L4 04 Managing Purchasing and Supply Relationships 1

7/30/2019 L4 04 Managing Purchasing and Supply Relationships 1

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Managing purchasing and

supply relationships

Session 1Definition and classification of

purchasing and supply relationships

Relationship and process

stakeholders


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Learning objectivesAt the end of this session candidates will beable to:

define key terms used throughout this coursebook explain the different types of relationship within

the relationship spectrum define and differentiate between a ran e of

relationships between buyers and sellers diagrammatically explain the supply positioning

model in a supplier relationship context identify stakeholders in the process of

purchasing

identify typical requirements of externalcustomer stakeholders and internal customerstakeholders other than technical specialists

identify typical requirements of technicalspecialist stakeholders, internal supplier

stakeholders and external supplierstakeholders.


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Key definitions

In small groups define what you

think is meant by the following:

commercial

supplier approved list of suppliers

relationship

purchasing and supply relationship.


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Relationship spectrum ofbuyers and sellers(Diagram from course book by Mike Fogg)

RELATIONSHIP SPECTRUM

Distant Closer


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Relationship spectrum ofbuyers and sellers

(Diagram from course book by Mike Fogg)


adversarial

arms

Len

gth

tran

sactio

nal

str

ate

gic

alliance

sin

gle

sourc

ed

outs

ourcin

g

co

-destiny

distant relationships closer relationships

clos

ertactic

al

partnership

adversarial

arms

Len

gth

tran

sactio

nal

str

ate

gic

alliance

sin

gle

sourc

ed

outs

ourcin

g

co

-destiny


clos

ertactic

al

partnership


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Supply positioning analysis(Diagram from course book by Mike Fogg)

Supply

Positioning

A tool to identify strategies and tactics for goods and services purchased, including consideration of:,

Risk identification

and management

Relationship

opportunities

Stakeholder

management

People allocation

and skills

Make, buy,

outsource

Inventory

Management

Purchasing

processes and

measurement

e Purchasing

Time AllocationControlling price

and cost

Contracting

strategies


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Using the supply positioningmodel(Diagram from course book by Mike Fogg)

xposure

x

Risk,

vulnerability,

Relative cost to the organisation

x

x

x

x


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Supply positioning model(Diagram from course book by Mike Fogg)

Strategic

Security

Strategic

Critical

HIGH

y,exposure

Tactical

Acquisition

Tactical

profit

LOW HIGHRelative cost

Ris

k,vulnerabilit


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Stakeholders

Individuals or groups who have anongoing interest or influence on the

process o purc as ng

Includes customers and suppliers.


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Quality

Research and

Development

The Purchasing

team

Inventory

Management

Finance

Human

Resources

Customers

Suppliers

The purchasing process and its stakeholders(Manufacturing environment)


Production

Maintenance

Warehousing

And

Distribution

Sales andMarketing

Information

Technology

NB : The hierarchical sequence of the business functions in this chart is not meant to give prominence to one

function over another. It is simply a convenient way of grouping stakeholders together in this environment


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Cabinet and

led member

procurement

champion .

(Scrutiny ofexpenditure )

Elected

Councillors

Council tax

payers and

voters

Regional

centre of

excellence

Special

Users of services

to the community ,

e.g.,

o

Children andparents

o Householders

o Senior

citizens

o Library users

o Motorists

o Sports and

Office of

Government

Commerce

The purchasing process and its stakeholders:a County Council in the UK

External

suppliers

Local

government

officers, e.g.,

IT, finance,

internal audit

Local Strategic

Partnership ,

e.g.,

o Health

o Police

o Business

Interests

o Voluntary

sector

Other Local

Central

Government

e.g., (Office of

deputy Prime

Minister)

n eres groups

leisure users

Local

businesses

The Chamberof Commerce

:The hierarchical sequence of the business functions in this chart is not meant to give prominence to one functionover it is simply a convenient way of grouping stakeholders together in this environment

.

