Study on importance of supplier relationship management

Bao Sheng　Zhu Shuqin

Abstract：With the intensification of global competition and the change of production mode， the competition between enterprises gradually becomes the competition between supply chains. In the traditional supplier management mode， companies try to transfer operating costs to its upstream suppliers. This reduces the enterprise operating costs on the surface， however， it’s like putting money from one pocket into another， and the total amount of money has not changed. The transfer of enterprise operating costs cannot reduce the entire supply chain operating costs， and ultimately sill reflected in the price of products. Therefore， the final victims will remain the enterprise itself as the competitiveness of the product does not improved. So sacrifice the interests of suppliers to seek their own interests is undesirable in the practice in the long term. Those enterprises with a strategic vision began to seek a flexible approach and implemented the supply chain management， operated in collaboration with supply chain partners and find ways jointly to increase supply chain competitiveness （Wisner & Tan， 2000）. Under this environment， supply chain management has become a modern supplier management platform， and SRM is the key to supply chain management.

Key words：supply chains; management; enterprise operating costs

Based on the research of Choy and Lee（2002）， supplier relationship management can help to improve supply chain competitive advantages in the following three aspects.

1? ? Huge cost savings

The cost competitiveness of suppliers， to some extent， is also the cost competitiveness of enterprises. More than 70 percent of the final cost of many products in the enterprise is vendor-controlled. Enterprises must strengthen cooperation with suppliers to ensure that they provide efficient and reliable low-cost products and services. The main purpose of developing a cooperative relationship with suppliers is to jointly reduce costs through deeper cooperation and linkage， instead of merely unilaterally requiring suppliers to reduce costs.

Fierce global competition requires companies to respond quickly to the market and focus on their core business， through supplier network integration make quick and accurate decision-making， this makes supplier relationship management more important in the new era. And the cooperation with strong suppliers can provide enterprises with sufficient quantity， reliable quality and low-cost materials， thus forming a competitive advantage. State of Flux， a European-based firm have published four annual SRM surveys， including case studies providing tangible financial value realized by companies such as Alliance Boots， Unilever， United Utilities， and McLaren Automotive. The survey indicates that during 2011 and 2012， through improved collaboration and investment in joint improvement processes， United utilities and their suppliers achieved joint saving of 4.5 million pounds and an increase in supplier performance ratings by 60%（Declan， 2013）.

2? ? More rapid and more flexible response to market

For a long time， supplier relations are always in a secondary position， supply means trading and the cooperation is rarely mentioned in this relationship. Numerous factors have led to greater cooperation between the manufacturers and supplier， such as increased research and development costs， increased risks associated with new technologies， increased complexity of product and process system， product innovation and manufacturing flexibility， and efficiency requirements.

Under the guidance of supply chain integration and cooperation， suppliers and buyers integrate their mutual needs and technologies to achieve the common goal of providing the most useful products for customers. Therefore， the exchange of suppliers and buyers is not just limited in physical exchange， but also includes a series of visible and invisible services such as research and development， design of products， information sharing， logistics， etc. For the suppliers， they need to have innovative capabilities to ensure delivery reliability and time accuracy. While for the manufacturers， they provide activities and services including training， technical support， management and controlling of suppliers， even providing financial services to suppliers. As the degree of interdependence increases， buyers and suppliers will share more resources， and the dominant supplier will have an increasing impact on the business.

3? ? A faster cycle of information and resources

The functions of suppliers are expanding from simple supply function to participate in the development of new product design， inventory management services， supply services， and many other integrated functions. All of these generate a great significance on operation effects and market competition advantages of enterprises.

The timeliness of the supplier’s delivery will have a significant impact on the cost of procurement and the total cost. Although from the procurement point of view， the delivery time is basically determined by the supplier rather than the customer specified. But the purchasing department is fully able to influence the length of the entire delivery period through effective management methods， especially the establishment of a relatively stable supplier alliance， it is very important to quickly transfer and share the information between the buyer and the supplier and the supplier to participate in the material demand generation stage.

In addition， supplier relationship management is also one of the effective measures to solve the inventory， product quality control and risk problems. In short， supplier relations have become a powerful approach and valuable resource for enterprises as well as the whole supply chain to stay competitive advantages， the cost and risk control of an enterprise cannot separate from the relationship management of suppliers.

4? ? Conclusion

Successful supplier relationship management can bring enterprises a lot of benefits， which are critical for the core competence of the entire supply chain. The importance mainly reflected in the following three aspects： huge cost savings， more rapid and more flexible response to market， and a faster cycle of information and resources.

[Reference]

[1]WISNER J，TAN K.Supply chain management and its impact on purchasing[J]. Supply Chain Management，2010，36（4）：33-42.

[2]Choy K L，Lee W B，LO V.Development of a case based intelligent customer-supplier relationship management system[J]. Express Systems with Applications，2002（23）：281-297.

[3] DECLAN K.Supplier management-market insight[EB/OL].（2002-12-15）[2019-02-10].https：//www.cips.org/Documents/Knowledge/360_Supplier_View.pdf .