The supplier buyer relationship is called leverage when deemed

the supplier buyer relationship is called leverage when deemed

account for at least 10% of sales or are otherwise considered important for business) from the Business The most well-known evidence comes from may explain why firms in durable goods industries have lower leverage. In this paper, Such bilateral buyer-supplier relationships are of particular interest for studying the. Well, we all know that there are times when leverage needs to be applied. And there are times when collaboration is called for; however, the approach a consistent working relationship from their customer on any particular job. OEMs continued to rotate people into and out of buyer positions as quickly. Leverage items, by contrast, pose a lower risk because, although they are the organisational buying behaviour literature suggests that known suppliers offering . This gap is about how buyer–supplier relationships develop over time and about Dependency is deemed to create such an investment incentive whereas .

Ackerman and Art Van Bodegraven From the Quarter 4 issue Comment Supply chain management by its very nature depends on relationships and connections. In the first excerpt from their recent book, Fundamentals of Supply Chain Management: An Essential Guide for the 21st Century, the authors describe some of the relationships that play an important role in achieving supply chain success.

In the second excerpt, they focus on consultants, looking at how they operate and when it makes sense to use them—or not. Relationships in the Supply Chain The term "relationships" covers a lot of ground in supply chain management. There are strategic relationships, tactical relationships, transactional relationships, internal relationships, and possibly more. There are also relationships among members of the supply chain community.

Let's look at those first. Our supply chain universe can be seen as clustered around three "estates," roughly comparable to the social divisions in pre-revolutionary France. We might, without stretching too far, term them the First Estate—the academic community or the "clergy" ; the Second Estate—the consultants and software developers or the "nobility" ; and the Third Estate—the working practitioners or the "commoners"led then as now by the bourgeoisie of visible, leadingedge advocates.

There is also a kind of Fourth Estate or the "press" in supply chain management, but the trade press generally does not play the same watchdog role as its counterpart in the outside world. For the moment, it's important to realize that relationships among the supply chain estates must be maintained for balance.

Too much power and influence in any one camp and you risk undermining the effectiveness of your supply chain. The personal networks built among leaders in the three estates at these groups' annual gatherings continue to harness the synergistic potential of their collaborative strengths.

The governmental dichotomy Relationships among businesses and all levels of government—federal, state and local—are important as well. Governmental and regulatory bodies can provide restrictions and incentives, regulations and freedom, and roadblocks and opportunities for individual companies.

They also provide venues for teaching and research, and they can help create the environments that incubate consultancies and technology development. Programs and actions at all levels of government can exert powerful influences on where supply chain operations are located, how successful they are, and how committed they become to maintaining a physical presence and investment in localities, regions, and countries.

These help to explain the phenomenon of "brain drain," headquarters relocations, some sourcing decisions, business flight from certain states, and continuing economic malaise in countries that should by all rights be prospering. At the level where most of us work every day, there are vital relationships to build and nurture: This relationship business keeps getting more and more complicated. Let's touch on a few key issues that are a little closer to ground level.

Within the supply chain Let's start with the working relationships between suppliers and customers, which some like to call "partnerships. Furthermore, there are limits to how many partnerships any company can effectively maintain. Certainly, you can't have partnerships with everyone in your supply chain, unless the chain consists only of you and two others.

Still, it is important to maintain high-trust, highcommunication, mutually beneficial relationships with key suppliers and customers, whether they're called partnerships or not. Granted, there are some very successful mega-merchants that are able to dictate prices, terms, and processes to their suppliers by threatening to pull their business.

But the fact is that very few of us are in the position of being able to tell our suppliers, "My way or the highway. In an ideal supply chain relationship, both customers and suppliers get connected in ways that allow them to easily exchange information, demand data, and the visibility of status.

What does this mean? For openers, it means communicating demand events and the direction of strategic plans. It also means linking information systems and jointly leveraging the potential for Internet and other electronic communications. It means working together to reduce costs and improve quality, and understanding capacities and capabilities. And don't overlook your responsibility to teach your partners the techniques needed to be successful in the 21st century.

the supplier buyer relationship is called leverage when deemed

On the customer side, it means many of the same things, only working in another direction. You need to know about their strategies and directions, their event plans, and their needs for flexibility and resilience. The collaborative planning, forecasting, and replenishment CPFR process works both ways.

Your customers need to know about your capacities and capabilities, just as you need to know about theirs. And remember, it's your responsibility to educate them about ways in which you can help them succeed in their markets. Wherever you sit in the supply chain flow, you can improve your positioning by understanding both the upstream and downstream business issues—and what the ultimate user or consumer wants and needs.

All of this takes fundamental talent, a positive attitude, and an overall culture of strong relationships. And it's got to be for real.

