DRAFT MAIN EXAMINATION
UNIVERSITY EXAMINATIONS 2013/2014
FOURTH YEAR FIRST SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF PROCUREMENT AND SUPPLY CHAIN MANAGEMENT
BPS 210: MANAGING SUPPLY CHAIN RELATIONSHIPS- (MAIN CAMPUS)
DATE: DECEMBER 2013
TIME: 2 HOURS
INSTRUCTIONS: ANSWER QUESTION ONE (COMPULSORY) AND ANY OTHER TWO QUESTIONS
QUESTION ONE
a) Define the term cross-functional teams (2 Marks)
b) Highlight the key advantages of enterprise resource planning (4 Marks)
c) Managing strategic alliances can be a complex operation especially if the partners are not
carefully chosen. Critically examine the viable pre requisites for successful strategic alliances in a
business environment (8 Marks)
d) Explain the main types of relationships in line with procurement function ( 8 Marks)
e) In the contemporary business environment interdepartmental relationships plays an integral
role in perfection of organisation’s envisioned goals and objectives. In line with this
unprecedented phenomenon in the business, discuss relationship between the purchasing
and supply function with other departments (8 Marks)
QUESTION TWO
Distinguish the following terms which are conspicuously used in deriving relationship concepts in
Supply chain management:
a) Co-destiny and co-maker ship (4 Marks)
b) Discuss the main reasons that trigger most of the organizations in business environment to enter
into joint venture arrangements ( 8 Marks)
c) Building relationship with suppliers is becoming an explicit part of the procurement strategy for
both small and big companies. State the key challenges which are confining organisations to
embrace buyer-supplier relationships (8 Marks)
QUESTION THREE
a) What is Supplier relationship management? (2 Marks)
b) Explain the key benefits that accrue as a result of strategic alliances (8 marks)
c) Over the last one decade there has been a paradigm shift from adversarial relationships to
mutually beneficial relationships in the entire supply chain set up especially in the developed
countries. Discuss these two types of relationship in the context of public procurement
(10 Marks)
QUESTION FOUR
a) World class business firms invariably embrace full application/implementation of procurement
relationships in order to gain competitive edge in business environment. Justify this statement
by discussing:
(i) Reciprocal trading (3 marks)
(ii) Counter- trade ( 3 marks)
b) Discuss the distinct steps in customer relationship lifecycle (14 Marks)
QUESTION FIVE
Write short notes on the following terms that are noticeable in Supply chain relationships:
a) Business relationship management (5 Marks)
b) Joint-venture (5 Marks)
c) Enterprise resource planning (5 Marks)
d) Intra company trading (5 Marks)
DRAFT MAIN EXAMINATION MARKING SCHEME
BACHELOR OF PROCUREMENT AND SUPPLY CHAIN MANAGEMENT
BPS 210: MANAGING SUPPLY CHAIN RELATIONSHIPS
QUESTION ONE
a)
A Cross-functional team is a group of people with different functional expertise working towards a
common goal. It may include people from Procurement, finance, marketing, operations, human
resource departments and so on.
b)
 Faster inventory turn-over-manufacturers and distributors may increase inventory turns by
tenfold and reduce inventory cost by 10 % to 40 %
 Improved customer service: In many cases an ERP system increase fill rates to 80 % or 90 % by
providing the right product in the right place at the right time thus increasing customer
satisfaction
 Better inventory accuracy, fewer audits: An ERP system can increase inventory accuracy to more
than 90 % while reducing the need for fewer physical inventory audits
 Reduced set up times: ERP can reduce set up time by 25 % to 80 % by grouping similar
production jobs together with the efficient use of equipment and minimizing down time through
efficient maintenance
c)
Pre requisites for successful strategic alliances include:
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d)
A strong and visible commitment by the top management of both partners.
Mutual trust and respect between partners.
A clear understanding of each partner’s true motivation and expectations from the
partnership.
Similar and compatibility in business philosophies.
Valued contribution to the alliance from each partner.
Ongoing communication between the partners at all levels of the organization.
Procurement relationship can be expressed in the following ways:

Partnership sourcing: This is a commitment to both customers and suppliers, regardless of size
to a long-term relationship based on clear mutually agreed objectives to strive for world class
capability. Partnership sourcing seeks to make improvements in areas such as: design, quality,
delivery and completion times, production costs, operating costs, stocks levels cash flow etc.

Reciprocal trading: This is a mutual exchange of buyer’s and supplier’s products of
advantages/privileges in commercial relations. It is selling through the order book when a policy
is adopted of giving preferences to those suppliers who are also customers of the buying
company.
