2.Explain the differences between transactional-based and relational-based relationships.

 

Not all supply chain relationships need to be, or should be, treated the same. Most companies today have hundreds or even thousands of suppliers. Some provide tangible goods, such as component parts or raw materials, while others provide services, such as transportation and logistics. All these relationships are not all of equal importance. Relationship management requires time and effort, and should not be wasted on relationships that are transactional in nature. As we will see, supply chain relationships should be carefully segmented based on how much management is needed.

There are two dimensions that help differentiate supply chain relationships. The first is scope, or degree of responsibility, assigned to the supplier. A greater scope means a greater dependence on the supplier. The second dimension is criticality of sourced item or task. Criticality is the extent to which the sourced item or task impacts the ability of the organization to perform its core competencies. The greater the criticality of the sourced item the greater the consequences of poor performance to the company and the greater the requirement for relationship management. Let's look at these dimensions in a bit more detail.

Scope. At one extreme the relationship can be narrow in scope where a supplier provides a limited amount of items or provides one task from many possible tasks that make up an entire function. For example, this may be a supplier that is responsible for the replenishment of only maintenance, repair and operating items (MRO) inventories (maintenance, repair, and operating items, discussed in Chapter 9). At another extreme the scope can be broad, where the bulk of items or services are provided by one supplier. An example would be complete manufacturing, as provided by Foxcon for Apple and Sony. Another example would be the comprehensive outsourcing of all aspects of the logistics function to a third-party logistics (3PL) provider, such as provided by UPS.

When the responsibility is relatively small, confined, and specific—such as handling a buyer's returned inventories, arranging for item disposal or restocking, or providing a commodity item such as sugar in the bakery—the risks of such a relationship are small. Such confined relationships are good for standardized products or repeatable tasks that are easily defined, and have a limited choice of options.

As the scope of the relationship become more comprehensive, however, the degree of customization provided by the supplier progressively increases, as does the risk to the buyer. For example, this might be using a supplier to manage all inventories, including order management, or the complete management of a company's transportation system. The supplier may now be responsible for all aspects of the function, including equipment, facilities, staffing, software, implementation, management, and ongoing improvement. This is the level of outsourcing often seen with the services provided by third-party logistics (3PL) providers.

A large scope of tasks provided by a supply chain partner can bring large benefits as it allows the company to focus on their core competencies. The risks, however, can also be great as both operational and strategic responsibility is now in the hands of an outside party, requiring close relationship management.

Criticality. The second differentiating dimension of supply chain relationships is the criticality of the tasks provided by a supplier. At one extreme a supplier can provide commodity items, such as sugar in the bakery example, or a more tactical task, such as records management. At the other extreme, a supplier may provide—and be the only source of—a critical component. Similarly, a firm may just outsource transportation, or it may outsource all aspects of the logistics function, such as the design, implementation, and ongoing management.

The higher the criticality of the outsourced task the greater the business risk to the buyer. As a result, this directly impacts the degree of relationship management required and the nature of the buyer-supplier relationship. When tasks with low criticality are outsourced the relationship between buyer and supplier is primarily contractual. Relationship management is primarily focused on the transactional nature of the outsourced function. As criticality increases, the relationship moves from being contractual to becoming more relational. When there is low criticality, the supplier has responsibility over non-strategic items or tasks. The relationship is contractual and the buying firm continues to have operational and managerial responsibility over all internal functions and process. As the suppliers role becomes more comprehensive, however, the supplier increasingly becomes responsible for managerial and possibly the strategic aspects of the function.

 

 

 3. How could companies improve their supply chain relationships? (use 2 case studies to support answer)

 

 

What do you see as the most important ingredients for success in SRM? And what should you avoid doing?

We believe that doing business, using a long-term, non-opportunistic philosophy, is an activity that takes place between human beings at the end of the day. Top-to-top regular, transparent connections are key. Even bad news or difficult decisions can be accepted most of the time, if enough time is taken to explain honestly the background and impacts. What must be avoided is the feeling that one partner is trying to maximise the benefit of the relationship to the detriment of the others. Such an opportunistic approach would break the mutual trust for an indefinite time. In the same way that we see some of our partners as strategic, we want to be seen as a strategic customer. And to reach this we must be perceived as loyal and reliable.

 

 

 4. Give examples of good and bad practice in supply relationships development (use 2 case studies to support answer and access other case studies or examples).

 

Between the two companies, a direct delivery model has also been introduced where goods from four different countries are combined and shipped directly to a British Steel warehouse. This has cut out 1,500 pallet movements a year, reduced wastage and stock, and improved lead time. 

HEN is investing in a technology fund with the company to cooperate on new developments. And each year senior people from both organisations meet to review and agree priorities. HEN presents its new technology, while British Steel explains operational forecasts and challenges, leading to joint improvement projects.

With all the changes, British Steel is making significant savings and is at the forefront of introducing the latest technology into its plant.