University of East London

Bettering Service Supply Relations at Sandwalk Agencies
SMM108 Marketing and Product Service Delivery

Amarnath Govindarajan Student ID : U0853867 20th May 2009. Word Count : 3840
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Bettering Service Supply Relations at Sandwalk Agencies
Contents
1 2 Introduction........................................................................................................................4 Problem Statement.............................................................................................................5 2.1 3 4 Objective......................................................................................................................5

Methodology......................................................................................................................6 Review of Literature..........................................................................................................7 4.1 4.2 4.3 4.4 4.5 Prevalent Models in Indian agro-based Industries......................................................7 Deploying Information and Communication Technology In Agro Sector..................9 Adopting a two level bi-directional supply chain......................................................10 Implications of a bi-directional supply chain............................................................11 Supply Chain approach to service design..................................................................12 Information Management...................................................................................13 Factor Combination Management......................................................................13 Property Rights Management.............................................................................13

4.5.1 4.5.2 4.5.3 5

Findings & Conclusions...................................................................................................13 5.1 5.2 5.3 5.4 Deploying a bi-directional supply chain....................................................................14 Information management and factor combination management...............................16 The Sandwalk Service Blueprint...............................................................................16 Proposed Service Blueprint for Sandwalk Agencies.................................................19 2

6 7 8 9

Recommendations............................................................................................................20 Bibliography.....................................................................................................................21 Appendix A......................................................................................................................22 Appendix B......................................................................................................................24 9.1 9.2 9.3 Supply Base Issues....................................................................................................24 Vendor development and Partnering.........................................................................24 Role of information technology (IT).........................................................................25

Role of information technology (IT)

Table of Figures
Figure 1 Depiction of Value Addition Centre (VAC) Model. Adapted from (Gandhi, Kumar, & Marsh, 2001, p. 342)..............................................................................................................7 Figure 2 Two level bidirectional supply chain, Adapted from (Sampson, 2000)....................14 Figure 2 Two level bidirectional supply chain, Adapted from (Sampson, 2000)

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Bettering Service Supply Relations at Sandwalk Agencies

1 Introduction
Sandwalk Agencies (‘Sandwalk’) is a start-up firm that aims to source, process and export agro-based products to both UK and Middle-East Asian markets. It is based in the south Indian town of Coimbatore and will begin operations in the summer of 2009. It aims to trade primarily in tropical flowers and fruits. Both of these are perishable commodities and would therefore require considerable post-production processing. The supply chain management shall also have to fine tuned to quick turn around times. One of the major pricing criteria for flowers in the international markets is the freshness of the product. Therefore it would be ideal if the product is processed in least amount of time after it is picked. In addition to a very efficient supply chain seasonal variation in production also needs to be taken into account.

Sandwalk have developed a product calendar taking into account both market demand and production variations. However the company has been facing difficulties in sourcing enough quantities of desired products. Where available the company is unsure of the quality of the product Sandwalk does not intend to be a producer in the short-term. The product calendar and its resource requirements do not allow for an SME sized organization to set-up its own production. Therefore Sandwalk aims to be a service organization that will source products for foreign buyers, while on the other hand it will work with local producers to meet the expectations of foreign buyers.

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2 Problem Statement
Sandwalk lacks a mechanism to communicate with its suppliers early on and is therefore unable to source required products with appropriate quality assurances at the right time. Sandwalk being an export oriented business requires products to be grown under different circumstances than its domestic counterparts.

The usage of pesticides, fertilizers and other chemical agents need to be monitored and in many cases avoided for the product to be qualified for export. The Department for Business, Enterprise and Regulatory Reform (BERR) and Her Majesty's Revenue and Customs (HMRC) lay down the regulations for importing agro-products into the UK; the regulations include pesticide levels, type and other such parameters. Ideally it would be desirable to educate the producer about these requirements rather than attempt to remove traces of chemicals after harvest/picking.(Department for Business, Enterprise & Regulatory Reform, 2009)

2.1 Objective
The objective of the project is to provide Sandwalk Agencies with a framework to improve its communication and relationship with producers and suppliers. The framework should enable better communication, service supply relationships and long term vendor development amongst other things. Sandwalk must be able to slowly incorporate traceability of the products it sources and processes, improve quality standards by adhering to regulation from day one of production and also be able to influence production levels and types over a period of time.