 Counter trade: This is a form of international reciprocal trade in which an order is placed by a
purchaser to a supplier in another country on condition that goods of equal proportions will be
sold in the opposite directions. The types of counter trade entail: Barter or Swap, counter
purchase, Buy back, Switch trade and offset trade.
 Intra-company trade: This applies to large enterprise and conglomerates where the possibility
of buying certain materials from each group is made possible. The policy guideline may direct
buyers to purchase specified items exclusively from group members regardless of the price,
obtain quotations from group members which are evaluated against those of external suppliers
with the order being placed with the most competitive source whether internal or external.
 Sub-contracting: Sub-contracting entail means of augmenting limited resources and skills while
enabling the contractor to concentrate on their main area of expertise. Sub-contracting relieves
the main contractor of some duties and therefore being in a position to concentrate on
supervision. Also sub-contracting reduces cost on the part of main contractor as well as
attracting highly qualified and experienced experts to do the job. To this extent therefore both
the main contractor and the sub-contractor should embrace a good relationship to ensure
smooth flow of the underlined activities.
 Supplier development policies:
This is any activity that a buying firm undertakes to improve a supplier’s performance and
capabilities to meet the buying firm’s supply needs. Supplier development is accomplished by:
instigating competition among suppliers, working directly with suppliers through training and other
activities, assessing supplier’s operations and also providing incentives to improve performance.
Supplier development in world class firms is proactive and it focuses on helping suppliers retain the
learning that occurs in the development process to help them improve their own systems. Supplier
development requires that both firm commit financial, capital and personnel resources to work;
share timely and sensitive information and create an effective means of measuring performance and
progress
 Co-destiny and co-maker ship:
Co-destiny is where:
The future of all the participating organizations depends to a greater or lesser extent on the success
of a partnership relationship in which each organization has made an investment.
Co-makership may be defined as close cooperation between the buyer and seller organizations in
respect of product development, manufacture or supply. Also co-makership can be defined as
working together so that each party benefits more from collaboration than working independently.
e)
Relationship between the purchasing and supply function with other departments:
Some issues on which interaction and cooperation may take place between purchasing and
other company departments include the following:
1. Purchasing and finance/accounts department:
 Finance/accounts department prepares budget allocation for goods/services to be
purchased in a given time period
 The purchase department establishes and forwards to finance/accounts department
value analysis report for goods/services to be purchased
 Finance/accounts department briefs the purchasing department on issues based on
supplier payment
 Purchasing department gives accounts department information based on damaged
items and obsolete items
 Purchasing department gives out information based on stock movement to the accounts
department
 Purchasing/supplies department works together with accounts department during stock
taking exercise which is based on assessing the variance status of the company’s
inventory.
 Stores personnel who works under purchasing/supplies department works together with
the accounts personnel when it comes to the issue of receiving goods from the
supplier(s). The accounts personnel checks whether the amount indicated in the invoice
correspond with the amount indicated in the local purchase order (LPO).
2.
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Purchasing and design department:
Preparation of specifications for purchase of materials and components
Quality assurance or defect prevention
Value engineering and value analysis
Information to departments regarding availability of materials, suppliers and costs
Agreement of alternatives when specified materials are not available
Creation of library of books, catalogues, journals and specifications for joint use by the
design and purchasing departments
3.
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Purchasing and production (User department)
Preparation of material schedules to meet just in time requirements
Ensuring that delivery schedules are maintained
Control of inventory to meet production requirements
Disposal of scrap and obsolete items
Quality control or defect detection and correction
Approval of ‘first-off samples’
Make or buy decisions
General involvement in such techniques and systems as optimised production
technology, computer integrated technology, materials requirement planning (MRP) and
manufacturing resource planning (MRP 2)
4. Purchasing and human resource development:
 Purchasing professionals gives out technical expertise when a prospective purchasing
staff is being interviewed for a job.
 Human resource personnel liaise with purchasing managers on checking the
performance of purchasing employees through job appraisal analysis.
 Human resource development relates with purchasing department when it comes to
issues of arranging training and seminars for the purchasing staffs.
 Human resource development work hand in hand with purchasing department through
provision of motivational incentives for the purchasing staffs. This entail the
acknowledgment of best employees through giving out Awards, presents and so on.
 Purchasing department works also with human resource development on disciplinary
matters of the employees.
