Faculty of Business Administration

UNESCO Department for Business Administration

Global Value Chain

Course no. 7
Supplier Relationship Management
Associate Professor Ph.D.
Cătălin Valeriu Curmei
 Supplier Relationship
Management
What makes a great supplier relationship?
Supply Chain Brain. (2020, January 23)
https://www.supplychainbrain.com/media/videos/play/4899-what-makes-a-
great-supplier-relationship

The Big Changes in Supply Chain Network Strategy

Supply Chain Brain. (2023, November 2)
https://www.supplychainbrain.com/articles/38355-watch-the-big-changes-in-
supply-chain-network-strategy

Source: https://www.supplychainbrain.com/articles
Supplier Relationship Management

Component of Component of
presents a dual
relationship Supply Chain
relationship
marketing Management
What is supply chain management?

Summary of decisions on systematic concatenation of

suppliers, manufacturers, distributors and customers.

→ A concept that integrates planning and coordination of

processes taking place along the entire value creation
chain in order to optimize customer needs.
 Significance of Supply Chain
Management

Fierce competition and globalization is

forcing the company to rationalization reduction of
of processes by optimizing the costs
performance of business processes

• efficient use of the minimum level of stocks

• improved forecasting of material flow between basic

suppliers and customers
• reduction of difficulties caused by miscorrelations in
the supply chain between participants (in terms of time,
space, quantitative, qualitative)
Supply Relationship Management

Supplier relationship
strategy

Logistics Planning relationships

with suppliers

Supplier Relationship
Management
Product Company applications
lifecycle regarding supplier
management relationships

Administration of
Procurement funds
Supplier Relationship Management

Suppliers Procurement Production Distribution Customers

A representation of the relationships with suppliers for an enterprise;

arrows symbolize supplier relationship management, internal
management of relations with suppliers and customer relationship
management (Chen/Paulraj, 2004)

Source: http://en.wikipedia.org/wiki/Supply_Chain_Management
Supplier Relationship Management
(S.R.M.)

… describes a strategic and comprehensive

leading of communication with suppliers to
continuously improve the common goals of value
creation

The objective of implementing a SRM system is to

develop a close attachment of suppliers to the
company and supporting the acquisition over the
course of the entire procurement process.
 A S.R.M. system
• It capitalizes all information related to the purchase
(acquisition):
- products suitable to be delivered
- possible risks
- quality conditions
- delivery conditions

• Supplier and customer are connected on-line – a prerequisite

for the development of on-line purchases (E-Procurment)

• The quality of relationships with suppliers is measured with

one instrument: Supplier Relationship Quality (SRQ)
- satisfaction of suppliers
- confidence in the purchaser (buyer)
- (level of…) commitment in the business
1) Change of mentality towards suppliers.

Adversity Cooperative
relationships relationships
and transactional centered on
relationships mutual benefits

2) Understanding this change with a view to achieving the

value chain

Lindgreen, A., Revesz, B., Special Issue on purchasing orientation, ELMAR Community Update: Call
for Papers, 2006.
 An empirical study conducted by Jared M. Hansen
(“The evolution of buyer – supplier relationship: an historical industry
approach”, Journal of Business & Industrial Marketing, 2009)

Integrated value Mutual exchange

versus
chain of information

• Maximum level of customer

Interorganizational satisfaction
&
competitive
• Maximum use of supplier
advantage
capability
 Trust – essential factor of the supplier – enterprise
relationship

• confidence in the supplier

• confidence in the supplier

Sources of confidence representatives (staff directly
involved in the sale)
 Matrix of trust

Confidence in supplier’s representatives

High

Confidence in supplier
CO-PRODUCTION CO-CREATION

TRANSACTION COLLABORATION
Low

Low High

Source: Hansen, M.J., The Evolution of Buyer-Supplier Relationship: an Historical Industry Approach, Journal
of Business & Industryal Marketing, 2009.
 Supplier Relationship Quality (1)

• perceived dependence

Factors that • intensity and quality of

influence the communication between the
quality of parties
business
• decisional elasticity and
relationships
mobility in action

This tool allows a qualitative assessment of suppliers

 Supplier Relationship Quality (2)

Administration – electronically – based on standardized

questions for assessing relationships with various suppliers.

SRQ is administered with other instruments of

procurement controlling, such as:
▪ cost calculation of processes
▪ analysis of procurement portfolio
▪ performance measurement systems
▪ quality costing
 • satisfaction
honesty
QUALITY OF • confidence
CUSTOMER- reputation
SUPPLIER • commitment of the parties
RELATIONSHIP involved
Operationalized
through the following • cooperation
constructs: • adaptation
• communication
 Conceptualizations of service quality

A: Northern Model (Gronroos, 1984)

Expected Perceived
service service

Image

Technical Functional How?

