Suppliers are required to maintain good relationships with customers for the smooth operations of the business. This relationship can be developed by offering quality products and services to customers. D Krause, a researcher at Michigan State University, mentions: “An aggressive supplier development program can play an important part in helping the firm achieve its competitive goals.”
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Both the customer and the supplier play major roles in enhancing the productivity of an organization. A customer is someone to whom you offer your final output or services in return for a certain monetary value. Thus, to meet their rising needs, you need to maximize your productivity and quality.
On the other hand, a supplier is any business unit or individual from whom you obtain raw materials for producing the final output. It is important for an organization to choose the correct supplier from whom quality resources can be obtained.
There are many aspects that enhance the bond between suppliers and customers. The major aspects are price and timely delivery of materials. Before the 1980s, procurement decisions were made exclusively on the basis of price, and the agreement for buying the raw materials is given to the lowest bidder.
This adversely impacted the quality and timely delivery of products. Quality guru, Deming, mentioned that customers should discontinue this choice for suppliers depending on just low-priced offers. Price, in reality, has no value in case the quality of the final products or output cannot be obtained in return.
Additionally, Deming advocated single suppliers for each good so that a higher level of trust and loyalty could be built, helping suppliers expand long-term relationships with their customers. As a result, suppliers initiated offering products and services that achieved customers’ needs in both quality and price.
The second aspect leading suppliers to concentrate on their relationship with customers is well-timed delivery of products. That is why the theory of Just-in-Time (JIT) was introduced in business exercise. JIT is a manufacturing method that supports an organization in preparing products accurately based on customers’ needs.
It even enables manufacturers to identify when the customers desire the products and in what quantity. JIT has radically changed production processes. It has supported manufacturers control production schedules depending on customers’ particular requirements by keeping minimal costs and low lead time. JIT even supports diminishing the surplus of resources and making products obtainable at the exact time.
In the current business scenario, organizations spend a large amount of money on the acquisition of quality materials, so that advanced quality products can be delivered to the end users. The quality output and services get customers back to their chosen suppliers, leading to a better association between them.
The figure shows the expectations of customers from suppliers:
Let’s study the points, illustrated in Figure:
Enhanced quality material often gives quality output. These inputs are given by suppliers. In case the final output is capable to realize customers’ needs, they will purchase more material from the supplier. This will enhance the intensity of transactions.
Increased transactions mean higher demand, which leads to higher efficiency. Therefore, offering quality output not only enhances the level of transactions but even supports an organization to build up a superior association with both suppliers and end users.
Suppliers could be in an advantageous position depending on pricing, suitability, consistency and excellence. From the viewpoint of quality, a firm would like to deal with suppliers who offer better quality than their competitors.
It includes the various facilities offered by suppliers to their customers, like trade discounts, price exemptions, credit facilities, and free shipping. The longer the relationship, the higher the likelihood of receiving good service from suppliers.
One of the prime factors that all customers expect from suppliers is timeliness. In case, an organization obtains resources at the exact time from the supplier, it can fulfill its obligation to the customers at the exact time. Delay in the delivery of materials leads to delays in the final output, and in the long run impacts the goodwill and consciousness of suppliers.
Additionally, a lack of time management even creates breaches between organizations and end users and affects the overall business relationship between a supplier and a customer. Timeliness brings vital stability between suppliers, customers, and end users.
In order to establish a long-lasting relationship, suppliers look ahead to the following from their customers:
A customer is required to clear all monetary dues on time to evade any chaos that can impact customer-supplier relations.
Customers must offer ample lead times to suppliers so that suppliers can administer production and delivery of the necessary resources on time.
Business information should be shared between customers and suppliers, in order to understand any new changes, like the number of orders, delivery date, and payment terms.
Sourcing is the first step in cultivating a fruitful customer-supplier association. The term sourcing indicates ‘finding or tracing the right supplier from whom the required resources can be acquired.’
There are three types of sourcing, as illustrated in Figure:
Let us discuss the three types of sourcing as follows:
This is when customers have only a single source for purchasing necessary resources. The rationale behind opting for a sole source is that just one organization or division of an organization produces a specific product. Due to limited sources of supply, sole sourcing offers the scope for developing a multidimensional relationship, known as partners, between the customer and supplier.
