CHAPTER 3- CREATING & MANAGING

SUPPLIER RELATIONSHIPS

Principles of Supply Chain Management:

A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD

Learning Objectives
You should be able to:
Discuss the current state & future challenges of SCM.
Explain why Supply Chains are becoming more global.
Describe how firms are expanding their SCM efforts to
second-& third-tier members of their supply chains.
Discuss why & how supply chains are making greater
efforts to become more environmental responsible.
Explain how supply chains are becoming faster.
Explain why firms are outsourcing some or all SCM
processes.
Describe some of the ways supply chains are reducing
total costs.
Principles of Supply Chain
Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

Learning Objectives
You should be able to:
Explain the importance of supplier partnerships and
strategic alliances
Understand factors for developing successful
partnerships
Develop a supplier evaluation & certification program
Explain the importance of a supplier awards program
Understand the capabilities of supplier relationship
management technology
Explain the benefits of using SRM software to manage
suppliers
Principles of Supply Chain
Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

Chapter Three Outline

Developing Successful Partnerships

Building Trust
Shared Vision & Objectives
Personal Relationships
Mutual Benefits & Needs
Commitment & Top Management
Support
Change Management
Information Sharing & Lines of
communication
Capabilities

Performance Metrics
Continuous improvement
Supplier Evaluation & Certification
The Weighted-Criteria Evaluation
System
ISO 9000 & ISO 14000
Supplier Development
Supplier Awards
Supplier Relationship Management
Software

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

Introduction
Supply, sourcing, and purchasing professionals in
companies nationwide believe strongly that more
and stronger supplier partnerships are critical to
achieving competitive corporate performance
Purchasing Magazine
Supplier partnerships involve a mutual
commitment over an extended time to work
together to the mutual benefit of both parties,
sharing relevant information and the risks and
rewards of the relationship
Institute for Supply Management5
Principles of Supply Chain
Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

Developing Successful Partnerships

Reasons given for failure of alliances:

Overly optimistic
Poor communications
Lack of shared benefits
Slow payback results
Lack of financial commitment
Misunderstood operating principles
Cultural mismatches
Lack of alliance experience.
Survey of CEOS- The Conference Board

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

Keys to Successful Partnerships

Building Trust
With trust, partners are more willing to work together, find compromise
solutions to problems, work toward achieving long-term benefits for both
parties, and, in short, go to the extra mile.

Shared Vision and Objectives

Both partners must share the same vision and have objectives that are not
only clear but mutually agreeable. The focus must move beyond tactical
issues and toward a more strategic path to corporate success.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

Keys to Successful Partnerships- Cont.

Personal Relationships
It is people who communicate and make things happen.

Mutual Benefits and Needs

Partnership should result in a win-win situation, which can only be
achieved if both companies have compatible needs. An alliance is much
like a marriage, and if only one party is happy, then the marriage is not
likely to last.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

Keys to Successful Partnerships- Cont.

Commitment and Top Management Support
Commitment must start at the highest management level. Partnerships
tend to be successful when top executives are actively supporting the
partnership.

Change Management
Companies must be prepared to manage change that comes with the
formation of new partnerships.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

Keys to Successful Partnerships- Cont.

Information Sharing & Lines of Communication
Both formal and informal lines of communication should be set up to
facilitate free flow of information. With high trust, information systems
serve more effectively. Confidentiality of sensitive financial, product, and
process information must be maintained.

Capabilities
Key suppliers must have the right technology and capabilities to meet
cost, quality, and delivery requirements. In addition, suppliers must
respond quickly to changing customer requirements.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

10

Keys to Successful Partnerships- Cont.

You cant improve what you cant
measure.
Measures related to quality, cost, delivery, & flexibility
are used to evaluate suppliers.
Metrics should be:1) understandable, 2) easy to
measure, and 3) focused on real value-added results
A multi-criteria approach is best to measure
performance.
Total cost of ownership (TCO), made up of all costs
associated w/acquisition, use, & maintenance of a
good or service
Principles of Supply Chain
Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

11

Keys to Successful Partnerships- Cont.

