Download
1 / 154
2.08k likes | 3.59k Views
LEVEL 4 Managing Purchasing and Supply Relationships. Defining Relationships. Definition of commercial “1. Relating to, engaged in or used for commerce. 2. Profitable; having profit as the main goal” (Collins Concise Dictionary)
E N D
Defining Relationships Definition of commercial “1. Relating to, engaged in or used for commerce. 2. Profitable; having profit as the main goal” (Collins Concise Dictionary) Definition of relationship “1. The state of being related....3. The friendship, contact, communications etc which exist between people” (Collins Concise Dictionary) Key points: • Concerned with people, contact and communication • Purchasing and supply relationships involve a degree of closeness • Entered into for the purpose of mutual benefit • Important to establish effective relationships with suppliers. • The nature of an effective relationship will vary with circumstances and importance to the buying organisation of the supplier’s product or service
Competitive Relationships • The buying organisation seeks to obtain the best price possible from the supplier • The buyer tries to squeeze the supplier’s profit margins • Can be seen as a win-lose situation • Should be professional and ethical • Buyers may argue regularly with the supplier’s representatives & complain regularly about products or services supplied (some cases may mean relationship is adversarial) • Associated with transactional purchasing
Collaborative Relationships • Benefits of doing business together arise from ideas of sharing as well as exchanging • Buying organisation seeks to develop a long-term relationship with supplier • Both organisations share common interests, both benefit from adding value in the supply chain • Supplier participates with buyer looking for improvements and innovations • Both parties jointly set targets for improvements in cost and quality • Meet regularly to discuss progress • Proactive relationship looking for improvements • NOT a long-term COSY customer-supplier relationship
Collaborative v Competitive Relationships • Competitive approach squeezes the profit margins of the supplier, and by doing so the buying organisation obtains some of the value that the supplier would otherwise keep for himself • Developing collaborative relationships takes time and effort – unrealistic to try creating more of these relationships than a buyer can effectively manage • Where a failure in supply would not be damaging it is not worth the time and effort to create a collaborative relationship
Why develop customer and supplier relationships? “ The good old-fashioned rottweiler approach to buying must co-exist with a more collaborative approach internally and externally......Adversarial relationships exist, and rightfully so. What is needed however is a balance between both approaches and a sophisticated understanding of which tactic to use to develop the strategic goals of the organisation” Mark Ralf, Strategic Procurement Management So why? • Supply chains compete, not companies • Most opportunities for reducing costs and enhancing value in the supply chain occur at the interface between supply chain partners • Adding to the competitiveness of a supply chain calls for a value-added exchange of information between the supply chain partners • The integration of the supply chain implies the integration of process in the supply chain • Achieving supply chain competitiveness requires a collective determination of strategy by the supply chain partners
Cosy Relationship v Supply Partnership Supply partnerships are not a “cosy relationship” between customer and supplier. Whereas a partnership brings improvements to the supply chain, a cosy relationship does not
Exercise As always, you should try to relate what you are reading to your own work experience. Try to remember and make notes on any occasion when you as a purchaser have had to work closely with members of other functional departments in a cross-functional team.
Exercise In your own organisation, which are the suppliers that are crucial to operational success? Which suppliers are less crucial? Can you detect differences in your relationships between these two classes of suppliers?
Exercise Consider why the following types of purchase might be better suited to a transactional model than a collaborative model. • The purchase of utilities, such as gas and electricity • The purchase of courier services • The purchase of commodities
Transactional Relationships When is a transactional relationship appropriate? • Situations where the trouble and expense of developing a long-term collaborative relationship are not justified • Nature of product being purchased (little or no strategic importance) • Many suppliers exist • Items purchased rarely • Forced upon the buyer (product purchased is of high strategic importance to the buyer but of little importance to the supplier, who in these instances is usually larger than the buying organisation)
Partnership Sourcing “Partnership sourcing is commitment by customer/suppliers, regardless of size , to a long-term relationship based on clear mutually agreed objectives to strive for world class capability and effectiveness” Defined by CBI and DTI Aim: “to bring about fundamental change in companies”
Lean Supply “The main goal of being “lean” is to obtain the same output from half the resources used by older methods – half the number of workers, half the number of design engineers, and half the level of inventory” Saunders Daniel Jones identified five principles that characterised lean production organisations: • Tasks and responsibilities are transferred to those who are actually adding value on the production line • Discovering defects and problems immediately, and eliminating their causes, is an important objective of control systems • Comprehensive information system enables everyone to respond quickly • Organisation must be based on empowered work teams • This in turn encourages a strong sense of reciprocal obligation between staff and employing firm
Lean Supply • Based on the concept of eliminating waste • Waste is any activity that uses resources but adds no value • Associated with the principles of (JIT) Just in Time manufacturing, also known as “lean operations” • JIT was developed by Taichi Ohno in 1940s in Toyota • Ohno identified “seven wastes”: • Over-production • Waste caused by transportation • Waiting • Motion • Over-processing • Waste caused by Inventory • Defects/corrections