Diagram from course book by Mike Fogg, with thanks to Fiona Holbourn of Leicestershire County Council and Ken May of ESPO

Regional

Development

agencies

External Audit

Other Local

Authorities

Consortia

Purchasing

team

Trade Unions

InternalSuppliers

Partnerships ,

e.g.,o Waste

o Children

and young

persons

EuropeanUnion


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External customer stakeholders External customers who purchase goods

and services from your (the buyers)

organisation

In small groups, consider what might be the

example, on-time delivery)

Give two examples of how these

requirements might impact upon thepurchasing process.


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Internal customer stakeholders(not technical specialists)

The people in your organisation whoactually use the goods and services whichyou (the buyer) purchase

The people in your organisation who shouldbe consulted about all proposals that mightaffect them

Typically includes end users, businessmanagers, functional groups, anddepartments such as finance or logistics.


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Technical specialists

Who are the technical specialists inyour organisation?

have specific needs for purchases

How do they communicate their

purchasing needs, or get involvedwith purchasing, in yourorganisation?


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Internal supplier stakeholders

Provide some element(s) of the goods andservices supplied to your (the buyers)organisations customers

May be separated by distance and timefrom the main site or location

Relationships need to be managed to beeffective choice, payment models, andso on.


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External supplier stakeholders

Suppliers to your (the buyers)

organisation

Need to know what is expected of them interms of the relationship, the

spec cat ons or goo s an serv cessupplied, the contractual terms andconditions, and so on

These relationships develop over time.


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Session 2

Relationship challenges and riskmanagement

Managing strategic relationships


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Learning objectives

At the end of this session candidates will be able to:

evaluate the risks run by buyers and sellers in tacticalrelationships

evaluate the differing views that suppliers have of theircustomers and the customer's ability to change that view

show diagrammatically the dynamics of differing legitimateobjectives of buyers and sellers

compare challenges faced by organisations in differentbusiness environments and how they impact tactical

formulate strategies and tactics for improving given tacticalsituations which are disadvantageous to the buyer'sorganisation

formulate a basic risk management process identify where strategic involvement of suppliers is

appropriate for purchasing organisations.

describe typical interaction between the purchasingorganisation and the selling organisation when a strategicapproach is used

define and evaluate the importance of transparentcommunication in supply relationships

assess the role of people and communication in supplyrelationships.


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Relationship spectrum 2


low

none

none

to get a good deal

instant

may not do, or will do on own

high

lots

lots

to maintain & develop relationship

eternity

done together

quality of information exchange

trust

openness

commitment

duration

risk assessment

dvers

arial

arm

sl

ength

transac

tional

str

ate

gic

allia

nce

sin

gles

ourc

ed

outso

urcin

g

co-

desti

ny


o on own ave n egra e process or

clo

ser

tacti

cal

part

nership



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Relationship spectrum 3(Diagram from course book by Mike Fogg)

Strategic criticalTactical Acquisition Strategic SecurityTactical profit

adversarial co-destiny relationship spectrum

adversarial

co-destiny


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Tactical relationships

Adversarial Arms length

Transactional

Single sourced

What examples of each can you givefrom your experience?


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Tactical relationships(Diagram from course book by Mike Fogg)

Strategic criticalTactical Acquisition Strategic SecurityTactical profit

adversarial co-destiny relationship spectrum

adversarial

arms length

transactional

ct

single sourced

ct ct

co-destiny


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Supplier preferencing model(Paul Steele and Brian Court,

Profitable Purchasing Strategies,

McGraw Hill)

Development Core

HIGH

fcustome

r

Nuisance Exploitable

LOW HIGHRelative value of the account

A

ttractiveness


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Marketing management matrix(Paul Steele and Brian Court, Profitable Purchasing Strategies, McGraw Hill)

N uisance Explo itable

D evelopm ent C ore


D evelopm ent C ore

Strategic S trategic


D evelopm ent C ore


D evelopm ent C ore

TacticalAcquisit ion

Tact icalProfit


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Tactical relationships(Diagram from course book by Mike Fogg)

TacticalAcquisition

TacticalProfit

StrategicSecurity

StrategicCritical


Development Core


Development Core


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Strategic relationships

Outsourcing

Strategic alliance

Partnership

Co-destiny

What examples of each are you

aware of in your own organisation?


