Strategies for Supplier Relationship Management

Supplier Relationship Management (including analysis) is the management an ongoing business relationship to guarantee competitive advantage for an organisation. The focus is on overall relationships between the supplier and the buying organisation rather than a focus on a specific contract. Its aim is to support purchasing and business management to develop an orderly understanding of the nature of current relationships that exist within and between the organisation and the suppliers (OGC, 2009).

Supplier relationship management is a comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services it uses. The goal of supplier relationship management (SRM) is to streamline and make more effective the processes between an enterprise and its suppliers just as customer relationship management (CRM) is intended to streamline and make more effective the processes between an enterprise and its customers (SAP 2008).

Buying organisations have a need to manage not only their contracts but also their suppliers. A number of suppliers will have multiple contractual relationships with individual departments and it is therefore important for them to be proactively managed. The process will be supported by information generated from the performance management arrangements that will be in place for each of the contracts, but this process is much more about the overall relationship rather than on activity on a specific contract (SAP.com 2008).

OBJECTIVES

The objectives for SRM include:

• Reduction in costs
• Service improvement
• Solution development
• Flexibility and mutual benefit

(Adapted from Procurement Leadership 2006)

There will also be the opportunity for improvement in the overall relationship with the supplier – progressing in the direction of increased partnering type arrangements. This will potentially include:

• Established communication channels at all levels, up to and including CEO, between the organisations
• Joint planning and forecasting at a strategic level
• Increased trust
• Enhanced collaborative approaches and perspective
• Improved value for both parties

(Adapted from OGC 2009)

Supplier Relationship Management (SRM) is aimed at streamlining the supply chain by improving the communication between an enterprise and its suppliers. (PROCUREMENT -LEADERS, 2006).

It streamlines the processes between an enterprise and its suppliers in the same way Customer Relationship Management (CRM) makes the processes between an enterprise and its customers more effective.

In actual fact SRM practices enable a common frame of reference to improve communication between enterprise and supplier who may be used to different practices and terminology. Eventually SRM software can lower production costs and result in a higher quality, lower priced end product (SAP 2008).

Modern SRM solutions support the whole procurement process in the company, including procurement strategy, qualification of suitable suppliers, tenders and contract design, and monitoring supplier performance.

2.2 THE IMPORTANCE OF IMPLEMENTING SRM STRATEGY/PLAN

SRM is becoming progressively more important for enterprises because, in the competitive global environment, purchasing-related savings are equally important as sales.

In the past ten years, significant results have been generated through rationalising supply bases, introducing competition and moving to low cost countries. But recently results from these activities are diminishing, which is where SRM comes in (PROCUREMENT LEADERS 2006).

When SRM is effective, companies improve on profitability, growth, market share and reputation.

SRM is especially important when there is a limited supply base for a product and in this case, the peanut company has one supply and it is a major priority of the peanut company to maintain a good relationship with the supply. This is to say that the cooperative society has a full monopoly on the supply of nuts to Peanutty. A good relationship is necessary to avoid sudden increase in price, supply of quality products, and also the supply can decide not to supply to Peanutty. They therefore have a need to manage not only their contracts but also their suppliers.

There will also be the opportunity for improvement in the overall relationship with the supplier – progressing in the direction of increased partnering type arrangements. 

This will potentially include:

Established communication channels at all levels, up to and including CEO, between the organisations

Joint planning and forecasting at a strategic level. Peanutty should encourage their suppliers to focus more on the strategic path to cooperative success and enhanced collaborative approaches and perspective

Increased trust between the supplier and Peanutty, by finding compromise solutions to problems enhance both Peanutty Company and the cooperative supplier work towards achieving the long-term benefits

Improved value for both parties, the demand of the product enhances the ability of both Peanutty and the cooperative supplier to have a clear vision towards its benefits.

3.0 QUESTION 2: What activities could be developed by Peanutty to reduce or manage the power of its customers to minimize risks and maximize profitability?

Peanutty is a manufacturer of ingredients for the food industry and also a service provider of food items for large companies in the sector.

Peanutty should use the strategies of customer relationship management (CRM).

