UNIT 5.

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The purpose
Supplier Relationship and The
▪ The purpose of supplier relationship
Supplier Perception Model management (or SRM) is to strategically plan and
Elliot Simangunsong, Ph.D., Dip. SCM (ITC) manage relations with suppliers of goods and
services so as to obtain from them the best
possible value
▪ Example of purpose:
❖ more revenue, lower cost, improved quality, greater
flexibility, increased speed of response, improved
environmental compliance, lower risks, or enhanced
opportunities for innovating the business’s goods,
services and / or processes

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Both Sides of the Value Chain Supply strategy and the contract

Purchase Produce
▪ The type of relationship that you are trying to
establish with a supplier will have a direct
Customers
effect on the contract.
Purchase Produce
▪ Supply strategy will also determine the kind of
contractual relationship that you will seek to
The
Purchase Produce Enterprise
have with your supplier(s).
▪ The kind of contractual relationship may
require lesser or greater trust, and greater or
Purchase Produce Suppliers
lesser reliance on the contract

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 Appraising suppliers
The supplier’s performance equation

Performance = Capability x Motivation

The supplier’s
interest &
The supplier’s potential
ability to supply commitment
Spot Regular Call-off Fixed Partner- Joint Internal
what the purchase trading contracts contracts ship ventures provision
business needs

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Comparison between arms-length relationships and partnerships

• Spot Purchase • Good for standard products with low
Arms-length relationships Partnerships switching costs and when annual
 No collaboration  Collaboration is the main reason expenditure is high
 Short-term focus  Long-term focus
• Good when you don’t know
 Focus on negotiating the price down  Focus on understanding and reducing costs • Regular Trading requirements in advance and/or when
 Opportunistic  Joint optimisation each requirement is different
 Low level of trust  High level of trust • Are also called “framework
 Minimum information sharing to hide  Much information sharing to promote agreements”, “blanket contracts” or
positions optimal decision-making “standing orders”
 No investment in the relationship  Investments made to improve the
• Call-off Contracts • Supplier agrees to provide items at
efficiency and effectiveness of doing
agreed prices and within agreed
business
timescales on as needed basis over a
 Disputes resolved by reference to  Disputes resolved by discussion period of time
contracts
 No personal relationships  Strong personal relationships
• Good for frequently required products
& services and when it is difficult to
 Little effort required to manage supplier  Involves significant effort to manage the
predict amounts in advance
relationships relationship

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• Fixed Contracts • You commit to purchase a certain The Supplier Perception Model
volume or value
• Good for frequent requirements when
volumes can be predicted in advance
• A focus on costs rather than price
▪ It is a framework for understanding how a
• Partnerships • Partnerships are appropriate for critical
supplier views its actual and potential
(& bottleneck) and where the focus is on customers
long-term product development
• Partnerships require time and effort so
▪ This framework influences the supplier’s
selecting the right partner is attitudes and its behaviour towards its
fundamental
customers
• For products or services which are
• Joint Ventures significant to your competitive ▪ The model takes two dimensions into account:
advantage
• Internal Provision value of business and level of attractiveness

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The Supplier Perception Model

▪ Value of the business: your company offering to

suppliers in relation to their own turnover levels
▪ Level of attractiveness: payment record, the ease
of doing business with your firm, cultural Develop Core
affinities, personal relationships, level of trust, Marginal Exploit
business development potential and the image
created for the supplier by being associated with
your company.

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 Case Discussion

▪ Ford Motor Company

▪ Sourcing Strategy at Starwood

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