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SCRC Article Library: Expected Costs and Benefits: Developing Collaborative Supplier Partnerships

Expected Costs and Benefits: Developing Collaborative Supplier Partnerships

Published on: Jan, 24, 2011

by: Brian Fillard, MBA ‘03 Scott Frahm, MBA ‘03 Amy Mercer, MBA ‘03 Kendyle Scott, MBA ‘03

Expected Costs and Benefits

Quantifiable costs
Quantifiable benefits
Non-quantifiable benefits

As with any initiative, there are costs related to supplier development that must be absorbed. Most of these costs are on the front end and decrease as problems in the collaboration are identified and solutions are developed.

Quantifiable costs

Organizations have identified the following quantifiable costs directly related to developing supplier relations:

60% increase in labor

23% increase in travel increased

17% increase in training and consulting (25)

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h2. Quantifiable benefits

As these costs are substantial, they pale in comparison to the benefits that have been realized from companies that have implemented successful supplier relations. As stated earlier, most of this direct reduction in costs surrounds the areas of delivery and quality. The following is a list of quantifiable benefits that has been positively correlated with supplier development initiatives:

90% reduction in defects in three years

4% improvement in meeting specifications

30% scrap reduction

7% stock availability improvement

26% improvement in on-time delivery

94% of line items filled within lead time

10% reduction in freight costs

16% reduction in previous purchase price

35% improvement in price per unit

8% improvement in total costs (23)

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h2. Non-quantifiable benefits

It is also important that non-quantifiable or “soft” results be considered when deciding whether a supplier collaboration initiative has been successful. Although these benefits are not as easy to measure, they are equally important to the firm and its overall success. The following list highlights results that are not quantifiable but have been reported through research:

  • Suppliers will better understand the expectations of the firm and their customers
  • Leaner supplier production systems
  • Better performance of the firm’s internal processes
  • Increased cross functional communication within the firm (25)
  • Faster, quicker decision making
  • Loyalty between partners
  • Improved safety on-site
  • Improved new product launch
  • Increased number of supplier ideas and suggestions (23)

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