Chapter 5

Supplier
Partnership

Faculty of Industrial Management

Universiti Malaysia Pahang
26300 Gambang, Pahang Darul Makmur
Tel: +609 549 2166 Fax: +609 549 2167
www.fim.ump.edu.my
Learning Outcomes
✓Define supplier partnership.
✓Explain why supplier partnership is important.
✓Understand the principles & elements of supplier-
customer relation.
✓Describe types of sourcing.
✓Understand criteria of selecting suppliers.
✓Understand the concept of evaluating suppliers.
✓Understand the principle of suppliers development
program.
What is Partnership?

Collaboration between two or more

parties for the purpose of mutual
benefits.
 What is Supplier?
A party that supplies goods or services.
Supplier may refer to:
Distributor
Packager
Manufacturer The middleman
Encloses products for
Producer of things for between the
distribution, storage,
sale manufacturer &
sale, & use
retailer

Wholesaler
Merchant
Sells goods or Franchised dealership
A professional dealing
merchandise to Franchise distributor
with trade
retailers
What is supplier partnership?
Collaboration between manufacturer & supplier(s) for their mutual benefits.

Long-term commitment between 2 or more parties to achieve goals &

objectives by maximizing effectiveness of each participant’s resources.
Why is it important?

✓ Organization spends much money to purchase

raw materials, components, services, etc.
✓ To obtain high quality of products/services.
✓ Supplier quality substantially affect overall
quality of products/services.
✓ Supplier & customer have limited resources,
they must work together to maximize profit.
✓ To satisfy end customers.
Why is it important?
✓ To have few suppliers with long-term relationship of
loyalty & trust.
✓ To support JIT implementation; to produce as
needed, in the right quality, right quantity, right time,
& precisely where required.
✓ In JIT system, inventory is eliminated. Thus, quality of
materials must be good.
✓ To increase quality, efficiency, opportunity for
innovation & continuous improvement, market share
for both parties.
✓ To reduce costs.
Ishikawa’s 10 Principles of Customer-
Supplier Relations
Both customer & supplier should…
1. Fully responsible for the control of quality.
2. Be independent of each other & respect each other's
independence.
3. Enter into a non-adversarial contract with respect to
quality, quantity, price, delivery method, & terms of
payments.
4. Decide a method to evaluate quality for satisfaction of
both parties Kaoru Ishikawa
Ishikawa’s 10 Principles of Customer-
Supplier Relations
Both customer & supplier should…
5. Establish in the contract the method of reaching an
amicable settlement of any disputes that may arise.
6. Continually exchange information to improve quality.
7. Perform business activities (e.g., procurement,
production & inventory planning, clerical work). Thus,
an amicable & satisfactory relationship is maintained.
8. Always have the best interest of the end-user in mind.
Ishikawa’s 10 Principles of Customer-
Supplier Relations
9. Customer should provide clear requirements. So
that, supplier know precisely what to produce.
10. Supplier should provide the quality that will satisfy
customer.
3 Elements of Partnering Relationship
#1. Long-term commitment
Benefits of partnership is long-term.
Problems require time to solve & need constant improvement.

#2. Trusts
Enables resources & knowledge for each party to be combined.
Information could be shared.
Forms the basis for strong working relationship.
Both parties become mutually motivated to achieve win-win solutions.
3 Elements of Partnering Relationship

#3. Shared Vision

Each party must understand the need to satisfy end customers.
To achieve the vision, there should be an open & truthful exchange of
needs & expectations.
Sharing goals ensure a common direction & must align with each
party’s mission.
3 Types of Sourcing

Sole source Multiple Single source

source

Organization selects
Organization is
Use of multiple one supplier for an
forced to use the
suppliers for an item, when several
only one supplier
item sources are
available
3 Types of Sourcing
#1. Sole Source
It is due to several factors, such as patents, technical, raw material location,
only one organization producing the item.
Here, partnering is a must.

#2. Multiple Sources

Competition will result in better quality, service & lowering costs.
It eliminates disruption of supply.
3 Types of Sourcing
#3. Single Source
This results in large, long-term contract & partnering relationship.
A guaranteed future volume.

Advantages for the organization:

Reduce costs, supplier loyalty, & better end-product with less variability.

