Suppliers Relationship at Pfizer - Essay Example

Suppliers Relationship at Pfizer Introduction Founded by Charles Pfizer and Charles Erhart back in 1849; Pfizer as a multinational pharmaceutical company maintained its focus on developing new drugs that can effectively prevent and treat a wide-range of diseases (Pfizer 2010). As part of its business expansion, the company acquired other pharmaceutical companies like Warner-Lambert and Pharmacia (Pfizer 2010 b). Aiming to expand its business as the world’s largest premier biopharmaceutical company, Pfizer acquired Wyeth last October 2009 (Pfizer 2009). By entering into partnership and acquisition agreement with these companies, Pfizer managed to become one of the largest multinational companies around the world. As of 3rd quarter of 2010, the company reported its total revenue of $16.2 billion despite the economic recession in some parts of the world (Pfizer, 2010 c). This figure is 39% more than the total revenue of Pfizer during the 3rd quarter of 2009. (See Table I – Comparison between Pfizer’s 3rd Quarter Revenue between 2009 and 2010 below) Table I – Comparison between Pfizer’s 3rd Quarter Revenue between 2009 and 2010 Source: Pfizer, 2010 c In the past, majority of the purchasers are searching for a wide-range of sources of raw materials provided that the supplier can offer the company the lowest market price for the same product (Gadde and Hakansson 1993, pp. 165 – 166). Today, purchasers are after the need to develop a long-term collaborative relationship with its suppliers in order to avail cheaper high quality raw materials (Chobra and Meindl 2001; Araujo, Dubois and Gadde 1999; Bensaou 1999). In relation to the business growth of Pfizer, this report will discuss about the importance and ways on how to properly manage the supply side of raw materials by establishing a good relationship with its suppliers. Aside from discussing the different degrees of involvement in which Pfizer can establish good relationship with its suppliers, this report will discuss some strategies that will enable Pfizer maintain a strong and long lasting relationship with its accredited suppliers. Importance and Ways on How to Properly Manage the Supply Side of Raw Materials by Establishing Good Business Relationship with its Suppliers Supplier relationship management has been a common practice in supply chain management of multinational companies like Pfizer. As explained by Wisner, Tan and Leong (2009, p. 95), supplier relationship management is an “extended procurement process which includes sourcing analytics, sourcing execution, procurement execution, payment and settlement, and closing the feedback loop through the use of supplier scorecard and performance monitoring”. By establishing a strong supplier relationship management, Pfizer will be able to effectively manage its supplier network and maximize the value of its relationship with its suppliers over the business cycle. The ability of the purchasing department to purchase raw materials from external sources at the lowest possible price without affective the raw materials’ quality could effectively minimize the total operational and production cost (Gadde and Hakansson 1993). Looking at this point-of-view, maintaining a long-term relationship between Pfizer and its suppliers can be beneficial on the part of both parties involved (Gadde and Snehota 2000; Kalwani and Narayandas 1995). In line with this, Pfizer is able to strengthen its domestic and international competitiveness by securing its access to external resources whereas Pfizer’s accredited suppliers will be able to reach a higher profit-margin by establishing good business relationship with Pfizer (Kalwani and Narayandas 1995). In general, the overall performance of multinational manufacturing companies such as in the case of Pfizer highly depends on the performance or the ability of its suppliers to deliver high quality raw materials just-in-time for the production schedule of Pfizer (Chen and Paulraj 2004, p. 133; Hakansson and Snehota 1995; Johanson and Mattson 1987). After examining the quality of supplier’s product and technology used in production, Pfizer should maintain a long-term business relationship with a few selected suppliers (Gadde and Snehota 2000; Kalwani and Narayandas 1995). In most cases, buyer and suppliers who failed to gain benefits from the buyer-supplier relationship are most likely to dissolve over time (Croxton et al. 2001). (See Appendix I – Theoretical Framework of Supply Chain Management on page 5) Appendix I – Theoretical Framework of Supply Chain Management Source: Chen and Paulraj 2004, p. 133 Degrees of Involvement Pfizer can establish with its Accredited Suppliers Specifically the structure of complex business network significantly affects the degrees of involvement in which Pfizer can establish with its accredited suppliers. In general, the supply network of Pfizer is composed of inter-connected supply chains where the supply of purchased goods and services comes from (Lamming et al. 2000). In line with this, the degree of Pfizer’s involvement with the supplier is somehow affected with the character and distance between the two parties such that Pfizer’s suppliers within the national level are most likely to develop intensive, intimate, and more extensive buyer-supplier relationship as compared to the case of international suppliers (Hakansson and Snehota 1995). (See Figure I – Supplier Network of Pfizer as the Focal Firm below) Figure I – Supplier Network of Pfizer as the Focal Firm Source: Lehtinen 2001 Based on Figure I, it is clear that within a group of supplier network, there will always be some suppliers that will be able to develop stronger relationship with Pfizer. By becoming a leader and role steer, Pfizer as the focal firm can successfully create value in its supplier relationship (Lorenzi and Baden-Fuller 1995). Despite the small number of accredited suppliers, Pfizer will still be able to effectively manage the group of accredited suppliers by establishing a shared vision and objectives aside from the provision of managerial guidance to each of the accredited suppliers (Lehtinen 2001). Companies within the first tier of the supplier network are the once who have direct contact with Pfizer as the buyer. With regards to the group of suppliers within the supply network, Ford et al. (2002) explained that the accredited suppliers can have a position within the supplier system that has a close relationship with Pfizer as the buying company aside from having a close relationship with other companies within the second tiers (subcontractor) or third tiers (system supplier) of the supplier network. Strategies that will enable Pfizer Maintain a Strong and Long Lasting Relationship with its Accredited Suppliers Importance of Establishing Trust between Pfizer and Its Accredited Suppliers There are many ways in which Pfizer could establish a good business relationship with its accredited suppliers. Wisner, Tan and Leong (2009, p. 