3.1 CUSTOMER RELATIONSHIP MANAGEMENT

Customer Relationship Management, or CRM, is an important part of modern business management. Customer Relationship Management concerns the relationship between the organization and its customers. Customers are the lifeblood of any organization be it a global corporation with thousands of employees and a multi-billion turnover, or a sole trader with a handful of regular customers. Customer Relationship Management is the same in principle for these two examples – it is the scope of CRM which can vary drastically.

Customer Relationship Management focuses on the relationship

Successful organizations use three steps to build customer relationships:

• determine mutually satisfying goals between organization and customers
• establish and maintain customer rapport
• produce positive feelings in the organization and the customers

In the business world, the organization and the customers both have sets of conditions to consider when building the relationship, such as wants and needs of both parties these conditions include;

• organizations need to make a profit to survive and grow
• customers want good service, a quality product and an acceptable price

CRM can have a major impact on an organization through: shifting the focus from product to customer, streamlining the offer to what the customer requires, not want the organization can make and also highlighting competencies required for an effective CRM process

The ultimate purpose of CRM, like any organizational initiative, is to increase profit. In the case of CRM this is achieved mainly by providing a better service to your customers than your competitors. CRM not only improves the service to customers though; a good CRM capability will also reduce costs, wastage, and complaints (although you may see some increase initially, simply because you hear about things that without CRM would have stayed hidden). Effective CRM also reduces staff stress, because attrition – a major cause of stress – reduces as services and relationships improve. CRM enables instant market research as well: opening the lines of communications with your customers gives you direct constant market reaction to your products, services and performance, far better than any market survey. Good CRM also helps you grow your business: customers stay with you longer; customer churn rates reduce; referrals to new customers increase from increasing numbers of satisfied customers; demand reduces on fire-fighting and trouble-shooting staff, and overall the organization’s service flows and teams work more efficiently and more happily.

3.2 Features of good CRM

The old viewpoint in industry was: ‘Here’s what we can make – who wants to buy our product?’

The new viewpoint in industry is:

What exactly do our customers want and need? and

What do we need to do to be able to produce and deliver it to our customers?

This is a significant change of paradigm and a quantum leap in terms of how we look at our business activity.

What do customers want?

Most obviously, and this is the extent of many suppliers’ perceptions, customers want cost-effective products or services that deliver required benefits to them. (Benefits are what the products or services do for the customers.) Note that any single product or service can deliver different benefits to different customers. It’s important to look at things from the customer’s perspective even at this level.

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More significantly however, customers want to have their needs satisfied. Customers’ needs are distinctly different to and far broader than a product or service, and the features and benefits encompassed. Customers’ needs generally extend to issues far beyond the suppliers’ proposition, and will often include the buying-selling process (prior to providing anything), the way that communications are handled, and the nature of the customer-supplier relationship.

Modern CRM theory refers to the idea of ‘integrating the customer’. This new way of looking at the business involves integrating the customer (more precisely the customer’s relevant people and processes) into all aspects of the supplier’s business, and vice versa. This implies a relationship that is deeper and wider than the traditional ‘arms-length’ supplier-customer relationship.

The traditional approach to customer relationships was based on a simple transaction or trade, and little more. Perhaps there would be only a single point of contact between one person on each side. All communication and dealings would be between these two people, even if the customers’ organization contained many staff, departments, and functional requirements (distribution, sales, quality, finance, etc).

The modern approach to customer relationship management is based on satisfying all of the needs – people, systems, processes, etc – across the customer’s organization, such as might be affected and benefited by the particular supply.(business balls 2002).

Designing and implementing a successful CRM programme:

Step 1: Creating the CRM plan

Activities : Understanding the objectives, fit with Peanutty’s strategy, development of software, costing and training

Step 2: Involve CRM users from Outset

Peanutty should establish a project/management team from all affected organizational area.

Step 3: Select the right application and provider

Use of internal IT tools to analyse and compare available products and suppliers

Step 4 :Integrate Existing CRM application

Centralised database containing customer information for all CRM associated user to actively involved in each customer.

Step 5 : Establish Performance measures

Use of performance measurement to evaluate if strategies have been met or not

Step 6 : Providing CRM training for all users

During implementation, Peanutty should provide training to all employees actively associated with CRM about it benefits and objectives.

(MARKETING TEACHER 2000)

4.0 QUESTION 3: evaluate the benefit of performance measurement systems to this company?

4.1 PERFORMANCE MANAGEMENT

Performance refers to output results and their outcomes obtained from processes, products, and services that permit evaluation and comparison relative to goals, standards, past results, and other organisations. Performance can be expressed in non-financial and financial terms.

