Buyer-supplier relations are a core subject matter in business research. Nonetheless, it is still unclear on best approaches to be implemented to promote more lasting associations. (Carmel, Zivan, Gomes & Markman, 2017). Basically, buyer –supplier associations progress has been linked to commitment, building trust and fostering long-term goals. Many exchanges between buyer-supplier connections are always complicated in the sense that, contracts are never completed due to the long contract duration and unspecified obligations (Tanskanen, 2015). As much as commitment –based interactions between the buyer and supplier can produce several effects, there is limited information on how these relations build and assist in the capabilities and performance of inter-organizations. From the subject matters on positive work relationships, commitment, social exchange and micro-foundations, useful insights are drawn that recommend three principles that include good communication, respectful engagement and advice exchange between the buyer and supplier. Moreover, it is argued that commitment relationships between the supplier and buyer enhance the growth of inter-organizational learning by implementing three mechanisms including reflective framing, mental availability and generativity.
Needs Assessment
A manager can incorporate the buyer-supplier concept in running the organization as an effective management tool. The manager should consider the value for money (VFM) as it plays an important role in successful growth of the organization. The manager should categorize, estimate and select among alternative brands as well as suppliers. When making the final decision on what to purchase, the following factors are imperative, the users who consume the product should be highly –regarded as their preferences have to be considered. Furthermore, this will influence their outfitted duties. Suppliers who control or specify the requirements of a product or service are also of crucial importance. The buying organization should take into account the suppliers’ requirements about a good or service on sale. The manager in representation of the company has the formal authority in such cases to negotiate on the prices and terms of conditions that apply. Furthermore, the manager could consult individuals within the organization who hold authority positions to aid in the selection of the final supplier.
Needs assessment is an important aspect to consider in this case. Before purchasing a good or a service, a manager should conduct needs assessment that will aid to identify what products should be prioritized before buying a good or a service. The manager should hold a meeting with important stakeholders to identify the products that are needed critically at that time because the needs of an organization at any time are innumerable, and at this point only the prioritized needs will count. Moreover, the needs should match up with the company’s budget to avoid incurring unwanted losses in the future. The tactics to be utilized for effective needs assessment may involve persuasion to the counter-acting team by proposing the merits that come along with a certain service or product that the organization feels should be prioritized. Additionally, the formation of coalitions as well as alliances is of utmost significance to reduce any opposition that may arise and welcome new ideologies in support of the needs of the company.
Case Study
Organisational Buying Behaviour within RUHT
A case study of RUHT is a good example of an organization that implements Organizational Buying Behavior. RUHT is a clinic that has high –quality procurement and supply management services with quality. There are nine budget centers authorized to manage the clinic’s expenditure headed by qualified clinicians though their mandatory task is to document legal paper work. However, there are still some challenges that are encountered in PSMT, for instance the medical staff in RUHT are known to have some resistance to PSMT and lately this was motivated by the ‘value for money’ scheme which the staff felt had ramifications on patient management. Nonetheless, there are a number of clinicians who embrace procurement issues as they recognize the significance that comes with it. The purchase of medical services and products is similar in the nine budget centers and acquired from similar suppliers though independently and under different requisites.
Conversely, there are disparities in the purchase of other equipment especially due to spend fragmentation whereby similar goods are stipulated by different suppliers. Moreover, supplier opportunism is another concern that arises, not only because of the pricing but by the fact that suppliers focus on the chief budget -holders with the aim to manipulate them into buying more goods than budgeted for. A manager in this case would hold a convention with clinical staff to get a preview on the expenses incurred at a certain period of time by clearly identifying the costs of particular goods and services that were purchased. The gathered information should then be critically analyzed by the manager to classify any cheaper alternatives or the necessity of conducting a needs assessment to prioritize the goods and services of key importance. Furthermore, the manager can offer suggestions about suppliers who offer similar quality goods or services at cheaper prices.