What?
quality quality

Source: Brady, M.K., Cronin, J.J., Some new thoughts on conceptualizing perceived service quality: A hierarchical approach,
Journal of Marketing, Vol. 65, 2001, pp. 34-49.
 Conceptualizations of service quality

B. SERVQUAL Model (Parasuraman et al., 1988)

Perceived service
Tangibility
Reliability Perceived
Receptivity quality of
service
Safety
Empathy Expected service

Source: Brady, M.K., Cronin, J.J., Some new thoughts on conceptualizing perceived service quality: A hierarchical approach,
Journal of Marketing, Vol. 65, 2001, pp. 34-49.
 Conceptualizations of service quality

C: The model of three components (Rust and Oliver, 1994)

Quality of
service

Resulting
Service
service Service
environ-
(service provided
ment
product)

Source: Brady, M.K., Cronin, J.J., Some new thoughts on conceptualizing perceived service quality: A hierarchical approach,
Journal of Marketing, Vol. 65, 2001, pp. 34-49.
 Conceptualizations of service quality

D: Multi-level model (Dabholkar et al., 1996)

Quality of retail
services (trade)

Dimensions

Subdimensions

Source: Brady, M.K., Cronin, J.J., Some new thoughts on conceptualizing perceived service quality: A hierarchical approach,
Journal of Marketing, Vol. 65, 2001, pp. 34-49.
 Quality assessment model of business
relationships
Influencing factors Indicators Dependent variables

Economic factors
- dependence
- exercise of power
- pressure of competition
- satisfaction in terms of price
- satisfaction regarding company desire for
performance cooperation

Social networking
- friendship
- Intensity of conflicts motivation for
quality
Assessment of business partnership
- image/reputation Quality of business
- fairness relationships
openness to
- satisfaction with regard to business - satisfaction
change
strategy - confidence
- satisfaction with regard to - attachment
management
recommendati
on
Moderating variables
Network relationships
- structural networking - size of enterprise
- intensity of communication - durability openness to
- quality of communication - satisfaction with the job investment
- shared values and goals - ...
Agricultural guidance
- near farms
- Influence of farmers

Source: Sabine Gerlach, Relationship Management in Agrarbusiness, Göttingen, 2006, Dissertation an der Fakultät für Agrarwissenschaft der
„Georg-August“ Univ. Göttingen (webdoc.sub.gwdg.de/diss/2006/gerlach/gerlach.pdf)
Significance of S.R.M. the global economy

organizational
• the need for an chaining network of beneficiaries
electronic
with suppliers

• moreover, the need for a personal contact between the relevant

actors, a mutual respect and a high level of trust

• construction of an internet portal for its own attachment process

of suppliers
 Sourcing and Procurement

There is not a consensus regarding the definitions of these 3

concepts: sourcing, purchasing and procurement

❖ Some authors (for example, Stanton) suggest that these 3 are

synonyms and that they simple refer to buying things
from other companies.
❖ Some (for example, Jacobs and Chase) suggest that they
used to be synonyms, but they developed to illustrate the
strategic importance of sourcing, from being a financially
important corporate function (purchasing) to the center of
attention from strategic point of view. Sourcing implies a
more complex process suitable for products that are
strategically important.
 Sourcing and Procurement

❖ Some authors (for example, Chopra) do not make

explicit differentiation between them, but provide
slightly different definitions.

➢ Purchasing, also called procurement, is the

process by which companies acquire raw
materials, components, products, services or
other resources from suppliers to execute their
operations.

➢ Sourcing is the entire set of business processes

to purchase goods and services.
Strategic sourcing – basic steps
1. Collect and analyze data about what you bought in the past.
2. Collect and analyze forecasts about what you’ll buy in the future.
3. Evaluate how past suppliers have performed in terms of cost,
quality, reliability, sustainability, and social responsibility.
4. Investigate whether other suppliers could provide the same
products and services at better prices, higher quality levels, more
reliably, or more sustainably.
5. Consider opportunities to outsource or insource the products or
services.
6. Determine how important the product or service is and how
available it is in the marketplace.
7. Evaluate the effect of payment terms on your working capital.
8. Assess risks associated with each supplier.
9. Make changes.
10. Repeat Steps 1–9.

