The supplier and buyer relationship

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The term “supply chain” is a process that involves integration of many firms from initial raw material to finished product (Fredendal, 2000). These firms have customers who become the supplier for the next level in the chain and the chain continues until the end consumer is reached (Slack and Lewis, 2008). It is the supplier and buyer relationship form a network for long term benefit of the organization (Slack and Lewis, 2008).

The first section of this report focuses on the basic concept of supply chain management, change in supply chain due to intervention of internet and basic design of a supply chain. The second section of this report focuses on the furniture industry and supply chain of a furniture business which uses mail order and other business which sells furniture in store. The final section of the report explores the various business options available in both the business and briefs on the role of technology.


In the early 1960's and 1970's companies were more integrated towards the customers or towards their suppliers. But later in 1990's companies found out that the leading companies are the one's which are more into materials management and who could provide a good customer service. Supply chain management not only involves in integrating every firm in the chain but also in understanding the risk involved in each step of supplies (Fredendal, 2000). There is always risk involved in transport, logistics, storage, finance, insurance, export/ import and government policies (Storer et al, 2003). This section of the report focuses on general concepts, emerging trends in supply chain and also briefs how to design supply chain.


Companies face many difficulties in managing supply chain and the one who gets it right becomes the market leader. There are many ways by which the company tries to improve their supply chain. A company or firm should first decide on whether a component involved in manufacturing decision should be produced in house or purchased from outside. This issue is the “Make or Buy” decision made by the company (Balakrishnan, 2005). Financial status, level of alliances, capacity to produce, technology and communication are the main factors that influences the make or buy decisions (Balakrishnan, 2005). Relating capacity issues with the financial issues gives a clear idea in solving ‘make or buy' issues (Gardiner, 1991). Many companies integrate their activities globally between different geographical markets. Mostly the manufacturing companies which sell their products through retailers are the major drivers of globalization. If a retailer is able to coordinate supply in the market internationally then new markets emerges (Mattsson, 2003). Mitchell (2000) argues that national manufacturers face problem in this methods since their margins are cut down and there is a threat of the new suppliers in their position.

Along with globalization comes the concept of strategic alliance where the companies with same objectives come together with risk in operation and reward shared (Ronchi, 2003). The main feature of this alliance is inventory handling, capacity management, sharing finance and logistics. According to cooper et al (1997) alliance could be performed in two ways:

  1. Sales person from the supplier contacts the purchase department of the buyer.
  2. All the functional unit in supplier organisation such as production, marketing, logistics and finance communicate with corresponding functional unit of buyer.

Apart from all these concepts the main essence of why the supply chain should be managed properly is to meet with the customer demands. Nowadays, supply chain managers forecast their customers requirements well ahead of time say before 4 to 8 months and plan accordingly (Fordyce et al, 2008). Meeting the future demand requirements, realizing the capacity constraints there by minimising the cost of production and distribution by planning ahead in future are the major factors involving aggregate planning (Angerhofer and Angelides, 2000).

All these concepts could be linked where “make or buy decisions” can be based on production planning or aggregate planning while if the future demand is more and the companies capacity to produce is less then the company may either plan to buy components by integrating towards the suppliers or ordering the components from a remote location where these components are available cheap by forming an alliance (Angerhofer and Angelides, 2000), (Balakrishnan, 2005) and (Mattsson, 2003).


Today, companies have found how important is supply chain towards their business success (Jacobs et al, 2009). Some dollar reduction caused by supply chain in the distribution process will bring in the same dollar profit to the company (Jacobs et al, 2009). Recent trend of outsourcing the products to developed countries and enhancing the value of the product by reducing cost in production with the motive of earning profit through supply chain is a main aspect of supply chain management (Anderson, 2009). But, how do companies manage their supply chain by outsourcing? Development in communication and technology in the recent years is the main reason. Manufacturing companies search for the quality raw materials for the products globally, establish contact and contract with them for the supplies (Collin, 2009). Development of internet is one of the key factors for supply chain management (SCM). A research conducted by Lancioni et al (2000) says that almost ninety percent of the companies uses internet in some part of their SCM and major application of internet in SCM being order processing, transportation and viewing electronic catalogs. This emergence of electronic catalogs reduced the ordering time, inventory handling cost and reduced management cost (Ronchi, 2003).

“The search for customer-supplier collaboration exploiting web-based technologies is explained by the need to increase process efficiency and effectiveness” - (Ronchi, 2003)

Ronchi(2003) classifies web-based tools into three types: firstly the transaction tools which are electronic catalogues, electronic exchange and electronic auctions, secondly the type of integration which could be vertical or horizontal, finally, it could be either the supplier, independent entity or the company itself who manages these tools.


Figure .1 shows the basic supply chian networks model starting from raw material to the final finished goods reaching the end consumer. The raw material obtained from the nature is fabricated in the first stage and these fabricated materials are used for manufacturing small components. These components from various part producers are assembled by a manufacturer to form the product as a whole (Hayes and wheelwright, 1984). Traditionally, there is a wholesaler and a retailer in between the end consumer and the manufacturer. Nowadays, with the advancement in internet certain companies reduce cut the distributors cost by selling their products directly to customers or through their retail outlets (Ronchi, 2003). In this chain (figure 1) the component part producers are called as the ‘Tier 1' suppliers and the material fabricators are called as the ‘Tier 2' suppliers as they are in level 1 and 2 to the manufacturing unit (Ronchi, 2003).


This section of report explains the supply chain of furniture industry and provides insight on the supply chain business using flat packs and mail orders. The base of furniture industry starts when the trees are cut from forest, processed at sawmills, furniture is manufactured from the wood and shipped to warehouse or retailer from there to the customer (Iyer & Sommer, 2006). Certain furniture's are made from a single wood where as others needs screws for fixing, paints and varnish for coating and glass sheet or steel metal for cover. Furniture's not only deal with the sofas and chairs it also includes tables and other kitchen items. Supply chain of furniture also includes the metal and other castings as raw materials. Furniture is more or like an one time investment from individuals point of view.









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