Supply Chain Management PMA

Module Code

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Signed: ......Arjald Gordani................................................................

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MODULE TITLE: Supply Chain Management MODULE CODE: UKFM-SCM 10SC01

MODULE DATE: 18th – 22nd October 2010

NAME/NUMBER: ...Arjald Gordani..............................................

GROUP: ...................................1...............................

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THE UNIVERSITY OF WARWICK

SCHOOL OF ENGINEERING

MANUFACTURING GROUP

MSc PROGRAMMES

POST MODULE ASSIGNMENT

SUPPLY CHAIN MANAGEMENT

Write two study reports to further explore the two of the following three SCM areas:

1. Explore the emerging concepts of Lean Supply Management based on

what can be referenced in concurrent literatures; discuss the critical

imperatives of efficiency and effectiveness that the lean approach can

bring about. Propose a general approach with adequate level of details for

an organization to initiate, develop and sustain lean supply management.

2. Elucidate the critical importance of supplier relationship management for

the supply chain competitiveness; by finding and referencing to a number

of professional literatures critically review some relationship management

frameworks, models and approaches; discuss how a business might

decide on the most appropriate relationship portfolio and management

approach.

3. Explore the definition and concept of supply chain performance and

explain how that is related or contributing to business excellence; explore

what constituent components of supply chain performance measures and

further distinguish it from business performance measures; discuss how

those measures may be used constructively to transform the business

strategy and improve operations and customer services.

Requirement:

a. A content page and page numbering b. To complete two separate reports on two chosen topics from the

three above, indicating the question number. c. Properly structure the discussion into sections and give subtitles for

each section. d. Use references (normally 3-5 professional journal articles for each

report) to demonstrate the extended learning

e. Each topic is recommended to be around 2000 words in length. f. No lengthy case study is required, but some short (a few

sentences) real world examples may be adequate.

Module Code

COMPLETION DATE:

To be submitted electronically using the appropriate web-form available from http://www2.warwick.ac.uk/fac/sci/wmg/ftmsc/postmodulework/submissions/ and

following the guidelines provided in your handbook BEFORE 09:00 on 06/12/10

PLEASE NOTE

1. PMW received after 09:00 will be stamped as having arrived on the next working day.

2. Post Module Work which does not reach WMG by the due date will be considered to be late. Penalties for lateness may be applied at the rate

of 3 percentage points per University working day after the due date, up to a maximum of 14 days late. After this period the work may be

counted as a non-submission.

http://www2.warwick.ac.uk/fac/sci/wmg/ftmsc/postmodulework/submissions/

Arjald Gordani Supply Chain Management 2010

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Table of contents

1 Introduction Page 5

2 The lean philosophy Pages 6-7

3 Efficiency and effectiveness of lean supply Pages 7-8

4 Approaches to lean supply Pages 9-12

4.1 Lammings’s lean supply model Pages 9-11

4.2 Stammer’s 5 steps Pages 11-12

5 Conclusion Page 12

6 Bibliography Pages 13-14

7 Appendix 1 Page 15


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Question 1: Explore the emerging concepts of Lean Supply Management

based on what can be referenced in concurrent literatures; discuss the

critical imperatives of efficiency and effectiveness that the lean

approach can bring about. Propose a general approach with adequate

level of details for an organization to initiate, develop and sustain lean

supply management.

1. Introduction

The increase in customer demand variability, together with an increase in

pressures from competitors and decrease in the resource base has led

organisations to seek new strategies to reduce cost and improve responsiveness

to customer demand Keen and Evans (2010). An increasing number of

companies are now implementing the lean management approach to their

internal operations as well as to whole supply chain Keen and Evans (2010).

Cagliano, Caniato and Spina (2004) argue that companies are increasingly

focusing on inter-company processes in order to enhance efficiency and

effectiveness of the whole value stream.

Suppliers are increasingly contributing more value to the final product through

greater input in the product development process or even complete

responsibility for engineering and design Nellore, Chanaron and Soderquist

(2001). It is at this time that lean thinking evolved into the value stream

concept, and it was seen to extend from the initial raw materials supplier to the

end customer while using the production pull system through the whole supply

chain Hines, Mathias and Nick (2004). An important consideration of lean is to

add value in all stages of the process and activities that do not add value are

removed Mangan, Lalwani and Butcher (2008). The relationships between

suppliers and customers along the value stream are critical to achieving

leanness, hence the importance of lean supply Erridge and Murray (1998).

