Relationships in Procurements

Posted: January 4th, 2023

Relationships in Procurements

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Relationships in Procurements

Introduction

Companies tend to adopt various types of agreements with their suppliers that usually carry dissimilar terms and conditions, consequences, threats, and regulations. These agreements serve essential functions in procurement practices because without proper relationship it becomes difficult to achieve successful transactions. Developing a strong relationship between the business and the suppliers may sometimes be difficult depending on the type and size of the organization. Many corporations have found it hard to start, form and sustain optimal contractual relationships with suppliers, which require the business leaders and the team in charge of supply chain management (SCM) to consider a number of factors. The management should identify the various core features and factors that make the relationships and contacts in procurements mostly helpful. The study illustrates how a business improves its relationship and contacts by keenly selecting its contracting partners and by understanding how the various contracting structures play a role in adding worth or affecting these relationships. 

Background Information

Businesses today know that contract management offers the company a chance to gain competitive advantage and both multi-national as well as small and medium enterprises are identifying and implementing approaches that would manage the interaction with other partners. Contract management ensures that all parties to a contract perform their respective duties and obligations as effectively and efficiently as possible, while striving to deliver the operational and organizational outcomes required from the contract and offering value for money (Ssempebwa, 2014). Contract management safeguards the rights of the parties into a deal and help to maintain standards when scenarios change. The process entails documenting and assessing outcome, and rating whether the contract yield the expected goals and objectives (Ssempebwa, 2014). A crucial aspect in contract management is ensuring the relationship and contacts between the main parties into the agreement remains strong. Improving relationship, include enforcing features that improve communication and friendship while handling a contract. Enhancing the relationship improves the exchange of information between the partners in the supply chain, and provides the chance to negotiate about the price because most chances for lowering costs and advancing the value in the sipply chain exist at the interface between the contracting groups.

Failing to manage relationships and contacts as part of contract management could pave way for the emergence of factors that could affect the entire process. Improper relationship, for example, could cause misrepresentation, which is a statement to encourage the other party to enter into a contract, mainly for the benefit of the enticer. Poor relationships could also lead to duress and undue influence, which refer to threat or actual violence or improper pressure while proceeding with the contract. More fundamentally, businesses should strive to improve relationships and contacts in a contract other mistakes that could occur when the contracting parties do not have close attachment, and one side feels indebted to the other.

Evaluating Stages in Supplier Relationships

Fostering the relationships and contacts in procurement requires the team in charge of SCM to assess the various phases in supplier relationships to acquire insight into what it takes to become successful. The team in charge of supplier management should consider phase one, which entails dividing the supply base to increase resource allocation (Sillanpaa, Sillanpaa & Shahzad, 2015). The employees should work closely with business partners to identify the most suitable supplier segmentation approach and classify viable suppliers depending on their ability to achieve the business goals and objectives. The team should rationalize the supply base by targeting suppliers at lower categories in the supplier segmentation framework for rationalization to advance consolidation. The third obligation while segmenting the supply base is to identify the functions of each supplier depending on their output and ability. The team should determine the most suitable design for each group of suppliers. The final stage in segmenting the suppliers is to assess the values of supplier management and present the possible effects to the business leaders and all stakeholders to allow for scrutiny.

Focusing on phase two of the supplier relationship management (SRM) process (activity description) helps the company to select suppliers with whom they form strong relationships. The team in charge of the process should form scorecards and effective supplier measurement frameworks to adequately determine essential features and to understand the supplier’s performance (Sillanpaa, Sillanpaa & Shahzad, 2015). The team should proceed to gather sufficient data about the supplier’s performance to be in a better position to judge whether to work with the partner or not. The evaluators should assess whether the suppliers’ products or services shall meet the customers’ requirements before progressing with finalizing the agreement.

Companies seeking to form stronger relationships with their suppliers should pay considerable attention to stage three of the SRM process, which entails carrying out continuous supplier advancement. The assessors should communicate outcome progress and expectations to the suppliers by clearly highlighting the company’s expectations. The evaluators should highlight the areas where the suppliers need to improve or rectify to meet the company’s standards and expectations. The group overseeing SRM practices should coordinate the supplier management operations across the firm to ensure that the company speaks in one voice as it addresses the suppliers. Delivering conflicting information could confuse the suppliers and may affect the relationship and connections that are very important for the success of supply chain activities.

Contracting Structures

The organization increases its chances of developing stronger relationships and contacts with the suppliers by being conversant with how the various contracting structures serve in adding significance to the connections and interactions. The distance between the contracting parties is an important determiner on the nature of relationship that develops during when a company procures items from a supplier or other businesses. The buyer in an arm’s length relationship, for example, does not need to make frequent trips to the supplier. The purchase rate is low, which reduces the relationship between the buyer and the seller. The transactional relationship is almost similar to arm’s length relationship, with more frequent calls and requirement on the purchaser’s part. The relationship in a transactional contract does not bear much pressure on both parties because of the low risks and costs associated with the approach.

The current circumstances between the buyer and the seller could affect the relationship type and corporations should try to engage in contracts that will not tamper with business activities.

