VALUE BALANCE OPPORTUNITY
recent \i.sil to a medical equipment producer
The pressure to improve is relentless. Companies are
continually scrambling to reduce prices, improve quali-
ty, shorten cycle times, introduce new products, and
satisfy customers. Meanwhile, global competition is
fiercer, and supply markets are more constrained. The
only way to survive and prosper in this tough environ-
ment is to collaborate with suppliers. That's why rela-
tionships matter.
w.scmr.f iim
REMEDIES SYNERGY
A
revealed a surprisingly simple and traditional
model of suppiy nunagcmcnt. This model,
which has not ehangeil in many years, focuses
almost exclusively i»n ohlaining year-after-year
priee reductions from su|)plicrs. Under the
model, the company threatens to replaee those
suppliers that refuse or are unable to comply with the priee
demands. Over time, this approach has produced its
intendetl elfeet ol lowering prices, especially when supply
capacity exceeded demand. Now, however, supply markets
are tightening and more internal capahilities are being out-
sourced. As a result, power has hegun to shift from the
buyer to the seller, making this model much less effective.
The medical equipment producer's continued adherence to
Rober[j. Ircnl is ihe Eugene Mercy Associate Professor of
Management and Supply Chuin j\(anuj^t*metit
Director at Lehiuh L'nivcrsifv.
C I I M N \ ( : K \ I K N T R K V I I W • Niiv i-.\i n i-n 2( 53
Relationships

adversarial relationsbips and its obsession with price now C'oLmterproductive relationships are not recommended,
look tired and uncompetitive. but tbis docs not mean they don t exist. Over the last several
Like the nicdica! equipment provider, most firms v\()uld years, some buyers fiave taken fegal action against their sup-
benefit from a nu)re enlightened approach to managing their pliers to prevent material-price increases that the buyer con-
supplier relationships. As a diverse set of research shows, tends violate contractual agreements. Relying on the judicial
relationships matter to tbe point vvbere they can he a source system to settle disputes is an indication that a relationship
of competitive advantage.' Recognizing tbis. many firms are has become counterproductive.
pursuing supplier relationship management (Sf'lM). a broad- Competitive Relationships. Competitive relationships—
based management methodology and set of practices tbat also referred to as distributive, win-lose, or adversarial rela-
describe how a firm manages its supply base. SHM provides a tionsbips—see supply ehain members acting in tbeir sell-
philosophy, shared throughout an organization, that sujiplier interest to capture a larger share of value from a relationsbi[).
relationships are important. The parties compete over a fixed amount of value rather than
"I'et. v\htle supplier relations are important, not all rela- pursuing activities that create new value or mutual opportu-
tionships are equal in value. A major part of supplier rela- nities, sucb as cost reductions tbat would lead to an increase
tlonsbip management is differentiating supplier relation- in market share and, in turn, more business for suppliers.
sbips and understanding when and vvbere to apply an Buyers usually pursue competitive relationsbips witb suppliers
appropriate relationship. This differentiation is crucial tbat provide standard or knver-value items or services in a supply
beeause a number of industry trends and changes are push- market ibat offers substitutabfe products and services with low
ing SRM to become an increasingly important part ol the suppfier-switcbing costs. Competitive bidding or price eompar-
strategic planning process. Managers should be aware not isons, sborter-term eontracting, regular market testing, and
only of these trends but also of what ,sup[)liers want frr)m reverse Internet auctions are often used to obtain tbesc items.
