Factors Influencing The Supplier Customer Relationship

The nature of the supplier-customer relationship has long been the main topic of much research and debate both from academics and practioners alike. Because the 1990's the word 'Supply Chain Management' (SCM) has been prominent generally in most literature published on the subject of supplier-customer relationships and this term is often used to spell it out the concept of such relationships. However, the word SCM will not will have the same meaning for either academics or for those organisations and individuals involved in the supplier-customer management process. It is because definitions of SCM may focus solely on the logistical aspects of integrated supply systems on the main one hand or on the management philosophy on the other or sometimes on both (Cooper and Ellram, 1993). Within the last a decade, however, there has been a growing body of opinion that believes that, when the term SCM is used, it should encompass the coordination out of all the processes and activities within and between the supplier and customer organisations (Cooper et al, 1997). Consequently, this literature review will regard SCM in the light of this viewpoint and give attention to all of the various factors that characterise relationships between suppliers and customers.

It is at the nature of business practice that supplier organisations are constantly wanting to develop closer relationships using their customers. They do this for various reasons such as enhancing on the time it takes them to provide new products to the marketplace and lowering their production costs. There are a number of different types of relationship that can evolve whenever a supplier and a customer decide to collaborate for mutual benefit. Heide and John (1992) drew a distinction between relationships based solely on transactions and the ones based on collaboration across various areas of business whereas Webster (1992) saw supplier-customer relationships as being about integration, acquisition and transactions.

In an attempt to draw every one of the various relationship types together academics have produced various method of trading models. One of the most prominent of the models was conceived by Golicic, Foggin, and Mentzer (2003) who proposed that a supplier-customer relationship was based on three basic configurations. These configurations are 'arms-length', 'cooperation', and 'coordination'. 'Arms-length' is the type of relationship that occurs most often in the supplier-customer environment. It is often borne out of adversarial selection process involving suppliers competing aggressively against each to secure a customer's business. The resultant relationship between your successful supplier and the client features low levels of commitment and trust and consequent low levels of information sharing and interaction. Such relationships usually do not add significant value to either business nor do they have a tendency to endure. 'Cooperation' relationships are characterised by a significant two-way flow of information and relatively high levels of trust and commitment for both parties, which might cause a longer-term partnership. In a cooperative relationship, both parties aim to work together to lessen both the buyer's and the seller's operational costs. These cost reductions may be performed through the better management of inventory and the elimination of unnecessary processes and procedures considered to be superfluous to the ongoing effectiveness of the partnership. Partnerships predicated on 'coordination' go a stage further than 'cooperation' and exhibit even more integration and sharing behaviour particularly with reference to resources such as IT infrastructure. In the 'cooperation' relationship level both organisations involved will often seek advice from on strategic business issues and implement joint initiatives for the advantage of both parties.

In view of its undoubted importance, it might be seen to be somewhat surprising that comparatively little research seems to exist about how organisations should go about measuring the value of the customer-supplier relationship (Anderson, 1995). Anderson also states that, even though the key reason for a supplier and a person to engage in a relationship is ideal for mutual benefits, such as adding value and/or reducing costs, neither academics nor practioners fully comprehend how the process works or how it could be measured. However, not surprisingly, certain facets of the effect on business performance of supplier-customer relationships are capable of being measured. For example, data on customer retention rates and new customer acquisitions, as well as their associated costs, can be gathered, examined and compared. Some researchers have figured there may be little hard evidence that proves the financial value of customer retention (Dowling and Uncles, 1997). However, most academic studies do suggest that the costs of acquiring new customers are generally higher than those associated with retaining existing ones. (Webster, 1994; Heskett et al. , 1994; Cespedes, 1995). Even though the quantification of the costs is not always easy, the effective management of supplier-customer relationships undoubtedly leads to increased degrees of customer retention and lower costs for the supplier (Barr, 1996).

Researchers have also attemptedto measure lots of other aspects of the supplier-customer relationship. Rinehart et al (2004) developed a model which measures a number of relationship factors including, between others, the frequency of communication, investment in relationship-specific resources, and the interdependence levels of each organisation in the partnership. To produce the model, data was gathered from CEO's and senior executives at lots of manufacturing organisations in america. Following the analysis of the measurement of each relationship factor, an index was produced and used to identify trends in relationship types for suppliers and customers. The study concluded that there was an absolute and identifiable trend towards 'managed' supplier-customer relationships that want high levels of trust and commitment and tend to be characterised by formal relationship agreements in the form of partnership or alliance contracts.

