The Development of the Buyer/Supplier Relationship - Dissertation Example

The development of the buyer/supplier relationship In an increasingly sophisticated commercial environment Introduction In contrary to older days, todays global business market, and concepts are moving towards inter-national and inter-firm. This has made companies explore ways to leverage their supply chains, and to evaluate the role of suppliers in their activities. Moreover increasing outsourcing of activities and performance has heightened the role of suppliers ever more. Much competition in the present market has marked an evolution in supply management, imposing on firms an increasingly close interaction with suppliers. To achieve high-level performance in terms of cost, quality and time, the market appears to be more dependent on the quality and effectiveness of the supply network. This has changed the traditional adversarial model of the buyer-supplier relationship, and fosters the reconfiguration and integrated management of the supply chain. Adding, competitive dynamics and current global competing models have encouraged the extension of traditional sourcing areas. In order to maintain competition, and to satisfy the knowledgeable end customer, suppliers must be completely aligned with the core company, its objectives and performances. This can be achieved through strategic benchmarking towards supplier development (David Blanchard, 2007). With a large number of suppliers to deal with, it will not be feasible for buyers to have the partnership relationship with each other. This leads to change in their strategy which involves classifying them in a manner suitable for the company and then only start from top of the list setting goals for the most prioritised. Importance of buyer-supplier relationship Suppliers are an essential part of success in any business. If the right materials are not being delivered in time, a manufacturing unit can come to a complete halt. Both supplier and buyer want to maximize its time, resources and cash investment. These may be the competing priorities that can strain the relationship. Cordial relationship among them is very important for any business (Sara Ireton, 2007). With recognising the importance of vendors in the success of their business, companies beginning to implement more strategies for helping them to deal with sellers in ways that make the relationships mutually beneficial. It benefits both the parties as for buyers; they gain a reliable source of the goods which they need at a reasonable price with dependable results. They do not have to look for a new vendor each time they want to buy goods. For sellers, it is a steady source of business and revenue. To sustain a mutually beneficial relationship there should be an understanding of each others business needs. The success of one partner would helps to the success of the other. To develop and subsequently to maintain a positive supplier-buyer relationship, manufacturers should regularly address compliance, conduct and strategic financing concerns with their supply chain partners. Its always important that one should know with whom he/she is doing business, which means knowing the customer, supplier, and their suppliers and customers. Importer/ exporter should take necessary steps to ensure that all parties in the supply chains are approved, and are not restricted in any way. Many importers have maintained the best practice by adopting screening of their suppliers which send the message to its partners that they are very serious about compliance and are taking responsibility for supply chain security (David, B., 2007). Usually the buyer is looking for getting a fair price. On the other hand the supplier has to ensure that it is covering costs and, of course, making a profit. It is not always in the buyers interest to negotiate down to the very lowest price as the result could be less trust or loyalty from the vendor. Many buyers reports that price is just one factor in the negotiation. Along with quality also plays important role. For an example high-end apparel retailer whose merchandise buyers expect quality goods and have very high expectations. These buyers also have long-term relationships with their suppliers. As a result both the parties are grateful for the other partner and recognise that in order to succeed; they need to help each other (David Blanchard, 2007). Buyer Supplier Information Materials Financial Fig: 1. Nature of flows shared in buyer-supplier relationships (Source: Rippa, P., n.d.) Buyer-supplier relationships can be analysed from three perspectives 1. The buyers 2. The suppliers, and 3. Facilitating governments and donors. Usually, we can notice three types of natural flow in buyer-supplier relationship. First one is financial. Second one is materials, and third one is information. After the first transaction, the supplier continuously faces the challenge of keeping up with the buyer and its end-market. The ability of the supplier to stay on the top needs to be the first priority, and is largely determined by relationship adhesives. From the buyers perspective, if a procurement decision is only based on cost, then new supply options emerge. There will frequently be a cheaper supplier producing equal or better quality. To maintain its competitiveness, the supplier needs the full understanding of the buyers business model while keeping favourable conditions in the business environment. Governments and donors can also play an important role in linking suppliers with buyers while coordinating technical assistance to increase supplier capacity, and exposing the supplier to dynamic market needs. They can play a role both in setting realistic expectations and in building trust between buyer and supplier in the early stages of the relationship (Sara Ireton, 2007). Before 2001, Rwanda was an unknown in the high-value coffee sector. Today, it is a sought-after market supplying