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CHAPTER 5
SUPPLIER RELATIONSHIP MANAGEMENT
5.6 SUPPLIER DEVELOPMENT
Supplier development is a critical part of the supplier relationship management
process, but there are times when the supplier fails to satisfy the requirements
of the buying organisation. Under such circumstances, the buying organisation
has three options, namely [13]:
• Bring the outsourced item in-house and produce it internally (i.e., set up
manufacturing facilities within the organisation); or acquire the supplier
(vertical integration).
• Re-source with a more capable supplier (supplier switching).
• Help improve the existing supplier’s capabilities (supplier development).
An activity that most firms have failed to pursue rigorously is the active
development and improvement of supplier performance capabilities. Part
of the reason for not pursuing supplier development activities relates to the
confrontational nature that has characterised too many buyer-seller relationships.
The term ‘supplier development’ has been defined from diverse angles by
different scholars. It is the process of working with specific suppliers on a one-
to-one basis in order to improve their performance for the benefit of the buying
organisation [14]. It involves a long-term co-operative effort between a buying
firm and its suppliers to upgrade the suppliers’ technical, quality, delivery, and
cost capabilities and to foster ongoing improvements [15]. Also, it encompasses
any effort of a buying firm with its supplier to increase the performance and/or
capabilities of the supplier and meet the buying firm’s supply needs [16]. Supplier
development is closely associated with supplier relationship management and
partnering. In supplier development, the supplier’s expertise is embraced and
aligned to the buying organisation’s business needs.
Development efforts primarily fall into three categories: working with suppliers
to resolve a problem (reactive); working with a supplier to continuously improve
a performance capability (proactive); and working with a supplier to create a
performance capability where none previously existed (proactive).
Companies that pursue development activities should be aware of three best
practices associated with supplier development. The first is that a central system
should be established for controlling and monitoring the development efforts.
This is done to ensure that development efforts are not diffused, uncoordinated,
or under-reported. Second, development efforts should be set up as projects
with widespread visibility throughout the organisation. This also allows the use
of project management tools. Finally, supply managers should calculate the
return-on-investment from their development efforts. This last point requires
the active involvement of finance.
The objectives for development can be comparatively minor, such as reducing
staffing levels; or very significant, such as evaluating and re-launching an entire
range of critical products. There are cases where the buying organisation fails
to identify a top-notch supplier who is willing or able to meet its needs. Under