This report will continue by briefly discussing the characteristics and evolution of

lean manufacturing. It will then draw on the effectiveness of lean supply and the

arguments for and against in concurrent literature. It will then conclude by

analysing one of the most widely referenced lean supply models.


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2. The lean philosophy

To further analyse the concept of lean supply management, it is first necessary

to discussing the main characteristic behind lean manufacturing. The lean

concept was first introduced in the book „The Machine That Changed The World‟

Gottorna (2006). Womack found a 2:1 difference in productivity with Japanese

companies that showed 50 percent superiority on defects per car compared to

the American mass producers McIvor (2001). Lean producers employ teams of

very skilled workers at all levels of the organisation and use highly flexible,

automated machines to produce volumes of products in enormous variety

Womack, Jones and Ross (2007). Over time, different models of manufacturing

have evolved through two key output criteria, namely output volume and output

variety Mangan, Lalwani and Butcher (2008) and only recently, the two output

criteria have been realised at the same time. This can be outlined in figure 1

below.

Figure 1.

Sourced from Mangan, Lalwani and Butcher (2008:39)

Lean manufacturing can be traced back to the Toyota production system, where

the emphasis was on total flow through the system, quick machines turnover,

even production, exclusion of „muda‟, low levels of inventory, faster total process

time and total quality management (TQM) Mangan, Lalwani and Butcher (2008).

Lean production uses a wide range of management practices in a multi-

dimensional approach such as, cellular manufacturing, just in time (JIT)


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purchasing, quality systems, work teams, 5S and supplier relationship

management Adamides et al (2007). These approaches are integrated to create

high quality products in line with customer demand with little or no waste Shah

and ward (2003).

3.Efficiency and effectiveness of lean supply

Manrodt (2005:7) defines lean supply as “A set of organisations that

collaboratively work to reduce cost and waste by efficiently and effectively

pulling what is needed to meet the needs of individual customer”

In mass production, errors would be passed on to keep the assembly lines

running. This resulted in a multiplication of errors through each stage down the

line. Where as in the case of lean, working in a team culture producing small

batches made it possible to recognise errors straight away. Problems are solved

by tracing every error to its cause and fixing the issue so that it would not

happen in the future. Lean uses less to create the same but at higher variety

and better quality compared to mass production Hines, Rich and Esain (2004).

As a consequence manufacturers like Toyota have no rework areas compared to

20% of the total plant area in a mass production environment Womack, Jones

and Ross (2007).

In mass production, the parts would normally be designed by the assembler who

would then select a supplier according to the lower price Lamming (1993).

However, sourcing in lean supply is for the long term, this may not necessarily

reduce price but it can lead to cost reduction efforts, so that margins are kept or

improved by reducing cost Keen and Evans (2010). For example, Toyota would

always buy from Nippondusso where it would also hold a minority stake

Womack, Jones and Ross (2007). In this way, the companies would grow

together in what Lamming (1993) referred to as „shared destiny‟.

Lean supply chains are established and managed through proactive and

collaborative relationship between all the suppliers and customers that add value

to the chain. To quote Adamides et al (2007:35) “lean supply involves designing,


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planning and executing across multiple partners to deliver products of the right

design and features, in the right quantity, in the right place, at the right time”.

In addition to lean manufacturing principles outlined above, lean supply uses

rate based planning and execution to even deliveries and production along the

value stream through effective capacity planning Adamides et al (2007). Lean

supply decreases dependency on inventory and firms can benefit from higher

inventory turns and lower inventory day sales Manrodt (2005). It reduces or

removes the bullwhip effect through information enrichment Sucky (2009). For

example, Wall Mart sends point-of-sale date to Procter and Gamble every two

hours Manrodt (2005). However, there is a need for collaborative decision

making between partners in order to create a win-win scenario with a culture of

trust and agreements. The assemblers gain benefits by rationalising the supply

base Lamming (1993). This can be in terms of lower administration costs and

higher negotiation power. Through rationalisation, the assembler can

concentrate to excel in its specialised area or its core abilities. The supplier will

gain benefits through higher responsibility and greater contribution in the value

adding activity.

However, lean supply management is still at an early stage of its application in

practical terms, with many firms only concentrating implementation in the shop

floor by looking just at the first tier suppliers Hines, Mathias and Nick (2004).