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Methodology

To achieve the objectives set about in Section Objective it is proposed to first study the prevalent models that are being implemented in the agro-based SME sector in India. 5

The models and supply chain management techniques can then be customized to suit the requirements of Sandwalk. Such an approach would provide an insight into the workings of existing agro-based SME’s in India. These insights would prove to be valuable in developing Sandwalks supplier management framework. This effort is important for Sandwalk primarily because it is a start-up that is yet to begin operations and is therefore in a position to learn from others without any organizational baggage. One pitfall in this approach is it fails to adequately address the requirements of the buyers. There is almost no primary data collection from the suppliers however it is hoped to incorporate supplier interests in the report from secondary sources.

Following the identification of an appropriate model for Sandwalk to build upon, the report will then pick out factors that shall have to be customized for the model to be implemented. It is expected that supplier management issues will garner much attention.

From a cursory study of the issues involved it has been identified that adopting a two level bidirectional supply chain, incorporating traceability and vendor/supplier development would be the key issues. The challenge would be to get the vendors and producers to work for Sandwalk even while an opportunity exists to do business in the domestic market without any additional effort or value addition. Besides, Sandwalk is only a SME sized enterprise, therefore resources are not plenty.

4 Review of Literature
4.1 Prevalent Models in Indian agro-based Industries
There are five broad models for Indian agro-based industries that have been proposed by Gandhi et al.(2001). They are 6

➢ co-operative organization model ➢ government organization ➢ private multinational partnering ➢ multinational-local firm partnership ➢ And finally value addition centre model. (VAC)

Figure 1 Depiction of Value Addition Centre (VAC) Model. Adapted from (Gandhi, Kumar, & Marsh, 2001, p. 342)

The models were studied in detail. Appendix A provides a brief description of the models, and attempts to weigh the pros and cons of each model. In the course of the study the value addition centre model (VAC) was found to be the most appropriate model for an SME such as Sandwalk.

As described in Appendix A, the VAC model is conceived as a hub of activities for both post and pre-harvest activities. The model is presented as one that provides technological know7

how, market data and access to small and medium scale farmers. The benefits of such a system are that it removes intermediaries at multiple stages, provides an integrated chain from farm to the market and facilitates value addition. According to Gandhi et al.(2001) although the VAC model may appear attractive as a concept it would require additional organizational effort. It would also require investment in key enablers such as Information and Communication Technology infrastructure (ICT).

The co-operative and government supported public sector models for agri-industry in India can not be easily replicated by a SME start-up. The investment requirements and infrastructure are simply out of reach. The private MNC models including the local firm partnership models are also ruled out for the same reason. In the case of MNC contract farming model the massive marketing and processing arm of PepsiCo were able to salvage any short-term failure in regulating supply from a large supply base. This leaves out only the ITC-VAC model as a base for Sandwalk to develop upon.

A good example for the VAC model is the ITC e-choupal project. ITC is a large Indian firm that has a significant presence in agro-based products and agri-exports. This model is based around village level information centres named ‘e-choupal’. The information centres are owned by the ITC Company and operated by a local farmer. The company also employs a local commission agent who will facilitate the logistics required. The model operates like a virtual co-operative where the farmers are supplied with relevant information regarding prices, demand and weather. The ITC then buys back the farm produce at these information centres at much better rates than what was offered in traditional mandis (markets). This is possible due to elimination of intermediaries and multiple handling. (Rao, 2007)

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The ITC E-choupal model has been fairly successful with about 31,000 villages benefitting from the choupal information service across seven Indian states. Rao (2007) mentions two main factors that led to the success of ITC. They are:

➢ The ability of the ITC firm to deploy and exploit an extensive Information and Communication Technology (ICT) infrastructure. ➢ The ability of ITC to conceive and co-ordinate a two level bidirectional supply chain across this massive ICT infrastructure.

To be able to further understand the VAC model the above two factors are further explored in the next sections.