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Relationship spectrum(Diagram from course book by Mike Fogg)

Adversarial Co-destiny Relationship Spectrum

Adversarial

Arms length

Transactional

CT

Single Sourced

CT CT

Strategic criticalT actical Acquisition Strategic SecurityTac tical profit

Strategic Alliance as supp liers facing a Purchas ing Organ isation

Strategic Alliance Purchasing Organ isation participates

Co-destiny

Partnership


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Strategic relationships(Diagram from course book by Mike Fogg)

N uisance E xp lo itab le

D evelopm ent C ore

N u isance E xp lo itab le

D eve lopm ent C ore

Tact ica lAcquisi t ion Tact ica lProf i t

StrategicSecur i ty

StrategicCri t ical


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Risk management(Diagram from course book by Mike Fogg)

identifypotenti

al

risks

determine

individual

likelihoo

dand

asses

soveral

lrisk

investigate risk

reductio

n

plancontrolreduce

risk

impact


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Risk assessment(Table adapted from course book by Mike Fogg)

Risk description Likelihood Impact Calc

Risk 1 example, late delivery 3 3 9

Risk 2 2 5 10

Risk3 2 5 10

Risk4 1 3 3

Risk5 2 4 8

Total40


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Selecting strategic suppliers

Knowledge of people, processes and

performance

Capability to meet requirements

Compatibility

Comparison with competitors

Relationships tend to evolve over time.


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Managing purchasing andsupply relationships

Session 3

E- urchasin and its im acts on

relationships

The relationship life cycle

Managing conflict in relationships


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Learning objectives

At the end of this session candidates will be able to: define what is meant by e-purchasing, and identify key e-

purchasing tools link the e-purchasing tools to relationships described in the

relationship spectrum and the benefits of the relationships

sought explain how e-purchasing tools can be used to tackle supplysituations unfavourable to the purchasing organisation

analyse the consequences of using e-purchasing toolsinappropriate to the relationship sought by the purchasing

argue the costs and benefits of e-purchasing from a supplierspoint of view define a relationship life cycle appraise the position of their organisation in any given

relationship life cycle demonstrate the positive and negative role of conflict within a

relationship assess alternative appropriate courses of action in resolving

conflict within relationships distinguish between different reasons for termination of

relationships judge whether termination or retrieval is appropriate, and

plan appropriately.

E purchasing


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E-purchasing(Helen Alder)


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E-purchasing

What are the benefits of e-purchasing from

a sellers point of view?

What opportunities are there to reduce

costs?

What disadvantages can you think of?


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E-purchasing tools

What e-purchasing tools or

ca abilities are ou aware of

in your organisation?

Examples:

EDI (Electronic Data Interchange)

electronic catalogues,

EFT (Electronic Funds Transfer)


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Use of e-purchasing tools inunfavourable situations

Cartel

Monopoly

as a nuisance!

What other examples are you aware of?


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Initiation both parties identify eachothers needs and aspirations.

requirement.

Delivery goods and services deliveredfor as long as required.

S t i th i t h i it i t i tThe relationship life cycle


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S t e p s w i th i n t h e i n it ia t io n s e g m e n t a r e :

1 S e l le r d e v e lo p s o f fe r in g

2 S e l le r th e re to b e fo u n d

3 B u y e r h a s n e e d

4 S e l le r c re a te s n e e d

5 B u y e r s p e c if ie s

6 C o n d it io n in g b y s e lle r

7 S e l le r s e l ls

8 B u y e r s e a rc h e s

9 C o n d it io n in g b y b u y e r

1 0 S e r io u s d is c u s s io n

S t e p s w i th i n th e D e l iv e r y s e g m e n t a r e :

2 5 F in a l te rm in a t io n

2 4 L a te n t te rm in a tio n

2 3 C o m p le tio n

2 2 E x te n s io n

2 1 B us in e s s d e v e lo p m en t

2 0 C o n tin u o u s im p ro v e m e n t

1 9 O ng o in g d e liv e ry

1 8 R e f in in g

1 7 In it ia l d e liv e ry

I n i t i a t i onD e l i v e r y

21

2 1

6

7

8

4

5

32 3 24

20

22

2 5


S t e p s w i th i n th e a g r e e m e n t s e g m e n t a re :