their buyer-supplier relationships and what buyers sbould Wbile it may seem counterintuitive, many supplier rela-
do to exceed tbose expectations. tionsbips should he eompetitive. Pursuing a higher level or
more intense supplier relationshi]i is often prohibitive as tbe
The Four C's of Supplier Relationships cost of managing the relationship would likely outweigh any
While most people vvould agree that bLiyer-su[iplier relation- benefit. The reality is that a majority of a buying firm s rela-
sbips are important, v\e should not believe ibat all relation- tionsbips, in terms of tbe total number of suppliers, should
ships are special or unique. Supply
EXHIBIT 1
chain professionals can bring value
to their organization by knowing The Four C's of Supply Relationships
when, where, and hov\ to apply an
Neither party
appropriate relationship. Counterproductive
Aiso caiied Work actively
takes responsibility Destructive
antagonistic against each
Various models have been devel- (Lose-Lose) for what happens in conflict occurs
relationships other's needs
a relationship
oped tbat provide some order or
logic to industrial relationsbips.- Also called Engage in a
Attempt to
CompBtitive adversarial or competitive Minimal sharing
Exhibit f presents one approach distributive struggle to divide a
maximize value
of information
(Win-Lose) for each side
that characterizes buyer-supplier relationships fixed amount of value
relationsbips based on bebavior
Longer-term Supplier involvement Open sharing of
ralber than legal structures, sucb as Cooperative
Also called
relationships cfiiring product information occurs,
inlegrative
joint ventures or partnersbips. Ihis (Win-Win) relationships
result from development including sharing
mutual goals increases of cost data
model segments relationships into
four bebaviorai dimensions and rec- Also caiied
Congruence of Jointly identify Jointly identify
ognizes that different ap|iroaches to Collaborative integrative or
goals and co- new market creative solutions
(Win-Win) creative
supplier management apply to dif- destiny exists opportunities to problems
relationships
ferent settings. Tbere is no "one size
fits all" buyer-supplier relationsbip. The potential to create be competitive. Tbese relationships, however, will likely not
value from a relationship differs dramatically as we move comprise a signifieant portion of total purchase dollars.
through the li>ur levels. Cooperative Relationsbips. Cooperative relationships—
Counterproductive Relationships. In counterproductive also reierrcd to as integralivc or win-win relationships—rec-
relationships^also called antagttnistic or lose-losc relation- ognize the potential \alue ol closer interaction and open .shar-
ships—the parties actively work against each other's inter- ing of information. These relationships are most often
ests. In addition, neither party feefs a need to assume respon- associated with suppliers tbat are expected to be longer-term
sibility for anything tbat transpires. This seenario not only members of a reduced supply base. Relationsbips v\'ith tbese
fails to create new value hut also frustrates short- and longer- suppliers are often formalized through longer-term contracts
term success. that lead to discussions about how to improve cost, quality.

5 4 S L PPI > t'H \IN I V t - M N A t , I. M l - M RI \ U W • NllV I VIIUII 2 0 0

 delivery, packaging, inventorv management, product innova-
tion, and service—all of which can affect supply chain per-
formance. C'ooperative relationships often feature early SLip-
plier involvement during [iroduct development.
Collaborative Relationships. C'ollaborative relationsbips,
sometimes callcil creative relationships, involve a limited
number of sufipliers that provide items or services that are
essential to a company's success. A willingness to work jointly
to identify new and hettcr ways to operate or compete in the
marketplace is characteristic of such a relationship. 1-or
example. General Filectric helped fund the development of
Boeing's long-range version of the 777, a plane that
eustomers can order only with GE engines. CE's
logic tor collaborating w i t b Boeing is quite Part of the value that supply
simple—working witb Boeing to develop innova-
tive planes that create value for airline customers
managers add to an organization is
enables CE to sell and service more engines. their ability to create the appropriate supplier
Collaborative relationsbips represent the most
s{)pbisticated and intensive relationsbip possible
between a buyer and seller. Tbey feature executive-to-e\eeu-
tive interaction, joint strategy-development sessions, and an
intense sharing of resourees. Supply chain alliances and part-
nersbips, for example, are collaborative hy design. Tbe parties
ideally share a co-destiny and recognize that the value tbey
receive vi'ould be far less tban if the collaborative relationship
did not exist.
