1.1 - Differentiate between different types of commercial relationships in supply chains Flashcards
Supplier Relationship Management (SRM)
Holistic management of relationships formed between buyers and suppliers based on the criticality of goods or services being produced
Internal Supplier
A supplier that is part of the same company as its customer. It provides the products or services that coworkers within the organisation need in order to do their job
External Supplier
A supplier that is independent of the organisation and provides products or services to do it
Make or buy
The action of choosing whether to manufacture a product or provide a service in house or purchase it from an external supplier
What is the choice to use an internal supplier based on?
Make or buy decision
Describe products/services that are usually produced by an internal supplier?
Those that are considered core to the business
Why would an organisation want products or services produced in-house?
To keep a greater degree of control - especially if time critical or subject to frequent design changes
What are core products or services likely to do?
Provide the company with a competitive advantage
Competitive advantage
A benefit that an organisation can use to outperform its competitors in the marketplace
Stakeholder
An individual or organisation with either an interest or an influence (however slight) in, or who will be affected in any way by, the decisions and/or actions of a project, product, service or venture
What is involved in a make or buy analysis?
Comparison of the costs of producing the product in-house with the cost of procurement from an external supplier
What does the make or buy decision need to balance?
Cost and flexibility
Name 5 advantages of a business using an internal supplier
- Greater control and continuity of supply
- Sharing the same culture and values
- Improved quality control
- Potential lower costs as no external supplier margin is added to the cost of the product or service and there will be no, or limited, transaction costs
- IP is protected from passing to competitors
Name 5 disadvantages of using an internal supplier
- Unless the price is benchmarked against external supplier offering then there is no guarantee the internal supplier is offering value for money
- The internal supplier will have fixed and variable costs whereas external suppliers will only have variable costs
- Internal supplier may be less motivated to meet required performance standards
- Organisation can be out of touch with market trends and developments in technology and innovation
- Continual investment in the internal supplier such as new machinery etc
Name 4 reasons why an organisation may not be able to produce a product or service itself or to continue production internally
- High costs of production
- Legislative barriers
- Skill shortages
- The need for access to patented items
Should an internal supplier be evaluated, reviewed and managed in the same way as an external supplier?
Yes
ESG
Environmental, social and governance - a measurable sustainability assessment, similar to CSR but more measurable. Financial performance remains key and so can create a sustainable credit rating for the organisation and investors
Economies of scale
Cost savings made as a result of increased levels of production, alternatively the financial benefit gained from purchasing more units of an item resulting in lower unit costs
Name 3 main reasons for the procurement and supply department
- Selecting suppliers
- Having a contract with suppliers
- Managing suppliers
Name 5 factors taken into account when selecting an external supplier
- Purchase price
- Delivery lead time
- Quality of product or service
- ESG
- Previous experience of the supplier
Name 7 risks of using an external supplier
- Supplier insolvency
- Delivery delays
- Natural disasters
- Human rights issues
- Exposure to corrupt practise
- Environmental impacts
- Political instability
Name 6 advantages of using an external supplier
- Expert in their field
- May benefit from economies of scale
- Frees up internal resources
- Access to patents
- More flexible to meet changing levels of demand
- Useful for items where a small volume is required
Name 4 disadvantages of using an external supplier
- A degree of dependency on the supplier
- Potential damage to the buyers reputation
- Cost and risk of transportation
- Risk of relationship issues
What is the first step in actively managing supplier relationships
Classify the relationships that are in place