1.1 Deploying Information and Communication Technology In Agro Sector
Rao (2007) proposes two frameworks to serve as a frame of reference for further development and study of deploying ICT in agro-based industries. The two useable perspectives that suit the context of this project is: ➢ Closed vertical food supply chain network within clearly defined businesses ➢ An open chain network with dynamically evolving partners and local communities. The second perspective would require an effort at the government level involving providing last mile connectivity, spatial data solutions integrating available natural resources and socioeconomic data at national/regional level. Such an environment is not present in the region Sandwalk proposes to operate. In the case of the first perspective it has been found to be quite an expensive proposition for an SME. Rao (2007) foresees the requirement to deploy VSAT, training facilities and adequate scaling to cover a considerable area. However there is hope for an SME.

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In the case of ITC it still had to hire commission agents to facilitate logistics required. Given the scale of proposed operations the possibility of training conventional suppliers to act as communication and commission agents can be explored. In other words Sandwalk could use suppliers or intermediaries instead of ICT. The benefits that were provided to farmers directly could now be delivered to intermediaries/suppliers who would then pass on the information to their respective clients. Such a scenario requires an understanding of information flow from customer to supplier. There is also the case of co-ordinating demand and supply. These issues are best understood within the bi-directional supply chain framework.

1.1 Adopting a two level bi-directional supply chain
A two level bi-directional supply chain is one in ‘which the initial service provider is the interface between the service customer and the service supplier’. (Sampson, 2000, p. 355) It is a concept originally developed for services in which a clear customer-supplier duality may be noticed. Customer-supplier duality is a scenario in which an individual provides the input for the service organization either in the form of belonging, their minds or in cases like photography or beauty parlours: even themselves; it would be the same individual that had just supplied the input that will receive output. (Sampson, 2000)

Even though originally developed for services that clearly exhibit the customer-supplier duality Sampson (2000) agrees that such a supply chain may also be employed in situations where the original input provider is not the receiver of the output. That

individual/organization may instead receive other benefits. It has been argued that in the postal service both the sender of the post and the receiver are customers where the sender is charged whereas the receiver in most cases is not.

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1.2 Implications of a bi-directional supply chain
Sampson (2000) goes on to list the managerial implications of a service designed around a bidirectional supply chain. See Appendix B for a detailed study of these managerial implications and key differences between an ordinary and a bi-directional supply chain for a service organization. One major theme recurrent in all implications concerning a bi-

directional supply chain is the management of supply relationships.

Insufficient communication between partners has been attributed as the primary reason for breakdowns or inefficient in service supply relationships. Conflicts, organizational and cultural differences owe their origins to insufficient communication between the partners. (Ahlstrom & Nordin, 2006) In the existing practise the businesses or service providers attempt to withhold all sorts of information in the name of trade secrets, sometimes at the cost of suppliers unable to understand the requirements or the context of the requirement. Lamming et al.(2005) make a case for making more information available to stakeholders and partners despite the trade-risks. They argue that if transparency is achieved on either sides it would prove immensly beneficial. Besides risks are mitigated if the transparency is mutual due to increasing level of trust that go along with transparency.

1.3 Supply Chain approach to service design
In an integrated supply chain one stakeholder’s action produces a cascading effect on others. In services where a bidirectional supply chain is integral the input process is going to directly affect the output process; directly affecting the customer-supplier. An inadequate output maybe the result of an inadequate input – each being given in or taken away by the customersupplier. To be able to design the entire service based on these dynamics Sampson (2000) recommends the service blueprinting process. The process is linear and two dimensional; one dimension denotes the passage of time and the other denotes visits/re-visits to customer 11

interaction. Four key action areas may be identified by four horizontal separator lines in a service blueprint. These are described in Table 1.

Table 1 Lines of Interaction in a Service Blueprint. Adapted from (Flieb & Kleinaltenkamp, 2004, p. 396)
Line type Line of Interaction Line of Visibility Description This separates the customer action area from service provider action area. This differentiates activities that are visible and those that are invisible to the customer. Front office activities are featured above this line. Line of Internal Support process, back room processes are placed below the line of internal Interaction interaction. Line of This line separates the support zone and management zone of the service Implementation process. Management processes are closed associated with specific service processes. For example: allocation of additional resources.

