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Strategic Purchasing: Supplier Relationship Performance Outcomes – Part 4

PART 1: Introducing New Research on Relational Rents
PART 2: Strategic Purchasing and Supply Management Practices
PART 3: The Nature of Strategic Purchasing
PART 4: Supplier Relationship Performance Outcomes
PART 5: Lessons for Purchasing Managers

Improving the management of a firm’s supply base can have a large impact on supplier-related performance outcomes. Specific benefits might include lower costs, improved delivery speed, fewer quality problems, early insights into new technologies and on-time product launches. Each of the supply management approaches modelled; formal socialisation processes, supplier integration and supply base flexibility, have positive business benefits when effectively implemented.

Formal socialisation processes
Formal socialization processes, acting as conduits for the transmission of information and knowledge, play a critical role in effective buyer-supplier relationships. Formal communication of supplier evaluations positively influences the buyer-supplier relationship. Similarly, communication formality has a positive influence on cooperation and reduces distortion and withholding of information. Poor communication can undermine buyer attempts to increase supplier performance levels and is often responsible for many supplier product problems. Socialization processes which increase the frequency and intensity of interactions between buyer and supplier help develop the capacity of each partner to absorb new ideas and technologies, potentially leading to innovation gains.

Supplier integration
Supplier integration has been associated with improved business performance across a range of industries and settings. Closer integration with suppliers results in higher levels of reliability, delivery times, flexibility and customer satisfaction, ultimately making the buyer more competitive long-term. Increasing levels of operational integration with key suppliers leads to greater relationship performance.

Supply base flexibility
The characteristics of a firm’s key suppliers impacts the potential scope of returns from strategic purchasing. Supplier resources must be aligned with those of the buyer in order to attain collaborative and competitive advantage. Specific investments in the supplier relationship led to greater supplier responsiveness, and in turn, improved supplier performance. Thus, organizations with more responsive supply bases are more likely to extract gains from the relationship with these key suppliers, including lead time reductions, quality improvements and increased sales.