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8/9/2019 WSCM Chapter 5 Buyer Seller Relationships
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5-1 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
McGraw-Hill/Irwin Copyright 2003 by The McGraw-Hill Companies, Inc. ll rights reser!e".
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5-2
Chapter +
BUYER-SUPPLIER
RELATIONSHIPS
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5-3 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
ey Con$epts
A Transformation in Relationships Three Types of Buyer-Supplier
Relationships
. Transational Relationships
. !olla"orati#e an$ Alliane Relationships
. !olla"orati#e Relationships
. Supply Allianes
. %hih Relationship is Appropriate& The Supplier's Perspeti#e
(e#elopin) an$ *ana)in) !olla"orati#e
an$ Alliane Relationships
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5-5 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
/*ol*ing to WCSM #hrough )llian$es
Systematially selete$ supply allianes1 1"uilt on institutional trust222
1help or)ani3ations omplete their
e#olution to %orl$ !lass Supply*ana)ementS*2
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5-6 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Strategi$ /lements o a 1elationship
Is one supplier hea$ an$ shoul$ers a"o#e therest in terms of the #alue it pro#i$es4 inlu$in)
prie5 inno#ation5 a"ility to a$apt to han)in)
situations5 apaity to +or, +ith your team5 tas,
6oint ris,s5 et&
Are some suppliers .strate)i/ to your "usiness&
%oul$ your ompany "enefit )reatly if the
supplier +ere more .inte)rally onnete$/ +ith
your ompany&
(o your ustomers reuire hi)h $e)rees of
fle7i"ility an$ spee$ of responsi#eness&
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7/415-7 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
#he Suppliers 3erspe$ti*e
Supplier8s +ant )oo$ ustomers Se#eral issues affet their assessment5
amon) them are9
. !ash 0lo+
. Openness an$ Approaha"ility
. A#aila"ility
. Professionalism
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9/415-9 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
4uestions to "e )ddressed Beore 3ro$eeding
Is the or)ani3ation prou$ to "e ali)ne$ an$assoiate$ +ith the supplier&
Is the or)ani3ation omforta"le +ith the le#el of
ris, assoiate$ +ith re$uin) the supply "ase&
Are "oth supplier an$ "uyer ali)ne$ in +hat theirultimate ustomer onsi$ers to "e #alua"le&
If there is su"stantial ris, for the supplier to
$e#elop ne+ tehnolo)ies5 pro$uts5 proesses5
or ser#ie support& Are "oth supplier an$ "uyer ali)ne$ in their
respeti#e #isions&
Are there suffiient operational points of
interation&
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10/415-10 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
#he 1ole o 3o&er
Po+er is a topi that ma,es peopleunomforta"le
Po+er is at the heart of all "usinessrelationships
Po+er plays a ,ey role in t+o importantsu"lasses of "uyer-supplierrelationships9. !apti#e Buyer9 "uyer is hel$ hosta)e "y a
supplier free to s+ith to another ustomer. !apti#e Supplier9 ma,es in#estments in or$er
to seure a portion of the "uyer's "usiness5+ith no assurane of suffiient "usiness toreoup the in#estment
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11/415-11 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Ne& S5ills and )ttitudes 1euired
(e#elopin) an$ mana)in) olla"orati#ean$ alliane relationships reuire supply
professionals that possess the follo+in)
s,ills an$ attitu$es9
. Reo)ni3e the "enefits of olla"oration
. A"ility to i$entify5 o"tain an$ use $ata
. A"le to +or, in haos an$ unertainty
. A)ile5 fle7i"le5 an$ hi)hly a$apti#e
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12/415-12 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
) #ransormation in 1elationships
The transformation from reati#e an$mehanial purhasin) to proati#e
prourement an$ on to %!S* parallels a
similar transformation in relationships
"et+een "uyers an$ suppliers Prior to the :;
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13/415-13 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
3ro"lems &ith the #erm 3artner
(urin) the late :;
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14/415-14 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
#hree #ypes o Buyer Supplier 1elationships
Transational !olla"orati#e
Alliane
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15/415-15 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Continuum o Buyer-Seller 1elationships
0i)ure >-:0i)ure >-:
Comm#nicationCompetiti!e "!.Connecte"nessContin#o#s Impr.Contrib#tions to $%&
&i''ic#lty o' ()itration()pe"iting*oc#s+e!el o' Integration
High pot. for problems Systematic approachLow HighIndependence InterdependenceLittle A focusFew Many ESI
Low ifficult high impactShort Long!eacti"e #roacti"e#rice $otal costLittle or none High or total
Ati#ity?Attri"ute Transational !olla"orati#e Alliane
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16/415-16 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Continuum o Buyer-Seller 1elationships
$#mber o' #pplierspen oo/s#ality1elations
1eso#rceser!icehare" *orecasts#pply &isr#ptionsTechnology In'lowsType o' Interaction
Many %ne or few&o 'esIncoming inspection esign (uality in systemInward loo)ing *oncern w+well being
Few low s)ill le"el #rofessionalMinimal ,reatly impro"ed&o 'es#ossible -nli)ely&o 'es$actical Strategic synergy
Ati#ity?Attri"ute Transational !olla"orati#e Alliane
0i)ure >-: !ontinue$0i)ure >-: !ontinue$
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17/415-17 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
#ransa$tional 1elationships Chara$teristi$s
An a"sene of onern One of a series of in$epen$ent $eals
!osts5 $ata an$ foreasts are not share$
Prie is the fous of the relationship A minimum of purhasin) time an$ ener)y
is reuire$ to esta"lish pries
Transational purhases len$ themsel#es
to e-prourement