1 1 B u y e r e n q u ir y

1 2 S e l le r q u o ta tio n

1 3 N e g o tia t io n

1 4 H ea d lin e a g re e m en t

1 5 D eta i l a g re e m en t

1 6 Im p le m en ta t io n

A g r e e m e n t

9

1 2

1 1

1 9

1 710

18

13

15

1 4

16

(Diagram from course book

by Mike Fogg)


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Conflict in relationships

There are many occasions when conflictmight arise, particularly where there is lackof clarity about the nature of the relationshipor any agreements entered into

Resolution should take a problem-solvingapproach, where both parties seek the factsand identify options which mean that the

situation can be resolved within theboundaries of the relationship.


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Terminating a relationship

Often a serious event, unless perhaps thecontract is already at or near the end of its

useful life

Termination ma be due to man factors,

such as a breakdown in the relationship,supplier unable to meet demand, orchanges in the buyers needs

What experiences have you of termination ofrelationships: and what were theconsequences?


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Session 4

Corporate social responsibility

Lean and agile relationships


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Learning objectives

At the end of this session candidates willbe able to:

identify the component parts of corporatesocial responsibility

argue the cases for and against corporate

identify how corporate social responsibilityimpacts on purchasing and supplyrelationships

distinguish traditional manufacturing supplyphilosophies from both lean and agilesupply philosophies

assess the lean supply philosophy assess the agile supply philosophy.


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Corporate Social Responsibility(CSR)

A widely-accepted concept, embodying acollection of related issues which combineto describe an organisations overall ethos,ersonalit hiloso h and character

Included are environmental responsibility,diversity and supplier diversity, ethics andethical trading, and impacts of business andcommerce on wider society

What examples have you within yourorganisation, or ones that you know well, ofthe impact of CSR on the purchasing andsupplier relationship?


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Drivers to improve CSR within apurchasing and supply relationship are

Corporate Social Responsibility(CSR)

varied, and include:

customers and other stakeholders

political parties

public opinion and the media

employees and their trades unions.


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Lean thinking

Specify customers perception of value Identify steps across the value chain

Act to create smooth flow and eliminate

Make for the customer when they want it Generate a culture of continuous

improvement.


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Agile supply

..using market knowledge and a

profitable opportunities in the marketplace

CIPS Position on Practice


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Agile Supply

Driver is shortening product life cycles andchanging customer needs

Includes late customisation andpostponement

Stock held at appropriate levels in bill ofmaterials

Utilises collaborative working and extensivesupplier networks with strong relationships.


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Lean and agile in manufacturing

Traditional focuses on economies of scaleto maximise output and control costs; just-in-case (JIC) not just-in-time (JIT)

Lean oods roduced when the customer

wants them, to the standard demanded,with a focus on customer value and theelimination of waste.

Agile semi-finished goods tailored and

customised to each individual customersrequirements, with a focus on customerschanging needs.


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Waste in the supply chain

Over production

Waiting times

Inappropriate processing Stock (WIP, buffer stock)

Unnecessary movements of stock andgoods

Defective products

Unsafe practices.


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ess on

Supplier appraisal

Evaluating the effectiveness ofsupplier appraisal


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Learning objectivesAt the end of this session candidates willbe able to:

define and distinguish between termscommonly used in different supplierassessments

x l in h iv f li r r i l design a supplier appraisal process explain the impact of internal suppliers on

the supplier selection and appraisalprocess

analyse the deliverables of supplier

appraisal for the purchasing organisation consider a supplier's view of supplier

appraisal assess the impact of supplier appraisal

upon relationship development.


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Supplier appraisal

Assess the benefits of working together

Cost of meeting requirements

Consider development of relationship.

