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

2.2.2b Customer-Supplier Partnership

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

Continuation from previous subsection (2.2.2).

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

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 [ASCM22]).

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 ([ASCM22).

Fig.        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

    Intended learning outcomes: Present target area strategies for the traditional market-oriented relationship, and disclose possible supply chain risks entailed.

  • 2.2.2b Customer-Supplier Partnership

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