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Supplier Relationship Management Profiling

Profiling supplier relationships helps to establish points of possible tension allowing them to be managed.

Profiling the nature of the supply, and the factors likely to characterise the relationship between a customer and a supplier, will provide an insight into possible tensions in the relationship likely to result from differences in priorities, commercial environments, risk profiles etc.

Action may then be taken from the outset to address these potential hot-spots, through the relationship management processes, and where relevant through additional contractual commitments.

Profiling the Supply

Understand the extent to which it is a product supply, and the extent to which it is a service supply.   This profiling will help to ensure that both product and service elements are recognised in the contract, and that relationship management processes are tailored appropriately.

Services in particular require particular attention to ensure that processes are complete between organisations, and that relevant management processes have been instituted to review and improve service.   More detailed profiling for services will reveal the number of service levels, the degree and points of dependence on other suppliers, or the customer, and the degree of customisation.

Understanding the degree of customisation it important to both organisations.  The customer runs the risk of being locked in to a supplier, and supplier runs the risk of not being able realise economies of scale across its customer base, because of increased  development and operational costs.

Profiling the Relationship

Any one relationship will be characterised by a number of factors such as:

  • The relative sizes of the purchasing (customer), and selling (supplier) organisations
  • The significance of the contract to each organisation
  • The client organisation's supplier management processes
  • Culture fit between the organisations

Some examples of why such profiling needs to be understood.

  • A large customer organisation may use its 'clout' to exact preferential pricing from a supplier.  This will lead to a sustainable balance in favour of the customer organisation where the supplier still makes an adequate margin.  However where margins are squeezed too far, the interests of both parties may be compromised:
  • The viability of the supplier may be threatened
  • Investment may be curtailed by the supplier, compromising the future to survive the present
  • The supplier may become inflexible, seeking to minimise costs at all points, at the expense of service
  • A large supplier may be slow or unresponsive to requests for product or service developments from a smaller customer organisation
  • An imbalance in the contract significance could suggest serious risks may be being run by the more dependent organisation
  • Cultural differences need to be analysed from the outset, and a suitable culture established for the relationship team if expectations over responsiveness, innovation, flexibility etc. are to be met.  
 

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For help in developing and implementing, or reviewing the effectiveness of supplier management arrangements, please contact us: info@essentialcs.co.uk