Advantages for the supplier:

Reduce production costs, & has a definite market.
10 Conditions in Selecting Suppliers
The supplier…
1. Should understand & appreciate management
philosophy of customer organization.
2. Has a stable management system (i.e., availability of
quality policy, quality standard, etc.).
3. Should maintain high technical standards & have a
capability of dealing with future technological
innovations.
4. Can provide goods required & meet the quality
specification.
5. Is capable to produce in the volume needed.
10 Conditions in Selecting Supplier
The supplier…
6. Must not breach customer’s corporate secrets.
7. Has a right price & can deliver on time –
accessible in terms of transportation &
communication.
8. Is sincere in implementing contract provisions.
9. Has effective quality system & improvement
program (e.g., ISO 9000).
10.Has a track record of customer satisfaction &
organization credibility.
Quality Cost

Deliver
Service
y

Risk Agility

Safety
Reliabilit Common Criteria for
y Selecting Suppliers
7 Supplier’s Certification Criteria
1. Customer & supplier shall have agreed upon
specifications that are mutually developed, justifiable
& not ambiguous.
2. No product-related rejection (e.g., quality,
conformance to specification, etc.) for a particular
period of time.
3. No non-product-related rejection (e.g., wrong count or
billing error) for a stated period of time.
4. No negative non-product-related incident (e.g.,
problems that occur even though inspection & tests
showed conformance to specifications) for a stated
period of time.
7 Supplier’s Certification Criteria

5. Supplier shall have fully-documented quality

system.
6. Supplier has successfully passed an on-site
system evaluation by third party (e.g., ISO 9000
registrar).
7. Supplier must be able to provide timely
inspection & test data.
Supplier Rating
Objectives:
1. To obtain an overall rating of supplier
performance.
2. To ensure complete communications with
suppliers concerning their performance.
3. To provide each supplier with a detailed & factual
record of problems for corrective action.
4. To enhance the customer-supplier relationship.
Supplier Rating
Requirement:
✓ An internal structure/team to implement & sustain the rating program.
✓ A regular & formal review process.
✓ A standard measurement system for all the suppliers.

The rating is usually in terms of quality,

delivery lead time, service, etc.
Objective weights are established for all the
criteria.
Quality should be given the highest weight.
Example of
Supplier
Performance
Relationship Development
The information (i.e., supplier selection, supplier relation,
certification, periodic rating, etc.) contribute to the
establishment of the relationship between the organization &
the suppliers.

Inspection, training, teams,

recognition & reward contribute to
the maintainability & growth of the
relationship.
Inspection
4 phases of inspection:

(1) 100% inspection

Done at the initial stage by both supplier &
customer.
As the customer gains confidence in the quality
performance, a change to sampling is initiated.

(2) Sampling
Randomly inspect the quality (e.g., 5%, 10%). Once
the performance is satisfactory, audit is then
initiated.
Inspection
4 phases of inspection (continued):

(3) Audit
Supplier continuous statistical control on process &
initiates its own auditing.

(4) Identity check

The customer has complete confidence with the
supplier’s performance. Then, both customer &
supplier perform only identity check (i.e., part
number, specification, etc.)
Training
Important to conduct development
programs (e.g., engineering & QMS) for
suppliers, in order to meet the customer
requirement.

Through the programs, suppliers can be

more involved in many parts of focal
company’s activities.
Team Approach
Customer/supplier teams could be established in a number of areas,
such as product design, process design, & quality system.

Suppliers should be involved at the beginning

of the activities rather than at the end of the
activities.

Team should meet in a regular basis.

 Recognition & Rewards

Important to stimulate the suppliers to

perform better from day-to-day.

The organization publicly acknowledges the

positive contributions to organization’s
success.
Usually intangible, through verbal & written
praise, plaques, certificates, etc.
Something tangible (e.g., theatre tickets,
dinner, cash award, vacation trip to
promote desirable behaviour, etc.)
awarded because of outstanding
achievement
 Faculty of Industrial Management
Universiti Malaysia Pahang
26300 Gambang, Pahang Darul Makmur
Tel: +609 549 2166 Fax: +609 549 2167
www.fim.ump.edu.my