Buyer-Seller Association and Its Effect on the Supply Chain Management - Comm-Net Technologies - Case Study Example

BUYER-SUPPLIER ASSOCIATION by Student’s Name Code + Course Name Instructor Name Institution of Affiliation City, City Date Buyer-Seller Association Introduction The buyer and supplier relationship is important in any business transaction. Consumers need to be assured that their suppliers will provide the goods and services that they require at the specified time and place. Comm-Net Technologies (CNT) is a company that has been producing software of high quality used in the telecommunication companies to test the frequency of their instruments. The company has been providing the software every 5 to 8 months after rigorous research, development and rigorous testing of the new software. The software provided is expensive, and customers are guaranteed of its high quality and functionality (Johnson, 2014). However, the competitors of CNT are starting to build cheaper software that can be used in the frequency testing. This software though of low quality and cheap, are being taken up by the telecommunication companies which is harming business at CNT. The research that has been put in the development of the software has been copied by competitor leaving the company to start facing money problems. The buyer-supplier relationship at CNT needs to be strengthened so that the company can be able to save itself. Buyer-supplier relation is vital for the success of supply chain. The paper examines the buyer-supplier relationship and its effect on the supply chain management. CNT and other firms in the software business compete in head to head for their share of the market. These companies are trying to stay relevant in business while maintaining their position. In such competitive scenarios, societies are often treated in an adversarial way by the buyers of the software since the relation between the purchaser and the supplier is seen as a win-lose situation (Tanskanen & Aminoff, 2015). However, many companies have found it wise to work in close collaboration with their supplier so as to meet the requirements of their customers and to stay afloat in the competitive market The buyer-supplier relationship is changing with time. It is thus vital for the CNT Company to form alliances with some of the companies it has been supplying software. Agreements between CNT and other software developing firm can be seen as an intercrossed governance structure that ensures that benefits of vertical integration to the business which means that both the companies are bound to take advantage of the arrangement (Marcos & Prior, 2017). Alliances will be based on mutual trust and sharing of information between CNT and the businesses that need the software it producing. The buyer-supplier relationship can result in the formation of super alliances between CNT and the telecommunication companies which means that these enterprises can benefit from higher coordination, faster reaction to the shifts and changes in the market and better utilization of resources while at the same keeping their competitors at bay. Good relationships are the building blocks of supply chain management (Al-Abdallah et al., 2014). A closer and right relation, for instance, will help the companies to reduce the costs of production. IT will also give the companies to deal with the changes in the demand and supply in the market. In supply chain management, the buyer and seller relationships are used in the connection of the purchaser and seller firms. These relationships have become strategic today and are aimed at helping companies achieve their goals. An excellent scenario in the buyer and supplier relationship is that many firms are identifying a single source provider like CNT who can supply all their requirements since there is pressure to increase quality in the products and services that companies are producing (Johnson, 2014). The ultimate goal of the super alliances between CNT and the telecommunication companies is to reduce costs. The costs reduction can be obtained from the two models. These models include the adversarial model and the cooperative models. In the adversarial model, the buyers will pit suppliers against each to lower the costs of the software like the scenario between CNT and its competitors. This model results in the market monopoly like CNT to lose its market share index to less superior firms that producing inferior quality products that serve the same function as the software that CNT is building. On the other hand, the cooperative model gives opportunities for both firms achieve lower costs through cooperation and working together (Kumar & Rahman, 2016). Figure 1: Self- enforcing agreement, (Lonsdale, 2017) The underlying principle behind the models is that the absence of interaction between the buyer and supplier will result in limited beneficial outcomes in the market. Customers and suppliers will thus look out for their interests in the absence of coordination between them. Willingness to work to cooperate and work together will ensure that CNT and the cooperating telecommunication companies achieve beneficial results that come from their exchanges. These benefits will be in the form of cost, delivery of software, quality, and productivity, deployment of technology, product development and in the solving of problems. The performance of the organization is based on the buyer-supplier exchanges. The performance of the team is based on financial results, shareholder return and product performance in the market. Since the product that CNT is developing is currently performing poorly in the market, it follows that the exchange between the supplier (CNT) and the buyers (Telecommunication companies) is small. The organization is not fulfilling its mission leaving itself at the hands of the competitors (Sillanpaa et al., 2014 ). The company thus has to come up with strategies such reducing the price of its software for it to continue commanding a large percentage of the market. Achievement of the strategic goals and objectives will enable CNT to improve its competitiveness in the market. Innovativeness and market standing will, therefore, help to ensure that the company still maintains a good relationship with its suppliers. Manufacturing of software is a vital sector of the CNT operations. It has the power to generate income to the company while at the same time employing many people. Getting a healthy buyer-supplier relationship will ensure that the manufacturing sector of the business remains high (Sillanpaa et al., 2014). The buyer and supplier relationship exchanges are thus based on conflict, commitment, trust economic and non-economic satisfaction between CNT and the partnering firms. Diagram showing zone of agreement between buyer and supplier Figure 1 : Value for money (Lonsdale, 2017) Research shows that the performance of the supplier alone cannot help a firm like CNT to have good performance in the market. Instead, the performance influence is based on the extent of the relationship between the buyer and supplier. Socializing the customer and supplier is vital for the success if a business and the management of the supply chain. Studies show that there is a consensus that a relational procurement process has a positive impact on the buyer-supplier association. The perceived benefits of the relationship include value delivery, clarity of the services requirements and even cultural alignment. The management of the buyer-supplier relationship is fundamental to the success of the supply chain management at CNT (Sillanpaa et al., 2014). In other words, strategic relationship with major suppliers needs to be maintained for CNT to maximize the value created in the supply chain. Dimensions such trust has been seen to improve these relationships thus making the telecommunication companies that are interested in quality software to maintain their link with CNT. It is thus necessary for CNT and the telecom companies to understand that they are gaining value from their association if the relation is to continue and if both parties are to achieve success. The exchange between the supplier and buyer depends on the level of involvement of the participating companies (Al-Abdallah et al., 2014). Communication and commitment are vital to the success of the buyer-supplier exchanges. Satisfaction is a variable that both the buyers and suppliers hope to get from the association. This means that the perceptions of the buyers and sellers in the supply chain management are similar and based on the mutual understanding of the needs that both parties need from the association. The buyer and seller relationship, however, advances through various phases before the relationship becomes stable. Commitment is the major factor for the success of the alliance. Other constructs proposed for the success of the relationship have varying degrees regarding importance throughout the relationship. Trust is important in shaping the interaction between buyers and sellers in supply chain management (Kumar & Rahman, 2016). Credibility in the exchange shows that the telecommunication companies believe that CNT will be able to provide them with the necessary software needed to enhance the frequency level in their equipment. The level of expertise exercised reflects the extent to which the relationship will go for both teams collaborating. Cooperation has been identified to be of importance in the relationship between CNT and the telecommunication companies. It helps the buyer and seller relationship to be proactive, thus expanding the business for both suppliers and customers. It ensures that both partners receive benefits from the relationship. In laying the terms of the relationship between CNT and the telecommunication companies, it is vital that the parties understand the mutual goals of every business. The mutual goals in the supply chain management will only be achieved through an understanding of the objectives of each of the companies (Al-Abdallah et al., 2014). Since the CNT is producing software using sophisticated technology, it uses a lot of resources which go into research and development of the software. It thus sensible for them to charge the price they name for their product. The telecommunication company has a right to negotiate for better pricing thus making these companies reach a consensus where both firms benefit from the arrangement. Shared values in the buyer-supplier exchange will enable the companies to find common ground that will allow their relationship to blossom while they enjoy the satisfaction of their association. Mutual goals will foster mutuality of interest and stewardship among the parties which will make the exchange to be successful and the companies to meet their targets and objectives. Transformation In Buyer-Supplier Relationship There has been a change in the association between the buyers and sellers in supply chain management. During the dark days and the CNT case study, for example, competitors and customers took advantage of a situation against one company to maximize profits on their part (Kumar & Rahman, 2016). The relationship between businesses was adversarial, and many buyers and sellers used manipulative tactics to get their share of the market and make profits. During the 1980s and the 1990s suppliers saw it fit to create a relationship with the buyers. The buyer and seller relations brought many unexpected benefits to both parties. The partnership was divided into three continua; transactional, collaborative and alliance. (Williamson, 2010). The transaction business was based on the firms just getting the work done, and none of the companies was interested in the well-being of the other. Collaborative and alliance relationship are the forms of relationships between buyer and supplier. These relations are imperative, and both parties seem to care about the welfare of each other. The relationships result in the improvement of operations, innovation and the technology used by the firms. The Supplier Perspective Suppliers like CNT may be convinced that any form of alliance is not good for business and cannot work in their interests. The provider may possess the economic power that makes them maximize their net income. The supplier like CNT may, however, face competition from other firms which makes them enter into alliances. The buyer company may provide prospects to the provider business to engage in a relationship that will guarantee both companies to have long-term relationships that will ensure businesses like CNT have their market share. The following diagram shows the supplier and seller connection. Figure 2: Supplier-buyer connection (Netmba.com, 2017) The buyer demand pattern for the commodities produced by the supplier company is of great importance as it increases stability and fit. Suppliers like CNT want to ensure that the quality requirements of their customers are within their capabilities. The supplying firm is always concerned with the problems of their customers which enables them to improve on their technology (Al-Abdallah et al., 2014). CNT and like firms are thus likely to be attracted to companies that like to form a collaboration with suppliers that have the technology and capability to solve their problems. The question to be asked is whether the alliances in the supply management community are for every firm. It can be helpful for the supply management to ensure that the company is not acting in an opportunistic manner. The managers of the exchange need to make sure that all the parties in the alliance are willing to share information and are knowledgeable about their operations. Situations