Ways Of Supplier Relationship Management Commerce Essay

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The report is mainly to discuss the importance and impact of the supplier customer relationship management for a company. In the first part, the report will expound the importance of supplier relationship management. There can a good understanding of theoretical rationality. Next, the report briefly analyzes the ways of alliance between companies. Thirdly it will analyze the significance from the point of view of efficiency and economies of scale, creating new market value, and customer demand. In the last part, it will point out how to make a favorable supplier relationship management for a company. It offers some ways to pay attention.


Supplier Relationship Management (SRM), like Customer Relationship Management (CRM) which is used to improve relationships with customers, is used to improve the relationships with upstream supplier in the supply chain. It is aimed at improving the relationship with providers and is implemented centering on the areas of corporate purchasing business-related by means of integration of all sides of resources and competition advantages. The companies with SRM can expand the market, expand the market demand and shares, reduce the up-front cost, and realize the Win-win. Supplier relationship management is both a systematic engineering and management software and technology. As a systematic engineering, supplier relationship management is oriented by 'expanding cooperation partnership, jointly developing and expanding the market share, win-win'. And as a kind of management software and technology, it integrates the advanced e-commerce, data mining, collaborative technology, and information technology tightly and provides the optimized solution for the strategic design for products, strategic acquisition for resources, effective negotiation for contract, and the unified management of product contents in a company.

In the 21st century, with the trend that the resources are allocated around the world, the business alliance between enterprises has been improved a lot and the supply chain business are tightly connected, too. So the relationship with providers also has become more and more important for companies. (B Joseph Pine. 1993, p14) When companies are convinced of that each other's contribution can be integrated into a new capacity and produce comprehensive benefits which also can rebuild customer loyalty, it implies the time and generation of comprehensive benefits, making the customer loyalty can be of cooperation and innovation. It is an important issue for a company to create value with suppliers.

The Importance of Supplier Relationship Management

In the upstream supply chain, the enterprise has put much attention on the throttling. Companies have been committed to improving the internal productivity, such as increasing productivity, reducing labor costs. (Cooper & Slagmulder. 1998, p 15) But this kind of throttling is not ideal, and does not truly begin to save cost from the source. Shawn Tully of Fortune points out: the current payments of enterprises usually do not exceed 3% of the average manufacturing costs, and labor costs do not exceed 6%. In contrast, there are some 55-80% of the revenue are spent on procurement, which shows the majority of the total cost of products has been locked prior to production. Therefore, some leading companies in the industry began turning to some of these 55-80%, which involve inevitably the supplier relationship management.

3.1 Theoretical Support

(1) The integrated supply chain. In order to achieve supply chain management, the company should take the enterprise's internal links and panel points between companies as a whole to form an integrated supply chain relations system. It means that the company should not only pay attention itself, but also other companies, especially suppliers. Supply chain development is an ongoing process of integration, and the integration process has four stages: initial stage, the integration of functions phase, the internal integration stage, the external integration stage. Once completing the four stages, the company can exchange dynamic information with cooperative companies and face the problems together.

(2) The agility supply chain. In the late 20th century, the U.S. put forward the concept of agile manufacturing, emphasizing the open Internet-based information sharing and integration. Agile manufacturing means expand the enterprise resources from Individual enterprise to the whole society and companies will forming a combination for the common market benefit. and supply chain management concepts are the areas of corporate resources from individual enterprises to expand to the whole society, between the enterprise market for the common benefit of a strategic alliance strategy through the implementation of agile manufacturing, supply chain management has also been more and more importance as the most influential contemporary international mode of operation of a business. (Ellram, L & Siferd, S. 1998, p60)

3.2 Efficiency and Economies of Scale

The companies can cut costs and improve efficiency through the partnership with suppliers and the use of technology, which is especially prevalent in the retail sector. For example, J.C. Penney Company integrates the stock control and product complement system with other suppliers. And everyone in the link can save the overlapping cost by using their own capabilities and resources. No matter the purpose is to make the whole supply process more simplified by science and technology, or to achieve the economies of scale in research and development, the only reason of cooperation with suppliers is the need of pursuing greater efficiency and better production.

