We have identified some of the important criteria against which to assess suppliers. Without the required capability, a supplier will not be able to deliver what the organisation needs. However, supplier motivation also inevitably permeates its willingness to deliver what is needed to meet your supply targets. This will be particularly true for non-standard requirements like those in the bottleneck quadrant. It is therefore a key element of supplier appraisal. Without the necessary motivation, even the most qualified supplier in the world may not serve the buying organisation well!
We shall now look at a basic model that will help a buyer to better understand how a supplier is likely to perceive the buying organisation’s business and hence the degree of motivation it is likely to have in terms of doing business with the organisation.
The model focuses on the following two dimensions as depicted in Figure 3.6, the supplier preferencing matrix which we have studied in the previous course of supply chain management:
1. The value of the business to the supplier; and
2. The overall attractiveness of the business to the supplier.
Figure 3.6 Supplier preferencing matrix
1. The value of the business to the supplier: This is reflected in the proportion of the supplier’s turnover accounted for by the procurements. Information on this can usually be obtained from the supplier itself (for instance, the annual report) or through other sources. The higher the proportion, the more motivated the supplier is likely to be.
2. The level of attractiveness of the business to a supplier: This reflects the overall effect of several other factors that will influence supplier motivations, e.g., payment record, ease of doing business with the buying organisation, compatibility with the supplier’s business strategy, any cultural affinities that may exist between the supplier and buying organisation, possible personal relationships and levels of trust, the buying organisation’s business development potential and the perceived image to the supplier of being associated with the buying organisation.
The quadrant in which a supplier is located on the model will reflect the kind of attitude towards the buying organisation that it is likely to have:
a. The nuisance quadrant: Suppliers may treat the business as marginal if the procurement values are low and if there is little else that the buying organisation can offer to attract them. Suppliers in this quadrant will rank the organisation as lowest on their list of priorities. The buyer can also expect no interest from them in developing any form of co-operation.
b. The exploitation quadrant: Here, the level of procurements is likely to be important to the suppliers, but the business for other reasons is not very attractive to them. Suppliers in this quadrant are likely to maintain the business as long as it does not involve any particular effort for them. If they consider that the business is secure, they may attempt to exploit the buying organisation, for example by raising prices.
c. The development quadrant: Suppliers in this quadrant will consider the buying organisation’s business to be attractive, although its value is currently relatively low. Suppliers are attracted here by perceptions of future business potential. Consequently, they are ready to invest time and effort in developing a long-term relationship with the buying organisation with the goal of increasing their sales over time.
d. The core business quadrant: Suppliers located in this quadrant will most likely consider the buying organisation to be a part of its core business.
This is because of the current level of business that the organisation offers and also the organisation’s long-term potential. Suppliers can be expected to invest significant effort to retain the business in this quadrant. There clearly will be a connection between a supplier’s perception of the buying organisation’s business and the type of relationship that the buying organisation will be able to develop with this supplier. The evaluation team should understand this link when appraising suppliers. It may serve the team to screen out those that will not be at all appropriate to the kind of relationship that the organisation requires.
A note of caution though as there will sometimes be suppliers that will not act in the way that the model indicates. For example, while the majority of suppliers positioned at the top right hand corner of the model can usually be expected to give excellent service to the buying organisation and not attempt to unfairly exploit it, this may not always be the case. Some suppliers will attempt to exploit and short-change all of their customers as often as they can. Such suppliers may not last long in business, but long enough to do damage to yours.
Of course, the contrary can also happen. Some suppliers may provide excellent service to even very small and marginal customers and avoid exploiting situations that most other suppliers would take advantage of. If an organisation can locate such suppliers, the organisation will be able to count on them for a long-lasting and productive business relationship.
|Question to activity 3.7
||Suggested answer to activity 3.7