Sourcing
In the contemporary society, there is a noticeable increasing trend for companies to make the most of outsourcing for products deemed exterior to the company’s chief production (Dulmin & Mininno, 2003).Moreover, during recent years, the business press has encouraged managers to move away from arm-length relationships but rather foster long-term collaborative associations with suppliers to further the growth of their companies. It is apparent that the Japanese Toyota Company’s success is ascribed to the fact that they promote good collaborative relationships with their suppliers. In the sourcing stage, it is vital to segment the purchases to vividly comprehend the management that will be required. Peter Kraljic’s may be utilized in the segmentation process:
| Leverage
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Strategic
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| Non-Critical
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Bottleneck
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Low High
As a matter of fact, when the manager implements the sourcing approach, opinions and views from divergent individuals should be sorted. The manager should not limit other people’s views as they might be meaningful. To illustrate, the market –informed sourcing policy can be utilized to probe prospective suppliers concerning the prices for services as well as offers that suit them (Monczka, Handfield, Giunipero, & Patterson,2015). More bundled offers should be welcomed, whether they are one, two- or five-year contracts and then evaluate how the costs for management and other services are utilized in line with alternative provisions. The manager then identifies the cost-effective alternative and addresses the team of stakeholders about the magnitude of the selection and the repercussions and merits that come along with its implementation. Besides, there is still room to visit the market again in case of insufficient data or rising concerns.
Case study: Outsourcing
For any production system, it is crucial to have an assembly line in procurements and logistics hence lately, various assemblers have outsourced this duty to suppliers. Initially, the Generator Assembly Corporation (GAC) managed the P&L as well as minor components internally but in 2007, they implemented the outsourcing tactic. Moreover, the institution of the company in Malaysia and China led to the development of internal teams. The preliminary outsourcing involved delegating P&L and 2400 minor components to AS that was also involved in the purchase and delivery of parts to the respectable facilities that were assembled internally by GAC workers. Though, the teams in Malaysia and China were not affected.AS leveraged the high demand for components to make better sales for GAC from its other customers and endorsed outstanding operational performance that further rendered it an opportunity to take over the remaining 1230 components. Their services were extended to comprise refurbishing the supply base through rationalization, sorting and in-line delivery. The relationship between the two parties, supplier and buying organization was significantly enhanced to a point that GAC decreased the number of personnel that dealt with P&L and minor components in search of improved procurement services from its supplier. In 2011, more accountability was transferred to AS especially in the charge of controlling the market that deals with maintenance, servicing and repairs. In 2012, AS requested for the extension of facilities based outside the US to enhance the bond relationships with its outside market to promote more success.
By 2012, the supplier had taken over much of the GAC Company as it had control over P&L as well as minor components. Furthermore, AS had full responsibility to control the aftermarket of shipping equipment. This began raising concerns among the GAC internal staff who started questioning the significance of outsourcing.
Business literature often points to buyer –supplier relationships as the primary constructs in comprehending the development of long-term relationships that should be emulated by managers. Nevertheless, the precursors of related research do not precisely specify how dependence or even lock-in conditions truly evolve from outsourcing associations (Schmitz, Schweiger & Daft, 2016).It is certain that such relationships can lead to over-reliance to an extent that an organization goes into bankruptcy or collapses hence it is imperative that the manager should consider this to avoid falling prey.
Contract Stage
The buying organization presided by the managers devise a list of potential suppliers from whom they can purchase the products or services. The list should compile suppliers who can obtain the exact product, at the right cost and quality and quantity, at the accurate time and from the right source (Calatayud, Mangan, & Christopher, 2019).Supplier congruence should also be considered, and it is best for a buying organization to choose a congruent supplier whom they can leverage to make negotiations and even bargain for the best product at an affordable price. After selection of the prospective supplier, a contract is developed stating the terms and conditions of the agreement and schedules. Contract self-enforcement is a necessary concept that should be implemented when formulating contracts and can be advanced by specifying the original requirements that intensify the agent’ s earlier situation (Kosová & Sertsios ,2016).
A study performed to assess contract –based governance in intercontinental interactions between purchaser and supplier, determined that there was an association between relationship performance, contract specificness and infringement, in addition to the functions of convention supervision as well as a nation’s business threat. The study provided new insights in regards to contract and its link with buyer-supplier associations in that contract specificity did not correlate with contract infringement. In fact, the country factors such as its business threats were the influencing factors on contract specificity, to illustrate; contract specificness is increasingly efficient in subduing an intercontinental supplier’s treaty infringement if the supplier is from a state with reduced business threats. Therefore, the findings designate the intention of treaty supervision as a useful tact that can alleviate the unconstructive connection amid agreement infringement in combination with relation outcomes (Griffith & Zhao, 2015). For effective operation of the organization, the manager should have a few numbers of suppliers carefully selected taking into account the aforementioned factors prior to choosing a suitable supplier. To achieve superior performance, the manager should target to integrate a supply chain having in mind, the impact it will have on the costs and innovation of the organization (Wiengarten, Humphreys, Gimenez & McIvor, 2016).Moreover, the manager must implement stringent management mitigating measures intended to restrain supplier opportunism that can pose a challenge to organization performance and advancement (Lonsdale, Sanderson, Watson & Peng 2016).