5. Purchasing and marketing:
 Provision of sales forecasts on which purchasing can base its forward planning of
materials, components etc
 Ensuring that through efficient buying, purchasing contributes to the maintenance of
competitive prices
 Obtaining materials on time to enable marketing and production to meet promised
delivery dates to the end-customer
 Exchange of information regarding customers and suppliers
 Marketing implications on partnership sourcing
6. Purchasing and information technology department (IT):
Purchasing department and IT have an increasing number of interdependencies. In some
cases IT function is outsourced by the purchasing function. To this extent therefore its
performance is evaluated accordingly by the purchasing department. Also the manager
of IT works closely with purchasing manager to develop automated procedures and
reports in line with purchasing. To add on that IT department establishes computer
devices to purchase and to this extent the IT manager prepares purchase order
requisition (POR) for such items and forwards the same to purchasing department. On
the other hand the purchasing department sources for such devices on behalf of the IT
department.
QUESTION TWO
a)
Co-destiny is where:
The future of all the participating organizations depends to a greater or lesser extent on the success
of a partnership relationship in which each organization has made an investment.
Co-makership may be defined as close cooperation between the buyer and seller organizations in
respect of product development, manufacture or supply. Also co-makership can be defined as
working together so that each party benefits more from collaboration than working independently.
b)
Firms enter into joint venture arrangements for a variety of reasons which may be grouped into four
categories.
i)
ii)
iii)
iv)
Joint ventures offer firms the opportunity to combine each firm’s resources and knowhow
with a view to reducing each firm’s costs and obtaining economies of scale by consolidating
production and marketing activities especially in projects involving large capital investments.
Host government may legislate or pressurize MNEs into finding local partners in their
subsidiary operations because this offers greater opportunity for effective diffusion of
technology to the host economy. India for example through Foreign Exchange Regulations
Act of 1975 outlawed wholly owned subsidiaries.
Multinational firms may require a partner in order to obtain knowledge of new and
unfamiliar host country environment.
A local partner may provide the Multinational enterprise (MNE) with access to local
resources and channels of distribution otherwise denied to it legislatively.
c)
Building relationship with suppliers is becoming an explicit part of the procurement strategy for both
small and big companies. The distinct Challenges that have triggered this phenomenon include:
 Globalization
 Rapid product development,

Advances in production technologies
 Cost reduction,
 Bubbling issues like trimming supply base,

Just-in-time,
 Mass customization,

Lean manufacturing,
 Core competence-based on make or buy procurement strategies
QUESTION THREE
a)
Supplier relationship management (SRM) is the process of managing the interaction between two
entities- one of which is supplying goods, works or services to the other entity. SRM is a two way
process in that it should improve the performance of the buying organization, as well as the
supplying organization and should hence be mutually beneficial.
b)
Strategic alliances specifically offer a number of benefits to participating partners. These include:

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c)
Improved prospects for success of partners in exploiting technological advantages.
Achieving economies of scale in research and development by combining resources and
commitment.
A pragmatic and accessible means to achieve set business objectives.
Opportunity for cost effective procurement on a global basis.
Adversarial approach
Porter (1985) argues that traditional purchasing view, advocates minimizing dependency on
suppliers and maximizing bargaining power. Porter (1985) suggests that in order to maintain
bargaining power, the buyer should source from many suppliers, commit short term
contracts with the suppliers; share no information with suppliers regarding sales, cost,
product design; and make (or receive) no improvement suggestions to (or from) suppliers.
Porter (1985) describes this view of supplier management as follows “In purchasing, then,
the goal is to find mechanisms to offset or surmount these sources of suppliers‟
power…..purchases of an item can be spread among alternative suppliers in such a way as
to improve the firm’s bargaining power”. Porter (1985) further argues that the key implication
of this model for purchasing strategy is for buyers to deliberately keep suppliers at an arm’s
length and to avoid any form of commitment. Williamson (1975), Harrigan (1985), Shapiro
(1994) also concurs with adversarial view citing that transactional relationships are
commonly used in public procurement settings, where supplier relationships basically serve
to facilitate the exchange process and fulfill the contract requirements, relationships cannot
be used to intervene with a procurement process that is supposed to be open and fair to all
bidders. Kaufmann and Stern (1988) commented that in economic theory, dependence is
traditionally regarded as something negative, inhibiting market forces to act in the most
efficient manner, companies should optimize and preserve bargaining power by being
independent. An independent actor tries to optimize every transaction, and by definition
would not get involved in a long-term relationship (Kaufmann and Stern, 1988; Donalson and
Toole, 2000).
Sarkis and Talluri (2002), comments that to prevent opportunistic behavior, the conventional
sourcing approach (multiple sourcing) endeavors to establish a wide supplier base, because
constant competition among suppliers should minimize the purchasing price so that the
organization can purchase goods at their real market value. According to a study conducted
by Helper (1991), as quoted in Axelsson and Wynstra (2002), adversarial relationships were
common practice within the US in the early 1980's. The arms length model was widely
accepted as the most effective way to manage supplier relationship in the US until the
success of Japanese firms who did not use this model formed a re-evaluation of the model‟s
basic tenants.