There are a number of contributory factors that influence the relative strength, or weakness, of any particular relationship between a supplier and a person. For the partnership to flourish and become enduring there has to be an component of trust between the two parties. Without this trust then the relationship can founder at any stage of the process. Tompkins (2000) recognised the value of trust and even propounded the view that it's the cornerstone which long-term business relationships are built. If this trust operates at a sufficiently higher level it enables both parties to focus on maximising the mutually beneficial nature of a committed and collaborative relationship (Morgan and Hunt, 1994). Furthermore, an even of trust sufficient to produce a factor to a relationship will not simply manifest itself, however, it must be nurtured. To nurture a culture of trust between a supplier and a person, certain prerequisites are required. These may have their basis in either 'affect' or 'cognitive' forms or both (McAllister, 1995). 'Affect' forms are regarding how individuals within the two organisations behave and connect to the other person and their counterparts whilst 'cognitive' forms are concerned with the similarities between the two parties in terms of ethnicity, culture and professionalism.

Whilst it surpasses the success of the partnership that trust should pervade every part of each organisation, the key functional area where trust needs to be seen to use is sales. Kelly and Schine (1992) believe that the supplier salesperson must be trustworthy, and regarded as such by the customer, otherwise the complete supplier business procedure may be viewed by the client as untrustworthy. Naude and Buttle (2000) support this view by stating that rely upon the supplier salesperson to act in the long-term interests of the client is paramount to the building of a strong supplier-customer relationship. However trust may be considered as a somewhat abstract concept by some businesses and, whilst it is undoubtedly a sound basis for a relationship, it will not, on its own, guarantee an effective partnership. Oliver and Delbridge (2002) purported that, as well as trust, there need to be certain rules agreed, documented and communicated that permit the two parties to share not only benefits but also any risks involved. Each goes on to state that the huge benefits accrued from such an approach are not merely directly financial but are also technological and managerial.

Of course, as in any kind of relationship, communication is also a crucial success factor. Communication allows joint business objectives, strategies and tactics to be set and agreed and ongoing coordination to take place. Communication is also critical at the negotiation stage of the partnership between a supplier and a person (Mohr et al, 1996). In order to share information, effective channels of communication first need to be constructed and maintained on an ongoing basis (Cooper and Ellram, 1993; Spekman et al. , 2002; Morh and Spekman, 1994). These communication channels enable the crucial exchange of information to take place between your two parties. Information exchange acts as a focal point for both parties and is also recognised as a essential functional concept of successful supplier-customer relationships (Dwyer et al, 1987).

As well as information exchange, suppliers and their customers can boost their relationships, and their respective business performances, though business integration at various levels. Derocher and Kilpatrick (2000) assume that businesses organised by function, i. e. production, recruiting, sales etc. , rather than by cross-functional, customer-focussed teams, provide an inherent weakness insomuch as they lack the capability to successfully integrate their people with those of other businesses. This is because they are naturally inclined to look inwardly rather than outwardly. Conversely, the effective integration of customer and supplier into a new product development team, for example, can produce many benefits such as increased product performance, lower costs and top quality (Ragatz et al, 2003).

According to Chin et al (2004) the most critical aspect of integration between two businesses is corporate culture. Corporate cultures can exert a robust influence over the way the managers and staff of organisation behave of course, if the behaviours associated with the culture of the parties to the relationship are markedly at odds with one another then your relationship will never flourish. The senior management of both parties need to engender a standard culture and develop special programmes for staff to ensure that any cultural changes required reach all levels of both organisations' employees.

The quality of a supplier-customer relationship has a huge influence over the general perception of quality by a customer towards a supplier (Gummerson, 1987). Equally, Gummerson states that the impact of an unhealthy supplier-customer relationship is usually to create a negative perception of general quality of the supplier's business proposition. Poor supplier-customer relationships could possibly be the consequence of the negative areas of many relationship variables from lack of trust and commitment to dissatisfaction with the exchange of information and ideas process. The ultimate impact of negativity in a supplier-customer relationship is, according to Wilson and Jantrania (1996), the termination of that relationship.