Part of the value that supply managers add to an organiza-
tion is their ability to create the most appropriate supplier
relationship lor a particular rct|uirement. f^ursuing a coopera-
tive or coflahorative relationship when a competitive relation-
ship may be better w i l l likely create no new value.
Conversely, pursuing a competitive relationship when a coop-
erative or collaborative relationship makes more sense will
likek leave some value unrealized.
Why Relationships Matter
Our e\|X'riencr and research, v\hich includes focus groups
w ith dozens of companies, confirms that suppher relationship
management will become an increasingly important part of a
firm's strategic planning process. To put it simply, relation-
ships matter because almost everV' industry is faeing changes
that make suppliers a critical part of a firm's value chain. The
foHowing eight reasons show why supplier-buyer relation-
ships—particularly those that will benefit from a cooperative
or collaborative approach—will grt>v\ in importance.
1) Relentless Pressure to Improve
It is difficult to identify an industry that has not seen an
increase in global competition over tbe last 15 years, leading
to ever-increasing pressure to improve. Even in industries,
sucb as aerospace, vvbere tbe numher of major competitors
bas decreased, companies still must deal witb sopbisticated
customers presenting their own set of demands. Relentless
customer and competitor pressure to reduee prices, improve
(-luality, sborten c\cle times, improve deliverv'. rapidly inno-
w w u .scmr.cnm
vate, and be responsive to cbange bas become today's reality.
Most firms bave worked diligently to improve tbose parts
of the supply chain that are under their direct control. In
fact, many managers wifl say they have reached a point of
diminishing return as it refates to improving internal perfor-
mance. If this is the case, where will the ne.vt major source
for improvement come from? When you understand that at
feast 60 percent of total revenue often passes directly to sup-
pliers as payment for required inputs, then the souree for
future cost, quality, delivery, and cycle-titnc improvements
qtiickly hecomes evident.
relationship for a particular requirement.
Pressure to improve is rclcntiess and severe. When com-
hined with other changes and trends, it is not hard to envi-
sion the role that suppliers will play in the improvement
process. Suppliers that have a cooperative or collaborative
relationship with their customers should be willing to partici-
pate in a buver's improvement projects, engage in joint prob-
lem solving, participate earlv in product design, and sLi[i|iort
otber activities that lead to better supply chain performance.
Suppliers that do not have a positive relationship v\ith a buyer
will presumably be less willing to su|iport meaningful
cbanges. Tbese suppliers may even act in a manner tbat is
counterproductive to tbe bu)er's long-term interests.
2) Reliance on Fewer Suppliers
rhrougbout the i'J90s, more and more companies began to
continually—and often dramatically—reduce tbeir number of
suppliers.-^ As an example, in tbe late 1990s, 40 percent of
Euccnt lechnologies' company-wide purcbase volume was
with 2.000 suppliers. Today tbe company relies on only 60
suppliers for 80 percent of its total purchases."^ One report
says that over the last several years almost half of the compa-
nies surveyed have redueed their supply base by 20 percent,
anotber f 5 percent have reduced their supply base between
20 and 60 pereent, and fully three-quarters of huying firms
now commit SO percent of tbeir total purcbase dollars to
fewer than fOO suppfiers."'
There are some good reasons for wanting to work with a
smaller supply base. The cost of maintaining multiple suppli-
ers for each purchased good or service (including dtiplication
of effort and greater opportunity for supply chain variability)
usually outweighs any perceived reduction in risk. Perhaps
more importantly, maintaining a smaller supply base is a criti-
cal prerequisite for leading-edge supply management prac-
tices such as supplier involvement during product develop-
ment, eollaborativc jilanning. and cooperative t|ualitv and
cost-reduction initiatives.
