Suppliers’ Relationship Portfolio: Critical Success Factors

Previously, the role of the Supplier Relationship Management (SRM) in supply chain competitiveness was discussed here, followed by analyzing some frameworks and models for suppliers’ relationship portfolio here and finally analyzing and synthesizing a set of steps for the selection and management of suppliers’ relationship portfolio here. This post will bring some life for the previous discussions by addressing three case studies for real supplier- relationship management, followed by identifying critical success factors that are needed for a successful suppliers’ portfolio management.

Raytheon

Raytheon is an American company that was founded in 1922 and today it is a leader in manufacturing products related to defense, military and other government- related products under four business segments namely, “integrated defense systems”, “intelligence, information and services”, “missile systems” and “space and airborne systems”  (Raytheon 2014, p.1). Within these huge business segments, the company has more than 10,000 suppliers (Trebilcock 2015).

The company’s vision is to be “Customer of Choice”; therefore, they believe that a partner is not a supplier. In 2013, the company did a survey to understand its strengths and weaknesses in terms of its suppliers’ relationship management. The result showed that the company performed well in areas such as trustworthiness, orientation toward quality, and technical content. On the other hand, the company’s weaknesses were in understanding total network costs, understanding supplier profitability, willingness to share risk with suppliers, the need to provide an interface with senior management, and the need to provide one face to the supplier.

According to that, the company implemented certain actions such as:

  1. Automating all the transactions that are done by procurement department to reduce the time and hence allow the procurement team to perform more strategic activities (Trebilcock 2015).
  2. Creating SAC (Supplier Advisory Group) which is a regular meeting with suppliers to align the top management from the two companies on Raytheon’s supply chain strategies (Trebilcock 2015).
  3. The company launched its first “supplier excellence awards” at a corporate level in 2013 which is a platform to reward the excellent performance at their suppliers (Raytheon 2015).
  4. The company has managed to keep certain commitments with their suppliers such as “open communication”, “early engagement” and “forward looking technology development” (Raytheon 2015).

McDonald’s

McDonald’s is a global fast food restaurants’ chain that serves more than 69 million customers in 100 countries every day (McDonald’s 2014, p.1). The company sources its raw materials from different independent suppliers who are subjected to different kinds of auditing,  training, site visits and quality programs  (McDonald’s 2014, p.1).

The importance of suppliers’ relationship management in McDonald’s goes beyond achieving financial benefits for different reasons, for example:

  1. In such industry, any mistake in terms of food safety would impact the company’s image. In 2014, the company had suffered from several food safety incidents in China and Japan which impacted its image, customers‘ trust and their financial revenues as well (McDonald’s 2014, p.4).
  2. Any business disruption or prices volatility at the supply side will impact the company directly  (McDonald’s 2014, p.5).
  3. The company has developed many patents recipes, therefore, maintaining this confidentially across its stakeholders is critical (Vitasek & Manrodt 2012).

Suppliers’ relationship in McDonald’s depends on three pillars namely: mutual trust, respect, and financial success  (Vitasek & Manrodt 2012). That resulted in creating a “win-win” supply chain collaboration model (Hoffman 2008).

Toyota Motor Corporation

Toyota Motor Corporation is a Japanese automotive manufacturer, and it is one of the three manufacturers who cover 42% of the worldwide market alongside with Volkswagen and General Motors (Ioana et al. 2015).

The company is well-known for treating its suppliers as “close partners” (Chen & Deng 2015) where they not only supply the raw materials, but also are involved in the research and development process (R&D) inside the company (Toyota 2014).

The company achieved this partnership by adopting three factors namely: “fair competition based on an open-door policy”, “mutual trust leading to mutual benefits” and “local sourcing” (Ioana et al. 2015).

Toyota utilized what is called “keiretsu” which consists of six elements as shown below (Chen & Deng 2015):

  1. “Understand how their suppliers work”.
  2. “Turn supplier rivalry into opportunity”.
  3. “Monitor vendors closely”.
  4. “Develop vendors’ capabilities”.
  5. “Share information intensively but selectively”.
  6. “Help vendors continue to improve their processes”.