Lean Supply Operational requirements for JIT are: • High quality (defects/errors reduce throughput and reliability of internal supply) • Speed (throughput must be fast. Customer orders must be met by production and not inventory) • Reliability (Production must be reliable, without hold-ups) • Flexibility (meet customer orders quickly, production must be flexible, may mean small batches) • Lower cost (as a result of improving quality and speed of throughput) “Just in time is a disciplined approach to improving overall productivity and eliminating waste” Voss, Just-in-Time Manufacture, 1987
Lean Production – other areas: • Jidoka: the use of “intelligent machines”, ie machines that can measure quality of their own work and will stop if defined parameters are not being met • Heijunka: the levelling of production to the market demand. This smoothing of production allows for maximisation of the lean supply philosophy • Kaizen: the philosophy of continuous improvement, which underlies all the activities of lean production
Adversarial Relationships • Modern thinking has moved away from adversarial relationships • Both buyer and supplier attempt to get the best possible deal for their respective organisations • May be appropriate for tactical profit items • Minimal amounts of trust, information exchange and flexibility
Arm’s Length Relationships • Similar to adversarial, but implies less direct contact between buyer and supplier • Purchases usually infrequent and are usually tactical profit or tactical acquisition items • Buyers attempt to get the maximum benefit for their organisation • Neither buyer or supplier will be motivated to provide anything for nothing • Little need for regular contact
Transactional Relationships • Applies to tactical acquisition quadrant (low risk, low value) • Buyer’s objective is to obtain item with as little cost as possible • The deal could be long-term provided it works well for both • Both parties are motivated to trust each other and perform their side of the bargain
Closer Tactical Relationships • Applies both to tactical acquisition and tactical profit items • Buyer identifies a supplier that performs well and engages more closely • Both parties need to invest significant time and effort • Buyer’s objective is to get supplier to do more, in terms of coordinating activities (while not paying more for his supplies) • Relationships tend to be long-term and both parties work hard to achieve continuous improvement
Other Relationships Single-sourced – applies to low-cost items (tactical acquisition or strategic security). Buyer hopes to gain greater commitment and preferential treatment from the supplier by offering the supplier exclusivity Outsourced – Usually applies to strategic security items. Appropriate when buyer believes that a supplier can do something better than his own organisation. Expects cost savings or improved efficiency, plus freedom from managing service in-house Strategic alliances – Applies to strategic critical products. A buyer will ally himself with a supplier as he believes that they can work together to achieve long-term mutual benefits. Based on high levels of trust and mutual commitment
Evaluation of Suppliers Suppliers already known to organisation from previous dealings can be evaluated on the basis of their track record. This type of evaluation is known as “vendor rating” When the supplier is not known to the organisation there is a need to judge his capabilities in a different way and on the basis of different information such as: • Financial stability • Commercial capabilities • Management skills • History • Who they trade with
Minimising Risk in the Supply Chain Risk Management Process • Identify sources of risk • May be predictable or unpredictable • Arise within the organisation and externally • For each possible event, determine its likelihood and its impact • How often it is likely to happen and what would the impact be • Assess the overall impact • Attach a weighting factor to each • Add up all weighting so overall risk can be assessed • Investigate risk reduction • Consider various things that could go wrong • Take direct action aimed at reducing risk or transfer the risk • Take out insurance • Plan, control and reduce risk • Assign task specifically to persons with appropriate responsibility
Uses of the relationship lifecycle • Intended to assist buyers in their professional work • In order to apply, the buyer would need to evaluate which stage the relationship has reached • Opportunity for forward planning (see what is yet to come and be prepared!)
Termination of Supply Relationships • Buyer has changed the type of products it makes or sells • Supplier makes a strategic shift into other supply markets • Problems arise with the relationship (becomes “too cosy” or bureaucratic and inflexible) • A new supplier enters the market, offering terms the existing supplier cannot match • Dispute about quality of goods supplied Classified under three headings: • Fulfilled objectives • Disputes • One party behaved badly
Reducing Cost To achieve competitive prices companies must focus on costs. Purchasing’s contribution to reducing costs is throughout the supply chain, whilst maintaining quality • Traditional model builds the cost of a product by analysing its components step by step. Profit margin is then added • Target costing starts at the other end. Manufacturer estimates the selling price (what the market would be willing to pay) then works backwards to calculate the production cost that must be achieved in order to provide reasonable profit
Agile Supply Agility is proficiency at dealing adequately with change or unexpected event, such as recovering from a situation where a supplier has failed. Unplanned events could be caused by: • Staff shortages, breakdowns, delayed deliveries, urgent requirements To achieve agility calls for: • Streamlining physical flows or parts from suppliers • Streamlining the bilateral flow of information through EDI • Adaptability in responding to changing needs of the market