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18/415-18 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
)d*antages o #ransa$tional 1elationships
Relati#ely less purhasin) time an$ effortare reuire$ to esta"lish prie
Lo+er s,ill le#els of prourement
personnel are reuire$
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19/415-19 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
isad*antages o #ransa$tional 1elationships
Potential for ommuniation $iffiulties E7pe$itin) an$ monitorin) of inomin) uality
Infle7i"le +hen fle7i"ility may "e reuire$
Ten$ to result in more $eli#ery pro"lems
@uality +ill "e only as )oo$ as reuire$
Suppliers pro#i$e the minimum ser#ie reuire$
Less effeti#e performane "y suppliers
!ustomers are su"6et to more supply
$isruptions
Supplier is not moti#ate$ to in#est time an$
ener)y $e#elopment of "uyer8s pro$uts
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20/415-20 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Colla"orati*e and )llian$e 1elationships
!olla"oration is the ne+ imperati#e5$elares *ihael (ell
!olla"orati#e an$ alliane relationships
ten$ to result in lo+er total osts an$
impro#e performane of the supply hain
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21/415-21 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
#hree Su$$ess 8a$tors
Researhers Stanley an$ Pearson foun$that the three most important fators in a
suessful "uyer-supplier relationship
are9
. :C t+o-+ay ommuniation5
. DC the supplier's responsi#eness to supply
mana)ement's nee$s5 an$
. C lear pro$ut speifiations
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5-22 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Colla"orati*e 1elationships
Typially use$ for the prourement of non-ommo$ity items an$ ser#ies
A olla"orati#e relationship freuently is
an appropriate first step on the roa$ to a
strate)i alliane
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5-23 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Colla"orati*e 1elationships
!olla"orati#e relationships ten$ tofoster12
. Lon)er term ontrats
. Re$ution of ris, for suppliers
. Re$uin) total osts
. Impro#ement of proesses
. Impro#ement of pro$uts
.Inrease$ in#estment in R F (
. Inrease$ in#estment in trainin)
. Inrease$ in#estment in euipment
. Better fous on ustomer nee$s
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5-24 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Supply )llian$es
The fun$amental $ifferene "et+eenolla"orati#e relationships an$ supply
allianes is the presene of institutional
trust in allianes
The failure to $e#elop an$ mana)einstitutional trust is the priniple reason
that so many supply allianes fail
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5-25 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
#he )llian$e ptions
*erhant supplies the total pro$ut2 Self-manufature +ith ,ey ra+ material
suppliers2
In-house plant operate$ "y a supplier2
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5-26 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
)llian$e )ttri"utes
!ontinuous impro#ement Inter$epen$ene an$ ommitment2
Atmosphere of ooperation
Informal interpersonal onnetions Internal infrastrutures to enhane
learnin)
Openness in all areas of the relationship
A li#in) system
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5-27 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
)llian$e )ttri"utes Continued
A share$ #ision of the future Ethis ta,e pree$ene o#er e7pe$ieny
A$apta"le in the fae of han)e
(esi)n of e7periments an$ supplierertifiation
%in-%in ne)otiations
E7euti#e le#el ommitment
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5-28 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Beneits o Supply )llian$es
Lo+er total osts2 Re$ue$ time to mar,et
Impro#e$ uality
Impro#e$ tehnolo)y flo+ from suppliers Impro#e$ ontinuity of supply
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5-29 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Whi$h 1elationship is )ppropriate:
%hat are the .Strate)i Elements of a Relationship&/ Are there many relati#ely un$ifferentiate$ suppliers
pro#i$in) +hat amounts to inter-han)ea"le
ommo$ities&
(oes the potential supplier possess eonomi po+er+hih it is +illin) to employ o#er its ustomers&
If there is reo)nition "y "oth parties of the potential
"enefits of an alliane5 "ut a$euate ualifie$ human
resoures are not a#aila"le at one or "oth firms&
S
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5-30 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Situations Wherein )llian$es may not "e
)ppropriate
Sta"ility. Prie Golatility
. (eman$ Golatility
. Hi)h S+ithin) Li,elihoo$ +ith Hi)h S+ithin)
!osts
!apa"ility
. No Partnership?Alliane-!apa"le Supplier for
the Item
. No Partnership?Alliane-!apa"le Supplier in
the eo)raphi Area
. Rapi$ Tehnolo)ial !han)e
. *ismath of !lo, Spee$
Si i Wh i )lli "
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5-31 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
Situations Wherein )llian$es may not "e
)ppropriate
!ompetition. Non-!ompetiti#e *ar,et
. Supplier (epen$eny !reation
. Ne)lete$ Areas
. Suppliers See,in) to Re$ue !ompetition
Benefits
. No le#era)e from Partnership
. No Har$ Sa#in)s from Partnership Internal Buy-In
. No Internal !ustomer Buy-In
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5-32 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
#he 3ortolio )pproa$h
Suessful supply hain mana)ementreuires the effeti#e an$ effiient
mana)ement of a portfolio of relationships
Three en#ironmental fators to onsi$er9
. :C the pro$ut e7han)e$ an$ its tehnolo)y5
. DC the ompetiti#e on$itions in the upstream
mar,et5 an$
. C the apa"ilities of the suppliers a#aila"le
/ C d th ;1i ht< #
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5-33 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
/-Commer$e and the ;1ight< #ype o
1elationship
Ho+ $oes BDB e!ommere affet ourseletion of the 'ri)ht' type of
relationship&.
