Previously, the role of Suppliers Relationship Management (SRM) as a competitive advantage, in addition to some framework and models that can be used to segment the suppliers and hence selecting the appropriate management strategies to manage this relationship were discussed thoroughly in this post and this one respectively. This post will provide a wider context on how to select and manage the appropriate suppliers’ relationship portfolio.
The selection process can be one of three types (Dawei 2011, p.89):
- Product- based when the company is interested in getting the right product;
- Capability- based when the company is interested in sourcing from the most capable supplier especially for long term contracts; and
- A combination of the two for strategic outsourcing and important contracts.
It is important to emphasize that the collaborative approach becomes more dominant because the price is no longer the only factor for a successful purchasing process (Rezaei 2015).
Suppliers’ selection as a step within suppliers’ relationship management was discussed thoroughly in the literature by many scholars. A brief for four of them along with their suggested steps for supplier’s selection and management are presented below.
(Borys & Jemison 1989)
- Defining the purpose of the relationship
- Setting the boundaries of the relationship
- Value creation
- Hybrid stability
- Suppliers’ classification based on a matrix of two factors
- Market analysis to understand the strengths of the potential suppliers versus the strengths of the company
- Strategic positioning in which the materials that were classified in step 1 are placed into a ‘purchasing portfolio matrix’
- Action plans for the required sourcing strategies
- Partner selection
- Defining purpose
- Setting relationship value
- Creating relationship value
(Rezaei & Ortt 2012)
- Determine the functions and activities that are being sourced
- Determine the relative weight of that function
- Supplier selection
- Categorize the suppliers based on functions determined in step 1.
- Supplier segmentation
- Supplier management
- Supplier development
- Supplier evaluation
Analyzing and synthesizing the four approaches using Deming Cycle- Plan, Do, Check and Act- resulted in a new suggested process for a successful portfolio’s selection process. The result is shown below.
Deming cycle is used to emphasize on the importance of having a ‘check stage’ where the company should evaluate the supplier’s performance and then act upon the results. By doing this, the company can achieve continuous improvement in this selection process.
It is important to mention that the selection process, which comes under ‘do stage’ in the previous figure can be done via different approaches such as ‘categorical method’, ‘cost-ratio method’ (Dawei 2011, p.90), ‘Analytic Hierarchy Process (AHP)’, ‘Data Envelopment Analysis’ and ‘multi-objective decision-making method’ (Rezaei 2015). Selection criteria can vary according to the sourcing need and could include quality management systems and standards and even cost aspects such as ‘attitude on total acquisition cost’ (Dawei 2011, p.89).
Borys, B. & Jemison, D.B., 1989. Hybrid Arrangements as Strategic Alliances: Theoretical Issues in Organizational Combinations. Academy of Management Review, 14(2), pp.234–249.
Dawei, L., 2011. Fundamentals of Supply Chain Management [e-book], Dr. Dawei Lu and bookboon.com. Available at: http: //bookboon.com/en/fundamentals-of-supply-chain-management-ebook.
Gelderman, C.J. & Van Weele, A.J., 2003. Handling measurement issues and strategic directions in Kraljic’s purchasing portfolio model. Journal of Purchasing and Supply Management, 9(5-6), pp.207–216.
Kraljic, P., 1983. Purchasing must become supply management. Harvard Business Review, 61(5), pp.109–117.
Rezaei, J., 2015. A two-way approach to supply chain partner selection. International Journal of Production Research, 7543(February), pp.1–15. Available at: http: //www.tandfonline.com/doi/abs/10.1080/00207543.2014.1003663.
Rezaei, J. & Ortt, R., 2012. A multi-variable approach to supplier segmentation. International Journal of Production Research, 50(16), pp.4593–4611.
Wilson, D.T., 1995. An Integrated Model of Buyer-Seller Relationships. Journal of the Academy of Marketing Science, 23(4), pp.335–345.