supply chain management pma
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Signed: ......Arjald Gordani................................................................
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MODULE TITLE: Supply Chain Management MODULE CODE: UKFM-SCM 10SC01
MODULE DATE: 18th – 22nd October 2010
NAME/NUMBER: ...Arjald Gordani..............................................
GROUP: ...................................1...............................
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THE UNIVERSITY OF WARWICK
SCHOOL OF ENGINEERING
MANUFACTURING GROUP
MSc PROGRAMMES
POST MODULE ASSIGNMENT
SUPPLY CHAIN MANAGEMENT
Write two study reports to further explore the two of the following three SCM areas:
1. Explore the emerging concepts of Lean Supply Management based on
what can be referenced in concurrent literatures; discuss the critical
imperatives of efficiency and effectiveness that the lean approach can
bring about. Propose a general approach with adequate level of details for
an organization to initiate, develop and sustain lean supply management.
2. Elucidate the critical importance of supplier relationship management for
the supply chain competitiveness; by finding and referencing to a number
of professional literatures critically review some relationship management
frameworks, models and approaches; discuss how a business might
decide on the most appropriate relationship portfolio and management
approach.
3. Explore the definition and concept of supply chain performance and
explain how that is related or contributing to business excellence; explore
what constituent components of supply chain performance measures and
further distinguish it from business performance measures; discuss how
those measures may be used constructively to transform the business
strategy and improve operations and customer services.
Requirement:
a. A content page and page numbering b. To complete two separate reports on two chosen topics from the
three above, indicating the question number. c. Properly structure the discussion into sections and give subtitles for
each section. d. Use references (normally 3-5 professional journal articles for each
report) to demonstrate the extended learning
e. Each topic is recommended to be around 2000 words in length. f. No lengthy case study is required, but some short (a few
sentences) real world examples may be adequate.
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COMPLETION DATE:
To be submitted electronically using the appropriate web-form available from http://www2.warwick.ac.uk/fac/sci/wmg/ftmsc/postmodulework/submissions/ and
following the guidelines provided in your handbook BEFORE 09:00 on 06/12/10
PLEASE NOTE
1. PMW received after 09:00 will be stamped as having arrived on the next working day.
2. Post Module Work which does not reach WMG by the due date will be considered to be late. Penalties for lateness may be applied at the rate
of 3 percentage points per University working day after the due date, up to a maximum of 14 days late. After this period the work may be
counted as a non-submission.
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Table of contents
1 Introduction Page 5
2 The lean philosophy Pages 6-7
3 Efficiency and effectiveness of lean supply Pages 7-8
4 Approaches to lean supply Pages 9-12
4.1 Lammings’s lean supply model Pages 9-11
4.2 Stammer’s 5 steps Pages 11-12
5 Conclusion Page 12
6 Bibliography Pages 13-14
7 Appendix 1 Page 15
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Question 1: Explore the emerging concepts of Lean Supply Management
based on what can be referenced in concurrent literatures; discuss the
critical imperatives of efficiency and effectiveness that the lean
approach can bring about. Propose a general approach with adequate
level of details for an organization to initiate, develop and sustain lean
supply management.
1. Introduction
The increase in customer demand variability, together with an increase in
pressures from competitors and decrease in the resource base has led
organisations to seek new strategies to reduce cost and improve responsiveness
to customer demand Keen and Evans (2010). An increasing number of
companies are now implementing the lean management approach to their
internal operations as well as to whole supply chain Keen and Evans (2010).
Cagliano, Caniato and Spina (2004) argue that companies are increasingly
focusing on inter-company processes in order to enhance efficiency and
effectiveness of the whole value stream.
Suppliers are increasingly contributing more value to the final product through
greater input in the product development process or even complete
responsibility for engineering and design Nellore, Chanaron and Soderquist
(2001). It is at this time that lean thinking evolved into the value stream
concept, and it was seen to extend from the initial raw materials supplier to the
end customer while using the production pull system through the whole supply
chain Hines, Mathias and Nick (2004). An important consideration of lean is to
add value in all stages of the process and activities that do not add value are
removed Mangan, Lalwani and Butcher (2008). The relationships between
suppliers and customers along the value stream are critical to achieving
leanness, hence the importance of lean supply Erridge and Murray (1998).