The implementation steps of “keiretsu” included (Chen & Deng 2015):

  1. Adopting “genchi genbutsu” or “gemba” which focuses on improving the communication and cooperation with the first tier suppliers.
  2. Cooperate with the suppliers by sending Toyota’s personnel to the suppliers when there is high workload.
  3. Promote senior managers from Toyota to senior positions with the suppliers.

Critical Success Factors

In reference to the three case studies and the previous discussion in three previous posts about suppliers’ relationship management in this one, this one and this one, three critical success factors for a good suppliers’ relationship portfolio management are:

  • Critical Evaluation: the suppliers’ relationship portfolio approaches might result in a different set of recommendations because each one uses different segmentation and selection criteria (Rezaei & Ortt 2012), therefore, a critical evaluation of more than one model is needed.
  • Continuous Evaluation: suppliers’ relationships should be always reviewed to ensure that they are still fruitful for the two parties like what Raytheon Company did when conducting a survey to understand their suppliers’ relationship management.
  • Suppliers’ Relationship Variables: the role of the suppliers does not include supplying the raw materials only. They can be part of strategic programs such as the R&D (Research and Development) in Toyota company, they can cause significant problems like what happened in McDonald’s and they can be superseded all over the world such as Raytheon company, therefore, a different set of variables should be planned, managed and measured carefully. Some of the variables that were addressed by different scholars are:
    • Trust, knowledge sharing, partnership, control and governance (Vagadia 2012, p.171).
    • Trust and commitment (Raskovic & Brencic 2015).
    • Communication, trust, information and knowledge sharing, cooperation and coordination, relationship-specific adaptation and investment, commitment, satisfaction, dependency and power, flexibility, reputation, loyalty and relationship history (Sjoerdsma & van Weele 2015).
    • Relationship Capital (RC) and Emotional Deposit Account (EDA) (Dawei in WMG SCM Course Notes 2016, pp.2–3).

References

Chen, Y.J. & Deng, M., 2015. Information sharing in a manufacturer-supplier relationship: Suppliers’ incentive and production efficiency. Production and Operations Management, 24(4), pp.619–633.

Dawei in WMG SCM Course Notes, 2016. Supply Relationship Management. Dawei WMG SCM Course Notes, pp.1–20. Available at: http: //moodle.warwick.ac.uk/course/view.php?id=15258.

Hoffman, W., 2008. Collaboration , With Fríes. Traffic World, 272(42), p.16.

Ioana, A., Florea, I. & Corboş, R.A., 2015. Supplier Relationship Strategies in the Automotive Industry : An International Comparative Analysis. , 16(4), pp.451–461.

McDonald’s, 2014. Annual Report, Available at: http: //www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/McDonald’s 2014 Annual Report.PDF.

Raskovic, M. & Brencic, M.M., 2015. The trust, commitment, flexibility link in transnational buyer- supplier relationships: a network perspective. Trziste/ Market, 27(1), pp.7–19.

Raytheon, 2015. Building relationships. Available at: http: //www.raytheon.com/suppliers/building_relationships/index.html.

Raytheon, 2014. Raytheon Annual Report, Available at: https: //www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0ahUKEwijhIr2lMbMAhXsKcAKHUtWC64QFggoMAI&url=http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjgwNTg0fENoaWxkSUQ9LTF8VHlwZT0z&t=1&usg=AFQjCNHZy_daSpJ0NukVJcrTt.

Rezaei, J. & Ortt, R., 2012. A multi-variable approach to supplier segmentation. International Journal of Production Research, 50(16), pp.4593–4611.

Sjoerdsma, M. & van Weele, A.J., 2015. Managing supplier relationships in a new product development context. Journal of Purchasing and Supply Management, 21(3), pp.192–203.

Toyota, 2014. Annual Report. Available at: http: //www.toyota-global.com/pages/contents/investors/ir_library/annual/pdf/2014/ar14_e.pdf.

Trebilcock, B., 2015. How They did it: Supplier Relationship at Raytheon. Supply Chain Management Review, (March/April), pp.18–23.

Vagadia, B., 2012. Strategic Outsourcing: the alchemy to business transformation in a globally converged world 1st ed., London: Springer.

Vitasek, K. & Manrodt, K., 2012. McDonald’s Secret. Leadership Excellence, 29(10), p.8.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s