Long term supplier relationships
In Contrasting the adversarial approach, Hill (1995) and Sheard (1996) cites that in this
highly competitive market, the best strategy for winning and retaining business is for buyers
and suppliers to work together, that is, to partner. Sheard (1996) further comments that
essentially, the concept means using the resources of a supplier to the maximum benefit
possible. Weitz and Bradford (1999) supports the partnership approach arguing that it looks
at a supplier as an extension of the buying organization specifically an extension of the
purchaser‟s research capabilities, storage, potentials, financial backing and manufacturing
and quality control needs. Lajara and Lillo (2004) highlights that the practice consists of
selecting the „best‟ suppliers working closely with them and entering into long term
relationships based on mutual needs and trust. This trend was also observed by Hunt and
Morgan (1995) who noticed a tendency among customers to move from an arm’s length
relationship (a number of competing suppliers) towards closer collaborative arrangements. In
support of long term relationships, Burt et al. (2003) commented that a survey of purchasing
managers found general agreement in the fact that supplier partnering.
QUESTION FOUR
a)
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
Reciprocal trading: This is a mutual exchange of buyer’s and supplier’s products of
advantages/privileges in commercial relations. It is selling through the order book when a policy
is adopted of giving preferences to those suppliers who are also customers of the buying
company.
Counter trade: This is a form of international reciprocal trade in which an order is placed by a
purchaser to a supplier in another country on condition that goods of equal proportions will be
sold in the opposite directions. The types of counter trade entail: Barter or Swap, counter
purchase, Buy back, Switch trade and offset trade.
b)
Customer relationship lifecycle:
Companies that understand their customers’ lifecycle constantly work to identify and improve the
multiple touch points encountered in each stage. Touch points are the interactions that company’s
audiences’ experiences over their relationship lifecycle. The distinct steps (stages) in customer
relationship lifecycle entail the following:
Awareness
Knowledge
Pre- Purchase
Consideration
Selection
Purchase
Satisfaction
Loyalty
Post-Purchase
Stage one: Awareness:
A prospect realizes a need or want. Companies that communicate the ability to potentially address
these needs creates awareness. The strategic considerations comprise: Understanding where the
audience is looking for information and how; understand the perceptions of one’s brand; know the
competitors and the market position; determine appropriate touch points and marketing levers to
drive awareness.
Stage two: Knowledge:
Advocacy
A prospect obtains knowledge about a company, product or service. If passive the customer will
absorb information pushed through various media or obtained through unstructured
communication. If active, they seek knowledge that addresses their need using key criteria and ideal
attributes which they have identified.
Stage three: Consideration:
Prospect weigh their knowledge of available solutions against their hierarchy of needs. These need
can be broad, such as practical needs of cost value, timing, specific expertise etc. The prospect will
examine the criteria and attributes against their hierarchy of needs to develop a profile of the ideal
solution.
Stage four: Selection:
The prospect makes a selection based on how well an organization meets their hierarchy of needs
and matches their ‘’ideal’’ profile as well as the process and quality of interaction during the
information gathering stages. The prospect becomes a customer; if expectations are meet and / or
exceeded during this stage.
Stage five: Satisfaction:
The relationship intensifies as the customer discovers whether performance meets expectations.
Performance itself does not dictate satisfaction; rather it is performance against expectations that
determines satisfaction.
Stage six: Loyalty:
A consistently delivered, relevantly branded customer experience can account for up to one-third of
organizations ability to drive loyalty. Product and service quality is also a significant driver of loyalty,
accounting for up to one- third of the overall ‘’Loyalty equation’’.
Stage seven: Advocacy:
Many customers will never move beyond loyalty. However, those who do not become advocate will
significantly benefit to business ranging from price premiums and lower service costs to greater
usage. Advocates will actively recommend suppliers of product or services to friends and colleagues
moving prospects through early stages of the lifecycle.
QUESTION FIVE
a) Business relationship management
Business relationship management is a formal approach to understanding, defining, and supporting
a broad spectrum of inter-business activities related to providing and consuming knowledge and
services via networks, with an emphasis on the emergence of online networks as a primary medium
through which business relationships are conducted.
Business relationship management (BRM) is distinct from, but related to, concepts such as
enterprise relationship management and customer relationship management. It also exceeds the
scope of the limited context of describing a liaison who aligns business interests with IT deliverables.