This report will continue by briefly discussing the characteristics and evolution of
lean manufacturing. It will then draw on the effectiveness of lean supply and the
arguments for and against in concurrent literature. It will then conclude by
analysing one of the most widely referenced lean supply models.
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2. The lean philosophy
To further analyse the concept of lean supply management, it is first necessary
to discussing the main characteristic behind lean manufacturing. The lean
concept was first introduced in the book „The Machine That Changed The World‟
Gottorna (2006). Womack found a 2:1 difference in productivity with Japanese
companies that showed 50 percent superiority on defects per car compared to
the American mass producers McIvor (2001). Lean producers employ teams of
very skilled workers at all levels of the organisation and use highly flexible,
automated machines to produce volumes of products in enormous variety
Womack, Jones and Ross (2007). Over time, different models of manufacturing
have evolved through two key output criteria, namely output volume and output
variety Mangan, Lalwani and Butcher (2008) and only recently, the two output
criteria have been realised at the same time. This can be outlined in figure 1
below.
Figure 1.
Sourced from Mangan, Lalwani and Butcher (2008:39)
Lean manufacturing can be traced back to the Toyota production system, where
the emphasis was on total flow through the system, quick machines turnover,
even production, exclusion of „muda‟, low levels of inventory, faster total process
time and total quality management (TQM) Mangan, Lalwani and Butcher (2008).
Lean production uses a wide range of management practices in a multi-
dimensional approach such as, cellular manufacturing, just in time (JIT)
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purchasing, quality systems, work teams, 5S and supplier relationship
management Adamides et al (2007). These approaches are integrated to create
high quality products in line with customer demand with little or no waste Shah
and ward (2003).
3.Efficiency and effectiveness of lean supply
Manrodt (2005:7) defines lean supply as “A set of organisations that
collaboratively work to reduce cost and waste by efficiently and effectively
pulling what is needed to meet the needs of individual customer”
In mass production, errors would be passed on to keep the assembly lines
running. This resulted in a multiplication of errors through each stage down the
line. Where as in the case of lean, working in a team culture producing small
batches made it possible to recognise errors straight away. Problems are solved
by tracing every error to its cause and fixing the issue so that it would not
happen in the future. Lean uses less to create the same but at higher variety
and better quality compared to mass production Hines, Rich and Esain (2004).
As a consequence manufacturers like Toyota have no rework areas compared to
20% of the total plant area in a mass production environment Womack, Jones
and Ross (2007).
In mass production, the parts would normally be designed by the assembler who
would then select a supplier according to the lower price Lamming (1993).
However, sourcing in lean supply is for the long term, this may not necessarily
reduce price but it can lead to cost reduction efforts, so that margins are kept or
improved by reducing cost Keen and Evans (2010). For example, Toyota would
always buy from Nippondusso where it would also hold a minority stake
Womack, Jones and Ross (2007). In this way, the companies would grow
together in what Lamming (1993) referred to as „shared destiny‟.
Lean supply chains are established and managed through proactive and
collaborative relationship between all the suppliers and customers that add value
to the chain. To quote Adamides et al (2007:35) “lean supply involves designing,
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planning and executing across multiple partners to deliver products of the right
design and features, in the right quantity, in the right place, at the right time”.
In addition to lean manufacturing principles outlined above, lean supply uses
rate based planning and execution to even deliveries and production along the
value stream through effective capacity planning Adamides et al (2007). Lean
supply decreases dependency on inventory and firms can benefit from higher
inventory turns and lower inventory day sales Manrodt (2005). It reduces or
removes the bullwhip effect through information enrichment Sucky (2009). For
example, Wall Mart sends point-of-sale date to Procter and Gamble every two
hours Manrodt (2005). However, there is a need for collaborative decision
making between partners in order to create a win-win scenario with a culture of
trust and agreements. The assemblers gain benefits by rationalising the supply
base Lamming (1993). This can be in terms of lower administration costs and
higher negotiation power. Through rationalisation, the assembler can
concentrate to excel in its specialised area or its core abilities. The supplier will
gain benefits through higher responsibility and greater contribution in the value
adding activity.
However, lean supply management is still at an early stage of its application in
practical terms, with many firms only concentrating implementation in the shop
floor by looking just at the first tier suppliers Hines, Mathias and Nick (2004).