speciality coffee to Starbucks and other premium coffee buyers throughout Europe and the United States. This success was possible due to the combined efforts of the local producers, the government of Rwanda, USAID donor projects, and international buyers. Rwanda, who now supplies coffee for Starbucks Blue Bourbon brand is one of a select group of Starbucks Black Apron Exclusives line of world class speciality coffees. This case focus on the role of the government, and the donor projects in upgrading the quality of supply and then easing the initial linkage with international buyers. It highlights the continuing need to build the capacity of local suppliers in marketing and commercial relationship management (United States Agency International Development, 2007). According to USAID report (2007), the lifecycle of a commercial relationship between the buyer and supplier can be characterised by five stages Upfront investment in the product and the relationship by both the parties Assumption of transactional risk and mitigation of risk Creation and delivery of value Increase in the number of transactions, and Responses to shifts in the market Current and future business trends Information Technology (IT) is one of the key resources for improving todays business competitiveness. Survival in this competitive business environment demands continuous improvements in quality and service, while maintaining core values. If take health information technology for example, we can notice that e-healthcare is becoming a strategic tool to improve patient safety. Formerly IT was used only for management purposes, but now healthcare professionals were using it widely to ensure better health care. Numerous improvement initiatives were introduced both by government and private sector. Information technologies have also the potential to affect the types and distribution of jobs in the health care workforce in the future (Wayne Oliver, 2007). The growth of consumerism and proliferation of internet-accessible sources of health-related information would have the capacity to modify the traditional roles of provider and patient. Current models of clinical decision making by autonomous practitioners, relying on their memory and personal experience would be inadequate. This will provides opportunity for new kinds of employment in health-related professions. The healthcare industry is getting more and more technologically advanced every year. Health information technology is touted as a possible way to cut health care costs, and is a tool with the potential to save lives, improve efficiency and increase the overall quality of our health care delivery system. Future business trend in health care as like in any other field would definitely be more innovative as well as technology oriented. Tendering and contracting procedures A tender is an offer to perform an act which the party offering, is bound to perform to the party to whom the offer is made, and it may of money or specific articles. Adding, contract is a binding agreement between two or more parties for performing an act in exchange for lawful consideration (ULHT website, n.d.). To make a tender valid, It must be made by a person capable of paying. It must be made to the creditor having capacity to receive it. The whole sum due must be offered in the lawful currency of the concerned country. Terms and conditions must be specifically mentioned, and governed by concerned parties. Let us talk with one example. United Lincolnshire Hospitals NHS trust is one of the largest trusts in the country which is providing health services to the people of Lincolnshire and beyond. The trust has to advertise openly all contract opportunities where the value of the contract is likely to be above the threshold which is set by the European Commission. Advertisements are available in the official journal of the European Union (known as OJEU), and trusts website (NHS Trust, 2010). The trust normally uses the restricted procedure under the EU procurement directives. Potential suppliers can lodge an initial expression of interest which is to be included in the tender list. Trust often uses a pre-qualification questionnaire to collect some basic information in an uniform manner, concerning the potential suppliers track record in supplying the relevant goods and services. The responses are normally evaluated according to one set of criteria and a final tender list is determined. Invitations to tender (ITT) are then forwarded to all suppliers included on the final tender list. ITT should, as a minimum, include a specification of the goods/services required by the trust, the draft terms and conditions of contract proposed along with a pricing schedule to be completed and returned. Normally within the ITT the trust will includes a set of evaluation criteria on how the bids received will be evaluated. Tenders are opened, and evaluated in accordance with the previously agreed evaluation criteria. After internal approvals preliminary contract is awarded which is subject to a mandatory ten day standstill period, known as the ‘Alcatel’ rule. During this period unsuccessful bidders can request an explanation for the decision, and if felt they can lodge a formal appeal and challenge to the process. After the standstill period, contract will be finalised with the successful tenderer. Contract award notice will be placed in the OJEU, and its website. The trust will then exchange contracts with the successful supplier and will often also confirm the contract award with a purchase order (NHS Trust, 2010). At present the trust does not using e-tendering system. But, some organisations are using e-tendering system for the process. Procurement management process Procuring goods and services from external suppliers can be a critical path for many projects. Sometimes, the performance of the supplier will reflect on the performance of the overall project team. Therefore it is very