Measurement refers to numerical information that quantifies input, output, and performance dimensions of processes, products, services, and the overall organisation (outcomes). Performance measures might be simple (derived from one measurement) or composite (BPIR 2007).

Performance measurement system is an assessment system of measurement that represents a formal efficient approach to observe performance

Performance measurement is the process whereby an organization establishes the parameters within which programs, investments, and acquisitions are reaching the desired results. This will be needed most especially in the roasting and peanut preparation line, so that the target of 12 hour per day will be attained.

4.1.1 PM focuses on results, rather than behaviours and activities

A common misconception among supervisors is that behaviours and activities are the same as results. As a result, an employee may appear extremely busy, but not be contributing anything toward the goals of the organization. An example is the employee who manually counts the number of peas processed. The supervisor may conclude the employee is very committed to the organization and works very hard, thus, deserving a very high performance rating, where by his output is poor.

4.1.2 Aligns organizational activities and processes to the goals of the organization

PM identifies organizational goals, results needed to achieve those goals, measures of effectiveness or efficiency (outcomes) toward the goals, and means (drivers) to achieve the goals. This chain of measurements is examined to ensure alignment with overall results of the organization. This is due to the fact that the employees complain about not knowing the direction and goals of peanut company.

4.1.3 Produces meaningful measurements

These measurements have a wide variety of useful applications. They are useful in benchmarking, or setting standards for comparison with best practices in other organizations. They provide consistent basis for comparison during internal change efforts. They indicate results during improvement efforts, such as employee training, management development, quality programs, etc. They help ensure equitable and fair treatment to employees based on performance.mr Carmelo doesn’t treat the employees like they are part of the organisation, probably because he is not aware of the effort these workers put into the company. therefore wit performance, he will be able to quantify the level of dedication and then will he will recognise their capability and potential, and thus give them Moore responsibility.

Performance measurement will clarify expectations of roles and responsibilities of all the work stations in the peanut factory. It will also make it possible for the director, supervisor and the employees to discuss work related issues and develop solutions

The will also be able to formally review performance and achievement of agreed goals and objectives

Provide two-way face to face feedback and also link individual performance to broader strategic plans and key objectives.

(Adapted from Supplychainer 2005)

Overall, this will help Peanutty to set their long term strategy & goals, work on their objectives, meet their target and measure the performance.

5.0 QUESTION 4.

The supply chain process i would suggest is the lean manufacturing process.

5.1 Lean Manufacturing is an operational strategy oriented toward achieving the shortest possible cycle time by eliminating waste. It is derived from the Toyota Production System and its key thrust is to increase the value-added work by eliminating waste and reducing incidental work. The technique often decreases the time between a customer order and shipment, and it is designed to radically improve profitability, customer satisfaction, throughput time, and employee morale (ROCKFORD 1999).

The characteristics of lean processes are:

Single-piece production

Repetitive order characteristics

Just-In-Time materials/pull scheduling

Short cycle times

Quick changeover

Continuous flow work cells

Collocated machines, equipment, tools and people

Compressed space

Multi-skilled employees

Flexible workforce

Empowered employees

High first-pass yields with major reductions in defects

The term Lean is very apt because in Lean Manufacturing the emphasis is to cut out the “fat” or waste in the manufacturing process. Waste is defined as anything that does not add value to the customer. It could also be defined as anything the customer is unwilling to pay for.

For example, if you order a shirt to be custom made, it may take 6 weeks. However the actual time the tailors or seamstresses are working on the shirt is only 5 hours. The rest of the time is taken up by such things as material ordering, waiting between processes and inefficient shipping practices. This extra time does not add value to you, the customer. As Lean Manufacturing principals are applied to the shirt-making process, one would see a reduction in delivery time from 6 to 5 to 4 weeks and even less. The ideal shirt-making operation would be streamlined to give you, the customer, what you want, when you want it at the lowest possible cost within the least amount of time (CONTINENTAL DESIGN & ENGINEERING 2008).

5.2 Lean identifies seven types of waste:

Over-Production – Obviously a product that cannot be sold or has to be dumped at a reduced price is wasteful. Also producing product before the customer needs it requires the part to be stored and ties up money in inventory.