Source: Stanton (2023)

 Managing total costs (1)
❖Traditionally, purchasing managers have
focused on minimizing purchasing cost.
❖However, there are other costs involved
✓ Purchase price for materials
✓ Transportation
✓ Inventory holding costs
✓ Quality inspection and defect resolution
✓ Insurance
✓ Shrinkage, security and loss prevention
✓ Duties, tariffs and taxes
✓ Permits
✓ Licensing Fees
❖Combining all the factors involved in
purchasing materials -> total landed cost
 Managing total costs (2)

❖Many products continue to cost money after

being purchased and even after using or selling
them:
• Maintenance
• Disposal and recovery
• Product liability, recalls and warranties

❖These additional costs contribute to the total

cost of ownership (TCO) or the life-cycle cost
for a product
 Minimizing input costs

✓ Negotiate a long-term agreement in exchange for lower

costs
✓ Increase order quantities in exchange for a volume
discount
✓ Request new price quotes from lower-cost suppliers
✓ Extend the lead-time that suppliers have to fill an order
✓ Share information with suppliers that allows them to plan
farther ahead
✓ Change product or product packaging designs to use
less-expensive inputs
✓ Provide financial guarantees to support a supplier’s
investment in facilities and equipment
(Stanton, 2023)
Sourcing your inputs
The role of
procurement is to
manage value and
risk on behalf of the
organisation.

The Kraljic matrix

(after Peter Kraljic),
provides a tool to
understand and
quantify relative
value and
procurement risk
issues for any
business or
organization.

The Pareto principle

applies to spending,
to 20% of the
suppliers require 29
80% of the spend.
Kraljic Portfolio Matrix, Montgomery et al., 2018
Classifying Purchasing Materials Requirements
Procurement Main tasks Decision level
focus
Strategic items Accurate demand forecasting. Detailed Top level (e.g.
market research. Development of long-term vice president,
supply relationships. Make-or-buy decisions. purchasing)
Risk analysis. Contingency planning.
Logistics, inventory and vendor control

Bottleneck items Volume insurance. Control of vendors. Higher level (e.g.

Security of inventories. Backup plans. department
heads)

Leverage items Exploitation of full purchasing power. Vendor Medium level

selection. Product substitution. Targeted (e.g. chief buyer)
pricing strategies/negotiations. Contract/spot
purchasing mix. Order volume optimization.

Noncritical items Product standardization. Order volume Lower levels (e.g.

monitoring/optimization.
From PeterEfficient processing.
Kraljic, 1983 buyers)
Inventory optimization. Inventory optimization

30
 Managing the Procurement
Process
❖ The process that companies use to buy products and
services is called procure to pay (P2P) cycle.

❖ There are 4 main steps in the P2P cycle:

1. You send out a request for proposal (RFP)
2. You issue a purchase order (PO) to a supplier
3. The supplier provides you with the products and
issue an invoice
4. You audit the supplier invoice to check it’s
accurate. If ok, you pay the invoice

Source: Stanton (2023)

Supplier Relationship
Management

Procter & Gamble

Case Study (1)
Source: https://us.pg.com/pg-history/
Source: https://us.pg.com/pg-history/
Source: https://us.pg.com/pg-history/
Source: https://us.pg.com/brands/
Source: https://pgsupplier.com/guidelines/global-sourcing-principles
Procter & Gamble - Case Study (1)
Supplier Relationship Management
UNDERSTAND SUPPLY CHAIN
1. P&G Roles - Learn P&G Roles
https://www.youtube.com/watch?v=DPUVBc5I5Jw&t=5s

2. Service Level Execution Agreement - Intro to

Service Level Execution Agreement
https://www.youtube.com/watch?v=aZbFBTeYlEc

3. Supply Schedule Performance - What is Supply

Schedule Performance?
https://www.youtube.com/watch?v=MdPNaYWn_L0

https://pgsupplier.com/understand-supply-chain
Procter & Gamble - Case Study (1)
Supplier Relationship Management
UNDERSTAND SUPPLY CHAIN
4. End-to-end Synchronization Process - Find out
how we are doing end-to-end synchronization
https://www.youtube.com/watch?v=I5d8VleO9tc

5. Payment Cycle and Invoicing - Learn about

invoice and Payment Process
https://www.youtube.com/watch?v=VNui_iMmwMI

6. Rough Cut Capacity Planning - Know how P&G

manage RCCP and what we expect from suppliers
https://www.youtube.com/watch?v=CjIKI9QTE9Q&t=1s
https://pgsupplier.com/understand-supply-chain
Procter & Gamble - Case Study (1)
UNDERSTAND SUPPLY CHAIN
7. Supplier Scorecards - Learn target
expectations and improvement areas
https://www.youtube.com/watch?v=Tws--OEWleM&t=25s

8. Supplier Citizenship - Let's partner together on

Citizenship, we want to hear from you
https://www.youtube.com/watch?v=KqMIySWpMpg&t=1s