3.3 New Market Value

In some industries, the supply chain partnerships between enterprises has come into a newer level-to create more market value by uniting all of the powers and to create bran-new contribution for integrating market. In other words, companies will combine each other's core capacity to research and development new products or introduce new scheme. In the highest level, this kind of combinative core capacity can even change the direction of the industrial development. From the point of view of daily operations, the new market value produced by co-creation can bring the strong and powerful competition advantage for participant companies. Take Power PC for example, this kind of product is developed and launched by the cooperation between IBM, Motorola and Apple. It is a high-performance 32-bit and 64-bit RISC microprocessor series to contend against Intel microprocessors, who has monopolized the microprocessor market for years. And the market effect turns out good.

3.4 Customer Demand

The strong motive power of changing and innovate the industry strategic is to meet the clients' demands and expectations. More and more clients require companies working together, especially in the high-technology industry. This is because that what customers looking for are not only the companies providing products and services, but also the sufficient cooperation with other companies in the whole supplier project, which can have the ability bring complete solutions, the best products and services.

Besides, customers also strongly fast response to the demand. And it means just-in-time purchasing. The partnerships between supplier and manufacturers are very important for the implementation of just-in-time purchasing. Only to establish a good relationship between supply and demand, the strategy of just-in-time purchasing can be put into effect thoroughly. From the standpoint of suppliers, if without effective cooperation with manufacturers, the stock and delivered quantity will be large and so just-in-time purchasing cannot be implemented well. Besides, the quality and demand will also be out of control. (Ellram, L.M. & Siferd, S.P. 1993, p170) On other hand, with effective cooperation, the thought of just-in-time purchasing can be transmitted from manufacturers to suppliers. And the suppliers can make quick response to the change of market demand under the circumstances of open dynamic information. From the standpoint of manufacturers, due to the cooperation, they can implement the just-in-time purchasing. Accordingly the course of manufacture and product quality can be under effective control, which improves agility and flexibility of manufacture.

In a word, by working closely with suppliers to establish long term business relationship, the combining resources and competitive advantages can help companies decide what kind of quantity, what kind of means, what kind of price, to whom the procurement, how to delivery, when and where is the best decision-making, which parts can be reused in new designs. It played a significant role in deciding the materials, components and resources of suppliers and also optimizing and supply chain of the enterprise, which is the real throttling.

4 Types of Supply Chain Alliances

Generally speaking, there are two structural types of supply chain alliances. And each of them has the merits and demerits. Therefore the decision will depend on the character of the industry and the company and any company should make a clear understanding of its own way to ensure the efficiency and good result.

4.1 Vertical Alliance

This alliance is based on the integrated supply chain management, from raw materials to production, from sales, service to one-stop partnership. This union can not only meet the requirements of end customers, but also maximize the total profits of the alliance.

However this alliance is not stable, mainly in the supply chain. It cannot ensure each link achieve maximum benefits at the same time, which will blow enthusiasm to lead to withdraw from the union. Vertical alliance usually means the position of companies in the business activities is asymmetrical: one is stronger and the other is weaker. Vertical alliance generally comes out in the form of long-term supply agreements, license transfer, marketing agreements. The most typical of this alliance is manufacturer and intermediate commodity suppliers, such as the Toyota and its parts suppliers and the alliance Procter & Gamble with Wal-Mart.

4.2 Horizontal Alliance

The companies in the same level come into a union. Such alliances can achieve economies of scale and Intensive operation, which can reduce costs, and Social repeated labor. The union including R & D alliance, the alliance of production phase, the alliance of sales phase. R & D cooperation can reduce the cost and improve efficiency through the sharing of financial resources, with more access to new financial resources and spread risk, increase economies of scale. The typical example is that the Japanese aircraft manufacturing group make co-operation with the Boeing Company.