Inventory – Excess Inventory ties up a great deal of cash, which is wasteful. Stockpiling inventory between processes is wasteful.

Conveyance – Unnecessarily moving a part during the production process is wasteful. It can also cause damage to the part, which creates wasteful rework.

Correction – Having to re-work parts because of manufacturing errors is a large source of waste. Additionally, sorting and inspecting parts is wasteful and can be eliminated by error proofing (designing your processes so that the product can only be produced one way, which is the correct way, every time).

Motion – Unnecessary or awkward operator motions put undue stress on the body and cause waste. Improvement in this area should result in reduced injury and workman’s compensation claims.

Processing – Unclear customer requirements cause the manufacturer to add unnecessary processes, which add cost to the product.

Waiting – The operator being idle between operations is wasteful. It is acceptable for the machine to wait on the operator, but it is unacceptable for the operator to wait on the machine.

The 5S is a core method of lean manufacturing.

Sort: The first stage of 5S is to organize the work area, leaving only the tools and materials necessary to perform daily activities. When “sorting” is well implemented, communication between workers is improved and product quality and productivity are increased. Sort is the act of throwing away the unwanted, unnecessary, and unrelated materials in the workplace.

Straighten (Set in order): The second stage of 5S involves the orderly arrangement of needed items so they are easy to use and accessible for “anyone” to find. Orderliness eliminates waste in production and clerical activities.

Shine: this means keeping everything clean and swept. This maintains a safer work area and problem areas are quickly identified. An important part of “shining” is “Mess Prevention.” In other words, don’t allow litter, scrap, shavings, cuttings, etc., to land on the floor in the first place.

Standardize: The fourth stage of 5S involves creating a consistent approach for carrying out tasks and procedures. Orderliness is the core of “standardization” and is maintained by Visual Controls.

Sustain: This last stage of 5S is the discipline and commitment of all other stages. Without “sustaining”, your workplace can easily revert back to being dirty and chaotic. That is why it is so crucial for your team to be empowered to improve and maintain their workplace. When employees take pride in their work and workplace it can lead to greater job satisfaction and higher productivity.

6.0 SUGGESTION FOR PERFORMANCE MEASUREMENT

6.1 BENCHMARKING

6.1.1 Benchmarking is a continuous measure of products, services and practices against firm’s best competitors. It is the process of evaluating and understanding the current position of a business in relation to the best practice to identify areas that need improvement and the means of improving performance.

Benchmarking involves looking outward (outside a particular business, organisation, industry, region or country) to examine how others achieve their performance levels and to understand the processes they use. In this way benchmarking helps explain the processes behind excellent performance. When the lessons learnt from a benchmarking exercise are applied appropriately, they facilitate improved performance in critical functions within an organisation or in key areas of the business environment (Tutor2u).

Application of benchmarking involves four key steps:

• Understand in detail existing business processes
• Analyse the business processes of others
• Compare own business performance with that of others analysed
• Implement the steps necessary to close the performance gap

The goal of benchmarking is to identify the weaknesses within an organization and improve upon them, with the idea of becoming the “best of the best.” The benchmarking process helps managers to find gaps in performance and turn them into opportunities for improvement. Benchmarking enables companies to identify the most successful strategies used by other companies of comparable size, type, or regional location, and then adopt relevant measures to make their own programs more efficient. Most companies apply benchmarking as part of a broad strategic process. For example, companies use benchmarking in order to find breakthrough ideas for improving processes, to support quality improvement programs, to motivate staffs to improve performance, and to satisfy management’s need for competitive assessments.

I choose Benchmarking because it targets roles, processes, and critical success factors. Roles are what define the job or function that a person fulfils. Processes are what consume a company’s resources. Critical success factors are issues that company must address for success over the long-term in order to gain a competitive advantage. Benchmarking focuses on these things in order to point out inefficiencies and potential areas for improvement (Reference for Business 2010).

By using all types of benchmarking (Internal, external, functional & Generic) Peanutty will be able to identify internal or external standard recognized leaders and compare the current process that was implemented for its process.

Benchmarking performance measurement system will allow Peanutty to have clear vision towards its current process (internally) and its competitors (competitors) in order to have continuous improvement to achieve its goals on cost reduction and high quality products.