Companies have to be aligned with the supplier‟s suppliers and with the
customer‟s customers or even with the competitors in order to make operations
more efficient Jain et al (2008). For example JCI and Lear who are first tier
suppliers for Volve share each other‟s production capacity Choi and Wu (2009).
Lamming (1993) suggests that in order for lean supply to have an important role
in strategy planning and development, it needs to be viewed as a realistic and
practical solution with a focus on constant improvement. Such processes require
rich knowledge exchanges that can be done through face to face interaction.
However, knowledge exchange can be quite difficult when dealing with global
supply chains Shi and Gregory (2005).
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4. Approaches to lean supply
There have been two main models to the implementation of lean and lean supply
which have been widely referenced in the academic literature, namely Lamming
(1993) and Womack and Jones. (1996). However, the model provided by
Lamming (1993) will be discussed due to its greater focus on the supply chain
and not just the firm itself. This model will be considered together with a
framework provided by Stammer (2009). Stammer‟s five steps were chosen
because they are believed to be highly comprehensive and easy to implement. A
table representing the Womack and Jonson‟s model is shown in Appendix 1.
Figure 2: Lean supply model of customer supplier relationship
Sourced from Lamming (1993:194)
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4.1. Lamming‟s lean supply model
4.1.1. Sourcing and nature of competition
Sourcing is for the long term to provide a more stable basis for planning with an
emphasis on developed working relationships. The supplier should develop
strategies and technologies for global cover independently from those requested
by the customer. Lean supply includes collaboration with competition as well as
between customers and suppliers.
4.1.1. Data
According to Lamming (1993), the supplier must relate its own business
operations to the final market using the concept of “heijuka” and not the batch
production smoothing. The supplier must be able to work in confidence with
more than one assembler and not share information with other customers.
4.1.2. Capacity
Lamming argues that it is not necessary to have geographical closeness between
the supplier and the customer in order to implement and achieve JIT through
kanban systems. However, to have your component supplier located close to
your plant does have its advantages. For example, Johnson controls invested £8
million to locate a plant within 10 miles of the Toyota assembly plant. There
should be joint planning on capacity and it might even be necessary to agree to
comparable rates of return on assets employed.
4.1.3. Price changes and Costs
There is a need for open books so that each party can be made aware of the
relevant costs structures of the other party and the implications resulting from
change. Lean supply requires knowledge of the cost of the value-added in each
stage, possibly through a use of value analysis and target costing. Marginal price
increases can be smoothed out by marginally reducing costs though
collaboration.
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4.1.4. Quality
Product quality is measured at defects levels in parts per million using the six
sigma approach. As soon as this is achieved, the relationship continues in the
assumption that the quality level will be constantly improved.
4.1.5. Risk and R&D
Risk is reduced for the assembler when it comes to moving into new technology
because the supplier will help develop the idea and invest in assets outside
contract terms. The supplier will also incur benefits when it comes to planning
accordingly. Collaboration and innovation between customer and supplier by
making inventions practicable through shared research and development. For
example, Mercedes Benz and Bosch shared resources to create the anti-lock
breaking system.
4.1.6. Critique
However, there is a lack of empirical evidence of the implementation of
Lamming‟s lean supply model which questions whether the benefits can actually
be achieved McIvor (2001). In a study carried out by McIvor (2001) in the
electronics industry, it was found that there is no evidence of true cost
transparency. Price changes were dealt by eating away the margins from the
supplier and not by finding ways to reduce cost. However, there can arguably be
more integration in the future. Hines, Rich and Esain (2004) suggest that lean
approaches such as kanban or level scheduling are difficult to be integrated in a
chaotic and volatile market.
4.2. Stammer‟s 5 Steps
Stammer (2009) argues that there are five ways to implement lean supply:
Step 1: Balance manufacturing efficiency with customer needs by producing
smaller batches.
Step 2: Use supplier portals to extend this efficiency with the supplier and
eliminate administrative and manual work.
Step 3: Running parallel MRP processes through make-to-order systems and
changing the point of postponement over time by constantly analysing demand
and inventory turns.
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Step 4: Improve forecasting accuracy to reduce inventory and increase levels of
service by assigning the forecasting role to an independent party within a
company and not to individual departments.