However it is also possible to design a service blueprint around the first three lines mentioned. Integral to the process of evolving a service blueprint is the identification of failure points/areas where the service blueprint inefficiencies may lead to service failures. To this end Flieb & Kleinaltenkamp(2004) propose three measures to reduces chances of service failure and increasing efficieny. They are studied below. 1.3.1 Information Management

This involves increasing the over-all process awareness across the blueprint including suppliers and customers by providing sufficient service process evidence, i.e. an insight into the service process from time to time. This would provide the stakeholders with an appreciation of the service process. It would make the customer/supplier aware of the expected participation from their side for an improved service process. 1.3.2 Factor Combination Management

This involves studying the relevant external and internal factors in a service process; and jointly exploiting them for maximum efficiency. For example standard levels can be set for important critical activities and depending on the standard level the service process may 12

incorporate changes to the process. For example: a customer input that requires more processing at one level may be accorded a processing agent with high efficiency/capacity. This would require a standardisation/proper classification of form of inputs, internal and external factors. 1.3.3 Property Rights Management

This entails proper contract management, with the supplier/customer being made aware of exact extent of property rights over process inputs and outputs. A dispute on property rights might prove disastrous.

2 Findings & Conclusions
The studies undertaken in Section Prevalent Models in Indian agro-based Industriesindicated that the Value Addition Centre model (VAC) was the most appropriate amongst the available models. Further analysis of the model in Sections Deploying Information and Communication Technology In Agro Sector revealed that deploying information and communication infrastructure (a key enabled for VAC model) over a sizeable area was quite out of reach for a small/medium enterprise. Where the company had used ICT to the maximum extent it could be reasonably substituted with the intermediaries already trading in the market. While efforts can be made to reach the suppliers directly with a decent level of success it is doubtful if such an approach would be scalable in the long run. Despite a clear cost imposition the intermediaries would still require much less resources than deploying an ICT network as it was done with the VAC model. Therefore finding means to increase efficiency of communication with the suppliers and being able to influence the suppliers through intermediaries in the long term are the two main issues that require to be addressed. It has been proposed to adopt a bi-directional supply chain approach to counter these issues.

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2.1 Deploying a bi-directional supply chain

Figure 2 Two level bidirectional supply chain, Adapted from (Sampson, 2000)
An analysis of the bi-directional supply chain concepts revealed that it would be desirable to have the entire service process adopted or evolved around the supply chain. It has been realised that instead of dealing with the suppliers in the traditional sense a value addition service provider it would be necessary to develop a much deeper understanding of the realities. Within the perspective of the bi-directional supply chain it has been found that there exists a certain duality with suppliers/customers in the chain. In the traditional sense their roles were completely exclusive to each other. However one can clearly see the benefits of recognising the customer-supplier duality in such service processes.

However in the case of the VAC model the supplier; in this case the farmer or the grower receives not a processed product but a financial benefit or a better price. Whilst this may superficially appear to be inconsistent with the bi-directional supply chain there is certainly at least theoretical grounding for adopting the framework in cases where the supplier/customer may receive other benefits. (Section Adopting a two level bi-directional supply chain) In the VAC model the customer-supplier receives the benefit of better prices, valuable crop and market related information and assistance. In turn the customer-supplier supplies the product 14

grown with the help of VAC to the VAC which then processes the product and exports the product. The customer-supplier both receives and supplies. There is definitely a case for customer-supplier duality.

A case can be made against this duality citing that the information supplied by VAC does not constitute anything more than feedback on the product. A closer study reveals the VAC provides much more than mere information services – in many cases information on expected product prices during harvest season, logistics to move produce, pesticides, fertilizers and even experts are supplied to improve farm productivity. This constitutes much more than feedback.

Further it was found (Section Supply Chain approach to service design, Supply Chain approach to service design) that a service process can be much more efficiently run with the entire process evolved around the bi-directional supply chain. Literature recommends using the service blueprint tool to produce a service design. This exercise was carried out. In addition to the service blueprint it was also learnt that the supply chain efficiency can be improved using information management and factor combination management. Appendix B describes some of managerial/practical implication of bi-directional supply chains.

2.2 Information management and factor combination management
In section Information Management(Information Management) it was learned how providing a clear idea of the service process and the requirements in advance to the customer-supplier would enhance the efficiency of the supply chain. The need for transparency without compromising on trade secrets was also discussed earlier in section (Implications of a bidirectional supply chain). Clearly information management is a crucial area. Communications with the consumer-suppliers can make or break the service process. Considering the proposal 15

of using intermediaries instead of direct information and communication technology presence (ICT) it would be required to evolve a well defined supplier development program.