. Seletion must "e a funtion of the
reuirement5 not of the Internet. BDB e!ommere is an ena"ler
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5-34 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
/-Commer$e #raps to )*oid
Trap J:9 uil$in) the pi). Ta,e an arhai5 um"ersome prourement
proess an$ .+e""i3e/ it
Trap JD9 The *a)i pill
. Loo,in) for the one solution that an "e use$to sol#e e#ery prourement situation
Trap J9 Supplier euality
. Supplier relationships ran)e from
transational to allianes
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5-35
Chapter +)ppendi=
INSTITUTIONAL
TRUST
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5-36 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
#rust
Trust is one of the ,ey fators that$ifferentiates the three lasses ofrelationships2
The simplest $efinition of trust is ."ein)
onfi$ent that the other party +ill $o +hatit says it +ill $o2/
Some le#el of trust must "e present in allthree types of relationships
The le#el of trust inreases +itholla"orati#e relationships an$ "eomesan essential harateristi +ith strate)iallianes
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5-37 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
)ttri"utes o Institutional #rust
(e#elope$ o#er time Internal trust is $e#elope$ "efore e7ternal
trust
Base$ on in$i#i$ual an$ institutional
inte)rity It is )reater than in$i#i$ual trust2
Trust an$ relationship are #ie+e$ asin#estments
Partners ha#e aess to other's strate)iplans
Rele#ant osts an$ foreasts are share$
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5-38 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
)ttri"utes o Institutional #rust
%hen ,ey in$i#i$uals lea#e5 fin)erprintsare left "ehin$ that hol$ the relationships
to)ether
Trust is #isi"le
Informal a)reements are as )oo$ as
+ritten
Both parties are sensiti#e to the ultural
"ri$)e Relationship is a$apta"le in the fae of
han)e
Both firms reo)ni3e the inter$epen$eny
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5-39 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
)ttri"utes o Institutional #rust
Sharin) information is a means of $e#elopin)trust
!onflit in the relationship is openly a$$resse$
Ri)hts5 $esires5 an$ opinions are onsi$ere$
0irms ha#e mutual )oals A bank accountof trust is reate$
Reo)ni3es trust has $ifferent ultural meanin)s
Both !EO's ma,e a personal in#estment
Senior mana)ers from "oth firms ommit
Ethial issues are freely "rou)ht up +ithout fear
An om"u$sman is assi)ne$ at "oth firms
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5-40 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright 200! "y #he M$%ra&-'ill Companies, In$( )ll rights reser*ed(
)$tions to e*elop and Manage #rust
An inter-firm team is appointe$ (isussions on$ute$ in an atmosphere ofrespet
Inter-firm team reei#es )ui$ane an$ trainin) inthe implementation of praties
Listenin)5 un$erstan$in)5 time5 ener)y arein#este$
Senior lea$ers at "oth firms at as hampions
A ommuniation system is $e#elope$
Ations to $e#elop an$ measure trust are reate$ Ris,s an$ re+ar$s are a$$resse$ openly
Ne)otiation is use$ as a trust-"uil$in)opportunity
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)$tions to e*elop and Manage #rust
Both firms +or, to)ether on tehnolo)y plans Tehnial personnel from "oth firms #isit the
other
!ontratual relations are $esi)ne$ to enhane
trust !ontrat relations fous on ontinuous
impro#ement
Team an$ relationship s,ills are $e#elope$ early
!ompany lea$ers reate a formal relationship A ontratin) philosophy an$ a le)al
infrastruture are $esi)ne$ to the relationship
Institutional trust is measure$ an$ mana)e$
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