Step 5: The enterprise application used must support and integrate lean efforts
with a system recording performance and quality in every batch.
5. Conclusion
The report looked at the emerging concept of lean supply by referring to
concurrent academic and non academic literature. It was found that lean supply
is an extension of the lean manufacturing concept with a focus on eliminating
non value adding activities throughout the chain in order to reduce costs and
increase customer service. It was said that the application of lean can result in
efficiency gains by both the assembler and the supplier. However, the
implementation of lean is still in an infant stage with many companies focusing
on the shop floor, even within the automobile industry which is the mother of
lean. Also the understanding of lean supply still remains unclear. Finally, this
report concluded by analysing one of the most widely referenced lean supply
models in academic literature. However, it can be argued that there is no best
practice approach that can be highly effective because it will depend on the
industry the firm is in and whether the firm is a manufacturing or service
organisation.
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Bibliography
Adamides E. D., Karacapilidis N., Pylarinou H., and Koumanakos D. (2007)
„Supporting collaboration in the development and management of lean supply
networks‟, Production Planning and Control, Vol. 19, No. 1, pp. 35-52
Bozarth C. C., Warsing P. D., Flynn B. B., and Flynn J. E. (2009) „The impact of
supply chain complexity on manufacturing performance‟, Journal of operations
management, Vol. 27, No. 1, pp. 78-93
Cagliano R., Caniato F., and Spina G. (2004) „Lean, agile and traditional supply:
how do they impact manufacturing performance?‟, Journal of Purchasing and
Supply Management, Vol. 10, No. 4-5, pp. 161-164
Choi Y. T., and Wu Z. (2009) „Taking the leap from Dyads to triads: Buyer-
supplier relationships in supply networks‟, Journal of Purchasing and Supply
Management, Vol. 15, No. 4, pp. 263-266
Erridge A., and Murray G. (1998) „The application of lean supply in local
government: the Belfast experiments‟, European Journal of Purchasing and
Supply Management, Vol. 4, No. 4, pp. 207-221
Gattorna, J. (2006) Living supply chains: how to mobilise the enterprise around
delivereing what the customer wants, New York: Financial Times/Prentice hall
Hines P., Matthias H., and Nick R. (2004) „Learning to evolve: A review of
contemporary lean thinking‟, International Journal of Operations & Production
Management, Vol. 24, No. 10, pp. 994-1011
Hines P., Rich N., and Esain A. (2004) „Creating a lean supplier network: a
distribution industry case‟, European Journal of Purchasing and Supply
Management, Vol. 4, No. 4, pp. 235-246
Jain V., Benyoucef L., and Deshmukh S. G. (2008) „What‟s the buzz about
moving from „lean‟ to „agile‟ integrated supply chains? A fuzzy intelligent agent-
based approach‟, International Journal of Production Research, Vol. 46, No. 23,
pp. 6649-6677
Keen M., and Evans C. (2010) „Lean in the supply chain: friend or foe?‟,
Management Services, Vol. 54, No. 3, pp. 16-20
Lamming, R. (1993) Beyond partnership: strategies for innovation and lean
supply, London: Prentice-Hall
Mangan, J., Lalwani. C., and Butcher, T. (2008) Global logistics and supply chain
management, Hobeken, New Jersey: John Wiley & Sons
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Manrodt B. K. (2005) Understanding the lean supply chain: beginning the
journey [On-Line]: UK: Available
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Accessed: 12 November 2010
McIvor R. (2001) „Lean supply: the design and cost reduction dimensions‟,
European Journal of Purchasing & Supply Management, Vol. 7, No. 4, pp. 227-
242
Nellore R., Chanaron J., and Soderquist E. K. (2001) „Lean supply and priced
based global sourcing: the interconnection‟, European Journal of Purchasing &
Supply Management, Vol. 7, No. 2, pp. 101-110
Shah R., and Ward T. P. (2003) „Lean manufacturing: context, practice bundles
and performance‟, Journal of Operations Management, Vol. 21, No. 2, pp. 129-
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networks and establishment of new manufacturing infrastructure for faster
innovation and firm growth‟, Production Planning and Control, Vol. 16, No. 6, pp.