CH \ i \ \ l v \ \<.i \ i i . Ri \ N ( i \ I Miii 11 2 00=, 55
Relationships
One unintended effect of relying on a reduced supply l)ase
is an increase in supplier-switching costs. As buyers reduce
their supply base For critical requirements to one or two sup-
pliers, place the remaining suppliers on longer-term agree-
ments, and even begin to use global suppliers to satisfy
worldwide operating needs, how much supplier switching
flexibility do they realK haver
A lonj^er-term reliance on a drastically reduced supply base
demands close attention to relationships. Exhibit 2 shows how
suppK management's role changes when a company moves
troni a traditional environment that features thousands ol
eomponcnt suppliers to a strategic sourcing approach with a
drastically reduced set of critical suppliers. These remaining
suppliers often receive a larger portion of a buyer's total ptir-
chase reqtiiremcnts, further shifting (he balance of power
toward the seller. Companies that are shifting toward a small-
er supply base cannot ignore the role that relationshijis will
play with the remaining suppliers.
EXHIBIT 2
Supply Management's Changing Role
strategic Sourciny
Traditional Sourcing
CharactEristics: Ciiaracteristics:
• Manage thousands of component • Rely on 100 or fewer critical
suppliers on longer term
part numbers and suppliers
• Manage hundreds of standard
agreements
contracts • Manage strategic relationships
• Manage transactions • Develop alliances and
partnerships
• Employ many buyers
• Pursue cross-organizational
• Pursue traditional relationships
integration and value-creating
activities
• Rely on larger tier-one suppliers
to manage component suppliers
3) Importance of Early Involvement
For most firms, the development of innovative new products
and services comprises a major part ol their competitive husi-
ness model. A logical question becomes how to gain dilleren-
tial advantage from in\'oKing su|)p!iers in the devel(i|iment
proeess.
In their seminal stud\- of Toyota's lean prodtietion system.
James Womack. Daniel Jones, and Daniel Roos found that
automotive original cqtiipment manufacturers (OBMs) in the
United States relied on their suppliers for a much lower per-
centage of their engineering design support during produet
development than their Japanese counterparts did.^ The
study concluded that foreign competitors were capturing
more value from earK sLi)iplicr in\()Kcment than U.S. pro-
ducers,
U.S. firms now recognize the importance of supplier
involvement during new product development. In a number
of leading comjnmics, we see an increasing amount oi differ-
entiating features and technology in final products and ser-
vices that originated with suppliers. Consider, for example,
the OnStar svstem in Cieneral Motors vehicles, Fedlix's
56 C H A I N M-VNACI MI N I 2005
tracking technology, and elfieient engines and composite
materials for Boeing's 787 Dreamliner. These innovations
came largely from suppliers that do much more than design a
component according to buyer-provided specifications, A
company's ability to manage and facilitate supplier involve-
ment early in the product design process can make a differ-
ence in whether these innovations become a differentiating
part of its product offering or end tip as part ol its eompeti-
tor s offering.
Research reveals that executives not only have a high
regard for the potential contribution that suppliers can make
during development, they also expect suppliers to become
involved early on. sometimes during the concept phase. The
average performance improvement across a range of cate-
gories during product development is 10-20 percent, and
sometimes more, when sup]iliers are early partieipants,'
C'apturing these benefits requires ha\ing a set ol suppliers
that are willing to share their expertise and resources as a
eore component of their relationship as well as having buyers
who understand hov\ to manage those relationships,
4) Higher-Level Outsourcing
Even though companies have traditionally outsourced certain
requirements, they have been willing only recently to cede
direct control over entire portions ol their supply chain. This
often includes logistics, manufacturing operations, intormation-
technology management, and a wide range of support services,
VVhiic activities that are outsourced presuniahly are not
part of a company's internal core capabilities or competen-
cies, they arc still essential to sticcess. Can anyone argue that
the Asian supplier that produces the iPod does not allect
Apple's quality reputation? Is ihe external stipplier that pro-
duces Boeing's aircraft fuselages not critical to prodtict per-
formance and customer satisfaction? Is the third-party logis-
tics provider that eoordinates CM's worldwide component
deliveries not central to the automaker's operating success?
just because an activity is not part of a company's core busi-
ness strategy does not mean it is unimportant. If it were
unimportant it would likely not be performed.