Buyer-Supplier Collaboration: A Roadmap for Success

As someone once observed, "You can only fake sincerity for so long. Within the company Before a company attempts to build good external relationships, it must first put its own house in order. You can't really develop open communications with others if your organization is partitioned itself. Within the friendly confines of your own four walls, manufacturing and distribution need to do more than communicate—they need to march in lockstep.

Both functions need to be plugged into what's going on with sales and marketing. Sourcing and procurement can't operate independently of other supply chain functions. Senior management must include the supply chain organization in the strategic information loop, while the supply chain organization must let the C-level officers know what it can do to support strategies.

This means joint planning and joint problem solving. It means cross-functional teams with a purpose other than political correctness. It means that everyone has, if not a voice, at least a hearing in product development and discussions about stock-keeping unit SKU extensions. If all that seems alarming, you're not ready to manage external relationships. They can't possibly succeed until your company is master of its own domain. LSPs, consultants, and worse Once issues within the company and within the greater supply chain have been satisfactorily addressed, don't forget relationships with service providers.

This need is particularly acute when logistics service providers LSP are involved. Building a successful LSP relationship is absolutely essential to their successful use. Open and full communications are vital from the outset, beginning with the evaluation and selection processes.

Multilevel working relationships throughout both organizations provide the key to making processes work and to effectively solving the problems that inevitably crop up. And the work doesn't end there. LSP relationships, like marriages, require constant effort and continued attention.

The LSP also needs to know about upcoming events, changes in strategy, and new products and customers— things that many companies used to keep "secret. You and your LSPs need to engage in regular dialogue about where and how they can add value to what you are doing. It's more difficult to have a relationship with consultants that spans functions and managerial generations.

But the quality of relationships with consultants can have a profound effect on the quality and extent of outcomes. For best results, mutual trust and open communication are required. The more your consultants know about what's really going on and the more you can tell them, the better their chances of getting to the heart of the issues and devising on-target solutions. As for software providers, they are often portrayed as salespeople without scruple or inhibition.

When it comes to evaluating vendors, your job is to look for and assess the qualities that can make for a positive mutual relationship all the way through a successful implementation.

Like all other aspects of the supply chain, this is about more than simply making a purchase. It is about having a sustainable relationship with someone who can play a key role in your long-term supply chain success.

The Role of Consultants Logistics service providers LSPs are not the only third parties lurking in the underbrush of supply chain management. The weeds are also full of management consultants. They're at every conference, seminar, and convention. They're on the Internet with web sites, e-newsletters, webinars, and spam. They're in all the trade publications.

They're speaking; they're writing; they're selling endlessly. What do they do? Do they help—or hinder? Do they really offer a value proposition? Some perspectives At its best, management consulting can be a noble calling.

It's a high-minded endeavor, requiring enormous amounts of both talent and integrity as well as a strong sense of mission and urgency.

Buyer-Supplier Collaboration

At its worst, it is an embarrassment and a scandal. To be honest, there have been some spectacular failures in consulting projects. Whatever your view, the emergence of supply chain management as the business focus of the new century has attracted consultants of every imaginable variety. Some have been at it for years, evolving along with the field. Others are new to the game, and they seem to think that adding supply chain management to their list of service offerings is enough to get onto the playing field.

The difference between consultants and advisers There was a time when great care was taken to distinguish management consulting services from management advisory services. The distinction has faded with time.

But the implication is that advisers provide feedback and informed opinion, and that consultants take a more active role.

Consultants make decisions, acting on behalf of the client. They design and implement processes, facilities, and systems—in short, they do the hands-on work. Consultancies offer a diverse collection of different business models as well as approaches to problem solving.

Let's begin by trying to sort out some of the fundamental types. The mega-firms This category is made up of huge organizations with thousands of people. They may be partnerships; they may be corporations. They are increasingly multinational. Many of the mega-consultants have their origins in the giant public accounting firms.

Several years ago, each of the so-called "Big Eight" U. They generally attempted to be all things to all clients, and they would undertake consulting in any channel that held the promise of growth or profit. As they created multinational accounting conglomerates, their consultancies likewise added the appearance of international capability, which tended to be more promise than practice.

Today, after mergers, acquisitions, and divestitures, their former consulting entities are barely recognizable. Accenture spun off from Arthur Andersen, which itself disappeared, thanks to Enron. Deloitte Consulting, product of yet another merger and acquisition, retains its corporate identity but is legally a separate LLC entity. The overall business model consists of a hierarchical, pyramidal organization, dependent on sales generation by a relatively small number of rainmakers to provide billable hours for large numbers of analysts and managers.

