Economic globalization is not a new concept for today’s enterprises. At a time when globalization competition is intensifying, the market competition faced by enterprises is becoming increasingly serious. How to obtain an irreplaceable place in the competitive environment of the survival of the fittest, to seize the market opportunities, how to improve management from all levels of the enterprise, improve management, is the problem that the decision-making level of the enterprise cannot avoid.
In all aspects of business operations, procurement is an important source of sources of material flow, access to the source of capital flow, procurement management and new product development in the enterprise, product quality and overall supply chain management is not unrelated, they The relationship between them is closely related, so it is important to strengthen the procurement management of enterprises, especially the management of suppliers.
Supplier development broadly refers to “any effort by a buying firm to improve a supplier’s performance and/or capabilities to meet the buying firm’s short- and/or long-term supply needs”.
In this essay, we are going to discuss three of the supplier development strategies and their advantages and disadvantages.
In this era of globalization, partnerships have become the lifeblood of the supply chain, making today’s businesses increasingly dependent on suppliers to help reduce costs and improve quality. Supplier partnership is the highest level of cooperation between enterprises and suppliers.
It refers to the long-term cooperation between the supply and demand sides to share risks and share benefits on the basis of mutual trust.
The traditional approach to dealing with suppliers has been based on the assumption that they are adversaries. Communication with suppliers is guarded with as little information as possible transmitted between the two parties in case one of them can turn it into an advantage at the expense of the other. The customer’s best protection was thought to be the establishment of several alternative sources of supply for each item to ensure that competition kept suppliers ‘on their toes’. Symptoms of this kind of adversarial relationship include multiple sourcing, a large supplier base, frequent switching from one supplier to another and buying solely on the price per piece. The result is usually mistrust, fear, dishonesty and frustration on both sides which prevents long-term quality improvement taking place. Clearly, supplier development requires a radically new form of customer-supplier relationship.
There are a few advantages of partnership.
First of all, easier sourcing, if we have already recognized a supplier that is the most efficient producer with the best quality and the lowest costs, why would we look anywhere else?
Also, Long term relationship. A long-term relationship eliminates the costs associated with finding and cultivating new sources. The time and energy that would have been spent can now be more profitably utilized.
Furthermore, Design capability. We expect the producers of our mission critical materials to be at the leading/emerging edge of technology. They, therefore, have design capability that we can capitalize on, not only in the development of future products, but also in the best way to incorporate their materials into our current products.
Besides, Technical support. We can expect technical support from our partners at all phases and levels of the process, from the design of the product through the manufacture of the product to support in the field. This includes assistance with any marketing efforts that require technical knowledge as well as any failure analysis that is required.
And Single- sourcing. It should not be longer necessary to split our requirements with multiple sources. Having a supplier that can deliver 100% of our requirement, 100% on time, with 100% quality, 100%of the time, is really all we need, which in addition to the saving of working with a single supplier also brings us the benefits of being able to leverage larger volumes.
But for the disadvantages, core strengths or competencies from both sides need to be understood and not be weakened, otherwise one sides will be eaten by the other side, merger and acquisition will be occur.
Also, the key technologies need to be kept and further developed, not shared. Otherwise the Lenovo and IBM case will be happened again.
Besides, due to the culture, politics, local law are different, but they are important. It may take time to coordinate.
Every now and again we have to grow our own suppliers. We need to start with a good foundation. Selecting a supplier from our preferred supplier list is a good first step. If we can find a supplier where our new items would be next logical step for the supplier, even better. It not, how easy would it be for the supplier to acquire and / or develop the necessary skills and equipment? We have a role to play here. We are going to grow this capability, which means we may have to lay out some capital, may have to provide some technical expertise, may have to do some training, and may have to baby-sit the development process. Helping our preferred suppliers is our contribution to the relationship.
Help cultivate the suppliers can help in some way.
First of all, improve supplier data quality, reduce duplicate entries, get the latest updates on addresses, contacts and other essential information to enrich your supplier data to help you work more effectively. Accurate information can provide more precise forecast. Provide near real-time access to information in a consistent manner throughout the organization.