In this type of sourcing, there are more than two suppliers in the market for a specific kind of product. This kind of sourcing leads to rivalry among suppliers. The progress of a customer-supplier association when there are multiple sources is based on aspects like the level of quality resources, price, profitable offers, discount facilities, and services offered by suppliers.
In this type of sourcing, the customer (organization) selects a specific supplier out of various accessible sources. Single sourcing leads to a long-term association between the customer and the supplier. Single sourcing is advantageous to an organization in terms of limited production costs, supplier loyalty, and enhanced output.
The table shows the differences between a sole source and a single source:
|Sole Source||Single Source|
|The customer does not have any option to select from.||This source offers customers a variety of choices to select from.|
|Having only one supplier limits the time and resources required in moving from supplier to supplier.||A lot of time and resources are consumed in finding the best alternative.|
Selecting a supplier involves identifying, evaluating, and drafting agreements and contracts with suppliers. Choosing a supplier is a tough job that must be carried out after thorough consideration as any incorrect decision may lead to losses in time, capital, and effort.
The following list of questions helps a customer (organization) in choosing the right kind of suppliers:
- What is the volume of the output that needs to be produced and supplied?
- How efficient is the supplier?
- Is the supplier financially efficient?
- What is the market image of the supplier?
- Does the supplier have the required technology and equipment and a skilled workforce to meet the specified requirements?
Each of the above queries must be answered based on delivery, costs, safety, quality, services, and attainment of technical knowledge.
The following conditions must also be taken into consideration before taking the final decision:
- The supplier should clearly understand the policies and quality objectives of the organization.
- The supplier should maintain high technical standards and must be proficient enough to deal with future advancements in technology.
- The supplier should be prepared to cater to the growing demand of customers without compromising on quality standards.
- The supplier should adhere to the business terms.
- The supplier should maintain confidentiality
- The entire business process flow should be traced on a regular basis.
- There should be adequate and effective communication between the customer and the supplier
- The supplier should have a successful quality system and enhancement program.
- The supplier should have a track record of customer satisfaction.
In today’s competitive business environment, many suppliers have successfully established their existence in the market. Their long-term existence in the market reflects their potential and standard of services.
These suppliers are often rated as ‘good’ or ‘excellent’ when they meet or exceed expectations. This rating helps in assessing the performance of suppliers and establishes a positive impression in the minds of end users and in the market.
Suppliers should be rated on the basis of the following:
- Standard and official review of suppliers’ overall performance
- The standard evaluation system for all suppliers
A supplier rating system is usually referred to as the ‘scorecard’ system. It evaluates approved suppliers based on their services, product quality, and opinion from end users.
Some key criteria in rating a supplier are:
- Market position
- Time management and precision
- Discounts and payment terms
- Zero defect product
- Redressal of issues and complaints
The supplier’s rating system depends on quality, delivery, and service. Based on these criteria, the performance metrics of a supplier are shown using the three colors of a traffic signal, red (problems), yellow (potential problems), and green (no problems).
The table shows an example of a supplier scorecard in the hardware industry, where the main rating criteria comprise product technology, lead time, delivery, and technical support:
The customer-supplier relationship depends upon many factors: frequency of their interactions with each other, adherence to policies, quality objectives, business terms, etc.
This relationship can be strengthened by taking care of the following points:
- Inspection: It refers to the practice of examining the degree to which quality objectives are met by the customer and supplier. A relationship is a two-way approach in which the business activities and products/services of both parties are inspected. There are four levels of an inspection process: 100 % inspection, sampling, audit, and identity check.
- Training: Providing proper training to suppliers is essential to maintain the desired standards of quality. Training programs also offer the scope of collective participation by both suppliers and customers.
- Team approach: Developing the spirit of working in a team helps all the members to contribute productively towards a common goal.
- Recognition: It involves providing incentives, monetary rewards, letters of commendation, and other business opportunities to suppliers who have met or exceeded the expectations of the organization.
From the discussion so far, it can be summarised that establishing an effective customer-supplier relationship is a five-step process that involves:
- Sourcing the right suppliers
- Select the right suppliers
- Ensuring the standards of quality delivered by the suppliers
- Assessing the performance of suppliers and rating them.
- Establishing a good customer-supplier relationship by inspection, training, team approach, and recognition.