Companies have to be aligned with the supplier‟s suppliers and with the

customer‟s customers or even with the competitors in order to make operations

more efficient Jain et al (2008). For example JCI and Lear who are first tier

suppliers for Volve share each other‟s production capacity Choi and Wu (2009).

Lamming (1993) suggests that in order for lean supply to have an important role

in strategy planning and development, it needs to be viewed as a realistic and

practical solution with a focus on constant improvement. Such processes require

rich knowledge exchanges that can be done through face to face interaction.

However, knowledge exchange can be quite difficult when dealing with global

supply chains Shi and Gregory (2005).


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4. Approaches to lean supply

There have been two main models to the implementation of lean and lean supply

which have been widely referenced in the academic literature, namely Lamming

(1993) and Womack and Jones. (1996). However, the model provided by

Lamming (1993) will be discussed due to its greater focus on the supply chain

and not just the firm itself. This model will be considered together with a

framework provided by Stammer (2009). Stammer‟s five steps were chosen

because they are believed to be highly comprehensive and easy to implement. A

table representing the Womack and Jonson‟s model is shown in Appendix 1.

Figure 2: Lean supply model of customer supplier relationship

Sourced from Lamming (1993:194)


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4.1. Lamming‟s lean supply model

4.1.1. Sourcing and nature of competition

Sourcing is for the long term to provide a more stable basis for planning with an

emphasis on developed working relationships. The supplier should develop

strategies and technologies for global cover independently from those requested

by the customer. Lean supply includes collaboration with competition as well as

between customers and suppliers.

4.1.1. Data

According to Lamming (1993), the supplier must relate its own business

operations to the final market using the concept of “heijuka” and not the batch

production smoothing. The supplier must be able to work in confidence with

more than one assembler and not share information with other customers.

4.1.2. Capacity

Lamming argues that it is not necessary to have geographical closeness between

the supplier and the customer in order to implement and achieve JIT through

kanban systems. However, to have your component supplier located close to

your plant does have its advantages. For example, Johnson controls invested £8

million to locate a plant within 10 miles of the Toyota assembly plant. There

should be joint planning on capacity and it might even be necessary to agree to

comparable rates of return on assets employed.

4.1.3. Price changes and Costs

There is a need for open books so that each party can be made aware of the

relevant costs structures of the other party and the implications resulting from

change. Lean supply requires knowledge of the cost of the value-added in each

stage, possibly through a use of value analysis and target costing. Marginal price

increases can be smoothed out by marginally reducing costs though

collaboration.


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4.1.4. Quality

Product quality is measured at defects levels in parts per million using the six

sigma approach. As soon as this is achieved, the relationship continues in the

assumption that the quality level will be constantly improved.

4.1.5. Risk and R&D

Risk is reduced for the assembler when it comes to moving into new technology

because the supplier will help develop the idea and invest in assets outside

contract terms. The supplier will also incur benefits when it comes to planning

accordingly. Collaboration and innovation between customer and supplier by

making inventions practicable through shared research and development. For

example, Mercedes Benz and Bosch shared resources to create the anti-lock

breaking system.

4.1.6. Critique

However, there is a lack of empirical evidence of the implementation of

Lamming‟s lean supply model which questions whether the benefits can actually

be achieved McIvor (2001). In a study carried out by McIvor (2001) in the

electronics industry, it was found that there is no evidence of true cost

transparency. Price changes were dealt by eating away the margins from the

supplier and not by finding ways to reduce cost. However, there can arguably be

more integration in the future. Hines, Rich and Esain (2004) suggest that lean

approaches such as kanban or level scheduling are difficult to be integrated in a

chaotic and volatile market.

4.2. Stammer‟s 5 Steps

Stammer (2009) argues that there are five ways to implement lean supply:

Step 1: Balance manufacturing efficiency with customer needs by producing

smaller batches.

Step 2: Use supplier portals to extend this efficiency with the supplier and

eliminate administrative and manual work.

Step 3: Running parallel MRP processes through make-to-order systems and

changing the point of postponement over time by constantly analysing demand

and inventory turns.


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Step 4: Improve forecasting accuracy to reduce inventory and increase levels of

service by assigning the forecasting role to an independent party within a

company and not to individual departments.

Step 5: The enterprise application used must support and integrate lean efforts

with a system recording performance and quality in every batch.

