B2B BUYER SUPPLIER RELATIONSHIP

Lecture – IV
SZABIST
KEY QUESTIONS FOR THE MANAGER

 Should we
 Change our stance on multiple sourcing ?
 Move to long term contracts ?
 Do more reverse marketing ?

 How can we
 Improve our relations with
suppliers ?
 Involve other functions more
effectively in supplier relations
?
 Total Customer Satisfaction

Quality Cost Delivery Quantity Other

Suppliers
Statistics suggest that the cost of keeping a customer is only one-tenth of what it takes to
find a new one. Therefore, when we win a customer, we have to do whatever it takes to keep
them.
Only a small proportion of dissatisfied customers complain openly, if you also add cultural
factors it becomes very difficult to access spontaneous information. Some studies have
shown that Italians, for example, prefer to give neutral opinions when interviewed; they
tend to stay on average values and prefer not to fully reveal what they think.

5 BASIC ASPECTS TO CONSIDER:

I. Who should be interviewed?

II. What needs to be measured?
III. How should the survey be carried out?
IV. How should customer satisfaction be measured?
 RECENT TRENDS V. How to use the results to increase satisfaction, loyalty and profitability?

1. Buy instead of make

2. Outsource instead of continuously make Improve quality
3. Lower inventories
4. Integrate Supplier and Purchase Systems
 B2B LINKS

Supplier Link Internal Link Customer Link

The weakest link determines the strength of the

whole chain, it is important that the strength of
each link in any chain link be equal and congruent.
 Purchaser Supplier Relation

Nature Of Relationship - Major Influencer - Ultimate Value & Customer Satisfaction

 SUPPLIER GOODWILL

• Superior Sources Of Supply - IMPORTANT ASSET

• Sound Marketing Policy - DEVELOP GOODWILL
• Goodwill - BRANDS, ADVERTISING & REGULAR CALLS BY
SALES PERSON- RELATIONSHIP MARKETING
 CONGRUENCE (SIMILARITY) IN SUPPLY CHAIN
CAN BE ACHIEVED

o Purchasers Maintain Friendly Relationship With Suppliers

o Regularly Measures Satisfaction Level Of Its Key Suppliers

o Best Purchasers Practice- Knowing Suppliers Business More Than Suppliers Own Employees

o The Ability To Develop Effective Working Relationships With Suppliers Will Be Dependent
On Supply's Ability To Develop Effective Working Relationships Internally.
THE PURCHASER- SUPPLIER SATISFACTION MATRIX
1. Satisfaction with a current supplier relationship can be assessed,
whether it is satisfactory or not.
2. An unsatisfied party (seller or purchaser or both) will
attempt to move to a more satisfactory situation.
3. Attempts to move may affect the stability of the relationship.
4. Attempts to move may fall in win-lose, as well as the lose-
lose, lose-win and win-win, categories.
5. Purchaser and seller may well have different perceptions of the same
relationship.
6. Many tools and techniques and approaches exist that will assist either
party in moving positions.
FACTORS FOR SUCCESSFUL INTERACTION

Content of Style of
Information Exchange

Factors for
successful
Buyer Seller
interaction
 TYPES OF TRANSACTIONS
Compatible Style Incompatible Style

Compatible
Ideal Inefficient
content Transactio Transactio
n Types of n
Transaction
Incompatible
s
content Inefficient No
Transactio Transactio
n n
TYPES OF RELATIONSHIPS

Transactiona Value- Collaborative/Partnering

l added Relationships
Relationships Exchanges
 TRANSACTIONAL RELATIONSHIP
 FOCUS
 Timely exchange of basic product at a competitive price
 One time only exchange and less loyalty to particular supplier
 Little interest to extend relationship

 TRANSACTIONAL RELATIONSHIP PREFERRED WHEN

 Availability of many suppliers
 Stable supply market
 Purchase decision not complex
 Purchase considered less important for achievement of firm’s objectives