The adversarial relationship, for example, may decrease the trust and affect communication between the contracting parties because buyer and supplier are competitors each striving to gain advantage at the other’s expense. The interaction between the buyer and the supplier in an adversarial relationship is likely to experience numerous obstacles and the communication may not be clear (Bishop, Fuller, Felstead & Jewson, 2009). The supplier, for example, may submit items of lower quality in a bid to secure a larger portion of the market and this could cause conflicts upon the buyer’s realization of the fraudulent delivery. Businesses may enter into adversarial relationships when they have no alternatives and they must acquire particular components or raw materials, but the SRM team should be keen to avoid tampering with the entire process because of the desire to dominate in the same market. The closer tactical relationship, on the other hand, refers to an arrangement where the buyer does not make frequent orders or may not be close to the supplier, but performs an appraisal of the seller each time the company requires supplies. The supplier would try to be presentable in a closer tactical relationship, and would want to show the strengths to convince the buyer. The buyer will be keen before entering into a deal to avoid entering into a pact that will cause regrets or poor outcome. The group in charge of SRM will conduct enough review of the supplier’s capabilities to meet the organization’s requirements, and will be watchful every time they enter into a contract.

The business widens its chances of forming successful relationship and contacts with its suppliers by knowing the characteristics of the single-sourced and outsourcing types of relationships that have substantial impact on how the buyer and seller relate to each other. The buyer in a singer-sourced relationship only acquires the raw materials and supplies from a single supplier. The buyer in this situation gives a single supplier the exclusive right to supply the required items and undertakes not to purchase these materials from any other seller. The single-sourced relationship offers the chance to build trust and proper communication between the contracting sides because of the confidence each side has on the other. The seller in a single-sourced relationship tries to be reliable to avoid inconveniencing the buyer. The buyer in such a relationship maintains transparency to prevent any harm, but may be dependent because of relying on a single source. A SRM team that chooses the outsourcing relationship will have to maintain high level of trust with an external supplier who meets the company’s requirements (Mutua, Waiganjo & Oteyo, 2014). An outsourcing relationship is similar to the single-sourced relationship because the supplier in both designs should be reliable to avoid any delays. The single-sourced and outsourcing relationships could be disadvantageous when the supplier is unreliable, but beneficial when the seller is qualified and keep their words.

The body controlling SRM practices should know how entering into a strategic alliance and partnership relationship influence their interaction with the seller. The buyer and the seller in a strategic alliance identify the sectors or areas where they can work together to deliver a joint package. A software manufacturer, for instance, may decide to partner with a training company to allow purchasers acquire information and skills about the program. A partnership relationship permits the buyer and supplier to collaborate for a long period, sharing ideas, skills, and information for production. The contracting parties in a strategic alliance and in  a partnership relationship maintain high level of trust, and share the same objective of forming solutions that benefit both sides without affecting the other.

Effects of Improving Relationship

Businesses that work hard to improve their relationships with suppliers and other contracting parties increase their chances of achieving successful results in their contract and supplier management practices. Both sides witness increased satisfaction, and it becomes easier to meet the expected business benefits and to achieve or exceed the value for money. Embracing features that make relationships and contacts in procurement mainly precious develops a scenario where the suppliers are responsive, cooperative, and efficient, and where the business adheres to its obligations under the terms of the contract. Identifying and applying features that encourage strong relationship and contacts create a work environment where objective and professional discussions over issues and transformations are easily handled and straightforward. Businesses should develop and apply mechanisms to improve relationships in contracts because the initiative would help to do away with surprises and disputes that could harm the contract. All businesses want to enjoy the benefits of effective contract and supplier management and working hard to build relationships is an effective way to attain the best results.

Conclusion

The study presents valuable insight on how to foster relationships and contacts during procurement, and places particular emphasis on the importance of understanding the stages of forming ties with suppliers and knowing how the various contracting structures could affect relationship. Business and SRM leaders learn the importance of paying considerable attention to improving relationships while managing contracts because the process presents an opportunity to relate and communicate with partners in the most effective and friendly manner. Following the stages of forming relationships with suppliers requires the SRM team to focus on four major stages, which entail segmenting the supply base, tracking the supplier’s performance, communicating performance expectations, and working together with suppliers to increase value.

References

Bishop, D., Fuller, A., Felstead, A., & Jewson, N. (2009). Constructing lerarniong: Adversarial and collaborative working in the British construction industry. Journal of Education and Work, 22(4), 243-260.

Mutua, J., Waiganjo, E., & Oteyo, I. (2014). The influence of contract management on performance of outsourced projects in medium manufacturing enterprises in Nairobi County, Kenya. International Journal of Business and Social Science, 5(9), 25-33.

Ssempebwa, R. (2014). Project contract management. Conference, Atlantic International University, at Atlantic International University, USA.

Sillanpaa, I., Sillanpaa, E., & Shahzad, K. (2015). Supplier development and buyer-supplier relationship strategies – a literature review. International Journal of Procurement Management, 8(1-2), 227-250.