crucial for a company to manage suppliers performance carefully, to ensure that they produce deliverables which meet the desired expectations. Procurement process is the term used by businesspeople to describe the buying process, and can refer to the purchase of supplies or services. The goal of the procurement process is to buy the exact product or service when needed for the most favourable price. Procurement management process is a method by which items are purchased from external suppliers. Process involves managing the orders, receipt, review and approval of items from suppliers. It also specifies how the supplier relationships to be managed while receiving high level of service. It allows the purchase of goods from suppliers at the lowest possible cost. The best way to do this is to let the suppliers compete with each other so that the expense of the buyer is kept at a minimum (Method 123.com, 2010). According to Alison Cole ( n.d.), the process of procurement may slightly differ with one organisation to another. But the process is usually symbiotic in nature. The process of procurement usually begins when the buyer starts to search for bidders. After identifying the suppliers, a request for bids or proposals would be made. Direct contact with bidders can also be made instead of advertising. After selecting the bidders, next step is a high quality check. After negotiating the terms and conditions, delivery schedules are discussed. Logistics and payments are the next steps to determine the safe delivery and the payoff of goods. If the whole process is carried out on the internet, that is called ‘e-procurement’. Internet Provides huge opportunities both for sellers and buyers, and is becoming a popular tool for researching and consulting for the procurement of goods or services. At the same time the whole process of procurement should be carried out in compliance with the existing laws in order to avoid any legal hassles. This is the most efficient and cost effective method, and it benefits both the buyer and the seller (Method 123.com, 2010). Technical qualifications or special license may be required for some type of product or service. For an example, if the product requested is a medical device, the supplier must get license from FDA (Food and Drug Administration) to manufacture the product. Prototypes must be sent and approved before issuing the purchase order. Legal obligations Buyer-supplier relationship should comply with respective legal obligations. Both of them should ensure compliance with all legal requirements relating to all processes like procurement and acquisition, contracting or tendering. The legal framework includes: International obligations, as implemented in some countries legislation or by virtue of direct effect, e.g. discrimination on grounds of nationality, restrictions of free movement of goods and services, equal treatment, transparency and competitive procurement. Specific domestic legislation, e.g. on corrupt gifts or unfair contract terms Contract and commercial law in general, and Domestic case law Organisations need to be ensuring compliance with all legal requirements relating to the above process, and take appropriate suggestions from legal team (Northwest Regional Development Agency, 2005). Conclusion In today’s competitive world, to achieve high-level performance in terms of cost, quality and time, the market appears to be more dependent on the quality and effectiveness of the supply network. Increasing in the outsourcing of activities and performance has heightened the role of suppliers ever more. Survival in this competitive business environment demands continuous improvements in quality and service, while maintaining core values. To achieve high level of performance, organisations were using information technology as one of the key resource. And all suppliers of goods and services will be covered by an appropriate contract, purchase order or agreement. Procuring goods and services from external suppliers can be a critical path for many projects. Many a times the performance of the supplier will reflect on the performance of the overall project team. Therefore it is very crucial for a company to manage suppliers performance carefully, to ensure that they produce deliverables which meet the desired expectations. References Alison Cole n.d., Procurement Process, viewed 01 April, 2010, David Blanchard, 2007, Industry Week, 01 December, How to Sustain Successful Supplier/Buyer Partnerships, viewed 01 April 2010, < http://www.industryweek.com/readarticle.aspx?ArticleID=15341> Daniel R. Masys, 2002, Effects of Current And Future Information Technologies On The Health Care Workforce, Health affairs, vol.21,no.5, viewed 02 April 2010, < http://www.content.healthaffairs.org/cgi/content/full/21/5/33> Jason C.H. Chen, Matt Dolan & Binshan Lin 2004, Improve processes on healthcare: current issues and future trends, International Journal of Electronic Healthcare, vol. 1, no. 2, pp.149-164, viewed 02 April 2010, JE Austin Associates , 2007, United States Agency International Development(USAID), 30 June, The Ties that Bind: Case Studies in Making Buyer-Supplier Relationships, viewed 01 April 2010, Procurement Management Process, Method 123.com, viewed 01 April, 2010, PROCUREMENT POLICY 2005, Northwest Regional Development Agency, December 2005, pp. 1-5, viewed 02 April 2010, Rippa,P., n.d., Information sharing in buyer-supplier relationships, viewed 01 April 2010, Sara Ireton, 2007, JPMorgan Manufacturing & logistics IT, 03 October, Supplier Relationship Management: Steps to Successful Supplier - Buyer Partnerships, viewed 01 April 2010, ULHT Website-Tendering and contracting procedures: Guide to tendering. [Online] (Updated March 2010), viewed 01 April 2010, Wayne Oliver 2007, Future Trends in Healthcare Information Technology, viewed 02 April 2010, What Are the Steps in the Procurement Process?, viewed on 01, April 2010, Read More