Current Event Assignments 2
Chapter 13
Supplier Evaluation and Supplier Relationships
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Key Questions Addressed in Chapter 13
How do we evaluate supplier performance?
How do we manage our supplier relationships?
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Methods of Supplier Evaluation
Informal evaluation and rating
Easier to use in small organizations
Semiformal
Executive roundtable discussions between top executives of the buying organization and suppliers
Formal evaluation and rating
Categorical
Weighted point systems
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Example of a Categorical Supplier Evaluation and Rating
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Weighted Point Evaluation Systems
Identify suppliers
Important suppliers and/or critical goods and services
Identify factors or criteria for evaluation
Determine the importance of each factor
Establish a system to rate each supplier on each factor
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Customer Satisfaction and Supplier Performance
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Simplified Supply Chain Perspective: The Three Core Links
Customer
Link
Internal
Link
Supply
Link
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Buyer-Supplier Satisfaction Model
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Purchaser-Supplier Satisfaction Model: Congruent and Noncongruent Perceptions
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Techniques for Moving Positions
Buyer “crunch” tools or negative measures:
complete severance of purchases without advanced notice
refusal to pay bills
refusal to accept shipments
use or threat of legal action
Supplier “crunch” tools or negative measures:
refusal to send shipments as promised
unilateral price increases without notice
Insistence of unreasonable terms and conditions or the use of take it or leave it propositions
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Techniques for Moving Positions (cont’d)
Buyer “stroking” tools or positive measures:
granting substantial volumes of business, long-run commitment or 100 percent of requirements
sharing internal information on forecasts, problems, and opportunities to invite a mutual search for alternatives
evidence of willingness and ability to work toward changed behavior in the purchasing organization to improve the seller’s position
Rapid positive response to requests from suppliers for discussions and adjustments in price, quality, delivery, and service
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Techniques for Moving Positions (cont’d)
Supplier “stroking” tools or positive measures:
willingness and ability to make rapid price, delivery, and quality adjustments in response to purchase requests without a major hassle
invitation to the purchaser to discuss mutual problems and opportunities
giving notice substantially in advance of pending changes in price, lead times, and availability to allow the purchaser maximum time to plan ahead
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Buyer-Supplier Relationship: Investment Versus Rewards Obtained
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Types of Partnerships and Alliances
Operational partnerships:
typically formed around leverage items, where the attainment of the desired levels of quality, quantity, delivery, price, and service are achieved at the lowest total cost of ownership
often focus on acquisition process improvements
Strategic partnerships and alliances:
make a strategic difference to both the buyer and supplier and attempts to seek sustainable competitive advantage
are long-term relationships focused on mutual strategic and tactical goals
promote mutual success and profitability
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View of Buyer-Supplier Relationships
Traditional
Lowest price
Specification-driven
Short-term, reacts to market
Trouble avoidance
Purchasing’s responsibility
Tactical
Little sharing of information
Partnership
Total cost of ownership
End-customer driven
Long-term
Opportunity maximization
Cross-functional teams and top management involvement
Strategic
Both supplier and buyer share short- and long-term plans
Shared risk and opportunity
Standardization
Joint ventures
Share data
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Partnering Strategies and Outcomes
Strategies
Decrease average delivery lot size
Decrease number of suppliers
Decrease average number of sources used per purchased item
Increase average contract length
Increase average frequency of delivery to the plant
Increase supplier involvement in quality certification programs
Outcomes
Improved quality of the supplier’s operations/processes
Improved quality of incoming goods
Decreased supplier’s and buyer’s total costs
Improved supplier’s ability to handle buyer-initiated changes to the agreed-to delivery date
Improved buyer’s ability to handle supplier-initiated changes to the agreed-to delivery date
Source: T. S. Graham, P. J. Daugherty and W. N. Dudley, “The Long Term Strategic Impact of Purchasing Partnerships”, International Journal of Purchasing and Materials Management, Fall 1994.
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Characteristics of Successful Buyer–Supplier Partnerships
Stable, long-term business relationships, supported by business processes, not personalities
Cooperative, non-adversarial relationships
Formal governance system
Senior management support in the buyer and supplier organizations
Alignment of short- and long-term goals
Open and frequent communication at multiple levels of the organizations
Willingness to share information, including costs and product/service designs
Creation of joint business plans that identify strategic initiatives and resources required by both parties
Focus on total cost of ownership, not prices, as a means of continuous improvement
Transparent method of performance evaluation and feedback for both the buyer and supplier
Sharing of risks and rewards
Objective of mutual profitability and success
Joint accountability for ethical conduct
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The Dark Side of Buyer–Supplier Relationships
Research has found that over-committing to a collaborative supplier relationship in the long term may blind the buyer from opportunistic supplier behavior.
Risk is greater for firms pursuing operational partnerships than for firms engaged in strategic partnerships.
Potential problems include: loss of objectivity, ineffective decision making, and costly investments.
Potential remedy: Careful monitoring the benefits of the partnership over the long term, including changes in market trends and technologies
Source: Villena, V.H., E. Revilla, and T. Choi, “The Dark Side of Buyer-Supplier Relationships: A Social Capital Perspective,”
Journal of Operations Management, vol. 29, no. 6, (2011), pp. 561–-576.
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Excellent: a. Meets delivery dates without expediting.
b. Requested delivery dates are usually accepted.
Good: c. Usually meets shipping dates without substantial follow -up.
d. Often is able to accept requested delivery dates.
Fair: e. Shipments sometimes late, substantial amount of follow -up required.
Poor: f. Shipments usually late, delivery promises seldom met, constant expediting
required.
StrategicNeedsOther AdditionalNeedsCustomer SatisfactionTraditional NeedsSuppliers