CPSM Blog

Developing and managing supplier relationships

Having segmented suppliers the next step is to manage supplier relationships.Important areas are managing confidential information between organizations and being clear about intellectual property issues.

This section mentions ten different points to promote good relations and trust including top management meetings, timely payment of invoices, equitable treatment of suppliers,supplier development, supplier surveys and periodic business reviews. An important survey question to ask, which is not very obvious is "how can we make your work easier and how can we help you reduce your costs".

A final and important point made is about Early Supplier Involvement (ESI) in new product development because 70-80% of costs occur in the design phase and its really very strategic to involve suppliers early on.

Supplier Base Rationalization

The Supplier Relationship Management task (1-F) is the last task of Foundations of Supply Management. In this task the supply manager must examine the supplier base for the purpose of segmenting suppliers. Truly the work of Dyer and colleagues has influenced supply management thinking in this domain. For eg. see Dyer ,Cho and Chu (1998).

The overarching theme of the section is that the supply manager must differentiate between strategic suppliers who contribute to the core mission or business of the buyer's organization and those who do not. By and large the 80-20 rule applies here and only a few suppliers, in a few categories are of major strategic importance and relationship management becomes very important, these include critical raw materials. Interestingly, according to Procurement Strategy Council Research 50-70% of suppliers do not qualify for becoming strategic alliance partners. Nevertheless, all these suppliers need to be handled on a collaborative basis because they do have major business implications for example specialized packaging,IT services etc. Finally there are 20% suppliers who are  needed but not critical and these include MRO  and stationery items. For each of these categories a different set of supply management skills from strategic to tactical  are required but overall, the first step is to categorize suppliers.