Examples of Performance Metrics

Cost/Price- Competitive price & availability of cost breakdowns

Quality- Zero defects, Fit for use, ISO 9000
Delivery- Fast, Reliable/on time
Responsiveness & Flexibility- Responsiveness to customers & to changing
situations
Environment- Environmentally responsible, ISO 14000
Technology- Superior product/service design
Business Metrics- Reputation, information sharing
Total Cost of Ownership

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

12

Keys to Successful Partnerships- Cont.

Continuous Improvement
The process of evaluating suppliers based on a set of mutually agreedupon performance measures provides opportunities for continuous
improvement making a series of small improvements over time results in
the elimination of waste in a system.
Buyers and suppliers must be willing to continuously improve their
capabilities in meeting customer requirements of cost, quality, delivery,
and technology.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

13

Supplier Evaluation and Certification

A process to identify best and most reliable suppliers.
Sourcing decisions are made based on facts and not merely on perception.
Providing frequent feedback on supplier performance can help avoid
surprises and maintain good relationships.
Suppliers should be allowed to provide constructive feedback to the
customer
Supplier Certification refers to an organizations process for evaluating
the quality systems of key suppliers in an effort to eliminate incoming
inspections. -Institute for Supply Management.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

14

Supplier Evaluation and

Certification- Cont.
Criteria Used in Certification Programs
No incoming product lot rejections (e.g., less than 0.5 percent defective)
for a specified time period.
No incoming non-product rejections (e.g., late delivery) for a specified
time period
No significant supplier production-related negative incidents for a
specified time period
ISO 9000/Q9000 certified or successfully passing a recent, on-site quality
system evaluation
Mutually agreed-upon set of clearly specified quality performance
measures
Fully documented process and quality system with cost controls and
continuous improvement capabilities
Suppliers processes stable and in control
Principles of Supply Chain
Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

15

Supplier Evaluation and

Certification- Cont.
The Weighted-Criteria Evaluation System
1.
2.
3.
4.
5.
6.
7.

Select the key dimensions of performance mutually acceptable to both

customer and supplier.
Monitor and collect performance data.
Assign weights to each of the dimensions.
Evaluate performance measures between 0 and 100.
Multiply dimension rating by weight and sum overall score.
Classify vendors based on their overall score: Unacceptable, Conditional,
Certified, & Preferred
Audit and perform ongoing certification review.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

16

Supplier Evaluation and

Certification- Cont.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

17

Supplier Evaluation and

Certification- Cont.
ISO 9000

Developed by International Organization for Standardization (ISO)- series of

management & quality standards in design, development, production,
installation, and service.
U.S. companies wanting to sell in the global market seek ISO 9000 certification.

ISO 14000

A family of standards for environmental management.

The benefits include reduced energy consumption, environmental liability, waste
and pollution, and improved community goodwill.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

18

Supplier Development
Supplier development refers to buyers activities
undertakes to improve a suppliers performance
and/or capabilities based on the following approach:
1.
2.
3.
4.
5.
6.
7.

Identify critical products and services

Identify critical suppliers
Form a cross-functional team
Meet with top management of supplier
Identify key projects
Define details of Agreement
Monitor status and modify strategies

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

19

Supplier Awards
Companies should recognize and celebrate the
achievements of their best suppliers.
Award winners exemplify true partnerships continuous
improvement, organizational commitment, and
excellence.
Award-winning suppliers serve as role models for other
suppliers.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

20

Supplier Relationship Management

Software
Supplier relationship management (SRM)
software improves profits and reduces costs.
SRM refers to extended procurement processes such as sourcing analytics
(e.g., spend analysis), sourcing execution, procurement execution payment
and settlement, and-closing the feedback loop-supplier scorecarding and
performance monitoring.

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

21

Supplier Relationship Management

Software- Cont.
Five key points of an SRM system:
Automation
Integration spans multiple departments, processes, and software
applications.
Visibility of information and process flows
Collaboration through information sharing
Optimization of processes and decision making

Principles of Supply Chain

Management: A Balanced Approach by
Wisner, Leong, and Tan.
2005 Thomson Business and

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