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Stummer R. (2009) „Top five ways to lean your supply chain‟, manufacturers
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Womack, P. J., Jones, T. D., and Ross, D. (2007) The machine that changed the
world, London: Simon & Schuste
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Appendix 1: Stages of implementing lean thinking
Sourced from Hines, Mathias and Nick (2004:1004)
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Table of Contents
8 Introduction to supplier relationship Pages 17-18
9 Models, approaches and frameworks Pages 18-23
9.1 Kraljic’s purchasing matrix Pages 18-20
9.2 Bensaou’s contextual factors Pages 20-21
9.3 Partnerships Pages 21-22
9.4 Just-in-time purchasing Pages 22
9.5 Just-in-Time ll Pages 23
10 Relationship portfolio and management approach Pages 23-24
11 Conclusion Page 25
12 Bibliography Pages 27-28
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Question 2: Elucidate the critical importance of supplier relationship management for the supply chain competitiveness; by finding and
referencing to a number of professional literatures critically review some relationship management frameworks, models and approaches;
discuss how a business might decide on the most appropriate relationship portfolio and management approach.
1. Introduction to Supplier Relationship Management
The Industrial Marketing and Purchasing group (IMP) carried out one of the first
studies that looked at the relationship between buyers and sellers in 1982
Lamming (1993). Since this early stage, there has been an increase of interest
from both professionals and academics on the importance and influence of
intercompany relationships to the competitive success of the supply chain Leek,
Turnbull and Naude (2003). Reichheld Sasser (1990) argued that forming
successful relationships with buyers can lead to increased satisfaction and
loyalty, leading to improved supplier performance. Croom, Romaro and
Giannakis (2000) state that organisations should not strive to gain cost
reductions and improve profitability by draining margins from their partners,
instead they should seek to make the whole supply chain more competitive
through collaboration with supply partners.
Supplier relationship is increasingly becoming more important as the global
competition intensifies requiring coordination and fast response in the value
chain Choy, Lee and Lo (2003). Supplier relationship management (SRM) is a
new element in the Supply Chain (SC) prescriptive. Choy, Lee and Lo (2003:88)
“SRM is about maximising the value of the supply base by providing an
integrated set of management tools focused on the interaction of the
manufacturer with its suppliers”. Day (2006) suggested a strategic view of SRM
defining it as a cross-company structured process that improves the value
obtained between customer and supplier. Choi and Wu (2009) called for a move
away from current dyadic and transaction cost models introduced by the IMP
group to the networked view of the SC relationship in a triadic consideration.
This view is also shared by Olsen and Ellram (1997) suggesting that companies
should manage the entire portfolio of supplier relationships.
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By integrating SRM with customer relationship management (CRM) through the
same Enterprise Resource Planning (ERP) system, important benefits can be
gained such as faster cycle times, quicker and flexible response to changing
demand and cost saving through quality improvements. Park et al (2010)
suggest that systematic SRM efforts can reduce risk and uncertainty and
optimize inventory levels. A recent study has shown companies can achieve a 23
percent increase of value when concentrating on supplier relationship, which is
on average $1 billion of cost reductions for each respondent Day (2006).
Another example of such benefits was given by Andrews (2010) stating that
Unilever has achieved higher on-shelf availability and 4 percent in cost reduction
through better SC relationships. However, SRM has often been implemented
without cross functional alignment and poor efforts on building trust and mutual
commitment which are essential to exploit opportunities on value creation
Hughes (2008).
Purchasing strategy in the past twenty years has been incorporated in the term
Supply chain management (SCM) Krause et al (2009). This increase in
importance is highly correlated to the increase of the purchasing and outsourcing
costs as a percentage of total revenue Park et al (2010). According to Lee and
Drake (2010) and Kraljic (1983) many manufacturing firms use 50-70 percent of
their sales revenue on purchasing costs. Metty, Harlan and Samelson (2005)
stated that Motorola has become stronger, leaner and more profitable from
strategically managing purchasing and supplier relationships through their
strategic sourcing platform. Therefore, it can be argued that to ensure a
successful performance for SCM, the purchasing function needs careful
consideration.
