Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

2.2.2 Traditional Market-Oriented Relationship Compared with Customer-Supplier Partnership

Intended learning outcomes: Present target area strategies for the traditional market-oriented relationship, and disclose possible supply chain risks entailed. Identify the concept of customer-supplier partnership and disclose adequate target area strategies, and disclose possible supply chain risks entailed.



The traditional market-oriented relationship is determined by the law of supply and demand. Suppliers are chosen on the basis of low prices. Cost reductions are achieved as suppliers play off one another.

Market-oriented relationships show low intensity in terms of entre­preneur­ial cooperation. In principle, the duration of the relationship is indefinite, but in fact it is calculated to be short term: the supplier network is flexible, and any relationship may be replaced with another. Related to the entrepreneurial objectives in Figure 1.3.1.1, strategies arise between the producer as buyer and the producer’s suppliers as shown in Figure 2.2.2.1.

Fig. 2.2.2.1        Target area strategies for the traditional market-oriented relationship.

In sum, price and quality arguments, or productivity in the narrow sense, determine supply and demand. Where friction loss is too high, the customer tends to use insourcing. This is also why there has been a trend in the past toward large and even multinational corporations.

The market-oriented relation­ship tends to have the following supply chain risks, which on the whole have to be smaller than the risk of over-dependence on one supplier:

  • Relatively high costs for the order process, due to the great expense of frequent information gathering and contract negotiations. The selection of the supplier must be made within a short time and based on fewer criteria.
  • For custom material, changing the supplier can result in significant adaptation costs on the buyer side; for example, the cost of changing production or logistics processes. For this reason, companies should purchase only commodity material via the marketplace whenever possible.
  • In a buyer’s market, the suppliers can absorb the pressure to lower prices by drastically reducing costs on their side. They minimize costs via lower quality, long delivery times, and low delivery reliability. This can impact the buyer’s service level. Therefore the buyer, even though dominant, cannot push prices down too low.
The customer-supplier partnership, or simply customer partnership, is the strategic and long-term reduction of the number of suppliers to achieve fast and easy operational order processing. The choice of a supplier is made in view of total cost of ownership.

The term stands for an approach to supply and demand that functions not only according to price and quality, because delivery unreliability on the part of suppliers results in opportunity cost for the manufacturer, if it is then unable to supply its own customers. Related to the entrepreneurial objectives, strategies arise between the producer as buyer and the producer’s suppliers as shown in Figure 2.2.2.2.

The customer-supplier partnership, in short-term order processing, leads to the elimination or reduction of friction loss caused by order negotiations or incoming inspection. With this, many of the advantages of company-internal production for fast lead time can be retained. This type of cooperation with suppliers demands extensive preparations. For this reason, long-term relationships of this kind cannot be established and maintained with a large number of partners. They have to be laid out for the long term but show, however, rather low intensity in terms of entre­preneurial cooperation. Thus, they can be checked again and again with regard to their validity.

Quality goals are achieved through certification of the suppliers; cost goals are achieved through closing blanket order contracts across entire item families or material groups.

A certified supplier is a status awarded to a supplier that constantly achieves a minimum level of quality as well as other objectives in other target areas, such as cost or delivery (see also [APIC16]).

An (item) family contract is a purchasing order grouping a family of items or a material group together to obtain pricing advantages and a continuous supply of material ([APIC16).

Fig. 2.2.2.2        Target area strategies for the customer-supplier partnership.

The customer-supplier partnership tends to have the following supply chain risks, which must be smaller than the advantages mentioned:

  • Dependence on one supplier can prove to be too strong (delivery failures, lack of flexibility when demand fluctuates, changes in company ownership on the supplier side). If there is no sole sourcing situation, a switch to dual sourcing may be possible, which can lead to higher unit costs.
  • The long-term nature of the relationship and the costs incurred for changing suppliers can lead to a lack of adjustment to pricing developments on the market. After a sufficiently long period, for this reason, continuance of the relationship must be examined and, if necessary, new terms must be negotiated.
  • A buyer-dominated relationship can transition into a supplier-dominated relation­ship unexpectedly, that is, the buyer’s market can become a supplier’s market. This is, for example, the case with system suppliers if they take over technological leadership, but it can also occur in raw material procurement due to bad natural phenomena or due to speculative manipulation. The relationships must then be renegotiated.



Course section 2.2: Subsections and their intended learning outcomes

  • 2.2 Strategic Procurement

    Intended learning outcomes: Produce an overview on strategic procurement. Differentiate between traditional market-oriented relationship and Customer-Supplier Partnership. Describe strategic procurement portfolios. Explain strategic selection of suppliers. Present basics of supplier relationship management and e-procurement solutions.

  • 2.2.1 Overview on Strategic Procurement

    Intended learning outcomes: Disclose the supplier structure follows the product structure. Differentiate between direct material, indirect material, commodities, and various demand patterns. Describe various traditional procurement strategies.

  • 2.2.2 Traditional Market-Oriented Relationship Compared with Customer-Supplier Partnership

    Intended learning outcomes: Present target area strategies for the traditional market-oriented relationship, and disclose possible supply chain risks entailed. Identify the concept of customer-supplier partnership and disclose adequate target area strategies, and disclose possible supply chain risks entailed.

  • 2.2.3 Strategic Procurement Portfolios

    Intended learning outcomes: Explain the supplier portfolio describing the degree of mutual dependence between buyer and supplier. Present procurement strategies for material groups in dependency on their logistics characteristics.

  • 2.2.4 Strategic Selection of Suppliers

    Intended learning outcomes: Describe possible supplier-evaluation criteria for each target area. Explain the score and the gap method for supplier evaluation, using an example with two suppliers. Disclose possible supply chain risks risks entailed using these methods.

  • 2.2.5 Basics of Supplier Relationship Management and E-Procurement Solutions

    Intended learning outcomes: Produce an overview on several categories of e-procurement solutions. Describe various classifications of an electronic marketplace according to the institutional provider, the degree of “openness”, and the range.