Strategic Supplier Relationships
Many companies focus on maintaining relationships with the suppliers of key components crucial for their manufacture. For instance, a company manufacturing motorcycles will maintain close relationship with the suppliers of gears and tyres - items which are critical for the success of the final product. In order to obtain the right quantity and quality of parts at the right time, the company should be in regular communication with its key suppliers.
Sometimes, a company outsources some components to external manufacturers. These manufacturers or outsourcers manage many operations of the company's value chain and thus become important business partners. In fact, the outsourcer may manage the same operations for several companies including the company's competitors. If the outsourcer performs specialized functions which are offered by very few companies, the company has to be extremely careful in maintaining relations with him.
Traditional strategic component supplier relationship
In the traditional set-up, the company sends its representatives to discuss details with the supplier and finalize design specifications and price and delivery schedules. Then the actual production of the critical component begins. As production gets under way too, the company should interact with the supplier continually so that necessary changes can be incorporated in the component. In the absence of such interaction, the company may have to compromise with incompatible components or rework them, delaying the launch of final products.
The companies need to acquire the technology to facilitate real-time communication with its suppliers. The company and its suppliers should be able to exchange information continuously, regarding changes in demand forecasts and production schedules. If the company fails to inform the supplier of such changes, the supplier will not be able to serve the company effectively. In anticipation of contingencies, the company and the supplier may end up stocking excess inventories.
E-enabled strategic component supplier relationship
In order to build and sustain competitive advantage, companies need to develop and launch products ahead of competitors. They also need to contain product development costs and maintain low product prices so that they can acquire a large market share. Development costs can be minimized by controlling the procurement costs of strategic components. E-business technology enables companies to streamline the procurement process for components and bring down their costs. It also facilitates collaboration with strategic component suppliers so that the new and improved components can be designed. The company can be in constant contact with the supplier regarding product specifications, changes in designs, inventory, pricing, demand forecasts and production schedules but at much lower cost than through the traditional communication methods.
E-business technology provides companies with tools such as VMI and CPFR (Collaborative Planning, Forecasting and Replenishment) to establish real-time communication with their suppliers and foster long-term relationships with them. Such relationships are crucial to companies because it is difficult to locate strategic components suppliers, and especially those who meet high standards of quality.
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