Assessing Suppliers


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Assessingsuppliers

Pre contract award

SupplierAppraisal

Post contract award

VendorRating

Pre contract award

SupplierDevelopment

a pre-commitment

assessment of apotential suppliers

capability ofcontrolling quality,

delivery, cost and allother factors

forming part of abuyers requirement

is an objective

assessment, oftenexpressed as an index,of a suppliers

performance in meeting

standards agreed withthe buyer in the supply

of goods, works

materials or servicesduring the lifetime of a

contract

The provision of finance,

technology or otherforms of assistance bythe buyer to a supplier

to enable the supplier to

offer a product orservice which meets the

buyers needs, or to

interface with the buyingorganisation in a

mutually appropriate

way (Compton andJessop CIPS

dictionary of terms andconditions)

A supplier appraisal process


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6 Weight subareas / setscoring

mechanism

A supplier appraisal process

1 - Planningthe process

2 - SupplyMarket

research andtargeting

SupplyPositioning

SupplierPreferencing 7 The

Questionnaire

Ten planningissues

Start

Seven Steps

(Diagram from course book

by Mike Fogg)

3 Determineevaluation

areas 8 Plan on - siteappraisal

5 Identify subareas

4 Determinethe

importance ofeach area

10 Review ,decide ,

feedback ,next steps

9 An on - siteappraisal

End

Conducting supplier appraisal


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Conducting supplier appraisal

Suppliers expectations include:

clear objectives set for the appraisal

time to prepare for the visit opportunity to gather information on

purchasing organisations

involvement in the process of appraisal

risk to own business of initiating therelationship

feedback in how well they did!

Suppliers understand that if they want businessthey need to show that they are capable of meetingthe requirements at the right price.


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Evaluating supplier performance

Price Quality

Delivery

ustomer sat s act on

Performance management systems can becomplex; and should include alerts whenKPIs are not met.


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ess on

Process constraints applicable topublic sector purchasing

Reciprocal trading


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Learning objectives

At the end of this session candidates willbe able to:

contrast the process constraints in thepublic sector with those in the private

summarise the purchasing routes availableto public sector organisations

argue the case for and against the currentlegislation

define what is meant by reciprocal trading state which purchasing processes are

impacted by reciprocal trading propose a policy for reciprocal trading.


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Public and private sector

Public

Includes governmentdepartments and localauthorities

Private

Includes plcs, partnerships,sole traders and charities

Not legally bound by EU

Legally bound by EU

procurement rules to considerall EU suppliers equally

Money comes from fundsraised by government fromcorporate and individual taxpayers.

,

include or exclude suppliersat will

Accountable to organisationfor spending monies raisedfrom financial stakeholders.


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EU procurement directives

When triggered by exceeding spend

thresholds, all EU public bodies must:

notify the European supply market of therequ rements an opportun t es or

business, and give reasonable time forresponses (OJEU)

outline selection criteria clearly (MEAT)

show that they treat all suppliers equally

use mandated processes comply with processes, or risk severe legal

penalties.

EU procurement


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Open

procedure

Restricted

procedure

Negotiated

procedure

Competitive

Dialogue

EU Procurement Procedures

Framework

agreements

Central

purchasing bodies

Electronic

auctions

purchasingsystems


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Reciprocal trading

Reciprocal trading, or counter trading, is an

agreement that makes being a customer ofan organisation a condition of becoming asupplier to that organisation. CIPS view isthat this is enerall not an acce tablebusiness practice.

CIPS Position on Practice

Have you had any experience of reciprocaltrading agreements?

In what situations might they be acceptable?


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Session 7

The risk and cost of changing supplier

The process of outsourcing


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Learning objectiveAt the end of this session candidates will be able to:

identify the possible risks in a change of supplier demonstrate what is meant by the cost of change formulate strategies for reducing exposure to risk

when changing supplier,

and sub-contracting determine why organisations are outsourcing and

the benefits they seek determine what organisations typically outsource explain a process for outsourcing, taking into

account the needs of the purchasing

organisation's business explain how recent UK legislation and case law

impacts upon the process of outsourcing state reasons why some organisations are

insourcing.

Risks of changing supplier


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Risks of changing supplier

Out of the frying pan into the fire the newsupplier is not able to meet targets for

price, quality, delivery and so on.

Having to return to the original supplier and.

Losing the benefits of a long-termrelationship.

Risks are usually greater with astrategic/critical supplier than with atactical one.


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Costs of changing supplier

Time and resources to select new supplier

Phasing in and phasing out

Transaction and administration

Relationship development

Learning curve.


