplier relationship is not necessarily profitable for either side. In contrast, high-involvement relationships are costly, but contribute to higher revenues. Here, the alliance requires both parties to decide and collaborate to strengthen the buyer-supplier relationship. Bear in mind that a high-involvement relationship is related to resource intensity and the buyers are only able to pay attention to a limited number of contractors. As such, this relationship positioning method oversimplifies the relationship, by separating the suppliers into certain categories and focusing only on the relevant ones.
In summary
It is crucial to have reliable, suitable and co-operative partners, who pay attention to each other’s concerns and opinions, and mutually trust and involve each other in business-processes. Even if the buyers have greater leverage in the buyer-supplier relationship, they should be amenable to new ideas and innovations, as well as remain open to supplier suggestions – which may offer value added services.
When client expectations differ from supplier performance, it is recommended that resources are invested in training, constructive feedback and stronger collaboration, to link performance with organisational value drivers. Mutual respect and persuasion lead to sustainable competitive advantage, as continual long-term collaboration is the key to success.
About Author: Sinbl Hawro Yakoob
Sinbl graduated from the Zuyd University of Applied Sciences in Maastricht in the Netherlands, specialising in Supply Chain Management (SCM), and recently completed a masters’ degree in International SCM and Logistics, at the Plymouth University in the United Kingdom. She has worked in an academic capacity in a number of countries, in order to learn different facets of Logistics and SCM. Sinbl is currently responsible for handling bottleneck products in the Critical Parts Management Department at Mercedes Benz in Maastricht.
While studying international business, the subjects of Logistics and SCM specifically stimulated her interest, and she decided to pursue masters’ degree in the field. Sinbl has a great deal of insight into this field, which enables her to share her knowledge with interested readers.