5. Conclusion

The report looked at the emerging concept of lean supply by referring to

concurrent academic and non academic literature. It was found that lean supply

is an extension of the lean manufacturing concept with a focus on eliminating

non value adding activities throughout the chain in order to reduce costs and

increase customer service. It was said that the application of lean can result in

efficiency gains by both the assembler and the supplier. However, the

implementation of lean is still in an infant stage with many companies focusing

on the shop floor, even within the automobile industry which is the mother of

lean. Also the understanding of lean supply still remains unclear. Finally, this

report concluded by analysing one of the most widely referenced lean supply

models in academic literature. However, it can be argued that there is no best

practice approach that can be highly effective because it will depend on the

industry the firm is in and whether the firm is a manufacturing or service

organisation.


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Bibliography

Adamides E. D., Karacapilidis N., Pylarinou H., and Koumanakos D. (2007)

„Supporting collaboration in the development and management of lean supply

networks‟, Production Planning and Control, Vol. 19, No. 1, pp. 35-52

Bozarth C. C., Warsing P. D., Flynn B. B., and Flynn J. E. (2009) „The impact of

supply chain complexity on manufacturing performance‟, Journal of operations

management, Vol. 27, No. 1, pp. 78-93

Cagliano R., Caniato F., and Spina G. (2004) „Lean, agile and traditional supply:

how do they impact manufacturing performance?‟, Journal of Purchasing and

Supply Management, Vol. 10, No. 4-5, pp. 161-164

Choi Y. T., and Wu Z. (2009) „Taking the leap from Dyads to triads: Buyer-

supplier relationships in supply networks‟, Journal of Purchasing and Supply

Management, Vol. 15, No. 4, pp. 263-266

Erridge A., and Murray G. (1998) „The application of lean supply in local

government: the Belfast experiments‟, European Journal of Purchasing and

Supply Management, Vol. 4, No. 4, pp. 207-221

Gattorna, J. (2006) Living supply chains: how to mobilise the enterprise around

delivereing what the customer wants, New York: Financial Times/Prentice hall

Hines P., Matthias H., and Nick R. (2004) „Learning to evolve: A review of

contemporary lean thinking‟, International Journal of Operations & Production


Hines P., Rich N., and Esain A. (2004) „Creating a lean supplier network: a

distribution industry case‟, European Journal of Purchasing and Supply


Jain V., Benyoucef L., and Deshmukh S. G. (2008) „What‟s the buzz about

moving from „lean‟ to „agile‟ integrated supply chains? A fuzzy intelligent agent-

based approach‟, International Journal of Production Research, Vol. 46, No. 23,

pp. 6649-6677

Keen M., and Evans C. (2010) „Lean in the supply chain: friend or foe?‟,

Management Services, Vol. 54, No. 3, pp. 16-20

Lamming, R. (1993) Beyond partnership: strategies for innovation and lean

supply, London: Prentice-Hall

Mangan, J., Lalwani. C., and Butcher, T. (2008) Global logistics and supply chain

management, Hobeken, New Jersey: John Wiley & Sons


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Manrodt B. K. (2005) Understanding the lean supply chain: beginning the

journey [On-Line]: UK: Available

http://coba.georgiasouthern.edu/centers/lit/oracle_WP_supply_chain_r6.pdf,

Accessed: 12 November 2010

McIvor R. (2001) „Lean supply: the design and cost reduction dimensions‟,

European Journal of Purchasing & Supply Management, Vol. 7, No. 4, pp. 227-

242

Nellore R., Chanaron J., and Soderquist E. K. (2001) „Lean supply and priced

based global sourcing: the interconnection‟, European Journal of Purchasing &

Supply Management, Vol. 7, No. 2, pp. 101-110

Shah R., and Ward T. P. (2003) „Lean manufacturing: context, practice bundles

and performance‟, Journal of Operations Management, Vol. 21, No. 2, pp. 129-

149

Shi Y., and Gregory M. (2005) „Emergence of global manufacturing virtual

networks and establishment of new manufacturing infrastructure for faster

innovation and firm growth‟, Production Planning and Control, Vol. 16, No. 6, pp.

621-631

Stummer R. (2009) „Top five ways to lean your supply chain‟, manufacturers

monthly, pp. 18-18

Sucky E., (2009) „The bullwhip effect in supply chains - An overestimated

problem‟, International Journal of Production Economics, Vol. 118, No. 1, pp.

