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CHAPTER 3

CREATING & MANAGINGSUPPLIER RELATIONSHIPS

Principles of Supply Chain Management:

A Balanced Approach, 2e


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2009 South-Western, a division of Cengage Learning 2

Chapter Three Outline

Introduction

Developing Supplier Relationships

Supplier Evaluation & Certification

Supplier Development

Supplier Recognition Programs

Supplier Relationship Management


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Introduction

McDs SRM Approachsegment, meas., manage

Boeings Approachuse suppliers in pot. mkts.

purchasing professionals in companiesnationwide believe strongly that more and stronger

supplier partnerships are critical to achievingcompetitive corporate performance

Purchasing Magazine

Supplier partnerships involve a mutual commitment;

extended time; working together; mutual benefit;sharing of information, risks and rewards

Institute for Supply Management


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Developing Supplier Partnerships

Building Trust Buyer/supplier partners are more willing to

work together, find compromise solutions toproblems, work toward achieving long-termbenefits for both parties

Shared Vision and Objectives

Move beyond tactical issues, toward morestrategic decisions

Personal Relationships People make things happen in these

arrangements. Can this lead to moral/ethical problems?


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Supplier Partnerships - Cont.

Mutual Benefits and Needs

Should result in a win-win. An alliance is like amarriage ---The iPhone and AT&T?

Commitment and Top Management Support

Partnerships are more successful when topexecutives actively support them. Since mutual strategy development is a

characteristic, this makes sense.

Change Management Change comes with the formation of new

partnerships. How bills are paid, performance is measured,

strategies are communicated


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Information Sharing & Lines of

Communication

Should facilitate free flow of information.

Confidentiality also considered. Compatible IS

Relationship Capabilities

Key suppliers must have the right (reqd.)technology, cost, quality, & delivery

capabilities


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Performance Metrics

You cant improve what you arent measuring

Quality, cost, delivery, flexibility, environment,

technology, reputation (& other) measures

Metrics should be:1) understandable, 2) easy to

measure, & 3) focused on customers/results

A multi-criteria approach

Total cost of ownership (TCO), is made up of allcosts associated w/acquisition, use, &

maintenance of a good or service


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Continuous Improvement

Series of small improvements over time

Buyers & suppliers must be willing to

continuously improve their capabilities

Working together to improve both bottom

lines

More in Ch. 8 about contin. improvement


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Supplier Evaluation &

Certification

Identify best suppliers.

Can be internally generated or external agency

Periodic certification/feedback to maintain good

relationships, performance.

Suppliers should also be allowed to provide

feedback to buyer

Report cards

Reduce supply base


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Certification (Cont.)

The Weighted-Criteria Evaluation System

for Certification

1. Select the key dimensions2. Collect performance data.

3. Assign relative weights to each dimension.

4. Assign relative performance (1-10; 1-100)

5. Multiply performance by weight & sum, for overall

score.6. Classify vendors based on their overall score:

Unacceptable, Conditional, Certified, & Preferred

7. Audit & perform ongoing certification


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Supplier Scorecard for XYZ Co.

(Table 3.3. )

Performance Measure Rating x Weight = Final Value

Technology 80 0.10 8.00

Quality 90 0.25 22.50

Responsiveness 95 0.15 14.25

Delivery 90 0.15 13.50

Cost 80 0.15 12.00

Environmental 90 0.05 4.50

Business 90 0.15 13.50

Total score 1.00 88.25


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ISO 9000 Developed by International Organization for

Standardization (ISO) - series of management

& quality standards in design, development,production, installation, & service, 1987.

Good for global sales (reqd.)

ISO 14000 Environmental management standards, 1996.

Go to www.iso.org for more info.


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Supplier Development

Supplier development Any managementactivity to improve a suppliers performance

1. Training

2. Loaning money/investing in processes

3. Performance assessment/certification


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Supplier Recognition

Programs

- Recognizing supplier performance

- Dinners/plaques/awards

- About companies do this

- Helps cement partnerships, encourages furtherimprovement

- Award-winning suppliers serve as role

models for other suppliers.

- Hormel, p. 94


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Supplier Relationship

Management (SRM)

Using software applications to manage

suppliers more efficiently/effectively

Should reduce supplier management costs

Refers to sourcing analytics, sourcing

execution, supplier payments, supplier

performance monitoring (scorecarding).

Software modules that accompany ERP

software packages

Data collection, user training can beproblematic


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Trends in SRM

Sourcing & procurement are increasing inimportance

More companies expect more cost reductions

to come from their procurement functions and

SRM. Buyers are seen as more strategic

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