As firms focus on those areas where they add the most
value, they will invariably rely on a smaller set of suppliers to
fill in gaps aeross the value chain. As responsibility for entire
"chunks" of the value chain is transferred to third parties,
anything less tban a total eommitment to strong relationships
with those providers will result in stiboptimi/ed performance.
5) Pressure to Become a Full Product-
Service Provider
Industrial customers are showing a desire to work with com-
panies that provide a full range of products and services. In
order to provide tbis full range, a company must have capa-
bilities in system design, assembly, test, maintenanee. and
ancillaf}' services, such as finance or end-of-lite disposal. In
essence, a full-serviee supplier performs or coordinates the
work of many stippliers.
www ,scnir,ci>rn
 Becoming a tull |irocUict-ser\ice provider can be a power- hits new trading high; eopper leaps to record high; and titani-
ful dillerentiator as more and more customers want to work um dioxide is about to rise.^ Ihose who follow supply mar-
with a smaller set ol suppliers, I he problem lor many compa- kets know that when demand exceeds supjily. the results are
nies is they lack the full range ot capabilities that customers often higher prices, allocation of supply, and a power shift
demand. Becoming a full [?roduct-serviee provider rather than Irom buyers to sellers.
a niche player forces companies to consider a number of Even if a buying iirm does not source raw or semifinished
options. They ean develop the needed eapabilities internally, raw materials directly, it is likely doing business witb suppliers
acquire them through a merger or acquisition, or rely on that are struggling to obtain these increasingly scarce and
third-party suppliers to fill in the missing pieees. expensive materials. Companies need to rethink their tradi-
Increasingly, we should expeet the use of third-party sup- tional supplier management praetices in the faee of these con-
pliers to be an attractive option, "fhe time and cost required straints and tbe related eflects on their supply chains. As mar-
for formal acquisitions or the internal development of a full ket changes sbift the balance between supply and demand, do
range of capabilities may simply be too great, at least in the suppliers really hove to work with customers that treat them
short term. Additionally a company may be reluctant to poorly? And if these suppliers continue to work with cus-
assume ownership of additional assets from a finaneial per- tomers who ptirsue adversarial relationships, shotikl these eus-
spective. But in today's hyper-speed environment, a delay in tomers realistically expect preferential treatment?
responding to customer needs may open the door just enough Most suppliers want to be tbeir customers' stipplier of
to allow a competitor to enter. choice (that is. the preferred stipplier). Conversely, most buy-
Exhibit 3 summarizes how a produeer of finished utility ers should strive to become their suppliers' customer of ehoice
trucks now competes as a full product-ser\ice provider. In (that is. the preferred customer), especially if these suppliers
an earlier (and simpler) era, it was enough to satisfy cus- sell to a variety ol customers from different indtistries.
tomer demands by delivering a finished product at the right Preferred customers are first in line wben a supplier develops
price and quality. Unfortunately, yesterday's order-winning nev\ technologies, first in line to receive differentiating ideas
characteristics have become today's order-qualifying charac- that originate v\ithin the sujiply eommunity. and, when siqiply
teristics. Customers now demand a wide array of features markets are otit of halance. first in line when a stip[)licr's lim-
and services that have little to do with the physical truck. ited out[uit is distrihuted. To hecome a preferred ctistomcr. a
The company is now calling on trusted supply partners to company mtist foeus its attention on su|iplier relationship
provide much of the added value tbat wins orders. Can a management,
company that relies on its stippliers to help it compete as a
full product-service provider afford not to view relationships 7) Competing Supply Chains
as core to its success? II we believe that competition is increasingly between supply
chains rather than individual firms, then it makes sense to
EXHIBIT 3 conclude that effective supply chains feature effeetive rela-
tionships. Descriptors sucb as aligned, eoordinated, and syn-
Becoming a Full Product-Service Provider chronized are all used to describe efficient and effeetive sup-
Produce and Provide a Full Product- ply chains. They also imply a cross-organizational perspective
Sell a Product Service Package
featuring a reliance on trusted suppliers. If supply chain man-
• Produce and deliver high-quality Establish a leasing office for agement as a philosophy increases in importance over the
equipment on-time and at a customers that choose not to
competitive price purchase
next several years, we can probably conclude that the rela-
• Perform daily service on Establish a used equipment tionships between supply chain members will also increase in
customer's fleet through out- company so customers can importanee.