311-322

Womack, P. J., Jones, T. D., and Ross, D. (2007) The machine that changed the

world, London: Simon & Schuste

http://coba.georgiasouthern.edu/centers/lit/oracle_WP_supply_chain_r6.pdf


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Appendix 1: Stages of implementing lean thinking

Sourced from Hines, Mathias and Nick (2004:1004)


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Table of Contents

8 Introduction to supplier relationship Pages 17-18

9 Models, approaches and frameworks Pages 18-23

9.1 Kraljic’s purchasing matrix Pages 18-20

9.2 Bensaou’s contextual factors Pages 20-21

9.3 Partnerships Pages 21-22

9.4 Just-in-time purchasing Pages 22

9.5 Just-in-Time ll Pages 23

10 Relationship portfolio and management approach Pages 23-24

11 Conclusion Page 25

12 Bibliography Pages 27-28


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Question 2: Elucidate the critical importance of supplier relationship management for the supply chain competitiveness; by finding and

referencing to a number of professional literatures critically review some relationship management frameworks, models and approaches;

discuss how a business might decide on the most appropriate relationship portfolio and management approach.

1. Introduction to Supplier Relationship Management

The Industrial Marketing and Purchasing group (IMP) carried out one of the first

studies that looked at the relationship between buyers and sellers in 1982

Lamming (1993). Since this early stage, there has been an increase of interest

from both professionals and academics on the importance and influence of

intercompany relationships to the competitive success of the supply chain Leek,

Turnbull and Naude (2003). Reichheld Sasser (1990) argued that forming

successful relationships with buyers can lead to increased satisfaction and

loyalty, leading to improved supplier performance. Croom, Romaro and

Giannakis (2000) state that organisations should not strive to gain cost

reductions and improve profitability by draining margins from their partners,

instead they should seek to make the whole supply chain more competitive

through collaboration with supply partners.

Supplier relationship is increasingly becoming more important as the global

competition intensifies requiring coordination and fast response in the value

chain Choy, Lee and Lo (2003). Supplier relationship management (SRM) is a

new element in the Supply Chain (SC) prescriptive. Choy, Lee and Lo (2003:88)

“SRM is about maximising the value of the supply base by providing an

integrated set of management tools focused on the interaction of the

manufacturer with its suppliers”. Day (2006) suggested a strategic view of SRM

defining it as a cross-company structured process that improves the value

obtained between customer and supplier. Choi and Wu (2009) called for a move

away from current dyadic and transaction cost models introduced by the IMP

group to the networked view of the SC relationship in a triadic consideration.

This view is also shared by Olsen and Ellram (1997) suggesting that companies

should manage the entire portfolio of supplier relationships.


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By integrating SRM with customer relationship management (CRM) through the

same Enterprise Resource Planning (ERP) system, important benefits can be

gained such as faster cycle times, quicker and flexible response to changing

demand and cost saving through quality improvements. Park et al (2010)

suggest that systematic SRM efforts can reduce risk and uncertainty and

optimize inventory levels. A recent study has shown companies can achieve a 23

percent increase of value when concentrating on supplier relationship, which is

on average $1 billion of cost reductions for each respondent Day (2006).

Another example of such benefits was given by Andrews (2010) stating that

Unilever has achieved higher on-shelf availability and 4 percent in cost reduction

through better SC relationships. However, SRM has often been implemented

without cross functional alignment and poor efforts on building trust and mutual

commitment which are essential to exploit opportunities on value creation

Hughes (2008).

Purchasing strategy in the past twenty years has been incorporated in the term

Supply chain management (SCM) Krause et al (2009). This increase in

importance is highly correlated to the increase of the purchasing and outsourcing

costs as a percentage of total revenue Park et al (2010). According to Lee and

Drake (2010) and Kraljic (1983) many manufacturing firms use 50-70 percent of

their sales revenue on purchasing costs. Metty, Harlan and Samelson (2005)

stated that Motorola has become stronger, leaner and more profitable from

strategically managing purchasing and supplier relationships through their

strategic sourcing platform. Therefore, it can be argued that to ensure a

successful performance for SCM, the purchasing function needs careful

consideration.