But it is also insufficient, as it must have a large number of commercial enterprises to join in, and a large number of products need exist. In addition, the distribution of these goods and the standardized methods are not an easy problem.

5 Supplier Relationship Management Process

Win-win relationship between supply chains has become a model of cooperation. Therefore, the management of suppliers should focus on how to establish and maintain the win-win relationship with suppliers.

5.1 Information Exchange and Sharing Mechanism

Exchange of information has been helpful to reduce speculation, and promote the free flow of important production information. Here are some ways available:

(1)There should be frequent information exchange and communication between suppliers and manufacturers to make sure the consistency and veracity of information. And the information should concern the cost, task plans, quality control.

(2) Implementation of concurrent engineering. Manufacturers should encourage suppliers participate in the product design stage so that suppliers can offer very important relevant information about the performance and functionality of raw materials and parts. It can transform demand of value from users into the requirement of performance and functionality raw materials and parts. The manufacturers can consequently produce the satisfying and customized products and services.

(3) Establishing a joint task teams to resolve questions of common interest. Suppliers and manufacturers should establish a team-based working group by using the both sides' technology and information advantages. If there are some problems coming down to the manufacturing or supplying, both sides can work together to solve them and offer more practical solutions. However, the specific division of labor and information communication mechanism should help to avoid the phenomenon of shifting one's responsibility to others or having no one take real responsibility.

5.2 Resident Delegate Institution

In order to obtain the timely information of quality of products from suppliers, purchaser should send resident delegates whose main duty is to gain direct control over product quality situation, put forward the specific requirement of quality and understand the situation of quality management. There are some ways: the setting of quality management organization, the formation quality system documents, the establishment of quality management system supplier and so on. The key link is the supervising and checking on the examination and trial of finished products. As for the long-term stable business ties, the company should establish a fixed relationship between the buying and selling, choose the suppliers with excellent technique power and strict quality control. The company also should send the quality supervision departments who not only make overall and global monitoring over quality, but also supervise the performance of business contract to make sure the timely production and consignment. Besides, the quality supervision departments also can reflect the problem during the productive process and new requirement of production to encourage suppliers to improve the quality.

5.3 Regular or Irregular Supervision and Inspection

Because of the changes from the external environment, the supplier's production status will also change accordingly. Purchaser should promptly grasp the changing situation, and ask for the timely report from the suppliers if there are some major changes occurring. If there are the changes such as the significant changes of product design or structure, the changes on the manufacturing process and manufacturing engineering, the changes of inspection and test equipment and procedures, the supplier should take the initiative to report to explain the situation to the purchaser. After receiving the report, the purchaser should carefully analyze the situation. In most cases, the changes of product design, suppliers, adopting new materials, new equipment, and new technology are to improve product quality and production efficiency to ensure the quality of goods is beneficial. But it must be noted that any change needs a process of adaptation, and the initial phase of the change is likely to cause instability in the quality of goods. So there is need to strengthen inspection and testing. (Norek, C. & T.L. Pohlen 2001, p41)

5.4 The Common Interest

The union should bring real benefits to members, especially to the suppliers. The union should take every measure to take the interests of each member into account. And the company should handle the friction between members to enhance customer service capabilities, reduce costs and achieve lasting competitive advantage. Then, enterprise objective should be consistent with the logistics strategy. Alliance is an independent entity, and it is an integrated organization. So the members need to adopt common goals and put effort to optimize the external behavior.

6 Conclusion

The report is mainly to analyze the supplier relationship management. It firstly discusses the importance and the significant influence on a company from several aspects and theories. And then it offers some ways and methods with operability to a company to make sure that the company can establish a favorable relationship with suppliers. In a word,the relationship suppliers is a key link for the production and marketing, especially in the new times which lay stress on the user experience and cost savings. However, because of the competition mode for a long time, the change between both sides needs more time and efforts and both sides should pay enough attention on this issue.