Supplier Relationship


Supplier relationship plays important role in determining success of the organization. Many marketing theories have been developed around the downstream component of supply chain i.e. distribution networks. But an overall relationship within the supply chain determines success of individual strategies with supply chain members.

Supply Chain Management

There are several ways and perspective through which supply chain and supply chain management can be looked at. Each new way explores different aspect of supply chain and its importance in business success.

Supply chain usually perceived as a linear model in which flow starts with raw material, converting into components, to semi-completed products, to the final product and to delivery and consumption. This type of supply chain is referred to as an external supply chain. Here each step in the supply chain is performed by a different organization. Each organization has its set of activities, and task which is to be accomplished in a given time frame. In vertical integration organization complete all supply chain activities under its ownership.

The vertical integration concept is popular with large manufactures producing less technical, commodity type products; however, more organizations prefer to have an independent supply chain.

Contrary, the internal supply chain consists of the movement of goods within organization starting from receiving of raw materials till production of goods and dispatch. This internal supply chain generates lots of efficiencies through check and balances at every point.

The success of internal supply laid the foundation for development of external linear supply chain. Automotive and electronic industry uses external linear supply chain extensively. Typically a single company does not have expertise to manage of all the activities involved in the development of car or electronic goods. Thus, it outsources these activities to other equipment manufacturers who specialize in this activity individually.

Supply Networks

A business to business network is maze of the complex relationship between the organizations. A supply network can horizontal or vertical in nature. Supply network analysis can be made from three different perspective industrial marketing and purchasing, geographical and innovative systems and one off relationships.

Industrial and marketing purchasing network consist of actors, activities and raw materials. The ownership and control of all three activities do not reside with one player, but requires interaction with multiple players as and when required. Computer manufactures use this supply network to their fullest advantage.

Geographical networks are set of organizations which collaborate within a specific geographic location for example Silicon Valley.

One off network includes organizations which get into network relation for very short interval of time for a very specific aspect. These types of networks are prevalent for seasonal product and where supplier switching cost is low.

Supply Chains and Distribution Channels

The key differentiation between supply chain and distribution channels is that supply chain look at the movement of goods till final production, whereas distribution channel looks at movement of finished product till consumption.

Marketing theories have paid more attention to distribution channels because it helps in determining an efficient and effective way of delivering product to consumer.

The current market constitutes of consumer with a wide range of needs and wants. The consumer derives value not from the core of the product, but from additional attributes. Today’s markets are heterogeneous in nature. Hence the product differentiation is a key strategy for manufacturers.

Innovation is another key in product differentiation. This innovation is not restricted to making of the product, but also the manner in which it is sold and communicated. For this companies need to collaborate across the supply chain to bring synergies and possible innovation.

Knowledge is a driver of innovation. As collaboration across supply chain increase, sharing and transfer of knowledge has also increased. The collaborative supply chain relationship is key in providing a competitive edge to organization.

Collaborative supplier relationship is not the easiest option and requires lots of investment of time and resources. Companies have to explore various options before selecting its supply chain partner. Many companies maintain large portfolio relationship across the supply chain. By maintaining large portfolio companies are able to reduce risk and maintain strategic position.

Companies need to understand that as there are customers markets, there are supplier markets.

Supply chain strategy should help company determine which relationship will be able to deliver value to the customer and therefore to wider stakeholders. Supplier relationship is one way of generating and distributing value.

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