1. The Supplier Relationship Continuum
Partnering is a term to widely used!
Can you place any of our purchasing arrangements on the continuum?
SPOT BUY no
REGULAR TRADING specials
CALL-OFF CONTRACT water ampoules
FIXED CONTRACT IVIg

2. Kraljic Matrix (modified)
High
Purchasing's
Leverage products
Competitive bidding
Strategic products
Partnership
Impact on Cost
low
Routine products
Systems contracting
Critical products
Secure continuity of supply
low Supply
Risk high
Leverage products
High or low unit cost
Higher expenditure
Low risk if unavailable
Many suppliers
Many near substitutes
Routine products
Low unit cost
Low expenditure
Strategic products
High unit cost
High expenditure
High risk if unavailable
Few suppliers
Few near substitutes
Critical products
Low unit cost
Low expenditure
Traditionally in manufacturing / profit making – modified for not-for-profit
ROUTINE PRODUCTS
You can always use something else – use someone else
e.g. bottles and cartons (set up contract that requires little attention)
CRITICAL PRODUCTS
Few suppliers often because of low profitability
Pay more to assure supply, closely monitor stock
e.g. IV Ergometrine, paediatric metabolic products
LEVERAGE PRODUCTS Opportunity to reduce costs
Economies of scale, amalgamated buying power, 14 day clause
e.g. oral generics
STRATEGIC PRODUCTS
High set-up costs – lots of time and resource to identify and secure supplier. Difficult to find an alternative speedily.
e.g. LMWH (financial savings but considerable set-up of protocols etc), IV ward order assembly

3. Competitive versus Collaborative Relationships
Competitive Criteria
Many competing suppliers
Standard products
Wide supply markets
No need for high degree of trust
No supplier power, switching suppliers is easy
Competitive bidding for contracts
Collaborative Criteria
Creation of supply chain synergy - rather than individual links in the supply chain
Joint and mutual search for greater efficiency and competitiveness
Agreed shared objectives and planning for the future
Elimination of waste
Equality of relationship - openness and transparency, understanding of expectations, needs met
Effective exit strategy
STANDARD PRODUCTS - easily substituted
COMPETITIVE BIDDING – Good prices available
CREATION OF SUPPLY CHAIN SYNERGY – must be information rich
JOINT AND MUTUAL – e.g. ecommerce versus data entry
ELIMINATION OF WASTE - muda
EQUALITY OF RELATIONSHIP – both equal, trust in place
EFFECTIVE EXIT STRATGEY - plan for change, can’t stop overnight

4. Supplier perception Matrix
high
Attractiveness
Develop the business
Core business
of business
low
Ignore the business
Exploit the business
low Spend
Having identified which type of relationship best suits our requirements with our chosen supplier
We must consider whether the supplier will be interested in developing that relationship with us.
The supplier perception matrix can aid this decision and should be considered before resources are committed to any relationship.
This matrix / concept is a complete shock to non-procurement staff!
Can you identify which boxes we fall into with some of our suppliers?
What effect do you think NICE has with a positive appraisal?
Which quadrant might a product move from and to when the patent expires?

5. Stages of Supplier Integration into the Buying Organisation
Aspects
Supplier
Preferred supplier
Supply partner
Design partner
Relationship
Characteristics
Operational
Tactical
Strategic
Time
Horizon
From order to order
1 year
1-3 years
3-5 years
Quality
As requested by buyer
QC by buyer
QC by buyer & supplier
‘Sign-off’ by supplier
QA by supplier (process quality)
‘Sign-off by supplier’
ESI
QA by supplier (design quality)
Logistics
Orders
Annual agreements & call-off orders
Periodical scheduling of requirements by buyer
Electronic vendor managed inventory
Contract
Annual agreement
Greater than 1 year
Quality agreement
Design contract
Price &
cost
Price
Price + rebate
Price + cost reduction targets
Price based on open calculation
Continuous improvement
The table illustrates stages of supplier integration into the buying organisation (manufacturing focussed)
As relationship develops so does the level of trust / commitment between the two parties
This is demonstrated by increasing sophistication of business activities
Discuss
QC versus QA – green lane receipting
Price – opportunity to reduce price by driving out costs
Where are we?

6. Usually, to increase profit Usually, to achieve defined service levels
Area of difference
Private sector
Public Sector
Objectives
Usually, to increase profit
Usually, to achieve defined service levels
Responsibility
Buyers are responsible to directors, who in turn are responsible to shareholders
Buyers are responsible ultimately to the general public
Legal
Restrictions
Activities are regulated by company law, employment law, product liability law etc.
As for private sector, but also additional regulations e.g. compulsory competitive tendering
Competition
Strong competition between firms
No competition
Publicity
Confidentiality applies in dealings between suppliers and buyers
Confidentiality is limited because of public interest in disclosure
Budgetary
Limits
Investment is constrained only by availability of attractive opportunities; funding can be found if prospects are good
Investment is constrained by externally imposed spending limits
Information
exchange
Buyers do not exchange information with other firms, because of confidentiality and competition
Buyers are willing to exchange notes
Defined
procedures
Buyers can cut red tape when speed of action is necessary
Buyers often constrained to follow established procedures
Public and private sector purchasing –why is it different for us?
Discuss
Publicity – confidentiality
Information exchange – really useful and supportive
Defined procedures
EU procurement directives are considered by many to impede development of collaborative commercial relationships
However, EU directives only set out a framework for contracting
They don’t deter use of innovative techniques and relationships within the framework
Competition should not be viewed as a threat to collaborative relationships.

7. Mini Case Study
Zoo Buyer