Whilst anecdotal substantiation postulates that outcome–based agreements may promote novelty among purchasers and suppliers; there is limited comprehension concerning principal tactics to be implemented. Nevertheless, there is a positive link between fostering sustainable relationships between the sellers and purchasers and improved organization presentation (Sumo et.al., 2016). Additionally, a study conducted on environmental issues investigated the efficacy of transactional mechanisms in managing buyer-supplier associations and classified the mechanisms that improved supplier’s commitment towards environmental conservation and in turn permitting the purchasing companies to progress their ecological advancements. Furthermore, the study focused in detail on best practices the government can use to increase efficiency required in fostering dealer obligation, and identified connections between product complexity and relationship stability that forecasted a better supplier commitment although their efficacy was highly-dependent on specific conditions. In specificity, high product complexity and high relationship stability were linked to more efficient transactional mechanisms (Sancha, Wong & Thomsen 2016).
Studies on supply chain management indicate a positive correlation between the incorporation of business processes and performance effectiveness across the chain (Oghazi et.al.,2016). The managers in a buying organization should use their power as buyers on the supplier to get the most out of a deal. The buyer’s power in this case can instigate the dealer’s reaction which may either propagate effortless conformity or the establishment of even deeper long-lasting relationships between the two parties. The study further postulates that non-mediated powers augment persuasions of compelling authority and how buyers can utilize this authority to enhance contractor obligation (Chae, Choi & Hur ,2017). As a matter of fact, the correlation amid relationship performance and individuality is more strengthened by confidence between the contractor and consumer, therefore a manager should target to promote long-lasting relationships for an effective supply chain management (Wang et.al., 2019). At the same time, the need to stimulate relationship-specific investments and asset specificity are linked not only to a few numbers of suppliers, but also with a larger portion of repeated relationship (Aral, Bakos & Brynjolfsson, 2017). Conclusively, a good contract originates from a good supply chain.
Case Study: Contractual Agreements
For instance, Auto Corp that deals with assembling car parts is a good case study. The company’s expenditure is estimated at 53 million €yearly. AutoCorp Self Enforcement is an effective tool critical in running the automobile industry. The current state of four suppliers for the company ensures competition between the suppliers and is basic in attaining the AST variations. The greatest share-holder among the four suppliers is Euro AST that accumulates 73% of the overall demand. The two companies signed a six-year contract due to the prospects that the supplier would offer stability and security although there was the probability of competition tension. In spite the fact that EA was selected to be the pre-dominant supplier, actually does not come as a surprise due to customer relationship management, efficiency as well as quality of goods and services that it offers. Furthermore, AC’s reputation of being a good customer secured it an opportunity of working with EA as the likelihood of conflict would be better managed. Nonetheless, EA also possesses vantages such as good service reputation. Moreover, it would be easier said than done for AC to replace EA as this would mean situating another supplier to major with capacity and coverage and the need to certify the AST suppliers all over again.
Currently, the four years of work associations between AC and EA have been marked by stability and security especially in regards to the good governance within AC and mutual agreement between the two parties. Although, there were challenges with poor communication prior, this was later resolved. The contract terms are patent and considerable to both parties. The cost requirements, change control requirements and pricing have all been mutually taken into account. Moreover, the two teams are working together to foster a strategic partnership that not only aims to deliver the provisions in the contract but also further enhance quality and cost. Besides, the two parties use the contract to promote novelty and reduce conflict by encouraging commercial relations whereby the managers from both parties foster the commercial direction of the association by delving in to service improvement and delivery, technical and logistical interactions. The core role of the mangers of both teams is to ensure that conflicts are managed as crucial decisions have to be reported to them.
