Supplier Relationships: a Strategic Initiative

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Supplier Relationships: A Strategic Initiative

Jagdish N. Sheth Goizueta Business School Emory University Arun Sharma University of Miami

Jagdish N. Sheth is Charles H. Kellstadt Professor of Marketing, Emory Business School, Emory University and Arun Sharma is Associate Professor of Marketing, University of Miami. This paper extends research published by the authors in Industrial Marketing Management (March 1997). Please address correspondence to Arun Sharma, Department of Marketing, University of Miami, P.O. Box 248147, Coral Gables FL 33124, Telephone: (305) 284 1770, FAX: (305) 284 5326.

Supplier Relationships: A Strategic Initiative*

Abstract In an increasing competitive marketplace, firms are seeking new methods of enhancing competitive advantage. Today, purchasing is becoming a strategic function and a key factor in competitive positioning. This paper suggests that effective relationship with suppliers will provide firms with next-generational competitive advantage. With consolidation of firms within industries, continuos product evolution and constant pressure on costs, supplier relationships will become more critical in the future. This paper discusses the emergence of supplier relationships, and how this shift toward supplier relationships has and will change the role, processes and strategies of firms. Although purchasing has strategic importance within a firm, good relationships between customers and suppliers are elusive. Firms, therefore, need to emphasize aspects that will enhance supplier relationships.

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This paper extends research published by the authors in Industrial Marketing Management (March 1997).

Supplier Relationships: A Strategic Initiative

Introduction Firms are facing increasingly competitive environments characterized by continuos pressure on costs, large global players, continuously evolving products, customer fragmentation and emerging technologies. To ensure success, firms realize that they cannot be experts in all businesses and are concentrating on their core competencies. As an example, Westinghouse is selling its power and defense lines to concentrate on the broadcasting business. To enhance their performance in non-core competency areas, companies are reevaluating business relationships so as to form closer relationships with strategic suppliers [1, 2, 3]. Firms have realized that collaborative business relationships improve a firm's ability to respond to the new business environment by allowing them to focus on their core businesses and reduce costs in business processes. In an earlier paper, we had suggested that the source of next-generational competitive advantage will be collaborative relationships that firms have with their suppliers [4]. We suggested four reasons for this phenomena. First, marketers or sellers are driving this change as firms have started identifying and catering to the needs of specific customers. Thus, having a relationship with suppliers will enable firms to receive better service and therefore be more efficient in procurement. Second, firms recognize that supplier relationships will allow them to be more effective. It is easier to implement strategies such as quality platforms, if firms have relationships with their suppliers. Third, there are enabling technologies that allow firms to select their best customers and suppliers. Computer programs allow firms to calculate profitability Page 2

associated with each customer or supplier. Finally, competition and the growth of alliances are forcing firms to develop better supplier relationships to maintain a competitive edge. The purpose of this paper is to emphasize that supplier partnerships will provide a strategic advantage to firms. This paper identifies the benefits of supplier partnerships and provides guidelines for future supplier partnering.

Shift in Organizational Strategy The reason for the emerging emphasis on supplier relationships is the shift in organizational buying...
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