In Which Buyer-Supplier Exchanges And Alliances May Not Be Appropriate Supplier and buyer alliances are critical for business. These associations are however not good if there is price volatility in the market. It has for firms like CNT to share the benefits and risks if there is price volatility. If the demand from the buying firm is unknown, the supplier may have to deal with overstocking which may affect sales. The capability of the potential suppliers may change the way alliances are formed (Williamson, 2010). If the providers are capable of handling the variations in the market, then agreements will be possible. Lack of capable suppliers in the market will bring about different kinds of relationships. If the market requires competition, the provider may take advantage of the market to supply their technology and products in the market. It is thus obvious that a supplying firm will not form any alliance in supply management when it can fully maximize on the market. Such a business will ensure that its presence is felt in the entire market and that all the buyers appreciate the products that the company supplies. Role Of Power In Buyer-Supplier Exchange Many publications do not address the role of authority in the supply management. Using the power in the market is, for instance, is seen to be unethical. However, power influences market demand and supply. Power plays a critical role in the buyer and supplier relationship (Schepker, et al., 2014). Power brings forth the captive buyer and the captive supplier. In the captive customer scenario, the buyer is held captive by the provider hence they cannot move to another provider in the market. In the captive supplier, the supplier makes some investments so as to secure the portion of the buyer’s business. Management of Supply There have been debates over how firms like CNT should manage their relations. Companies need to manage their internal demands for them to survive in the market. There are some problems that might exist within a firm. These problems may include; over-specification of products, changes in the specification, too-early specification and inadequate demand information. These issues affect the supply management (Watson & Lonsdale, 2003). Organization is under pressure to maximize on the transactions that exist between them and their buyers. For them to maximize profits and form good buyer-supplier relations, it is important for them to develop a robust purchasing and supply process (Chiles & McMackin, 1996). The procurement process involves key features and stages. These steps include the development of the specification. The specification enables the buyers to know the type of products that firms are producing and whether these products meet the needs of the business. Buyers, on the other hand, have a way of selecting appropriate suppliers. These suppliers are chosen based on their level of competence and understanding of the needs of the buyers. The functionality of the customer is also vital in the selection process (Chiles & McMackin, 1996). The functionality of CNT may include, the level of the technology that the company is going to bring to the buyer's business, the quality of the technology, responsiveness to the changes in demand, the time of delivery of the technology, the environmental policy and awareness of CNT and financial stability of CNT. In all aspects of the buyer-supplier relationship, it is important to think of the negotiations between the two parties. These talks help in determining the stance of the firms and the level of relationship that these companies are willing to form. The buying company needs to develop a self-enforcing agreement which will show the standard of money that the buyer will be bringing to the business and the significance of the association. Conclusion The buyer and seller relations offer an opportunity for firms to make profits in a market that has stiff competition. The organization ensures that both the customer and supplier get value for their money. CNT, for instance, has the ability to make sure that it maximizes profits even when their sales are plummeting. The company will thus form associations with the telecommunication companies so that it can remain in business. This partnership will ensure that the firm has enough customers that will purchase the software the company is producing. CNT can redeem itself amidst all the competition. CNT will need to understand the market and have a good reason for it to form alliances with other companies. Wrong reasons can limit the expansion of the business and the management of the exchanges of between CNT and other potential customers in the market. The company has been exercising power in the market. It is thus critical that CNT uses its influence to remain afloat in the market while the company is still competitive. Market and supply management dynamics are changing with each passing day. Understanding the needs of the potential partners is essential for the formation of collaborative alliances in the supply chain management business. Buyer-supplier relations are thus necessary based on the position of a company in the market. References List Al-Abdallah, G.M., Abdallah, A.B. and Hamdan, K.B., 2014. The impact of supplier relationship management on competitive performance of manufacturing firms. International Journal of Business and Management,9(2), p.192. Chiles, T.H. and McMackin, J.F., 1996. Integrating variable risk preferences, trust, and transaction cost economics. Academy of management review,21(1), pp.73-99. Johnson, P.F., 2014. Purchasing and supply management. McGraw-Hill Higher Education. Kumar, D. and Rahman, Z., 2016. Buyer supplier relationship and supply chain sustainability: empirical study of Indian automobile industry. Journal of Cleaner Production, 131, pp.836-848. Lonsdale, C., 2017. ‘Self- enforcing agreement diagram’, Value Chains, Outsourcing and Procurement lecture notes, Session 6 to 8. Lonsdale, C., 2017. ‘Value For Money diagram’, Value Chains, Outsourcing and Procurement lecture notes, Session 6 to 8. Marcos, J. and Prior, D.D., 2017. Buyer-supplier relationship decline: A norms-based perspective. Journal of Business Research, 76, pp.14-23. Netmba.com. 2017. Supplier-buyer connection diagram Value Chain Analysis. [online] Available at: http://www.netmba.com/strategy/value-chain/ [Accessed 7 Apr. 2017]. Schepker, D.J., Oh, W.Y., Martynov, A. and Poppo, L., 2014. The many futures of contracts: Moving beyond structure and safeguarding to coordination and adaptation. Journal of Management, 40(1), pp.193-225. Sillanpää, I., Shahzad, K. and Sillanpää, E., 2014. Supplier development and buyer-supplier relationship strategies–a literature review. International Journal of Procurement Management, 8(1-2), pp.227-250. 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