Chapter 07 - Supplier Relationship Management

What is Supplier Relationship Management (SRM)?

The discipline of strategically planning for and managing all interactions with third-party organizations that supply goods or services to maximize the value of those interactions.

What is the role of SRM in procurement?

SRM is viewed as an organized approach to defining needs and wants from a select group of key suppliers.

What are the types of suppliers typically involved in SRM?

Suppliers providing high volumes of products/services, crucial products/services in lesser quantities, and those requiring intensive engineering, manufacturing, and logistics interaction.

What is a key characteristic of successful strategic partnerships?

They require a strategic perspective and a mutual commitment over an extended time for the benefit of both parties.

What is one key to developing successful strategic partnerships?

Building Trust.

Why is trust important in supplier partnerships?

Trust is easily lost and hard to regain; it encourages collaboration and long-term benefits.

What should partners share for a successful strategic partnership?

A shared vision and mutually agreeable objectives.

How do personal relationships impact strategic partnerships?

They facilitate communication and action between key people at each company.

What is the significance of mutual benefits in partnerships?

Partnerships should result in a win-win situation for both companies.

What role does top management play in strategic partnerships?

Top management commitment is crucial for the success of the partnership.

What is essential for managing change in partnerships?

Companies must be prepared to manage the change that comes with forming new partnerships.

What is the importance of information sharing in partnerships?

It facilitates the free flow of information through both formal and informal communication lines.

What must key suppliers possess to meet requirements?

The right technologies and capabilities to meet cost, quality, and delivery requirements.

What is continuous improvement in the context of partnerships?

Making small improvements over time to eliminate waste and enhance capabilities.

What process is commonly used in continuous improvement?

Plan, Do, Check, Act.

What does the 'Plan' step in continuous improvement involve?

Identifying specific improvements needed and planning for changes.

What is the purpose of the 'Check' step in continuous improvement?

To analyze results using data to see if the change had a positive impact.

What does the 'Act' step entail in continuous improvement?

Implementing successful changes on a broader scale or revisiting the process if unsuccessful.

Why is measuring performance important in partnerships?

You can't improve what you don't measure; it evaluates suppliers based on quality, cost, delivery, and flexibility.

What are S.M.A.R.T. objectives?

Specific, Measurable, Achievable, Relevant, Time-oriented metrics used to evaluate suppliers.

What is Total Cost of Ownership?

It comprises all costs associated with acquiring, using, and maintaining a good or service.

What are the benefits of strategic partnerships for buyers?

Increased efficiencies, lower costs, enhanced service, improved quality, and sustainable competitive advantage.

What benefits do suppliers gain from strategic partnerships?

Increased efficiencies, lower costs, greater visibility into buyer's plans, and sustainable competitive advantage.

What is the purpose of supplier evaluation?

To identify the best and most reliable suppliers based on defined criteria.

How does frequent feedback contribute to supplier relationships?

It helps avoid surprises and maintain good relationships.

What is the purpose of regular review meetings with suppliers?

To allow suppliers to provide constructive feedback to the customer.

What are some key metrics for evaluating supplier performance?

Price and cost performance, product quality, delivery performance, contractual compliance, participation in product development initiatives, cooperativeness in third-party production management, support of ethics and sustainable practices.

Why is purchase cost less important when selecting key suppliers?

Because excellent suppliers can drive costs out, and squeezing suppliers for lower costs can hurt strategic relationships.

What is the role of a cross-functional team in key supplier selection?

They conduct evaluations using forms or scorecards and apply weighting techniques.

What is the Weighted-Criteria Evaluation System?

A system that selects critical performance dimensions, monitors data, assigns weights, evaluates performance, and classifies suppliers based on overall scores.

What classifications can suppliers receive in the Weighted-Criteria Evaluation System?

Certified, Preferred, Acceptable, Conditional, Developmental, Unacceptable.

What does OTIF stand for in supplier evaluation?

On Time In Full.

What does SCAR represent in supplier evaluation metrics?

Supply Chain Action Report.

What is a Certified Supplier?

A source that can provide material of such quality that it needs little or no receiving inspection or testing.

What are the benefits of Supplier Certification Programs?

Cost savings from reduced inspection time, building long-term relationships, recognizing excellence, and decreasing the supplier base.

What is the significance of ISO certification?