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Preventing exposure to risk

Check contract terms and conditions ofoutgoing supplier so there are no surprises

there is nothing that you need to know if thetermination was acrimonious

Deflect some of the risk to the supplier byinserting a clause in the contract to coverthe transition period

Ensure there are contingency plansto cover changing suppliers.


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Drivers for outsourcing(Beulan et al)

Quality increased quality demands,

shortage of trained staff and transition.

Cost to assist in controlling and reducingcosts.

Finance to avoid diverting funds fromcore business.

Getting rid of non-core activities, to alloworganisations to concentrate on their corebusiness.


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Outsourcing: definitions

Service contract legally binding contractexists between purchaser and supplier.

Subcontracting - delegating part of yourresponsibilities under a contract to anotherperson or business. Many contracts restrictthe ability of the parties to do this.

Outsourcing - placing non-core (and core?)business activities with external specialists.


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Outsourcing: aspects

Requires a legally-binding contract, as the

purchasing organisation is still responsiblefor the service provided to its customers.

employees, not our employees. The supplier gets paid, not our employees.

Contracts are usually long-term.

The supplier is given a level of control andautonomy over delivery of the service.


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The processes of outsourcing

Strategic analysis of current position and

identification of core and non-core activities.

Identification of target areas for outsourcing.

Clear and unambiguous specifications set.

Selection of supplier.

Implementation and review.

Development of relationship.


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Outsourcing: EU directives

The EU Acquired Rights Directive 2001

enacted in the UK by the TUPERegulations (Transfer of UndertakingsProtection of Employment)

In situations of outsourcing whenemployees move from one organisation toanother, TUPE regulations broadly statethat employees must retain the same termsand conditions of employment.

In an outsourcing situation both partiesmust be clear what and who is beingtransferred, and what/who isnt.

Insourcing


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Insourcing

If the expected benefits of outsourcing donot materialise, companies may terminatethe contract with the supplier and revert topaying their employees to supply theservice.

y

renegotiate the contract with the supplierrather than take the business back in-house.

What experience have you of insourcing?Why was the original decision made tooutsource?

What went wrong?


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Session 8

Managing and maintaining anoutsourced relationship

The impact of organisational culture onrelationships

Learning objectives


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At the end of this session candidates will be able to: evaluate the differences in relationship between an internal

customer department and a service department to thatinternal customer before and after the service departmentis outsourced

contrast the objectives of the purchasing organisation andthe outsourced service provider over the life of the contract

calculate the typical areas of cost and benefit ofoutsourcin

formulate performance measures to ensure delivery of

promised benefits compare outsourcing relationships with other relationships

within the relationship spectrum

evaluate the change in relationships between the peopledelivering and receiving a service when that service isoutsourced

identify different cultures and their impact uponrelationships within the supply chain

appraise the different cultures and pick out circumstanceswhere cultures may complement and conflict with eachother.


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Outsourcing internal functions When a function that was once a part of the

organisation is outsourced, it becomes asupplier to the organisation.

The relationship and management of thatfunction inevitably then changes.

typ ca examp e: a sc oo outsourc ng ts

canteen)

The function (as a new supplier) will now beworking to a specification set out by thepurchasing organisation (their formeremployers)

How do you think that might affect the waythat you, as a buyer, would now work with

that function?


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Organisational culture

Deep-rooted and resistant

Difficult to change

Defines the way things are done round here

Defines who has the real power in theorgan sa on

Based on tradition, shared values and beliefs Includes rituals and routines, and sets norms

for behaviour

Maintained through power structures,

management controls and supervision, andmany less formal routes

Stories told in the organisation are indicatorsand perpetuators of organisational culture.

Examples of organisational


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culture

Paternalistic perhaps a traditional familyfirm

procedures

Aggressive tendency to fight, perhapscharacterised by lack of trust

Progressive forward thinking.


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Session 9

Relationships in an International setting

Power, dependency and multi-tieredrelationships


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Learning objectivesAt the end of this session candidates will be able to:

evaluate the differences of maintaining relationships with

suppliers in different parts of the world assess the steps that may be taken to protect the position

of an organisation when buying or selling internationally

-

evaluate the benefits that multi-national suppliers bring tomulti-national customers

show diagrammatically how a supply base may be tiered to

provide advantage to the buyer

assess the benefits of supplier tiering

consider control mechanisms for delivering benefit from atiered supply base

analyse the circumstances when dependency is a criticalissue in supply relationships.