2. Models, approaches and frameworks
2.1. Kraljic‟s Purchasing Matrix
Kraljic (1983) introduced a purchasing portfolio model in which purchased items
are classified on the basis of two dimensions, profit impact and supply risk. Each
dimension has two possible values: high or low table 1. Profit impact is defined
in terms of volume purchased, impact on quality, and percentage of purchase
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cost. Factors such as number of suppliers or make-or-buy decision can influence
supply risk Kraljic (1983). The purchased items are than classified into one of
the four quadrants of the portfolio model Lee and Drake (2010). Kraljic (1983)
also introduced a second approach where he identifies the relative power
position of the organisation in the supply market. He examines three purchasing
strategies which depend on the power balance in the relationship, namely,
diversify: if the supplier has dominant power; exploit: if the buyer is dominant
and balance: if the relationship is balanced. Both of these approaches will be
considered in the next paragraphs.
Table 1: Kraljic‟s model
Applied from Kraljic (1982:112)
2.1.1. Strategic
Strategic items are critical to success and require close interaction between the
buyer and the supplier. The purchasing strategy here is to maintain a strategic
partnership, regular information exchange and long term relationships to
increase coordination intensity. There is arguably a balance of power with high
mutual dependency Caniels and Gelderman (2005).
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2.1.2. Leverage
Leverage items are easy to manage but have high strategic importance due to
their large share of cost. They can be obtained from different sources and the
buyer is encouraged to exploit the purchasing power by selecting suppliers who
will be subject to a bidding war. Vendor and value analysis together with price
forecasting should be implemented.
2.1.3. Bottleneck
Bottleneck items are challenging to manage but have low financial impact. They
can cause production problems due to scarcity of supply, or due to power
imbalance, with suppliers dictating high prices. Therefore the buyer can
diversify, have back up plans, control suppliers and keep safety stock.
2.1.4. Non Critical
Non critical items have low strategic importance and should be dealt through
simple market analysis. The purchasing strategy should reduce transaction cost
through product standardisation and optimisation of inventory. Suppliers of non
critical items can be reduced to increase the power of buyers. The relationship is
characterised by mutual dependency and a balance of powers.
2.2. Bensau‟s contextual profiles
The model given by Kraljic can help buyers optimise capabilities for different
suppliers and effectively manage relationships. There have been recent
refinements of Kraljic‟s model such as Olsen and Ellram (1997), Caniels and
Gelderman (2005) or Bensaou (1999). Bensaou developed a model using two
dimensions namely: buyers‟ and suppliers‟ tangible and intangible investments
Figure 1. These authors have filled gaps not covered by Kraljic though a
strategic focus on all quadrants, and the identification of a unique strategy for
each relationship.
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Figure 1: Bensau‟s model
Sourced from Bensaou (1999:36)
2.3. Partnerships
Recently, most car manufacturers have decreased their vertical integration,
reduced their total number of direct suppliers and moved towards publicly
declared strategic partnerships Ploetner and Ehret (2006); Bensaou (1999).
Partnerships can be placed in the strategic quadrant of Kraljic‟s model Caniels
and Gelderman (2007). However, not all relationships can be a strategic
partnership. Day (2006) argues that really strategic suppliers can be five-fifty
depending on the organisation‟s size, scale and sophistication. Anderson and
Narus (1990:96) define partnerships as: “A process where a customer firm and a
supplier firm form strong and extensive social, economical, service, and
technical ties over time, with the intent of lowering total costs and for increasing
value, thereby achieving mutual benefit”. In true partnerships, each side is not
only committed to the other but also change their behaviour in order to meet the
other partner‟s needs Ryu, So and Koo (2009). Partnership can also be in
between competitors for example: JCI and Lear both supply seats to Volvo
however they collaborate and share production capacity with each other Choi
and Wu (2009). Some of the main advantages are shown on Figure 2.
However, Ploetner and Ehret (2006) argue that partnership can result in conflicts
when bargaining and buyers may use the open book system to gain higher
profits by extracting more margins from their suppliers.
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Figure 2: Partnership Advantages
Sourced from Gelinas, Jacob and Drolet(1996:43)
2.4. Just-in-Time purchasing
The purchasing function is highly important to one form of partnership such as
Just in Time (JIT) purchasing Gelinas, Jacob and Drolet (1996). Gilbert, Young
and O‟Neal (1994) argue that the JIT philosophy requires long term partnership
commitment and constant communication. JIT purchasing is characterised by the
frequent delivery of high quality items in small quantities, just when they are
needed through a small supplier base Gunasekaran (1999). There is a wide
agreement on the benefits achieved through JIT Hong and Hayya (1992);
Gunasekaran (1999); Gilbert, Young and O‟neil(1994). These benefits include
reductions in lead time, lower inventory and the elimination of waste through
improved quality of incoming items.