78) explained that “trust is critical for any partnership or alliance to work”. Based on the empirical study that was conducted by Moolering (2003) upon analyzing a total of 196 buyer and supplier relationships, there is a significant positive correlation between the ability of the buyers to build trust with its accredited suppliers and its performance. Building trust between Pfizer and its accredited suppliers is a two-way process (Chen and Paulraj 2004). For this reason, it is clear that Pfizer will be able to strengthen its partnership with its accredited suppliers by devoting more time and available resources to enable Pfizer’s accredited suppliers understand the business goal of Pfizer including its specific needs and wants. For Pfizer’s purchasing staff to be able to understand the business process of its accredited suppliers, it is necessary for the accredited suppliers to invite Pfizer’s purchasing staff to have the opportunity to participate in plant visits. Importance of Having Shared Vision and Objectives Developing and implementing a shared vision and objectives between Pfizer and its accredited suppliers with regards to the interdependency and the rules behind the need to enter into collaboration will serve as the structure of its supply chain competencies (Croxton et al. 2001). In line with this, the shared vision and objectives between Pfizer and its accredited suppliers should focus on the need to provide the end-customers with the best value of product in terms of its quality and market price. In most cases, buyer and suppliers that shares a common goal are able to cooperate and be more willing to enter into win-win business negotiation process with regards to the quality and selling price of each product (Wisner, Tan and Leong 2009, pp. 78 – 79; Chandra and Kumar 2000). Because of the presence of small number of accredited suppliers, each of these companies will make an effort to search for new strategic ways on how they will be able to supply good quality products to Pfizer without sacrificing its quality and time of delivery. Benefit of Maintaining a Small Number of Accredited Suppliers For Pfizer to be able to work closely with its suppliers, the company should maintain a small number of its accredited suppliers as this will form the company’s suppliers’ systems (Chen and Paulraj 2004; Gadde and Hakansson 1993). Given that Pfizer could maintain a small number of accredited suppliers, the company can easily provide its accredited suppliers the benefit of ordering a required raw material by bulk. As a result of purchasing a similar product by bulk, Pfizer’s purchasing staff will have more bargaining power to be able to lower down the unit price of each raw material (Ventovuori 2006; Chen and Paulraj 2004). . Aside from the need to keep the purchasing cost as low as possible, maintaining a small number of accredited suppliers will make it easier on the part of Pfizer’s purchasing department to easily monitor the existing inventory and coordinate with the accredited suppliers whenever there is a need to replenish the supply of raw materials. Basically, the implementation of just-in-time delivery of raw materials is beneficial on the part of Pfizer in terms of keeping its logistical cost as low as possible (Chen and Paulraj 2004). Given that Pfizer would maintain a small group of accredited suppliers, the company will be able to easily make these suppliers committed to the business goals and objectives as designed by the company. Since the accredited suppliers will have no other choice but to commit themselves with the goals and objectives as implemented by Pfizer, the buying company will be able to implement necessary change in accordance to the development in its procurement process (Wisner, Tan and Leong 2009, p. 79). Conclusion and Recommendations It is important to develop a partnering relationship with its suppliers without making the company sacrifice the quality, quantity, and timely delivery of its purchased materials. Even though there are quite a lot of available literatures suggesting that the practice of collaboration in supply chain could lead to long-term business advantages between Pfizer and its accredited suppliers (Chobra and Meindl 2001; Gadde and Snehota 2000; Araujo, Dubois and Gadde 1999; Bensaou 1999), Handfield at al. (2001) revealed that not all companies that has tried to establish strategic partnership with its suppliers has been successful. For this reason, Pfizer should exert extra effort and make use of its available resources in order to enhance its supply chain management system by establishing close relationship with its existing accredited suppliers. Between a domestic and international supplier, supplier that is located closer to Pfizer are the ones who are able to build a closer intimate relationship with the company. Another benefit of keeping a small group of suppliers within the close proximity of Pfizer’s manufacturing plant is that the shorter the distance would mean lesser travel expense. For this reason, the purchaser of Pfizer should consider the distance or location of its potential supplier before accrediting the company as one of Pfizer’s accredited supplier. Even though long distance suppliers such as in the case of international suppliers are capable of offering low selling price to Pfizer, distance between Pfizer’s manufacturing plant and its accredited supplier can cause some problems along the way. Given that an international supplier failed to deliver goods within the specified delivery time, it will be more difficult on the part of Pfizer’s purchasing department to communicate with an international supplier not only because of the distance but also because of cultural differences between the two. Cox (2001) argued that the practice of collaboration between the buyers and suppliers may not be the best strategy when managing suppliers because of the absence of scientific-based research studies that can prove that there are really some benefits associated with establishing supplier partnership. For this reason, a further study with regards to examining the benefits of collaboration between buyers and suppliers using scientific-based research is highly recommended. *** End *** References Araujo, L., Dubois, A. and Gadde, L.-E., 1999. Managing Interfaces with Suppliers. Industrial Marketing Management , 28, pp. 497-506. Bensaou, M., 1999. Portfolios of Buyer-Supplier Relationships. Sloan Management Review , pp. 35-44. Chandra, C. and Kumar, S., 2000. Supply chain management in theory and practice: a passing fad or a fundamental change? Industrial Management & Data Systems , 100, pp. 100-111. Chen, I. and Paulraj, A., 2004. Understanding supply chain management: critical research and a theoretical framework. International Journal of Production Research , 42(1), pp. 131-163. Chobra, S. and Meindl, P., 2001. Supply Chain Management – Strategy, Planning, and Operation. New Jersey: Prentice Hall. Cox, A., 2001. 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