Potential cultural barriers


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Different:

spoken language

body language

timevalues

mannersetiquette

management styles

communication styles

financial rules

legislation

ethical standards.

Overcoming national/cultural


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barriers

Information technology is improving speedand quality of the flow of information and

universal IT skillsets.

co- operation and seek to facilitate it.

Many organisations now manage diverseworkforces.

Students are taught global management.

Protections when trading


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internationally

Appoint overseas agents.

Use letters of credit.

Use Incoterms (International Chamber ofTrade terms)

Establish an overseas base.


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Power of multinationals

Leverage.

Standardisation of goods and services and.

Strategic selling and pricing policies.

Determining development strategies.

Promoting corporate social responsibility.

Supplier tiering


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Car manufacturer

T1 T1 T1 T1 T1

T2T2 T2T2 T2 T2T2 T2 T2T2 T2 T2T2T2 T2 T2T2

T3T3 T3T3 T3T3

T4T4 T4


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Supplier tiering removes the need for a

bu er to work with ever sin le su lier to

Supplier tiering

the organisation.

What are the key benefits for:

the purchasing organisation?

the suppliers?


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supply relationshipsSession 10

Supplier and relationship development

Measuring relationships and their

development

L i bj ti


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Learning objectivesAt the end of this session candidates will beable to:

define supplier and relationship development give examples of supplier development and

evaluate costs and benefits of development

opportunities to both buyers and suppliers evaluate why and when buyers would benefit

from measuring supplier performance and thestrength of relationships

assess how sellers see the relationship with

buyers give examples of measures used in supplier

performance measurement for both goods andservices

give examples of relationship measures.

Supplier relationship

t (SRM)


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management (SRM)

The process for managing the interactionbetween two entities, one of which issu l in oods works or services to theother. SRM is a two-way process in that

it should improve the performance of thebuying organisation as well as thesupplying organisation, and hence bemutually beneficial.

CIPS Glossary of Terms 2006

Supplier development(Taken from course book by Mike Fogg)

Form of supplier development Percentage of organisations practisingthis form


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this form

enhancing working relationships 72.1%

increasing performance goals 68.1%

requiring supplier capabilityimprovements

51.5%

providing support personnel 27.9%

conducting training programmes 25.3%

agreeing to contingent liability 17.6%

providing capital 10.3%

providing equipment 11.8%

providing progress payments 8.8%

From Purchasing and Supply Chain Managementby Monczka, Trent and Handfield. 1998. Reprinted with permission of South-Western, a division of Thomson Learning.

Supplier development


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Supplier development

You purchase training services from a

large training provider to help you todeliver the management developmentprogrammes in your organisation.

You feel it is time for both of you to get toknow each other better, as this shouldimpact positively on the quality of thetraining.

What are the potential opportunities andthe associated costs of developing thisrelationship?

Measuring satisfaction


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Measuring satisfaction

Benefits of measurement include:

both parties form an objective view of eachother

agreed targets of satisfaction mean that

standards can be maintained andimprovements identified measurements can be used to inform

constructive discussion

enables the relationship to continue as bothparties have a clear understanding of whatis expected.

Measuring supplier

relationship development


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relationship development

Willingness to interact and proactiveness in

seeking improvements.

improve performance.

Willingness and capability of devotingresources to relationship development.

Purchaser-supplier satisfaction(Reproduced from course book by Mike Fogg)

(0,10) (10,10)(5,10)


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isfaction

(0,10) (10,10)( , )

Quadrant A

Both parties

satisfied

Quadrant C

Purchaser dissatisfied

Supplier satisfied

Complete

Satisfaction

Purchasers satisfaction

Supplierssa(0,5)

(0,0) (5,0) (10,0)

(10,5)

Quadrant D

Both parties

dissatisfied

Quadrant B

Purchaser satisfied

Supplier dissatisfied

Total

dissatisfactionMarginal

SatisfactionComplete

Satisfaction

Marginal

Dissatisfact

ion

Documents

L4 04 Managing Purchasing and Supply Relationships 1