 EXAMPLE: Stationery Materials

TRANSACTIONAL RELATIONSHIP

 ADVANTAGES
 Relatively less purchasing time and effort required to establish price
 Lower skill level of procurement personnel required
 Can react quickly to changing market / economic conditions

 DISADVANTAGES
 Expediting and monitoring incoming quality
 Provision of minimum service by suppliers
 Supplier not motivated to invest time and energy for development of buyer’s products
 Less effective performance by suppliers
VALUE-ADDED EXCHANGE

 FOCUS
 Complete understanding of the present and future needs of customers and
meeting the needs better than competitors

 GROUPS MADE BY THE SELLING FIRM

 A: Most profit potential customers

 B: Between A and C

 C: Least profit potential customers

 COLLABORATIVE RELATIONSHIP

 FOCUS
 Building a strong social, economic service and technical ties between customer and
supplier firm

 Purpose
 Increase value, lower total costs and achieve mutual benefits

 JOINT PROBLEM SOLVING and INTEGRATION OF PROCESSES of the two

companies

 Two important factors: TRUST and COMMITMENT

COLLABORATIVE RELATIONSHIPS

 ADVANTAGES

i. Long Term Contracts

ii. Reduction Of Risk For Suppliers
iii. Reduction Of Total Costs
iv. Improvement Of Process
v. Improvement Of Products
vi. Increased Investment In R&D
vii. Better Focus On Customer Need
 TRANSACTIONAL VS PARTNERSHIP
SHORT TERM LONG TERM

Selection criteria: Lowest price Selection criteria: Cost of ownership

No. of suppliers: Many No. of suppliers: One or few

Cross functional teams and top management
Purchasing department’s responsibility
involvement

Sharing of short term & long term plans, risk

Little sharing of information
& opportunity, data

No technology inflow Inflow of technology takes place

Minimal service provided Greatly improved service provided

Little contribution to New Product Highly involved in New Product Development

development process process
Less difficult to exit Difficult to exit
PURCHASER-SUPPLIER RELATIONSHIP
MANAGEMENT
 Extensive communication between both parties is needed to maintain satisfaction and
stability

 Requires substantial coordination work inside purchasers organisation

 Team approach to long term supplier relations

 Members of internal team have to deal directly with the counterparts on supplier side

 Immediate action needs to be taken when either side detects a problem

 Awareness of full details of each sides aspiration, strengths and
weakness is necessary

 Personnel from both sides need to understand each other

well for mutual benefit

 This can come through exposure, discussions, mutual

problem solving etc.

 Thus the ability of supply’s personnel to develop effective

working relationship internally will be key determinant of the
organization's ability to get the most out of its supplier force
Supplier Ranking
 UNACCEPTABLE SUPPLIERS:

 Fails to meet operational and strategic needs of the buying organization

 Discontinue with the supplier and substitute better ones

 ACCEPTABLE SUPPLIERS:

 Meets current operational needs as required by contract

 Provides a performance that others can easily match, hence no basis for
competitive edge
 PREFERRED SUPPLIERS:

 Purchasers have a process orientation with preferred suppliers to avoid

unnecessary duplication and speed up transactions

 Both parties work towards mutual improvements to eliminate non-value-adding

activities

 Meets all operational and some of the strategic needs of the buying organization

 Reacts positively to initiatives of the purchaser to improve the current situation

  EXCEPTIONAL SUPPLIERS:

 Anticipates operational and strategic needs of the purchaser and are capable of meeting and
exceeding them

 They need to be treasured

 They can serve as example of what is possible: an opportunity to experiment with new and
different approaches to supply base management and as an early indicator of future supply
management direction and goals

 It requires substantial amount of work from both sides to obtain big rewards of mutual
breakthrough

 Patience and persistence are required to sustain the investment in relationship building
Strategic
Alliance
 DEFINITION

 A supply strategy based upon joint opportunities, mutual trust, respect and open &
honest communication between the supplier and the customer.

 This strategy is focused on reducing related supply chain costs and improves the
quality of goods and services.