In a JIT environment, the buyer must commit through long term agreements,
offer technical assistance or financial support to the supplier and share
production and operational related information. The suppliers have to improve
their performance through higher quality, higher flexibility and lower prices
Gilbert, Young and O‟Neal (1994). However, there are some drawbacks
associated with JIT: high costs and difficulties in changing suppliers (buyer
prospective) and high costs if the buyer does not fulfil its commitment (supplier
prospective).
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2.5. Just-in-Time ll
The JIT ll concept was introduced by BOSE Corporation as an approach that
minimises purchasing cost as sales increase Green, Inman and Brown (2008). In
a Jit ll environment, a supplier‟s employee sits in the purchasing office of the
customer replacing the buyer and the sales person Dixon (1999). The employee
has full access to customer facilities and data and is empowered to use the
customer purchase orders and place orders on himself/herself. The previous 4
stage communication system is replaced by a 2 stage system figure 3.
Some of the advantages described by Dixon (1999) include: immediate and
ongoing material cost reduction, increase in dollar value of business, reduced
paper work and real time data.
Figure 3: Traditional 4-stage system and 2-stage JIT ll system
Applied from Dixon (1999:16)
3. Relationship portfolio and management approach
The final part of the report will discuss the most appropriate relationship
portfolio and management approaches available to organisations on different
circumstances. The model used in this discussion will be the portfolio analysis
provided by Bensaou (1999). Firms should consider market characteristics,
product characteristics and supplier characteristics when deciding on a
relationship portfolio and management approach.
3.1. Market Exchange
If a firm purchases standardised items that require little engineering from
suppliers, and are not subject to major technological innovation or design
changes, the company should employ a „Market Exchange‟ relationship. This
relationship requires little capital investment and many suppliers can be sourced.
Buyers hold most power and are encouraged to leverage economies of scale
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from large orders. Suppliers should be selected according to price and official
meetings are very rare. Delivery, quality control and inventory are coordinated
through established routines.
3.2. Captive Buyer
When a customer operates in a stable market with little technological change
and purchases complex components that require some form of customisation, a
„Captive Buyer‟ relationship can be implemented. The supply market is very
concentrated with few well established players who hold great power, resulting
from proprietary technology. Shifting to a different supply is costly and difficult
due to investments made by the buyer and therefore some in-house
manufacturing capability is recommended. There is a need for detailed
information sharing on a regular basis between all functions in both firms.
3.3.Strategic Partnership
A firm should consider entering a „Strategic Partnership‟ if it operates in fast
changing environment, and if it requires highly customised components. The
relationship requires mutual contribution and joint investments in R&D, from the
design stage to the final delivery of items through a just in time approach. The
exchange of information is done electronically and face to face through the use
of electronic data interchange, CAD/CAM systems and three dimensional quality
and production control.
3.4.Captive Supplier
When customers require highly complex components that are often developed or
owned by suppliers, the considered relationship is „Captive Suppliers‟. The
supplier has low power and carries out high capital investments to stay in the
market. The buyer should keep three to four suppliers for each component part
and shift each time that there is quality, delivery or other operational problems.
The relationship is based on a low level of information exchange. There is high
mutual trust with a focus on coordinating complex tasks rather than control.
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4.Conclusion
The report discussed briefly the importance and influence of supplier relationship
management on the supply chain competitiveness by giving real case examples.
It was argued that SRM can bring many advantages to the partners in the SC
and increase the SC competitiveness through higher value added and significant
cost reductions. Purchasing strategy was found to be of high importance in the
supply chain management perspective. Two highly cited portfolio models were
analysed to identify specific purchasing strategies that firms can implement
according to their purchase requirements and the supply market characteristics.
The partnership approach was next discussed by referring to Just-in-Time
purchasing and Just-in-Time ll. Advantages and disadvantages of these
approaches were identified. In the last part of the report, Bensau‟s (1999)
portfolio model was implemented. This model served as a guide on the specific
relationship portfolio and the corresponding management approach that a firm
should take depending on three characteristics, namely market, product and
supplier characteristics.
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