1 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.

com)
 Creating and Managing Supplier Relationships
 Companies nowadays focus on their core competencies so the level of outsourcing
will continue to rise.
 Good supplier relations can provide benefits like flexibility in terms of delivery,
better quality, better information, and better material flows.
 According to a poll by purchasing magazine, ”supply, sourcing, and purchasing
professionals in companies nationwide believe strongly that more and stronger
supplier partnerships are critical to achieving competitive corporate performance.”
 “A supplier partnership involves a mutual commitment over an extended time to work together
to the mutual benefit of both parties, sharing relevant information and the risks and rewards
of the relationship. These relationships require a clear understanding of expectations, open
communication and information exchange , mutual trust, and a common direction for the
future.” (Institute of Supply Management)
2 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)
 Developing Successful Partnerships
 Strategic Alliance or partnership failure rates have been reported to be as high as 60%.
 Top 8 reasons for failures:
1. Overly Optimistic
2. Characterized by poor communications
3. Lack of shared benefits
4. Slow payback results
5. Lack of financial commitment
6. Misunderstood operating principles
7. Cultural mismatches
8. A lack of alliance experience

3 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)

 Supplier Evaluation & Certification
 Best suppliers are targeted as partners.
 A supplier evaluation and certification process must be in place so that organizations
can identify their best and most reliable suppliers.
 The goal of evaluating supplier is to determine if the supplier is performing according
to the buyer’s requirements.
 Supplier Certification is an extension of supplier evaluation. It is defined as “an
organization’s process for evaluating the quality systems of key suppliers in an effort to
eliminate incoming inspections.
 Implementing an effective supplier certification is critical to reducing the supplier
base, building long term relationships, reducing time spent on incoming inspections,
improving delivery and responsiveness, recognizing excellence, developing a
commitment to continuous improvement and improving overall performance.

4 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)

 The Weighted Criteria Evaluation System
 One approach of evaluating and certifying suppliers.
1. Select the key dimensions of performance mutually acceptable.
2. Monitor and collect performance data.
3. Assign weights to each of the dimensions. The weights for all dimensions must sum to 1.
4. Evaluate each of the performance measures on a rating between zero and 100.
5. Multiply the dimension rating by the importance weight and sum to get an overall score.
6. Classify vendors based on their overall score.
7. Audit and perform ongoing certification review.

5 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)

 The Weighted Criteria Evaluation System

6 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)

 The Weighted Criteria Evaluation System

 Vendor Classification:
 Unacceptable (less than 50)
 Conditional (between 50 & 70)
 Certified (between 70 & 90)
 Preferred (greater than 90)

7 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)

 Supplier Development
 It is defined as any activity that a buyer undertakes to improve a supplier’s performance
and/or capabilities to meet the buyer’s short and/or long-term supply needs.
 Many companies do not practice supplier development.
 One way out is to work with suppliers to lower the total cost of materials purchased.
 7-step approach for supplier development:
1. Identify critical products and services
2. Identify critical suppliers
3. Form a cross-functional team
4. Meet with top management of supplier
5. Identify Key projects
6. Define details of agreement
7. Monitor Status and modify strategies
8 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)
 Supplier Awards

 Companies should recognize and celebrate the achievements of their best

suppliers.
 Award winning suppliers serve as a role model.
 Ford assess their Suppliers on the basis of three performance metrics:
 Quality
 Cost
 Delivery

 Other Metrics can also be used as discussed in previous slide.

9 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)

 Outsourcing Programs
 Firms are buying more and making less these days.
 Firms are outsourcing non-core products and service functions.
 Outsourcing can also result in reduced staffing levels, accelerated reengineering efforts,
reduced management problems and gains in manufacturing flexibility.
 Risks associated with outsourcing are
 Loss of control
 Increased need for supplier management
 Increased reliance on supplier
 Firms that actively manage their supply chain often outsource key products and services to
suppliers who are already or are on the verge of becoming strategic partners.

10 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)

 Early Supplier Involvement
 We have studied earlier that good suppliers not only provide goods and services but
also technical expertise, market intelligence, latest trends, capacity, etc.
 In order to get such inputs from suppliers, early involvement is necessary.
 Value Engineering is the process of modifying product or service to increase its
value. Value is the ratio of function to cost. Value can therefore be increased by
increasing functionality or reducing costs. Suppliers can greatly help in the process of
Value Engineering
 Early supplier involvement is one of the most effective supply chain integrative
technique.
 Suppliers involved in designing are more loyal and interested in the execution phase of
product development.
 Value Engineering can also be applied on Processes. Example of Procurement Process.
11 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)
 Use of e-procurement systems
 The primary strategic benefits of e-procurement include significant cost savings
and the freeing up of time for purchasing staff to concentrate on more of the core
business activities.
 One form of E-Procurement is E-Catalogue, which are made available to
Organizations users who chose and buy on repeated basis. The Organizations
Computer system automatically routes transactions for approval, accounting and
issuance of PO directly to Suppliers.
 Another form of e-procurement is the use of internet to conduct reverse
auctions. It utilizes the internet to allow suppliers to enter a reverse auction
website supported by one of many application service providers.

12 Supply Chain Management by Sheikh Irfan (smikhi@yahoo.com)