The Strategic Role of Supplier Management in Organizations

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Supplier management is a stream of the Supply Management: the latter’s definition is quite broad and according to the ISM refers to “the various acts of identifying, acquiring and managing the products and/or resources needed to run a business or other organization”. Organizations manage their suppliers through Supplier Relationship Management “an all-inclusive approach to managing the affairs and interactions with the organizations who supply goods and services” (Fan et al, 2013) in order to obtain competitive advantage through sustainable supply (Johnson & Flynn, 2015).

Due to the globalization phenomenon and the technology advancements the market has extended and nowadays firms aim at collaborative relationships with suppliers, often in the form of alliance and/or partnership, to enhance their operational efficiency in the supply chain and eliminate supply risks (Ibid). Through the Supplier Management process organizations structure their suppliers network and define the nature of the relationship and how it will be maintained (SRM). Underlying activities of the supplier relationship management are the supplier segmentation, supplier evaluation, supplier classification and supplier performance management (Gebert, 2014).

Effective Supplier Relationship Management (SRM) can contribute to successful corporate performance, which is key competitive advantage (Tseng, 2014). The strategic role of supplier management is also implied in Kraljic’s model, where the capabilities and importance of suppliers are assessed based on a set of criteria. Based on the results of this assessment the organization can decide on its strategic positioning, according to the identified areas of opportunities and weaknesses (Kraljic, 1983).

Where the power of supplier for critical items is high in the exchange relationship, supplier management can either develop good long-term supply relationship, either seek for alternative suppliers that meet the selection criteria, or change the operations process to eliminate the need of that particular supply item (Kraljic, 1983;Johnson & Flynn, 2015).

Communication is key to the supplier-buyer relationship: mutual understanding of business goals and operational needs of the parties will allow them to enter a mutually beneficial exchange relationship (Cox, 2004). By communicating with the suppliers the business requirements and establishing good trust-relationships (win-win), organizations can eliminate associated supply risks related to quality, forecasting, time delivery and uncompetitive prices that will impact negatively the operations processes and the business profitability (Johnson & Flynn, 2015).

Supplier Relationship Management can also benefit organizations through the establishment of exchange relationship with firms whose product quality, technology used, reputation and ethics can be used as competitive leverage, differentiating from the competition (Maziliauskaite, 2014).

The supplier management is critical for the survival and growth of an organization, as poor supplier’s performance will result impacting the efficiency and effectiveness of operations, cost, quality, customer satisfaction and ultimately the business profitability. Supplier management is a continuous process and is of strategic importance as it directly contributes to the competitiveness of the organization and ultimately to corporate excellence. Benefits like increased profit margins, inventory cut, reduction of waste and reduced cost per unit are directly related to the strategic objectives and competitive advantage of every profitable organization at operations and corporate levels.

References

Cox, A. (2004) 'Business Relationship Alignment: On The Commensurability Of Value Capture And Mutuality In Buyer And Supplier Exchange'. Supply Chain Management: An International Journal, 9 (5), pp.410–420.

Fan, C. Olorunniwo, F., Jolayemi, J. & Li, X. (2013) A Characterization of Lower-Tier Supplier Visibility Practices in Supplier Relationship Management. Supply Chain Forum, 14(1), pp. 2-14

Gebert, K. (2014) Performance Control in Buyer-Supplier Relationship. Springer Gabler. Wiesbaden.

Johnson, P.F., & Flynn, A. E. (2015) Purchasing and Supply Management. 15th ed. McGraw-Hill Higher Education.

Kraljic, P. (1983) 'Purchasing must become supply management', Harvard Business Review, 61 (5), pp. 109–117.

Maziliauskaite, K. (2014) What can we learn from Apple’s supply chain? [Online] Available from: https://www.allthingssupplychain.com/what-can-we-learn-from-apples-supply-chain/ (Last accessed: 25 August 2017)

Tseng, S.M. (2014) The impact of knowledge management capabilities and supplier relationship management on corporate performance. International Journal of Production Economics, 154, pp. 39–47