It verifies that a supplier meets international standards of quality and excellence, enhancing market potential and compliance.

What are the two commonly used ISO standards for supplier certification?

ISO 9000 and ISO 14000.

What does ISO 9000 focus on?

Management and quality standards in design, development, production, installation, and service.

What does ISO 14000 address?

Environmental management standards aimed at reducing energy consumption and pollution.

What criteria might be used for an internal Supplier Certification Program?

No incoming product rejections, no late deliveries, no significant quality incidents, ISO 9000 certification, and a documented quality system.

What is the purpose of Supplier Relationship Management (SRM)?

To manage and enhance strategic partnerships with suppliers.

What is the Profit Leverage Effect in supplier relationships?

The idea that excellent suppliers can help reduce costs, making purchase costs less critical.

What is the purpose of a Supplier Scorecard?

To evaluate and monitor supplier performance against established criteria.

What is the significance of ongoing certification reviews?

To ensure suppliers maintain their performance and compliance with standards.

What does the term 'Developmental' mean in supplier classification?

Suppliers that require corrective actions to achieve acceptable levels of performance.

What is the role of training in Supplier Certification Programs?

To educate suppliers on approved test methods and ensure they can provide accurate testing results.

What is the impact of certified suppliers on the supplier base?

Certified suppliers are more reliable, allowing for a reduced number of suppliers needed.

What does the term 'acceptable' indicate in supplier classification?

Suppliers that require a plan to achieve preferred status.

What is the goal of supplier development?

To improve supplier capabilities and performance to meet buyer requirements.

What is the importance of ethical practices in supplier evaluation?

To ensure suppliers support sustainable and responsible business practices.

What does the term 'cooperativeness' refer to in supplier evaluation?

The willingness of suppliers to collaborate in third-party production management.

What are the eight quality management principles of ISO 9000?

1. Customer focus 2. Leadership 3. Involvement of people 4. Process approach 5. Systems approach to management 6. Continual improvement 7. Factual approach to decision making 8. Mutually beneficial supplier relationship

Why are ISO-certified suppliers preferred by procurement departments?

They conform to external standards, are easier to qualify and audit, share supply chain information, build relationships, have formal improvement processes, and require re-certification every three years.

What are the key objectives of a Supplier Development program?

1. Lower supply chain total cost 2. Increased profitability for all participants 3. Increased product quality 4. Near-perfect on-time delivery

What is a critical aspect of Supplier Development?

It focuses on improving suppliers' performance rather than simply reducing costs.

What are the essential functions of a Supplier Development program?

1. Providing information about products and sales growth 2. Training suppliers in Lean and Six Sigma tools.

What are the typical steps in the Supplier Development process?

1. Identify critical products/services 2. Identify suppliers 3. Form a cross-functional team 4. Identify issues/gaps 5. Engage supplier management 6. Define agreement and action plan 7. Monitor progress

What is the purpose of Supplier Recognition Programs?

To recognize suppliers who meet high-performance standards and contribute to the business's success.

What are the three attributes of effective Supplier Recognition Programs?

1. Celebrate achievements of top suppliers 2. Award winners exemplify partnerships and excellence 3. Award-winning suppliers serve as role models.

What are the benefits of Supplier Recognition Programs?

1. Motivate suppliers 2. Improve supplier loyalty 3. Encourage cultural alignment 4. Create entry barriers for competitors 5. Foster supplier participation in innovation.

How can Supplier Recognition Programs motivate suppliers?

By recognizing their achievements, suppliers are encouraged to excel in quality, pricing, and delivery.

What role does a Supplier Relationship Management System play?

It provides a comprehensive view of supplier performance and helps identify performance issues.

What are the five key characteristics of an effective SRM system?

1. Automation of routine transactions 2. Integration across departments 3. Visibility of information 4. Collaboration through information sharing 5. Optimization of processes.

What trend involves aligning Supplier Relationship Management with Strategic Sourcing?

Companies are tying negotiation strategies to category management and supplier relationship goals.

What is a best practice for strategic supplier relationships?

Establishing SRM teams led by relationship managers from both the company and the supplier.

How does focusing on innovation impact Supplier Relationship Management?

Companies engaging more with suppliers report higher ROI.

What investment is essential for successful Supplier Relationship Management?

Investment in people and soft skills, treating suppliers with respect and candor.