9. Electronic Certificate of Analysis - Join the

digitization journey by sending your COA
electronically
https://www.youtube.com/watch?v=tXdb_nI_-kc
https://pgsupplier.com/understand-supply-chain
Bayer Case Study (2)
Supreme – Supplier Relationship
Management

• Value Creation is the goal of Bayer

Corporation
• effective management of suppliers is a key
element of optimization

Source: http://www.procurement.bayer.com/procmt/byc_cpmm.nsf/CMSLUByIntID/RSCE-6CS9HK/$File/Supreme_EN.pdf?OpenElement
Supreme – Supplier Relationship
Management
Objectives of supplier management

a) Selection of suppliers

b) Evaluation of suppliers

c) Optimization of suppliers
Evaluation of suppliers
Optimization of suppliers
Selection of suppliers
Six steps to the best suppliers

step 1: determining the needs

step 2: market analysis

step 3: pre-selection of suppliers

step 4: qualification of suppliers

step 5: demand/offer

step 6: negotiation
Supplier selection process
 Supplier evaluation

a) What kind of suppliers do we evaluate?

b) How do we evaluate new suppliers?

c) What is being evaluated?

Evaluation takes place in the Bayer company according to a unitary structure
of criteria, divided into four categories: procurement, quality, logistics,
technology.
Each category is divided, in its turn, into the following components:
✓ safety and environment
✓ current performance
✓ systems to maintain performance
✓ future requirements
✓ cooperation, service and support
Supplier Relationship Management
 What classes of suppliers are there?

The result of evaluating suppliers may be a number of points between 0

and 100. Depending on the number of points, the supplier is classified into
one of the following categories:
• Supreme – The supplier scored over 90 and is preferable for
strategic cooperation
• Standard – If the supplier scores between 70 and 90 it
means that it met almost all the requirements of Bayer
Corporation
• Poor – If the supplier scored between 50 and 70, the
partnership requires optimization
• Desourced – Partnership with a supplier scoring under 50
points must be stopped, because this kind of partnership is
repeatedly causing additional losses
 Optimizing suppliers for increased
performance and lower costs

Improving the performance of our suppliers follows five stages:

1) analysis of evaluation results

2) defining the strategy in terms of materials and suppliers

3) development of measures that describe the steps to

remedy weaknesses

4) communication and implementation

5) control of measures
 Supplier management –
active guidance of suppliers
Principles of supplier management
➢ In the Bayer Corporation, all suppliers are evaluated by a
central system according to a unitary structure of criteria, but
there are specific adaptations of single evaluation criteria;
➢ Based on the evaluation results, suppliers are attributed to
certain classes that are set alike across the company;
➢ Each evaluation has a consequence over the Bayer
Corporation partnership with suppliers. All suppliers
evaluated receive the evaluation results so as to jointly
develop and implement optimization measures;
➢ Optimization measures and their implementation are
monitored constantly.
 BOSCH Case Study (3)
Guidelines and fundamentals
Bosch Group (www.bosch.de)
defined procurement Leadership in ten principles:
1. Customer satisfaction (procurement is oriented in
relation to customer requirements and satisfaction) →
best combination of function-delivery-price

2. Responsibility to delivering quality

3. Development of suppliers
We need suppliers who are able to render quality
services and innovative to work with them openly, fairly
and on a long term.
 BOSCH Case Study (3)
Guidelines and fundamentals

Bosch Group (www.bosch.de)

4. Fairness and transparency

We use internally approved criteria and procedures in
choosing suppliers that are being applied uniformly.

5. Internationality
We are procuring competitive advantages for our
company through a systematic international procurement
marketing.
 BOSCH Case Study (3)
Guidelines and fundamentals

6. Interrelated information
Our information is systematically acquired worldwide

7. Orientation towards the market and products

Processing of procurement markets and cooperation in
projects with manufacturers and customers is of great
importance. We are actively involved with our partners in
joint projects for the development and cost optimization
of new products.
 BOSCH Case Study (3)
Guidelines and fundamentals

8. Environmental responsibility
Issues raised by environment are important for us. These
aspects concern both the choice of raw material for the
purposes of its recycling capacity, packaging and transport.

9. Continuous improvement
We work to continuously improve the structure and
performance of the procurement process.

10. Staff development

Supporting (promoting) the factual and social competence
of our employees.
 Additional references

✓ Sunil Chopra (2019). Supply Chain Management:

Strategy, Planning and Operation, 7th Edition,
Pearson HigherEd

✓ F. Robert Jacobs, Richard B. Chase, Operations and

Supply Chain Management, Sixth Edition, 2022,
McGraw Hill

✓ D. Stanton, Supply Chain Management for Dummies,

2023, John Wiley & Sons, Inc., Hoboken, New Jersey
 Thank you!

[email protected]