 Majorly technology driven and involves substantial investment by buyers and sellers to
achieve major market breakthroughs
 SUCCESS FACTORS FOR STRATEGIC ALLIANCE

 FOCUS: A common vision for the relationship, with agreed strategies & activities

 TRUST: Open communication and disclosure of business drivers

 PERFORMANCE: Continuous improvement towards agreed targets & KPIs

 PEOPLE: Clearly defined roles and responsibilities

 PROACTIVE: Anticipating business needs and providing creative solutions

 PROFIT AT RISK: Establishing real metrics to drive behaviour for both parties
 MISTAKES

 Low commitment
 Poor operational planning and integration
 Strategic weakness (diverging strategies / under-developed value added propositions,
unclear strategic return on investment)
 Rigidity or poor adaptability
 Unrealistic expectations
 Overdependence
 Hidden agendas leading to distrust
 Legal problems
SUPPLIER DEVELOPMENT

 Definition: Working with suppliers to help increase efficiency

and decrease cost, for the benefit of both suppliers and buyers.

Marketing initiative

Traditional Marketing Purchasing response

Supplier Purchaser
context

Supplier Development Sales response Purchaser

Supplier
context
Purchasing initiative
BENEFITS

 Reducing Cost
 Improved Quality
 Technical, Financial And Managerial Assistance
 Reduction Of Marketing Effort
 Use Of Long Term Forecast
 Minimum Inventory Maintenance
 Close Working On Product Specifications
 Example

Honda And America Manufacturing Inc.

Self
reliance

Leading
edge
Supplier Reduced
technology Development cost

Improved
Quality
 Starbucks

Starbucks partnered with Barnes and Nobles

bookstores in 1993 to provide in-house coffee
shops, benefiting both retailers.

In 1996, Starbucks partnered with Pepsico to bottle,

distribute and sell the popular coffee-based drink,
Frappacino.

A Starbucks-United Airlines alliance has resulted in their

coffee being offered on flights with the Starbucks logo on
the cups.
 Apple

Apple partnered recently with Clearwell in order to jointly develop Clearwell's E-

Discovery platform for the Apple iPad. E-Discovery is used by enterprises and legal
entities to obtain documents and information in a "legally defensible" mannner.
 Hewlett Packard
and Disney

Hewlett-Packard and Disney have a long-standing alliance. Disney wanted to develop a virtual
attraction called Mission: SPACE, Disney Imaginers and HP engineers relied on HP's IT architecture,
servers and workstations to create Disney's most technologically advanced attraction.
THE POWER MATRIX OF SUPPLIER-BUYER RELATIONSHIP

High
Buyer Dominance Inter-dependence

Relative utility
and scarcity of
buyer’s
resources for
suppliers Independence Supplier Dominance

(adverse selection) (moral hazard)

Low

L
o
w
SUPPLIER DEVELOPMENT PROGRAM
Supplier development” is defined as an activity that a buyer undertakes to
improve a supplier’s performance and / or capabilities to meet the buyer’s
short-term supply needs

I. Identify Critical Commodities

II. Identify Critical Suppliers
III. Form A Cross-functional Team
IV. Meet With Supplier Top Management
V. Identify Key Projects
VI. Define Details Of The Agreement
VII. Monitor Status And Modify Strategies
 CONCLUSION

 Supplier selection process is very complex now as environmental, social,

political and customer satisfactions factors have also be considered along with
traditional factors like quality, cost, delivery and service

 Partnerships, strategic alliance, reverse marketing are picking importance

 There is a drive to search for new and better ways of managing the relationships
between buyers and sellers
 No single approach to relationship management is inherently superior.

 "Successful supply chain management requires the effective and efficient

management of a portfolio of relationships."

 “3” environmental factors to consider:

(1) The product exchanged and its technology
(2) The competitive conditions in the upstream market
(3) The capabilities of the suppliers available.

 Developing and managing collaborative and alliance relationships requires skilled

professionals who recognize the benefits of collaboration. These individuals must
be able to identify and obtain necessary data and use the data to exploit and
enhance relationships.