Also, a very important matter, keep costs down. Better understand who you are working with to identify the right supplier mix to meet company goals and save money. By optimizing your supplier base, you can achieve greater savings, fewer disruptions and assure regulatory compliance.
But there is some disadvantage like if the supplies become stronger, their beginning power will be larger too, at that time they may not easy to communicate and control if we didn’t have a good relationship with them.
Also, when the supplier become stronger and have a large market share, monopoly may occur. And it may decrease the choice of another new supplier. It also is a disadvantage if cultivate the supplier too much.
It is always important to remember that a portion of the price we pay is to cover the cost of overhead. And in many cases this far exceeds the raw cost of the product itself. Therefore, we feel very justified in reviewing those costs with the preferred suppliers. When we look at the whole picture with this fame of mind, we can begin to see other fertile areas for cost-related improvements that should show themselves by reducing the price we pay for materials. Overhead includes the cost of R&D, Finance, Design Engineering, Quality Assurance, Manufacturing, Engineering, Human Resources, Materials Management (which includes planning, purchasing, production control, inventory management, shipping and receiving), marketing, sales information technology, order entry, and manufacturing operations.
For the advantages, cost reductions in some of these areas not only reduce supplier’s overhead and make a more efficient producer but should also show up in our cost and in cycle time reductions.
But for the disadvantages, reduces overhead cost may reduce the flexibility and process improvement in a company. Restriction on innovation. Requirement of skilful personnel to set standards.
Also, there is a disadvantages of cost allocation, allocate more marketing efforts to free or low-cost channels may led to decrease the quality. And some of the company may control the labor cost in order to avoid paying overtime by fine-tuning scheduling or converting to part-time employees, this may also affect the loyalty and the quality of the goods dun to unskilled workers.
It would be unrealistic to assume that every kind of cost reduction is beneficial. As a general example, slashing transport budgets may result in holding higher levels of inventory. When inventory costs contribute more than transport to overall supply chain costs, as is often the case, this approach is clearly back to front. In fact, overall costs may be reduced, paradoxically, by increasing transport expenses instead.
In an increasingly global marketplace, how can businesses ensure their supply chains are resilient to the many risks posed by climate change and the possibilities of unethical practices in distant factories?
From the above supplier strategies, I will like to say building a partnership is quite important and it may benefit a company to gain new competitive advantages or sustainability in long term.
Developing a sustainable competitive advantage in supply chain requires a new focus on creating value in a company. A supply chain needs to be viewed as a ‘value chain,’ in which all participants are truly integrated and share a common vision of goals, processes and information sharing.
First of all, partnerships can help increased market share, also help inventory reductions, improved the delivery service and quality.
Like the example The Philips Group, there partnership strategic is working together with the supplies towards a common goal. When partnership, both parties can gain more benefit through cooperation than by separately purchasing their own interests. And when the long-term partnership, they will continuously improve the product and clearly understand their responsibilities.
Also, partnership allows the free-flow of feedback and ideas. It can help to create a more effective supply chain that could have a positive impact on both costs and service. When there is information sharing, the product development will become easier to instigating new ordering processes and inventory control, that will be benefit both parties in the financial and operational area. Once the time and cost are lower, there are more resources to development new product.
Besides of the operation, partnership can also help to bring opportunities for long term contracts. As mall suppliers is trying to get a long-term contract that guarantees volume. This is also good for the suppliers because it can also allow them to schedule their production earlier. Long-term agreements can be used to detail expected redesign efforts that will provide cost reductions or quality improvements in the future. Suppliers are more willing to agree to these changes if they know they will have enough business in the future to warrant the investment. However, it’s hard to get a long-term contract, even 2-3 years contract are also harder. So, partnership can help both sides to guarantee the sales volume in order to occupy a certain amount of market share.
To conclude, Supplier development should lead to improvements in the total added value from the supplier in question in terms of product or service offering, business processes a performance, improvements in lead times and delivery for instance. There are many different supplier developments strategic that can help to improve the performance.
But every coin has two sides, each of the strategies have their advantages and advantages. It depends on how we use it and what situations we use it. We need to evaluate each of the strategies and select the ones we feel will have the best chance of success.
And one more thing, we may actually select more than one strategy, like all of the three above where we believe it is fitting. Because different strategies might work best in a different area.
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