Working w/ developing suppliers Flashcards
What is supplier development?
Any effort of a buying firm with a supplier to increase its performance and/or capabilities and meet the buying firm’s short and/or long-term supply needs (Krause, 1999)
- You have to be selective
- Think about Karljic matrix when deciding which ones to develop e.g. don’t develop the low value and low risk suppliers.
Options when supplier isn’t meeting buyers need?
(i) make rather than buy
(ii) switch suppliers
(iii) supplier development
Why should you develop suppliers?
- To develop long term relationship
- Competition/ e.g. global growth
- if supplier provides an innovative product, process or technology
–To maintain flexibility in meeting changing market demands
e.g. Marks & Spencer - One of its guiding principles is to work closely with suppliers in long-term partnerships.
Two supplier development goals?
(1) Direct improvement: improve the supplier’s operational performance directly (i.e. short-term goal). However, suppliers are often unable to sustain these improvements once the SD programme ends.
(2) Supplier capability development: improve the supplier’s capability to improve. By helping the supplier build the capability for change, the buyer firm can receive greater improvements over time.
What is a performance gap?
It exists between what suppliers are capable of achieving and what they currently demonstrate through their cost controls, quality performance, and customer responsiveness
Short-term developing strategies?
1 .Competitive pressure e.g. encouraging them to be better than other suppliers or through a multiple sourcing strategy.
- Evaluation and certification systems: Bench mark them against each other to encourage them to perform better. Various assessment methods and performance is shared back with supplier.
e. g. Adidas has set tougher targets for suppliers, 80% to meet 3cs target instead of the current 50%. - Incentives: based on how they perform, the buying firm might promise to increase spend if they hit certain targets and negative won’t use them if they don’t hit target
e. g. Target increased fines on late shipments to 5% of the order cost and the retailer is considering “escalating charges of $5,000-$10,000” for suppliers who fail to provide complete and accurate product information. - Direct involvement: when the buyer firm acts proactively in developing its suppliers.
pros of developing suppliers in diff country?
- Knowledge sharing with other suppliers, take their Japanese suppliers to Europe to teach
- Leveraging existing relationships
- Capital or equipment investments
- Investment in human and organisational resources e.g. there may be cultural challenges so could employ people that have worked in Japanese culture before.
- Integrated technology and teams
- Sending engineers/appropriate staff to implement changes
e.g. Toyota renewed for good supplier relationship management.
Barriers to supplier development?
- Cultural differences are too large e.g. very different working styles e.g. a study done by PWC found, companies in the U.S. employ the fewest people possible to get the job done. However, in some parts of China, the mentality is still to keep as many people employed as possible no matter what they are doing. Companies setting up operations in China must verify production capacity and worker quality to ensure the company has set up an efficient skilled labor force and that everyone has a meaningful job.
- Communication/ transparency issues
- Regulations/standards across countries e.g.
In Brazil, due to constantly changing tariff, customs, and labor conditions, flexibility must be built into agreements as a condition for success. - Breach of confidentiality
- Lack of skill set
- Complacency
- Misguided improvement objectives
- Lack of clarity and commitment
- Lack of a unified approach
- Concealment of problems
- Lack of trust
- Imbalance of power in the relationship
- Uncertainty of objectives and goals
Solutions to barriers of supplier development?
- Regular meetings and transparency
- Third party to analyse relationship
- Contracts based on cost savings - if you invest you want to know you are going to get something out of it
- Confidentiality agreements e.g. new technology
- Alignment of objectives
- Really important you get top management support
- If buyer has the power, leverage it
What is a buyer-supplier relationship?
- Can be characterised by high levels of trust, long-term commitment, dependence, shared vision, BUT are often intangible, informal, dynamic, and context-specific.
- They evolve over time.
- Can be a source of competitive advantage and should focus on value creation.
What is an adversarial (arms-length) relationship?
- Buyer usually has more power
- Short-term orientation
- More transactional relationship so all comes back to price
- Selfish as cost focused
- Low value good/potential for switching e.g. Kraljic non critical item
- Moderate supplier contact
What is a collaborative relationship?
- Same goals
- High supplier contact
- High trust
- Flexible as mutually beneficial
- More balanced power
- Open book costing
- Longer term orientation/commitment
- Emphasis on operational dimensions, plus joint improvement.
What are the benefits of a good relationship?
- reduced compliance monitoring costs
- reduced transaction costs
- greater value through leveraging assets and capabilities
- fewer costly surprises
- Problems spotted earlier on and can be resolved efficiently
What are the key elements of supplier relationship management?
- Building trust.
- Shared vision and objectives.
- Mutual benefits and needs.
- Personal relationships.
- Information sharing and lines of communication.
What is co-opetition?
Firms are competitors and collaborators at the same time. Each can only manage itself but must rely on activities of others, this makes the management process of these relationships more complex.