source maintenance contracts dispose of equipment
Provide capital services to help Establish a rental unit for
An industry tbat exemplifies competition between stip-
customers finance equipment customers with short-term ply chains is satellite radio. In their race to be first to mar-
purchases equipment needs
ket, XM and Sirius each had to work closely wiih satellite
Offet- extended warranties and service Hold spare parts inventory with
rapid replenishment, or allow
and launch providers, convince an array of electronics
Develop total cost of ownership models
to optimize customers' fleet operations customers to hold inventory on companies to produce eartb-based transmitting and receiv-
a consignment basis
ing equipment unique to eacb company's specifications,
organize an extensive radio installation network, and enter
into partnersbips with automakers to inelude satellite
6) Supply Market Constraints radio as part of a vehicle's original equipment. A detailed
Consider for a moment some recent headlines from a study of tbis evolving industry- shows that it is no longer
PitivluL^itjg magazine report on world supply markets—priees enough for a single firm to have an innovative idea.
lor molybdenum are at historie higbs; spot gold predieted to Market sticcess increasingly lies in a firm's ability to
double in coming months; tight cement supply boosts con- design a supply ehain tbat can quicklv outperform any stip-
crete [irices; zircon rises as demand exceeds supply; crude oil ply chain assemhied b\' competitors.

,scnir,t'oni S U P P L Y C H A I N .MANAC^EM K \ i RLVILVV • XOVIMIII.K 2O()S 5 7

Relationships.

8) Fear of Competitive Disadvantage sv\itching costs should be market tested or rebid on a regular
If the potential advantages of improving supplier relation- basis, buyers might want to consider a more cooperati\'e
ships are not sufficient incentive to act. then perhaps the approach for managing critical or unique items. Companies
competitive disadvantages of not doing so v\ill be. tbat routinely take an adversarial approach with tbeir supply
Nowhere have the competitive aspects of supplier rela- base tend to view reverse Internet auctions and market test-
tionships reeeived more attention than in the automotive ing, for example, as approaches that can be applied to almost
industry, A recent study reported that U,S, OfiMs continue any requirement. But using reverse auctions to drive prices
to lag behind Japanese OEMs ofjerating in the Lnited States lower quickly sends a message about the win-lose nattire of a
in managing their relationships with automotive stippliers. An short-term relaticjnship.
overall conclusion is that Japanese OHMs are applying con- Protection ol intellectual property is another important
tinuous improvement practices to their supplier relationships expectation. Several years ago. an OEM invited suppliers to
just as they ha\-e done in their manufacturing processes. As a submit design ideas for the develo[imcnt t>l a new product.
result, they continue to win the cost-quality-teehnology The OHM not only failed to compensate suppliers for their
race," efforts (providing design support Is part of tbe eost ol doing
Suppliers prefer working with the Japanese OEMs and business with this buying firm) but also sent the winning
believe that they have a better opportunity to make an design out for bid to otber suppliers. The company even
acceptable return from them- As a result, they are shifting included suppliers in China that had not [participated in the
resources, particularly capital and R&f) expendittires, to the design phase. Needless to say. any trust that existed between
Japanese OEMs v\hile reducing their commitment to tbe the supplier that created the original design and the OEM
U.S. Big Three. Suppliers also are increasing product qualitv' disappeared,
for their Japanese customers while merely maintaining quali- A recent survey of European automotive suppliers shows
ty levels for domestic automakers. As the automotive industry how important understanding supplier expectations can be.