The accepted thinking has long been that client satisfaction was the prerequisite for customer retention. However, it's true that some dissatisfied customers will stay loyal to a supplier and, equally, some satisfied customers will leave (Buttle, 1999). A study carried out by Reichheld (1993) found that between 65% and 85% of customers who had recently defected from other supplier were found to be either satisfied or very satisfied with that supplier. Plainly there have been other known reasons for their defection. Reichheld surmises that those satisfied customers that left may well have been happy with the products they were buying and with the general degree of service these were receiving but may have been unhappy with the overall nature of the business relationship or they could have simply wanted a big change for changes sake.

From WP plastics perspective it'll be some consolation that these so called 'variety seeking' customers, appear to be concentrated in a number of specific product and service industries such as financial services and food services (Naude and Buttle, 2000). However, in manufacturing industries too, there are certainly aspects that influence the strength, or weakness, of an supplier-customer relationship other than the simple idea of customer satisfaction. For example, the 'bond' that exists between your two parties may act as a barrier to defection by the client even in the light of dissatisfaction (Storbacka et al, 1994).

A poor supplier-customer relationship may also manifest itself as a lack of commitment to the supplier from the customer. Wilson and Mummaleneni (1986) support this position in their description of how relationships develop. They state that commitment does not come naturally but is something that has to be earned through the investment of hard work in the partnership. They go on to say that it is unlikely that a supplier will earn commitment from a buyer if the transactions between to the two parties are not satisfactory. Gulati (1995) concurs with this assertion and states that poor customer supplier-relationships may occur most often if those relationships are based exclusively or mainly on transactions. Gulati also believes that supplier organisations should increasingly deploy order and fulfilment systems predicated on technology, such as web based sales catalogues, in order to keep transaction costs with such customers to the very least so as to mitigate losses if the relationship will not last. Whilst too little commitment may predispose a customer to defection, Wilson and Mummaleneni (1986) also believe that the unavailability of suitable alternative suppliers may force a person into a relationship with a certain supplier that results in some sort of 'negative' commitment for the customer. This may eventually only serve to have a negative effect on the entire relationship and in the end will probably lead to its breakdown.

Although manufacturing businesses may believe they understand the needs of these customers, they have to recognise that individual customer organisations frequently have different and distinctive needs and wants. Therefore, it is crucial to the success of the supplier's relationship, and business performance, with its customers to gain an understanding of the many attitudes and perceptions that customers may have, both towards its business and its own products, and exactly how these can be influenced. For example, a specific customer of any supplier may focus strongly on product or service attributes at the trouble of other issues such as price and brand reputation. The importance ranking of these types of factors by customers varies according to how strategically important the merchandise or service is to the buyer. Rader et al (2010) have classified the types of buying decisions that customers make and just why they make sure they are in terms of the attributes that influence your choice making process.

The first attribute is the amount of involvement by the purchaser in the buying decision and this depends upon the strategic importance to the customer of the supplier's product. As well as the product's relative importance to the buyer, the price of the product is also a significant facet of this 'involvement' attribute. The second attribute is the difference that a buyer perceives between your products and service it will receive from the various suppliers it can be considering. This difference will encompass such characteristics as convenience, service and quality. Finally, the third attribute is how enough time the buyer has open to consider the merchandise purchase. For low involvement products a buyer will typically restrict enough time allocated to product consideration. In WP's case it supplies relatively low priced plastic products to the packaging and building materials industry. These might not exactly be of particular strategic importance to the customer and, therefore, will probably not warrant a significant investment with time from the purchaser. So according to Rader et al products, such as those made by WP, will probably have low involvement attributes for the buyer. Because of the attributes and how they apply to WP, as described by Rader et al, then customer service is potentially a significant differentiator.

However, whilst plastics products may be low involvement, there is also a evidence of an evergrowing trend for the customers of manufacturing suppliers generally to remember to look for and consolidate relationships with fewer manufacturers than they could have done in the past (Kalwani and Narayandas, 1995). Indeed, a model created from research carried out by Wilson (1995) goes a stage further by suggesting that lots of buyers in the business-to-business arena are focussing on developing relationships with just one supplier because the pressure to reduce cots, reduce inventory, and improve quality are so intense. Such buyers assume that they are able to negotiate from a position of strength if indeed they will offer exclusivity of custom to the supplier.

