Creating and Managing Supplier

Relationship
 The Supply Chain IT Framework

◻ The Supply Chain Macro Processes

Customer Relationship Management (CRM)
Internal Supply Chain Management (ISCM)
Supplier Relationship Management (SRM)
Plus: Transaction Management Foundation
Macro Processes in a Supply Chain

Supplier Internal Customer

Relationship Supply Chain Relationship
Management Management Management
(SRM) (ISCM) (CRM)

Transaction Management Foundation (TFM)

Customer Relationship Management

◻ The processes that take place between an enterprise

and its customers downstream in the supply chain
◻ Key processes:
Marketing
Selling
Order management
Call/Service center
Internal Supply Chain Management
◻ Includes all processes involved in planning for and
fulfilling a customer order
◻ ISCM processes:
Strategic Planning
Demand Planning
Supply Planning
Fulfillment
Field Service
◻ There must be strong integration between the ISCM
and CRM macro processes
Supplier Relationship Management
◻ Those processes focused on the interaction between
the enterprise and suppliers that are upstream in the
supply chain
◻ Key processes:
Design Collaboration
Source
Negotiate
Buy
Supply Collaboration
◻ There is a natural fit between ISCM and SRM
processes
The Transaction Management
Foundation

◻ Enterprise software systems (ERP)

◻ Earlier systems focused on automation of simple
transactions and the creation of an integrated method of
storing and viewing data across the enterprise
◻ Real value of the TMF exists only if decision making is
improved
◻ The extent to which the TMF enables integration across the
three macro processes determines its value
Steps of Supplier Relationships
◻ Developing Supplier Relationships
◻ Supplier Evaluation & Certification
◻ Supplier Development
◻ Supplier Recognition Programs
◻ Supplier Relationship Management
Strong supplier partnerships
Important to achieving win-win competitive
performance for the buyer and supplier -- these require
a strategic perspective as opposed to a tactical position
Involve “a mutual commitment over an extended time
to work together to the mutual benefit of both parties,
sharing relevant information and the risks and rewards
of the relationship”
Supplier Evaluation & Certification
◻ A process to identify best & most reliable suppliers.
◻ Sourcing decisions are made on facts & not on
perception.
◻ Frequent feedback can help avoid surprises & maintain
good relationships.
◻ Suppliers should be allowed to provide constructive
feedback to the customer
Supplier Certification refers to “an organization’s process
for evaluating the quality systems of key suppliers in an
effort to eliminate incoming inspections.” -Institute for
Supply Management.
Supplier Development
Supplier development - A buyer’s activities to
improve a supplier’s performance and/or capabilities
based on the following approach:
1. Identify critical products & services
2. Identify critical suppliers
3. Form a cross-functional team
4. Meet with top management of supplier
5. Identify key projects
6. Define details of Agreement
7. Monitor status & modify strategies
Supplier Recognition Programs
Companies should recognize & celebrate
-

the achievements of their best suppliers.

- Award winners exemplify true partnerships

continuous improvement, organizational
commitment, & excellence.

- Award-winning suppliers serve as role

models for other suppliers
Supplier Relationship Management

Supplier Relationship Management

(SRM)
◻ Improves profits & reduces costs.
◻ Refers to extended procurement processes such as
sourcing analytics, sourcing execution,
procurement execution, payment & settlement,
supplier scorecarding and performance monitoring
Supplier Relationship Management
(Cont.)
Five key points of an SRM system:
◻ Automation
◻ Integration spans multiple departments, processes,
& software applications.
◻ Visibility of information & process flows
◻ Collaboration through information sharing
◻ Optimization of processes & decision making
Trends in SRM
◻ Sourcing & procurement are increasing in
importance in organizations. They are becoming
more strategic.
◻ More companies expect more cost reductions to
come from their procurement functions.
◻ Staff is being reallocated from low-level
transaction activities to more strategic & higher
value-added positions
◻ Companies with effective transaction activities tend
to reduce costs better & have strategic & automated
systems
The Role of Sourcing in a Supply Chain

Sourcing is the set of business processes

required to purchase goods and services
– Outsourcing
– Offshoring( Offshoring is the relocation of a
business process from one country to
another—typically an operational process, such as
manufacturing, or supporting processes.
Role of Sourcing in a Supply Chain

Outsourcing questions
1. Will the third party increase the supply
chain surplus relative to performing the
activity in-house?
2. How much of the increase in surplus
does the firm get to keep?
3. To what extent do risks grow upon
outsourcing?
The Role of Sourcing in a Supply
Chain
Supplier Scoring and Assessment

Supplier performance should be compared on the

basis of the supplier’s impact on total cost
There are several other factors besides purchase
price that influence total cost
Supplier Selection
• Identify one or more appropriate suppliers

• Contract should account for all factors that affect supply chain
performance
• Should be designed to increase supply chain profits in a way that
benefits both the supplier and the buyer
Design Collaboration

• About 80% of the cost of a product is determined

during design
• Suppliers should be actively involved at this stage
Supplier Scoring and Assessment

• Supplier performance should be compared on the

basis of the supplier’s impact on total cost
• There are several other factors besides purchase
price that influence total cost
Procurement

• A supplier sends product in response to orders

placed by the buyer
• Orders placed and delivered on schedule at
the lowest possible overall cost
Sourcing Planning and Analysis

• Analyze spending across various suppliers

and component categories

• Identify opportunities for decreasing the

total cost
Cost of Goods Sold

• Cost of goods sold (COGS) represents

well over 50
percent of sales for most major manufacturers
• Purchased parts a much higher fraction than in the
past
• Companies have reduced vertical integration
process and have started outsourcing their
processes
Benefits of Effective Sourcing
Decisions
• Better economies of scale through aggregated
planning
• More efficient procurement transactions
• Design collaboration can result in products that are
easier to manufacture and distribute
• Good procurement processes can facilitate
coordination with suppliers
• Appropriate supplier contracts can allow for the
sharing of risk
• Firms can achieve a lower purchase price by
increasing competition through the use of auctions