TH2305
BUILDING SUPPLY CHAIN RELATIONSHIPS
Successful cooperation with suppliers is the only way to maintain a consistent supply of products and services
in the operations of different businesses. Relationship-building with suppliers is a long-term commitment that
will benefit the financial and operational factors of the business (Baluyot, 2022).
Supply Chain Relationships (CIPS, n.d.)
Supplier relationship management involves maintaining and administrating the relationship between a buyer
(business) and the supplier. The working relationship that should be formed with the suppliers will depend on
the products and services being purchased and supplied to the organization.
Developing Supplier Relationships
The supplier and organization need effort and commitment to develop and build relationships. It should not
be a one-sided relationship where one benefits while the other always compromises. Below are some
suggestions on how to properly develop supplier relationships:
• Establish clear communication channels. It means frequent communication between the organization
and the supplier to address issues quickly and to keep each other updated on sudden changes in
operations.
• Develop trust. Trust is built through open dialogue around expectations, objectives, and goals so that
both sides know what is expected from them. It means that both parties can deliver what is expected
of them per agreement on the terms and conditions in the signed contract. Trust can also be
developed when a problem occurs, wherein the supplier will look for the best way to assist the
business and not hamper their operations.
• Reward performance. When suppliers show sustained excellence in performing their duties, following
set metrics, they should be rewarded for that performance. It will encourage them to exceed their
future performance and foster loyalty between participants as part of a longer-term team effort.
These incentives can motivate suppliers to develop new ideas or cost-saving measures, resulting in
both them and the business being successful in their operations.
Establishing the right supplier relationship can bring many benefits. From cost savings to better customer
satisfaction, successful supplier relationships can help take a business to the next level. The supplier-buyer
relationship should be based on trust and transparency to ensure a smooth flow of operations and meet the
expectations of both sides.
Benefits of Supplier Relationship Management
Effective supplier relationship management will lead to benefits in the form of the following:
• Price reductions. Through working collaboratively and sharing forecasting data on demand, the
business and supplier can open a discussion to adjust the cost of goods, such as a discount if there will
be a bulk ordering of raw materials needed or a lower price if the inventories needed will be purchased
in advance.
• Technology or innovation exchanges. The supplier may share innovative developments or new
market offerings they are using or know of so that the partner business can adapt if those technologies
apply to them.
• Improved service levels. As communication improves, the relationship between the business and
suppliers develops. Suppliers gain a complete understanding of the business they serve, allowing them
to meet their needs effectively. It means that delays in the supply chain will decrease, and the flow of
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operations will improve. When issues in the ordering process arise, the healthy working relationship
between the supplier and the enterprise will make issues easier to resolve.
Challenges in Supplier Relationship Management
Developing good relationships with the supplier will help the organization eliminate unnecessary activities
within the supply chain operations, which can help improve the service offered to the guests. However,
supplier relationship management will also face some challenges, such as:
• Difference in business cultures. When businesses choose to source their products from suppliers
overseas, cultural differences may sometimes result in misunderstandings or miscommunication,
especially if the organization has never done business with them. To avoid this, it is important to
research their location and culture, which will help build up a good rapport.
• Corporate social responsibility. Ensuring that suppliers meet ethical, social, and environmental
standards is the responsibility of the supplier relationship management team. If the business and
suppliers do not have aligned corporate social responsibilities, it would be hard for them to collaborate
and cooperate to help society. For instance, if a business’s corporate social responsibility involves the
conservation of the environment through waste reduction and recycling while its suppliers use plastic
in their packaging, then there is a conflict between the entities' goals. However, such an issue can be
addressed through open discussions and the setting of clear expectations and requirements.
• Compliance means ensuring that every supplier the business deals with should meet the regulatory
requirements (taxes and tariffs), environmental (chemical content and management), and
manufacturing standards (quality of products and services needed by the business), which can be
difficult, especially if the different suppliers worldwide have different policies and regulations
regarding the operations in their country. The suppliers must comply with all those requirements so
that the supply chain operations will not be disrupted.
Types of Supply Chain Relationships (Vendorful, 2023)
Having and maintaining a solid relationship with suppliers is critical to the business's success. The following
are some of the types of supply chain relationships that will help address specific operational needs and create
a competitive advantage for the enterprise:
• Arm’s length is a buyer-supplier relationship that is strictly transactional. It means that a business will
select and order/buy from a supplier to fill an immediate need without guaranteeing that the
relationship will remain active for future orders. There is minimal information shared between the
supplier and the business since no contractual relationship is involved.
For instance, if a restaurant’s lettuce supply is insufficient for the afternoon’s operation, instead of
waiting for the orders the next day or stopping offering the salad menu items, the business may buy
from the nearby grocery to avoid hindering the business's operations.
• Partnership introduces a high level of trust between two (2) parties, as the supplier is primarily
concerned with meeting the requirements of an enterprise and focused on helping them satisfy their
customers. It allows suppliers to pool more resources to serve their customers' needs. Partnerships
often involve long-term contracts, and the business will typically share detailed information so that
their suppliers can deliver to their exact requirements.
• Strategic alliances are long-term partnerships between two (2) or more organizations working
together to achieve mutual benefits. These alliances involve collaboration on new products, sharing
resources, pooling research and development efforts, and engaging in joint marketing campaigns. By
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forming strategic alliances with several different suppliers, organizations can leverage the strengths
of each partner while minimizing their costs, which creates a win-win situation for all involved parties.
• Buyer-supplier networks are collaborative environments created by networks of customers and
suppliers working together to develop innovative solutions to problems shared across network
companies. They allow companies to share information about customer preferences, technologies
under development and best practices – ultimately reducing costs and improving efficiency for all
involved parties.
It is important to analyze the needs of the business and research potential suppliers before deciding on the
types of supplier relationships that would work best. The utmost priority is to find and determine which
suppliers fit the business objectives and goals, ensuring a smooth supply chain process workflow.
References:
Baluyot, B. (2022). Supply chain management in hospitality industry. Rex Printing Company, Inc.
Blanchard, D. (2021). Supply chain management best practices (3rd Ed.). Wiley.
CIPS. (n.d.). Supplier relationship management. Retrieved 24 November 2023, from https://www.cips.org/intelligence-
hub/supplier-relationship-management
Jacobs, F. and Chase, R. (2023). Operations and supply chain management (6th Ed.). McGraw Hill, LLC.
Vendorful. (2023). Types of supplier relationships. Retrieved 24 November 2023, from https://vendorful.com/types-of-
supplier-relationships/
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