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CHAPTER 5
SUPPLIER RELATIONSHIP MANAGEMENT
SYNOPSIS
In this chapter, several topical supplier-oriented issues are discussed, namely
supplier selection and evaluation, Supplier Relationship Management (SRM),
supplier development, supply-base localisation, the Black Business Supplier
Development Programme (BBSDP) and dispute resolution. The chapter
aims to provide a solid foundation for the implementation of these aspects of
procurement.
5.1 INTRODUCTION
Procurement has undergone substantial changes in almost all of its sub-areas
over the past few decades and whether or not it is effectively implemented can
have profound outcomes for any organisation.
Some of the areas that have emerged as important involve relationships with
suppliers since, without proper supplier-related structures, the procurement
department will be ineffective. This is because suppliers can significantly
contribute to the competitive advantage of an organisation in areas such as
performance, cost base, profitability, points-of-difference and even the value
of the brand. It is therefore important for supply management practitioners to
have an adequate working knowledge of the supply side of procurement in
organisations.
5.2 SUPPLIER SELECTION AND EVALUATION
For obvious reasons, supplier evaluation and selection precede supplier
relationship management. After all, it is not possible to manage suppliers that
have not yet been selected.
Supplier selection is one of the most important responsibilities of supply
managers and commodity teams. This process is too often an afterthought
performed by buyers who are measured by their ability to obtain the lowest price
rather than the lowest total cost or highest value. With a growing reliance on
fewer suppliers to provide greater value-add, and with the use of longer-term
contracts continuing to grow, the cost of making an incorrect selection decision
can have long-lasting consequences. As external suppliers begin to command
50% or more of a firm’s total revenue, the logic behind creating a world-class
evaluation and selection process becomes even clearer. Besides the obvious
impact on cost, suppliers affect a broad range of end-customer requirements.
Too many leaders have viewed suppliers and the process for selecting them
with relative indifference. Purchasing simply was not part of the executive radar
screen. Astrategic emphasis on core capabilities and competencies, which often
results in the outsourcing of major requirements, now makes supplier evaluation
and selection a critical organisational process.