BUS606: Operations and Supply Chain Management

Supplier Relationship Management

Supplier relationship management (SRM) is a complex business process that requires "resource allocation from the buyer and supplier to achieve a set of complex outputs". These relationships are influenced by external environments and can be constrained by the parties' strategies, goals and power mechanisms.

Supplier relationship management (SRM) is the discipline of strategically planning for, and managing, all interactions with third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions. In practice, SRM entails creating closer, more collaborative relationships with key suppliers in order to uncover and realize new value and reduce risk.

Research on supplier relationship management has been an area that has gained much concern in the area of supply chain management and has been reviewed by different authors with different definitions, concepts, variables, antecedents and outcomes. However, these studies focus on the performance impacts of a single party in the relationship.
According to Leemputte, successful supplier relationships require two-way information, recommendations, metrics and incentives. Lindgreen and Wynstra suggested that three widely differing supplier management models have emerged from both practice as well as academic research on the issue of how to optimally manage suppliers. Literature generally distinguishes between three basic purchasing strategies: Adversarial, competitive and collaborative. However, Bensaou suggests a hybrid of the competitive model and a partnership model as another supplier relationship strategy.

One of the most pressing problems for enterprises is to ensure that their key suppliers are going in the same direction as themselves and form the right synergy in the long term. The issue there is that the journey of a relationship from an arm's length to the core competence is marred with issues of diverse business agendas. On one hand, a business may want to keep its key supplier in business in order to secure the sources of supply in the long term. And on the other, it could just be about the short-term critical gain through seasonal supply of a bottleneck item.
Whatever the case, the study by Wisner showed that key partnerships are the source of competitive advantage and can provide a platform for value differentiation. In this respect, it is more important than ever that a company and its suppliers align their strategy for success in the future.
Therefore, the question of whether parties within a suppler relationship benefit from supply chain collaboration remains unanswered. This issue is particularly important since the expectation of positive returns for both parties is a prerequisite to gain their commitment to collaboration in the first place.

Public Procurement

Procurement is the process of acquiring goods, works and services, covering both acquisitions from third parties. It involves option appraisal and the critical 'make or buy' decision which may result in the provision of goods, works and services in appropriate circumstances.

According to Azeem, Public Procurement 'is the acquisition of goods, works and services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place for the direct benefit or use of governments, corporations, or individuals, generally via a contract'. It can be said to be the purchase of goods, services and public works by government and public institutions. It has both an important effect on the economy and a direct impact on the daily lives of people as it is a way in which public policies are implemented.

The Public Procurement Law, 2003 is a comprehensive legislation designed to eliminate the shortcomings and organizational weaknesses which were inherent in public procurement in Ghana. The government of Ghana, in consultation with its development partners had identified the public procurement system as an area that required urgent attention in view of the widespread perception of corrupt practices and inefficiencies, and to build trust in the procurement system. A study by the World Bank reported that about 50-70% of the national budget (after personal emoluments) is procurement related.

Therefore an efficient public procurement system could ensure value for money in government expenditure, which is essential to a country facing enormous developmental challenges. To ensure sanity and value for money in the public procurement landscape, the government of Ghana in 1996 launched the Public Financial Management Reform Programme (PUFMARP). The purpose of the programme was to improve financial management in Ghana. PUFMARP identified weaknesses in the procurement system. Some of these weaknesses included: lack of comprehensive public procurement policy, lack of central body with technical expertise, absence of clearly defined roles and responsibilities for procurement entities, absence of comprehensive legal regime to safeguard public procurement, lack of rules and regulations to guide, direct, train and monitor public procurement.

The programme also identified that there was no independent appeals process to address complaints from tenderers. These findings led to the establishment of the Public Procurement Oversight Group in 1999. The aim of this group was to steer the design of a comprehensive public procurement reform programme which led to the drafting of a public procurement bill in September 2002 that was passed into law on 31 December 2003.

Procurement Performance

According to Hine, the most challenging aspect of procurement practices is the modern management emphasis on measuring of supply chain performance. The chain is pictured as stretching from a firm's suppliers (and their suppliers, and their suppliers), through the buyers firm and onto customers (and their customers, and their customers). The I–Frame, a procurement improvement framework provides no less than twenty different methods of measuring procurement performance derived from several sources in the procurement and supply chain management literature. Van Weele identifies six methods of measuring procurement performance. Bailey and Farmer, developed the 5 Rights of procurement as basis for measuring procurement practices performance. Also Humphreys et al developed a model much similar to Bailey and Farmer 5 Rights of Procurement based on procurement level of sophistication: strategic, tactical and operational. This study recommends a modified procurement performance model of Humphrey et al., procurement level of sophistication and Bailey and Farmer 5 Rights of Procurement.

Performance management has become a key element in modern public sector governance and many developing countries have introduced it as a means to measure organizational and individual efficiency in order to ensure that public sector organizations meet the needs of the public. Increasing the effectiveness, efficiency and transparency of public procurement systems has become an ongoing concern of governments and of the international development community. Measuring performance is a graceful way of calling an organization to account and in public sector performance measurement; accountability is the central concern. Performance measurement is viewed as a warning, diagnosis and control system, that is used to keep track of economy (looking back), efficiency (current organizational process), effectiveness (output in the short term) and efficacy (output in the long term; also called outcome).

Relationship between Supplier Relationships and Public Procurement Performance

There have been many studies on topics related to supplier relationship management (SRM), namely purchasing strategy, supplier selection and development, and collaboration with suppliers. However, these studies have not looked at the strategic management of supplier relationships in terms of the antecedents and outcomes of such engagements. These studies focus on the performance impacts of a single party in the relationship.

Therefore, the question of whether parties within a suppler relationship benefit from supply chain collaboration remains unanswered. This issue is particularly important since the expectation of positive returns for both parties is a prerequisite to gain their commitment to collaboration in the first place.

Effectively managed strategic supplier relationships are reported to contribute to higher levels of customer service and reduced costs. Despite the importance of managing strategic supplier relationships, much of the previous research in the area has focused primarily on supplier selection. Specific research that addresses the factors that influence effectively managed strategic supplier relationships has not been previously reported, although related work has been reported on business-to-business and supply chain buyer-seller relationships.

Various scholars have suggested that supplier relationships can safeguard as a cost-effective form of governance between parties, specifically informal ones such as goodwill trust in addition to formal control and trust. The tangible benefits can be considerable as these informal safeguards are generally lower cost governance mechanisms than alternate forms that would involve complex legal contracts, extensive monitoring costs and security bonds while intangible benefits can be considered as feeling and reacting as a team player. The benefits from supplier relationships may also accrue as top-line revenue by virtue of faster new product development and more effective use of proprietary knowledge for value creation.