2. Models, approaches and frameworks

2.1. Kraljic‟s Purchasing Matrix

Kraljic (1983) introduced a purchasing portfolio model in which purchased items

are classified on the basis of two dimensions, profit impact and supply risk. Each

dimension has two possible values: high or low table 1. Profit impact is defined

in terms of volume purchased, impact on quality, and percentage of purchase


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cost. Factors such as number of suppliers or make-or-buy decision can influence

supply risk Kraljic (1983). The purchased items are than classified into one of

the four quadrants of the portfolio model Lee and Drake (2010). Kraljic (1983)

also introduced a second approach where he identifies the relative power

position of the organisation in the supply market. He examines three purchasing

strategies which depend on the power balance in the relationship, namely,

diversify: if the supplier has dominant power; exploit: if the buyer is dominant

and balance: if the relationship is balanced. Both of these approaches will be

considered in the next paragraphs.

Table 1: Kraljic‟s model

Applied from Kraljic (1982:112)

2.1.1. Strategic

Strategic items are critical to success and require close interaction between the

buyer and the supplier. The purchasing strategy here is to maintain a strategic

partnership, regular information exchange and long term relationships to

increase coordination intensity. There is arguably a balance of power with high

mutual dependency Caniels and Gelderman (2005).


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2.1.2. Leverage

Leverage items are easy to manage but have high strategic importance due to

their large share of cost. They can be obtained from different sources and the

buyer is encouraged to exploit the purchasing power by selecting suppliers who

will be subject to a bidding war. Vendor and value analysis together with price

forecasting should be implemented.

2.1.3. Bottleneck

Bottleneck items are challenging to manage but have low financial impact. They

can cause production problems due to scarcity of supply, or due to power

imbalance, with suppliers dictating high prices. Therefore the buyer can

diversify, have back up plans, control suppliers and keep safety stock.

2.1.4. Non Critical

Non critical items have low strategic importance and should be dealt through

simple market analysis. The purchasing strategy should reduce transaction cost

through product standardisation and optimisation of inventory. Suppliers of non

critical items can be reduced to increase the power of buyers. The relationship is

characterised by mutual dependency and a balance of powers.

2.2. Bensau‟s contextual profiles

The model given by Kraljic can help buyers optimise capabilities for different

suppliers and effectively manage relationships. There have been recent

refinements of Kraljic‟s model such as Olsen and Ellram (1997), Caniels and

Gelderman (2005) or Bensaou (1999). Bensaou developed a model using two

dimensions namely: buyers‟ and suppliers‟ tangible and intangible investments

Figure 1. These authors have filled gaps not covered by Kraljic though a

strategic focus on all quadrants, and the identification of a unique strategy for

each relationship.


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Figure 1: Bensau‟s model

Sourced from Bensaou (1999:36)

2.3. Partnerships

Recently, most car manufacturers have decreased their vertical integration,

reduced their total number of direct suppliers and moved towards publicly

declared strategic partnerships Ploetner and Ehret (2006); Bensaou (1999).

Partnerships can be placed in the strategic quadrant of Kraljic‟s model Caniels

and Gelderman (2007). However, not all relationships can be a strategic

partnership. Day (2006) argues that really strategic suppliers can be five-fifty

depending on the organisation‟s size, scale and sophistication. Anderson and

Narus (1990:96) define partnerships as: “A process where a customer firm and a

supplier firm form strong and extensive social, economical, service, and

technical ties over time, with the intent of lowering total costs and for increasing

value, thereby achieving mutual benefit”. In true partnerships, each side is not

only committed to the other but also change their behaviour in order to meet the

other partner‟s needs Ryu, So and Koo (2009). Partnership can also be in

between competitors for example: JCI and Lear both supply seats to Volvo

however they collaborate and share production capacity with each other Choi

and Wu (2009). Some of the main advantages are shown on Figure 2.

However, Ploetner and Ehret (2006) argue that partnership can result in conflicts

when bargaining and buyers may use the open book system to gain higher

profits by extracting more margins from their suppliers.


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Figure 2: Partnership Advantages

Sourced from Gelinas, Jacob and Drolet(1996:43)

2.4. Just-in-Time purchasing

The purchasing function is highly important to one form of partnership such as

Just in Time (JIT) purchasing Gelinas, Jacob and Drolet (1996). Gilbert, Young

and O‟Neal (1994) argue that the JIT philosophy requires long term partnership

commitment and constant communication. JIT purchasing is characterised by the

frequent delivery of high quality items in small quantities, just when they are

needed through a small supplier base Gunasekaran (1999). There is a wide

agreement on the benefits achieved through JIT Hong and Hayya (1992);

Gunasekaran (1999); Gilbert, Young and O‟neil(1994). These benefits include

reductions in lead time, lower inventory and the elimination of waste through

improved quality of incoming items.