After information management the next important issue would be factor combination management. It would entail evolving standardised procedures or tools that would help analyse both external and internal factors. The analysis could then used as a basis for further decisions. In the case of Sandwalk for example a standardised farm file for every farm/land holding that records soil properties and water salinity can be used to decide on fertilizer, irrigation schedules and passed on to supplier.

2.3 The Sandwalk Service Blueprint
A prototype service blueprint (Section Proposed Service Blueprint for Sandwalk Agencies) has been drawn up based on the framework studied earlier in section Supply Chain approach to service design. The blueprint lays emphasis on inspection and crop monitoring. These two make the supply chain a bi-directional one. Three main failure points have been identified. Two out of the three are related to information/communication management. Any gap left unplugged here could lead in variations in input that will go on to affect processing and shipping schedules. This gap or error could occur at two instances before the seeds are sown or during the inspection/query activities. A failure to accurately communicate the pricing, quantity required and product types at the requirement and contract stage can either cause the service provider to default on contracts with its buyers from abroad and may cause quality issues as well.

The role of inspection and crop monitoring begins once the requirements are passed on to the growers. Contracts at this stage are informal as they’re not easily legally enforceable in Indian conditions. As previously mentioned information management and factor combination 16

management have their largest role here. The crops will need to be periodically inspected and the growers provided as much information and assistance as could reasonably be provided. Regular inspection also provide for growers to interact with the service provides. Processing and shipment being in-house activities are behind the lines of visibility. Less attention has been provided to those areas and failure points since they’re out of scope of this report. Only a general gist of the elements that would constitute physical evidence during each stage of customer activity have been provided. In practise it would be necessary to adopt such elements that are easily accepted and passed down by the intermediaries to the grower. It is also important that these physical evidences reach the growers ultimately.

This report has made an attempt to answer the basic queries raised by Sandwalk Agencies. It more or less makes a case for treating suppliers on par with customers – in fact it goes a step beyond and explores the intricacies of customer-supplier duality. Perhaps it is the acknowledgement of customer-supplier duality that would need to come first to the organization in order to be able to get the suppliers working for them and more importantly for the organization.

Factors like transparency and information management that make bi-directional supply chains a success have also been discussed. The service blueprint provides for an over-all framework that was required to base the operations of Sandwalk agencies. A set of recommendations that will help Sandwalk Agencies evolve and build on the present prototype have also been provided in the last section.

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Sn a
2.4 Proposed Service Blueprint for Sandwalk Agencies

Leaflets, Inform al

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3 Recommendations
It needs to be mentioned that during the initial operational phases Sandwalk would be using market intermediaries to be able to reach suppliers. So in a sense the intermediaries are also a set of suppliers.

It would be necessary to devote time and resources for vendor/supplier development. The whole service process of the organization hinges upon the possibility of being able to secure a set of decent suppliers that are co-operative and participatory in the service process. Specific mechanisms and direct contact facilities in addition to direct marketing efforts will have to be pursued to get the suppliers involved and producing.

Sandwalk Agencies must ensure that the product calendar development takes care of issues such as domestic demand and local crop preferences. It would be quite an undertaking to convince the growers to abandon traditional crops and shift to new types. Changes will need to be incremental and preferably decisions on change should be arrived with the participation of customer-suppliers.

The possibility of outsourcing post-harvest processing to the suppliers/intermediaries can also be explored at later stages. This would leave Sandwalk Agency a solely knowledge based company that provides know how for growers and then trades the products to the market.

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4 Bibliography
Ahlstrom, P., & Nordin, F. (2006). Problems in establishing service supply relationships: Evidence from a high-tech manufacturing company. Journal of Purchasing & Supply Management , 12, 75-89.

Department for Business, Enterprise & Regulatory Reform. (2009). Importing into the UK Introduction. Retrieved May 18, 2009, from Department of Business Enterprise and Regulatory Reforms: http://www.berr.gov.uk/whatwedo/europeandtrade/importing-intouk/page9728.html

Flieb, S., & Kleinaltenkamp, M. (2004). Blueprinting the service company. Managing Service processes efficiently. Journal of Business Research , 392-404.

