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CHAPTER 3
CREATING & MANAGINGSUPPLIER RELATIONSHIPS
Principles of Supply Chain Management:
A Balanced Approach, 2e
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Chapter Three Outline
Introduction
Developing Supplier Relationships
Supplier Evaluation & Certification
Supplier Development
Supplier Recognition Programs
Supplier Relationship Management
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Introduction
McDs SRM Approachsegment, meas., manage
Boeings Approachuse suppliers in pot. mkts.
purchasing professionals in companiesnationwide believe strongly that more and stronger
supplier partnerships are critical to achievingcompetitive corporate performance
Purchasing Magazine
Supplier partnerships involve a mutual commitment;
extended time; working together; mutual benefit;sharing of information, risks and rewards
Institute for Supply Management
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Developing Supplier Partnerships
Building Trust Buyer/supplier partners are more willing to
work together, find compromise solutions toproblems, work toward achieving long-termbenefits for both parties
Shared Vision and Objectives
Move beyond tactical issues, toward morestrategic decisions
Personal Relationships People make things happen in these
arrangements. Can this lead to moral/ethical problems?
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Supplier Partnerships - Cont.
Mutual Benefits and Needs
Should result in a win-win. An alliance is like amarriage ---The iPhone and AT&T?
Commitment and Top Management Support
Partnerships are more successful when topexecutives actively support them. Since mutual strategy development is a
characteristic, this makes sense.
Change Management Change comes with the formation of new
partnerships. How bills are paid, performance is measured,
strategies are communicated
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Supplier Partnerships - Cont.
Information Sharing & Lines of
Communication
Should facilitate free flow of information.
Confidentiality also considered. Compatible IS
Relationship Capabilities
Key suppliers must have the right (reqd.)technology, cost, quality, & delivery
capabilities
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Supplier Partnerships - Cont.
Performance Metrics
You cant improve what you arent measuring
Quality, cost, delivery, flexibility, environment,
technology, reputation (& other) measures
Metrics should be:1) understandable, 2) easy to
measure, & 3) focused on customers/results
A multi-criteria approach
Total cost of ownership (TCO), is made up of allcosts associated w/acquisition, use, &
maintenance of a good or service
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Supplier Partnerships - Cont.
Continuous Improvement
Series of small improvements over time
Buyers & suppliers must be willing to
continuously improve their capabilities
Working together to improve both bottom
lines
More in Ch. 8 about contin. improvement
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Supplier Evaluation &
Certification
Identify best suppliers.
Can be internally generated or external agency
Periodic certification/feedback to maintain good
relationships, performance.
Suppliers should also be allowed to provide
feedback to buyer
Report cards
Reduce supply base
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Supplier Evaluation &
Certification (Cont.)
The Weighted-Criteria Evaluation System
for Certification
1. Select the key dimensions2. Collect performance data.
3. Assign relative weights to each dimension.
4. Assign relative performance (1-10; 1-100)
5. Multiply performance by weight & sum, for overall
score.6. Classify vendors based on their overall score:
Unacceptable, Conditional, Certified, & Preferred
7. Audit & perform ongoing certification
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Supplier Evaluation &
Certification (Cont.)
Supplier Scorecard for XYZ Co.
(Table 3.3. )
Performance Measure Rating x Weight = Final Value
Technology 80 0.10 8.00
Quality 90 0.25 22.50
Responsiveness 95 0.15 14.25
Delivery 90 0.15 13.50
Cost 80 0.15 12.00
Environmental 90 0.05 4.50
Business 90 0.15 13.50
Total score 1.00 88.25
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Supplier Evaluation &
Certification (Cont.)
ISO 9000 Developed by International Organization for
Standardization (ISO) - series of management
& quality standards in design, development,production, installation, & service, 1987.
Good for global sales (reqd.)
ISO 14000 Environmental management standards, 1996.
Go to www.iso.org for more info.
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Supplier Development
Supplier development Any managementactivity to improve a suppliers performance
1. Training
2. Loaning money/investing in processes
3. Performance assessment/certification
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Supplier Recognition
Programs
- Recognizing supplier performance
- Dinners/plaques/awards
- About companies do this
- Helps cement partnerships, encourages furtherimprovement
- Award-winning suppliers serve as role
models for other suppliers.
- Hormel, p. 94
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Supplier Relationship
Management (SRM)
Using software applications to manage
suppliers more efficiently/effectively
Should reduce supplier management costs
Refers to sourcing analytics, sourcing
execution, supplier payments, supplier
performance monitoring (scorecarding).
Software modules that accompany ERP
software packages
Data collection, user training can beproblematic
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Trends in SRM
Sourcing & procurement are increasing inimportance
More companies expect more cost reductions
to come from their procurement functions and
SRM. Buyers are seen as more strategic