Business Ethics

Research Objective

This study attempts to create an integrated framework on sustaining a long term supplier relationships. The study explores the different risks that can arise in a supplier relationship and analyses them from a supply chain perspective with the benefits involved in mitigating those risks. It tries to form a conceptual framework that can be used for risk mitigation in long term supplier relationship.

Scope and Need for Research

With the increasing pursuit of improving productivity, companies outsource a large portion of their input requirements in terms of products as well as services. This helps to enhance the productivity and utilize the company's core competence to its maximum. But such outsourcing practices do not come without its risks. When the product is strategic, the risks in the relationship become particularly relevant due to the impact it can create on the supply chain. Many of the major supply chain disruptions in the past decade has stemmed from supplier risk.

Much of the research work has concentrated on the benefits arising from the long-term relations and its requirements. But for a long term relationship, maintaining the relationship is at least as important and costly as forming the partnership. In this context, the study attempts to identify the various risk factors and to develop a model analysing the factors and methodologies to mitigate these risk factors.

Research Approach

Introduction

Since the early 1980s, firms started focussing on supplier relationships as a means of competitive advantage (Schonberger, 1994). The notion of supplier partnerships as a strategic response emerged as an integral component of Japanese manufacturing practices. As with JIT, a reliable source of quality inputs became a necessary component of TQM which have been accepted by firms worldwide. Thus, supplier partnerships enhance an organization's competitiveness and function as a prerequisite to JIT and TQM. The old adversarial approach began shifting to an approach of partners in profit (Segura, White; 1994).

The overall project time performance is significantly related to the percentage of supplier's activities that are completed on time. Therefore the suppliers on- time performance is linked to the buyer's ability to successfully complete its product development on time and affects the producer's cost, quality and performance (Hartley, Ziger and Kamath ; 1997)

The gains of long term supplier management can manifest themselves in a wide range of areas, from better prices and delivery times to increased opportunities to consider and implement innovative practices. Companies can use suppliers to maximize their own product competitiveness, going beyond the narrow focus of cost reduction.

Long Term Supplier Relationships

If the relation between supplier and buyer is based on terms of a Contract and of short term, it is normally called Contract Management. Such an approach is used for most of the low cost/low value items procured by the firm. On the other hand, Supplier management as an investment by the buying firm in the supplier that may reduce transaction costs and yields a more-co-operative relationship (Carr and Pearson, 1999).

Mostly, only the strategic input items claim a strategic supplier selection, development and long term relationship procedure. An input can be considered strategic based on the impact it has on the performance of the supply chain, based on its value/cost or the benefits that can be accrued by control of limited number of suppliers. For such a strategic supplier, the assessment focus is wide and measures the factors which drive better performance, improve cost efficiencies and reduce risk on a long term. This uses Supplier relationship as a long term mechanism for generating competitive advantage. Long term supplier management activities are costly with need for involvement of top management and hence are focussed on a selected supplier base.

Benefits of Long Term Supplier Relations

• Improvement of products through contributions to product design, technology, or ideas for producing new products. In most such instances, suppliers help buyers by pointing out ways in which designs can be improved or more desirable materials can be used.

• Improvements in product quality. In addition to providing design recommendations that result in improved products, suppliers are often sources of suggestions that allow buyers to hold consistent tolerances in production.

• Improvements in "speed to market" by utilising