Choosing the right supply relationships

Key issues What types of supply relationships can be adopted How can each type of relationship be tailored to different types of product  

A popular view is that Japanese companies consider all of their tier 1 suppliers as partners. This is not really true for example, Japanese automotive manufacturers do not regard all of their suppliers as equal. In fact among the typical 100-200 tier 1 suppliers to an OEM only about a dozen will enjoy partnership status. Typically, these elite few tend to be large organisations. 

Strategic items are those for which the buyer has strength but there are few available suppliers. In this situation, purchasing should use its strength carefully to draw suppliers into a relationship that ensures supply in the long term. 

Where the buyer has little power and there are few alternatives then these items are termed bottlenecks. The aim of purchasing in this situation is to reduce dependence on these items through diversification to find additional suppliers, seek substitute products and work with design teams to ensure that the bottleneck items are avoided in new products where possible. 

Where there are a large number of available suppliers and the buyer has high spending power then the buyer will be able to exercise this power to reduce prices and to push for preferential treatment. Naturally, care should be taken not to antagonise suppliers just in case these favourable market conditions change. 

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