In a JIT environment, the buyer must commit through long term agreements,

offer technical assistance or financial support to the supplier and share

production and operational related information. The suppliers have to improve

their performance through higher quality, higher flexibility and lower prices

Gilbert, Young and O‟Neal (1994). However, there are some drawbacks

associated with JIT: high costs and difficulties in changing suppliers (buyer

prospective) and high costs if the buyer does not fulfil its commitment (supplier

prospective).


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2.5. Just-in-Time ll

The JIT ll concept was introduced by BOSE Corporation as an approach that

minimises purchasing cost as sales increase Green, Inman and Brown (2008). In

a Jit ll environment, a supplier‟s employee sits in the purchasing office of the

customer replacing the buyer and the sales person Dixon (1999). The employee

has full access to customer facilities and data and is empowered to use the

customer purchase orders and place orders on himself/herself. The previous 4

stage communication system is replaced by a 2 stage system figure 3.

Some of the advantages described by Dixon (1999) include: immediate and

ongoing material cost reduction, increase in dollar value of business, reduced

paper work and real time data.

Figure 3: Traditional 4-stage system and 2-stage JIT ll system

Applied from Dixon (1999:16)

3. Relationship portfolio and management approach

The final part of the report will discuss the most appropriate relationship

portfolio and management approaches available to organisations on different

circumstances. The model used in this discussion will be the portfolio analysis

provided by Bensaou (1999). Firms should consider market characteristics,

product characteristics and supplier characteristics when deciding on a

relationship portfolio and management approach.

3.1. Market Exchange

If a firm purchases standardised items that require little engineering from

suppliers, and are not subject to major technological innovation or design

changes, the company should employ a „Market Exchange‟ relationship. This

relationship requires little capital investment and many suppliers can be sourced.

Buyers hold most power and are encouraged to leverage economies of scale


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from large orders. Suppliers should be selected according to price and official

meetings are very rare. Delivery, quality control and inventory are coordinated

through established routines.

3.2. Captive Buyer

When a customer operates in a stable market with little technological change

and purchases complex components that require some form of customisation, a

„Captive Buyer‟ relationship can be implemented. The supply market is very

concentrated with few well established players who hold great power, resulting

from proprietary technology. Shifting to a different supply is costly and difficult

due to investments made by the buyer and therefore some in-house

manufacturing capability is recommended. There is a need for detailed

information sharing on a regular basis between all functions in both firms.

3.3.Strategic Partnership

A firm should consider entering a „Strategic Partnership‟ if it operates in fast

changing environment, and if it requires highly customised components. The

relationship requires mutual contribution and joint investments in R&D, from the

design stage to the final delivery of items through a just in time approach. The

exchange of information is done electronically and face to face through the use

of electronic data interchange, CAD/CAM systems and three dimensional quality

and production control.

3.4.Captive Supplier

When customers require highly complex components that are often developed or

owned by suppliers, the considered relationship is „Captive Suppliers‟. The

supplier has low power and carries out high capital investments to stay in the

market. The buyer should keep three to four suppliers for each component part

and shift each time that there is quality, delivery or other operational problems.

The relationship is based on a low level of information exchange. There is high

mutual trust with a focus on coordinating complex tasks rather than control.


25 | P a g e

4.Conclusion

The report discussed briefly the importance and influence of supplier relationship

management on the supply chain competitiveness by giving real case examples.

It was argued that SRM can bring many advantages to the partners in the SC

and increase the SC competitiveness through higher value added and significant

cost reductions. Purchasing strategy was found to be of high importance in the

supply chain management perspective. Two highly cited portfolio models were

analysed to identify specific purchasing strategies that firms can implement

according to their purchase requirements and the supply market characteristics.

The partnership approach was next discussed by referring to Just-in-Time

purchasing and Just-in-Time ll. Advantages and disadvantages of these

approaches were identified. In the last part of the report, Bensau‟s (1999)

portfolio model was implemented. This model served as a guide on the specific

relationship portfolio and the corresponding management approach that a firm

should take depending on three characteristics, namely market, product and

supplier characteristics.


26 | P a g e

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Supply Chain Management PMA

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