example illustrates, it is bard to diseotint the importanee of This survey noted thai stippliers are shifting their business to
supplier relationships when competing against companies OEMs that satisfy their expectations. They are also eharging
that have turned their relationships into a eompetitive advan- more for parts from customers that do not meet expectations.
tage. .A supplier's willingness to do btisiness with a customer corre-
lates elosely with whether the custt)mer fulfills expectations
What Suppliers Want in four main areas—the supplier's return on investment, the
To create a cooperative or collahoratiw relationship and gain customer's support ol the supplier, tbe customer's willingness
that competitive advantage, companies need to know wbat their to reward cost-saving ideas, and tbe eustomer's ability to pro-
suppliers expeet from a relationship. Exhibit 4 presents a set of tect proprietary' teehnology."^ Suppliers also stated a desire
expeetations that begins to define what suppliers want from to shift business away from customers that have costly and
their relationship with buyers. Tbese expectations are based on time-consuming negotiating processes.
focus group discussions with supply chain professionals. Suppliers should recognize that the likelihood of meeting
The desire for longer-term business arrangements, tbe lirst each expectation presented in Exhibit 4 is low, I lowever,
item in I Ahihit 4. means that suppliers do not want lo see buying firms shoLild strive, whenever possible, to address
their volumes regularly rebid or "shopped around" to other these wishes for the sake of longer-term relationships and a
suppliers. 'I'his suggests that while standard items with low smoothly operating supply chain. Satisfying those expecta-
tions should, in the long run, strengthen relationships and
EXHIBIT 4
trust between si.i|ipliers and buyers.

Supplier Relationship Management: What Buyers Should Do

What Suppliers Need
• Longer-term business
arrangements
• Fair financial return
• Adequate time for planning
• Accurate forecasts
• Minimum change orders
• Ethical treatment
• Opportunities for early
involvement during product
development
• Sharing of cost-savings ideas
Typically we think of customers as being the one pursued
• Clear material specifications and rather than tbe pursuer. Rut buyers should be proactive in
performance requirements
their jiursuit of better stipply chain relationships. Exhibit 5
• Parts designed to match
supplier's process
presents the actions that huying lirms can take to forge
• Smoothly timed order releases stronger relationships v\ith suppliers.
• Open sharing of information, A tangible way to focus on relationships is to make them
including technology roadmaps
part of the organizational tiesign. According to a recent study,
• Objective performance feedback
one of the most widely used SHM practices is to assign indi-
• Protection of intellectual property
viciuals to manage specific supplier relationshifis,' ' Who
• Payment in a reasonable time
these individuals are will vary as the importanee ol the rela-
• Efficient negotiating processes
tionship ehanges. For eritical relationships, it is increasingly
• Opportunity to become a preferred
supplier common to find executives responsihie for working closely
with cotintcrparts at the su|^[ilicr. Progressive lirms also

58 SL lii \ \ ( ) V F : M H I li i l l O S
establish buyer-supplier councils to share information at the Creating Competitive Advantage
highest organizational levels, Btiyers who still pursue adversarial relationships witb their
Es[iecialK in a coo|ierativc or collaborative relationship, most important suppliers will not meet with sueeess in
buyers should ptirsue aetivitics that promote trust. Perhaps today's marketplace. Tbey ma\- find their suppliers increasing
tbe most critical [iredictor of a successftil relationship, trtist
prices, allocating limited capaeity to other firms, or sharing
refers to a belief in tbe character, ability, strengtb, or truth of
their most innovative ideas with otber ettstomers—some of
a party. Buyers demonstrate their trustworthiness through wbom may be tbe buyers' direct competitors.
open and frequent communication, follov\'ing through on Committing to better buyer-supplier relationships does
promises and commitments, and acting legally and ethically nol mean trying to satisfy every supplier's expeetations.