Thorough methodology and process development is supposed to allow relatively inexperienced consultants to tackle complex problems in consistent ways. This model has been likened to bringing in busloads of bright kids, who have been both indoctrinated into the corporate culture and provided with workbooks full of process descriptions and solutions. They must then hope to come across a client who is asking the right questions.

Few of these firms were willing to bring in more seasoned, more experienced, more independent-minded, and more expensive old pros.

the supplier buyer relationship is called leverage when deemed

It's not so much an age issue as a business model issue, abetted by a cultural conformity. Some independent consultancies have become mega-firms.

Some of the early leaders, such as Booz Allen Hamilton, continue to prosper, while some others have fallen on hard times or have been sold off. Big and important, but not huge A handful of consulting firms concentrated on strategy but took differing directions. Some tried their hands at tactical implementations, and they remain successful in addressing operational issues with strategic implications.

Others focused on taking equity positions and managing corporate operations. Several entities focused on performance standards, productivity, and cost reduction. A few pioneers survive, but just barely. Their business model tended to be based on the engagement of contractors, who are off the payroll as soon as they've completed their assignments. The permanent cadre comprises successful salespeople along with a handful of top executives. Quality management is another critical capability; it focuses on quality issues across the supply chain and covers both products and associated services.


Finally, there is partnership influence, by which the organization gets multiple suppliers to work together to improve the performance of critical components or subsystems. To lay the groundwork for these new capabilities, some organizational adjustments are typically needed. Finally, the quality assurance function may need to be expanded. Align benefits and incentives. One of the obvious challenges for collaboration programs is getting suppliers to participate in them.

Companies sometimes undermine their own chances of a partnership by being overly cautious about sharing information. A core requirement for successful collaboration is trust—a willingness, on the part of both buyer and supplier, to share information. The carrot—additional business, technical advice, a way of streamlining processes—is often more effective than the stick.

the supplier buyer relationship is called leverage when deemed

Buyers must find incentives powerful enough to motivate suppliers. In other cases, buyers may contribute investment capital to help a collaborative program get off the ground. When this happens and the outcome is successful, a supplier may end up with an improved technology, process, or cost structure that can help it with a range of customers, not just with the buyer that made the investment. Buyers should demand a lot of their suppliers, but if they also treat them fairly, it sets a tone of mutual interest that makes the relationship far more productive.

Follow a structured approach to program design. Collaboration programs are often viewed skeptically by both the internal organization and the supplier base. It is important to build credibility for the program at the senior level and within the organization. The CPO should clearly articulate the benefits of the program to all parties. Early communication from the upper levels of the buying organization, and strong support from corporate leadership for instance, the CEOare critical in mobilizing the internal team and persuading suppliers to develop a shared vision for these relationships.

A catalyst approach can be used to jump-start the process. This begins with both the buyer and the strategic supplier separately collecting information that can help identify areas of joint opportunity.

With that homework done, the two companies meet to figure out how they might jointly reduce costs, improve quality, increase innovation, reduce waste, and improve cycle times. Over a period of a few months, the buyer teams and suppliers generate ideas, evaluate them, prioritize them, agree on the ultimate value and how it will be shared, and set an implementation plan. Catalyst sessions are intended to challenge—the dialogue should be open and no ideas should be off the table.

Once the initiatives have gotten off the ground, a program management office should be used to ensure consistency across initiatives, share best practices across initiative teams, and keep procurement executives apprised of progress. The program management office should also track all initiatives to make sure they are proceeding according to plan. Implement and manage the program for the long term. Implementing a collaboration plan is complex. Change management is critical. There needs to be movement from the typical buyer-supplier relationship toward a dynamic of greater trust, more information-sharing, and enhanced transparency.

This can only happen if there are enabled and accountable leaders, an engaged organization, and a clear governance structure. There also need to be clear objectives, key actions associated with each objective, and agreed-on KPIs. How the KPIs and key actions work together can be illustrated by an example. Suppose an office-machine-equipment company wants to reduce the time required to introduce new products.

The most relevant KPI in this case would be time to market. In addition to this list of best practices, partnerships have other success factors, including analytical rigor and a clear definition of roles.

Additional Factors That Help Partnerships Succeed Buyers that forge successful partnerships are realistic about what these initiatives require. Five factors in particular are important to remember.

Sufficient Time and Resources. More resources deliver more benefit more quickly. Procurement departments must involve the necessary decision makers from both organizations and get them to support the effort. Supplier collaboration programs are data heavy. A considerable amount of information must be gathered and analyzed if the right decisions are to be made.

Clear Definition of Roles and Accountabilities. The cross-functional and cross-company nature of these initiatives allows them to leverage many different types of expertise and is a big part of their power.