This, alongside the undeniable fact that customers have certain basic and identifiable needs from their suppliers, means that suppliers need to pay increasing focus on the satisfaction of customer needs if they are to forge effective and enduring relationships. For instance, in the business-to business-marketplace within which WP operates, it's important for the supplier, when designing a new product, to think about what the onward distribution costs for the customer will be and whether or not the new product is compatible with its customer's own inventory control systems (Lee and Billington, 1992). Inside the highly competitive worldwide marketplace that now exists, suppliers are under growing pressure from customers to lower their costs to help those customers compete more effectively (Grundy, 1996). Customers are paying more and more attention to finding those suppliers that will help them lower their costs. Suppliers such as WP, who are in the manufacturing business, generally have some scope to reduce their costs and spread, at least in part, the savings designed to their customers. After all, over 1 / 2 of the typical manufacturer's operating costs are associated with materials processing, a location where cost benefits can always be sought and often found (Heberling, 1993). Supporting this position Rauyruen and Miller (2007) have recognized two very specific needs of the normal customer which can be (i) the customisation of the products they will buy and (ii) the use of a customised pricing structure for those products.

There are other conditions that will influence a customer's choice of supplier. The Supply Chain Council (SCC, 1999) has recognized these requirements and categorised them into four distinct areas which may be summarised the following: (i) Reliability of the delivery process, which include how quickly and exactly how accurately orders are fulfilled; (ii) responsiveness and flexibility in conditions of the suppliers production process and response time; (iii) cost of the management process involved with fulfilling orders and managing inventory plus the expense of warrantee claims and returns; and (iv) the amount of days of inventory supply offered by any given time.

From the supplier's point of view, an insight into what the customer needs is plainly an edge in terms of creating a strong relationship recover customer. However, for a supplier to truly have the ability to identify and fulfill the specific needs of its individual customers, and become in a position to respond to those needs, the supplier first must either possess, or adopt, a 'market orientated' approach to the way it does business. Market orientation can be defined in a number of ways. Some definitions view it as a cultural activity based on an organisation's values (Deshpande et al 1993; Shapiro 1998) whereas others focus on how an organisation behaves in terms of its application of market-orientated principles, such as customer intelligence gathering (Kohli and Jaworski, 1990). Ruekert (1992) lists three specific the different parts of market orientation, namely: (i) the acquisition and use of customer intelligence; (ii) the development of a proactive business strategy, the aim of which is to satisfy customer needs and (iii) the implementation of a reactive strategy that effectively manages customer orders and enquiries.

A key factor within an organisation becoming more market orientated is to go away from a purely product and sales driven business philosophy towards a customer needs and relationship development approach. Gummerson (1991) summarises this approach as one of boosting customer perceived value.

Gummerson also describes the need of interaction between your relationship parties for the purposes of intelligence gathering. He sees this process as an essential part of the development of a permanent relationship which, subsequently, forms the basis for an effective market-orientation strategy for the supplier. The marketplace orientation of your supplier organisation can be developed using general market trends ways to gather data about the marketplace in which it operates. Ruekert (1992) believes that research should have an emphasis on the market position required rather than on short-term business gain and profit. Ruckert also states that the pricing structure offered to customers should be in a way that the client has a high perceived value of what it is purchasing.

Some academics and practioners might argue that market orientation is the single most important factor for manufacturing suppliers to consider in their relationships with customers since it places the best priority on business profitability for the supplier but from the viewpoint of delivering superior value to the client so both parties win (Shapiro, 1988). That is a fine sentiment but a supplier organisation needs an operational framework such that it can better understand the nature of market orientation and how it must adapt its operational procedures to be able to encompass it. Kohli and Jaworski (1990) provide valuable insight into this dilemma with the view that market orientation demands that an organisation adopts a process of market intelligence gathering to better understand its customers needs and this it also takes responsibility for disseminating this intelligence throughout its business to ensure that staff understand, respond and accept responsibility for this.


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