Gandhi, V., Kumar, G., & Marsh, R. (2001). Agroindustry for small and rural farmer developement: Issues and Lessons from India. International Food and Agribuisness Review , 331-344.

Lamming, R., Caldwell, N., Phillips, W., & Harrison, D. (2005). Sharing Sensitive Information in Supply Relationships: The flaws in one-way open-book negotiation and the need for transparency. European Management Journal , 23, 554-563.

R.J.Vokurka. (1998). Supplier Partnerships: a case study. Product and Inventory Management Journal , 39 (1), 30-35.

Rao, N. (2007). A framework for implementing information and communication technologies in agricultural development in India. Technological Forecasting & Social Change , 491-518.

Sampson, S. E. (2000). Customer-supplier duality and bidirectional supply chains in service organizations. International Journal of Service Industry Management , 11 (4), 348-364.

Zeithaml, V., & Bitner, M. (2000). Services Marketing. New York: Irwin McGraw-Hill.

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5 Appendix A
There are four broad models for Indian agro-based industries that have been proposed by Gandhi et al.(2001). They are ➢ co-operative organization model ➢ government organization ➢ private multinational partnering ➢ multinational-local firm partnership ➢ And finally value addition centre model. (VAC)

The first two models are both top heavy, require massive investment with operations spanning over more than one district. The co-operative organization runs according to Cooperative Society laws and is collectively owned by the farmers. The farmer’s co-operate at various levels and are centrally managed by a district committee. The government organization model is ideal for a public sector organization with the government establishing and operating cold-storage centres, information centres and finally marketing the product.

The private multinational partnering model was evolved by PepsiCo in the Indian state of Punjab. It entailed mass contract farming with the company choosing to take the informal route to enforce contracts. It would also suffer losses of about Rs.40 million a year for three years before the venture was profitable. It involved provision of seedlings, computerized planting patterns and schedules. Overall such a model requires enormous amount of resources with the company micro-managing everything including planting of the crops.

Similarly the multi-national-local firm model also required massive investments and direct government backing. The project involved corporate farming over a large area owned by the

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company. The project has hit a road block due to laws proscribing private corporations from owning farm land and may never be implemented.

Finally the value addition centre model: It is conceived as a hub of activities for both post and pre-harvest activities. The model is presented as one that provides technological know-how, market data and access to small and medium scale farmers. It would compete directly with the trader’s network to purchase back the product thanks to its offering of an integrated package of services to the farmers. The benefits of such a system are that it removes intermediaries at multiple stages, provides an integrated chain from farm to the market and facilitates value addition. According to Gandhi et al.(2001) this VAC model is attractive as a concept but may require additional organizational effort.

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1 Appendix B
Listed below are some of the practical implications of adopting a bi-directional supply chain as put forward by (Sampson, 2000)

1.1 Supply Base Issues
Manufacturers have to make three important decisions related to supply bases: make or buy, number of suppliers and finally supplier selection. Sampson (2000) argues these are a little different for service organizations that run a bidirectional supply chain.

In a service organization running a bidirectional supply chain the input taken in is well and truly ‘outsourced’ to the consumer-supplier. In cases where the value added product is directly provided to the consumer-supplier it is desirable to have as many suppliers as possible for it means a directly proportional increase in business. Supplier selection is fundamentally different because it is the supplier (consumer-supplier) that chooses the service organization.

1.2 Vendor development and Partnering
Partnering is a mutually beneficial process; it would help improve the quality of the input provided by the consumer-supplier. The direct incentive to the consumer-supplier for partnering is that better inputs produce better outputs from the service organization. (R.J.Vokurka, 1998 cited in (Sampson, 2000)) The major challenge for a service organization to partner with a customer-supplier is to manage partnering with a large quantity of customersuppliers. Where a long term relationship can be cultivated vendor development is much

more appropriate.

1.3 Role of information technology (IT)
Because bidirectional supply chains are rather short, just-in-time and require quicker response from consumer-suppliers an appropriate medium of communication with the suppliers would 24

need to be established. Once again the number of consumer-suppliers that need to be communicated with is crucial – this usually dictates what sort of medium needs to be established.

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