in all dealings. Otber actions that indicate a trust-based rela-Instead such a commitment recognizes tbat a cooperative
tionship include basing decisions on the good of the relation- approach with a select group of suppliers offers the potential
ship rather than self-interest; publicizing success stories and to better meet the demands of a highly competitive market-
personal narratives, especially those that enhance the stand- plaee. The ehailenge today is to take tbe set of activities that
ing of tbe otber party; and treating information and data con- fall under a broai! umbrella calletl supplier relationship man-
fidentially. Enhancing trust across the supply chain mtist he agement and turn them into a hard-to-duplicate source of
an important objeetive. competitive advantage. Put another way, that's wby relation-
A worthwhile action that few buying firms undertake is a ships matter. (330
formal assessment of the buyer by suppliers. While suppliers
are aecustomed to receiving regular reports about their per- Notes
iormance. it is mtich rarer for buyers to receive reports about
For two different analyses on the importance of suppliers and
their performance as a eustomer. These reverse surveys, con-
supplier relationships, see M. Porter, The Competitive
dticted by a tbird party to ensure confidentiality, address how
Advantage of Nations, Free Press: New York, 1990; and A.S.
well a buying firm satisfies supplier expeetations across a
Carrand J.N. Pearson,"Strategically Managed Buyer-Supplier
range of areas. Tbe btiyer uses this feedback to itnprovc tbe
Relationships and Performance Outcomes," Journal of
(-luality of its supplier management efforts. The fact that so
Operations Management, August 1999, p. 497.
few buying firms take tbe time to ask their suppliers why they
prefer to do business l,or not do business) with them is a 2 For example, see L.M, Rinehart, M.B, Myers, and J.A. Eckert,
good, competitive reason to emphasi/c this acliv ity. "Supplier Relationships: The Impact on Security," Supply
Chain Management Review, Sept. 2004: p.52.
3 R.M. Monczka and R.J. Trent, "Purchasing and Supply
EXHIBIT S
Management: Trends and Changes throughout the 1990s,"
Supplier Relationship Management: Internationai Journal of Purchasing and Materials
What Buyers Should Do Management, Fall 1998: p. 2.

Assign individuals to manage relationships, including executive
managers assigned to manage the most critical relationships
Provide timely and complete supplier performance feedback
Formally assess the supplier's perception of the buyer as a ctistomef
Invite suppliers to be part of an executive buyer-supplier council
Emphasize trust building activities and actions
Practice cooperative cost management approaches
Provide resources to develop stipplier performance capabilities
Solicit supplier improvement suggestions with joint sharing of savings
Involve suppliers early during product planning and development
Implement stipplier relationship management (SRM) information systems
Meet with suppliers to understand supplier relationship expectations
Invite suppliers to participate in joint improvement workshops
Develop longer-term contract agreements that create mutual value
'^ J. Carbone, "Lucent's Supply Chain Focus Fattens Margins,"
Purchasing, September 19, 2002: p, 22.
-' A. Reese, "eProcurement Takes on an Untamed Supply Chain,"
iSource, November 2000: p. 108.
^ J.P. Womack, D, T. Jones, and D. Roos, The Machine that
Changed the World, Rawson Associates: New York, 1990: p. 118.
^ R.B. Handfield, T.V. Scannell, G.L. Ragatz, D.J. Frayer, and R.M
Monczka, New Product Development: Strategies for Supplier
Integration, American Society for Quality: Milwaukee, 2000.
° Purchasing Magazine's''Pr\ce Alerfelectronic newsletter,
June 27, 2005,
° M. Verespej, "Detroit Needs a New Driver," Purchasing
Magazine Online, April 7, 2005.
-'•'^ J. Snyder, "European Suppliers Play Favorites," Automotive
News, May 16, 2005.
R. J. Trent, "The Use of Organizational Design Features in
Purchasing and Supply Management," The Journal of Supply
Chain Management, Summer 2004: p.4.

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