BRM seeks to provide a complete and holistic model of business relationships and business
relationship value over time, in order to make the various aspects of business relationships both
explicit and measurable. A mature BRM model will ultimately support both:
 strategic business research and development efforts
 Tools and techniques that implement BRM principles
BRM as a discipline seeks to enable all stakeholders to develop, evaluate, and leverage high-value
relationships throughout the network.
b) Joint venture
A joint venture may be defined as a business arrangement in which two firms usually termed as
subscribers commit capital, technology and managerial resources for a stake on the ownership and
control of a new enterprise – the joint venture.
Ownership of the joint venture is proportionate to the perceived or real value of the contribution of
each subscriber. These contributions may be in the form of capital, technology or even managerial
expertise that help to further the objectives of the joint venture.
Firms enter into joint venture arrangements for a variety of reasons which may be grouped into four
categories.
v)
Joint ventures offer firms the opportunity to combine each firm’s resources and knowhow
with a view to reducing each firm’s costs and obtaining economies of scale by consolidating
production and marketing activities especially in projects involving large capital investments.
vi)
Host government may legislate or pressurize MNEs into finding local partners in their
subsidiary operations because this offers greater opportunity for effective diffusion of
technology to the host economy. India for example through Foreign Exchange Regulations
Act of 1975 outlawed wholly owned subsidiaries.
vii)
Multinational firms may require a partner in order to obtain knowledge of new and
unfamiliar host country environment.
viii)
A local partner may provide the Multinational enterprise (MNE) with access to local
resources and channels of distribution otherwise denied to it legislatively.
Loss of control of management is a great risk associated with joint venture as both firm form an
independent new firm with its own identity. Cultural differences may as well impinge on the
successful operations of the joint venture as well as divergent short and long-term objectives. Loss
of control over proprietary assets is another risk area associated with joint ventures.
c) Enterprise resource planning
This is a business management system that is supported by multi-module application software that
integrates all the department’s functions of an enterprise. It is the latest and possibly the most
significant development of MRP 1 and MRP 11. While MRP allows the manufacturers to track
supplies, work in progress and the output of finished goods to meet sales orders, ERP is applicable to
all organizations and allows managers from all functions or departments to have a consolidated view
of what is or is not taking place throughout the enterprise. Most ERP systems are designed around a
number of modules each of which can be stand-alone or can be combined with others.
d) Intra company trading
This applies to large enterprise and conglomerates where the possibility of buying certain materials
from each group is made possible. The policy guideline may direct buyers to purchase specified
items exclusively from group members regardless of the price, obtain quotations from group
members which are evaluated against those of external suppliers with the order being placed with
the most competitive source whether internal or external.
BACHELOR OF PROCUREMENT AND SUPPLY CHAIN MANAGEMENT
BPS 210: MANAGING SUPPLY CHAIN RELATIONSHIPS
LECTURER: MATHIAS MUINDE-0724309134, EMAIL: [email protected]
Introduction:
The aim of the course is to acquaint the learner with the key elements of Supply chain relationships
to provide comprehensive understanding of concepts and practices in order to select suitable
strategies and principles primarily in this area.
Unit objectives:
At the end of this course, the learner should be able to:
1)
2)
3)
4)
Demonstrate an understanding of the holistic management of supply chain relationships
Initiate and develop supply chain relationship concepts
Carry out Marketing Research in line with management of supply chain relationships
Develop ability to design and analyze supply chain systems and formulate integrated relationship
management approaches
5) Impart analytical and problem solving skills necessary to develop solutions to a variety of Supply
chain management relationships
Course outline:
 Introduction to managing supply chain relationships
 Benefits of joint performance measurement
 Relationship for effective buying
 Concepts of relationship management
 Strategic considerations in relationship formation
 Main types of relationships as related to procurement
 Analysis of relationship in the context of public procurement
 Relationship management as applied to internal customer
 Role of supplier and supplier company relationship lifecycle
 Buyer and supplier performance links
References:
 Bensaou BM. (2000). “Portfolios of buyer-supplier relationships”, Sloan Manage. Rev., 40(4):3544.
 Lysons, K. (2000). Purchasing and Supply Chain Management, 3rd edition. London:
Prentice Hall.
 Saleemi, N.A. (2002). Purchasing and supply management, 2nd edition. Nairobi: Saleemi
publications limited
 Jessop D. (2000) supply chain strategy .Pitman. London
 Gattorna and Walters. (1996) Managing the Supply Chain –Strategic perspective. Macmillan
Business
 Lysons K, (2006), Purchasing and Supply Chain Management. Pearson Education Limited.
London.
 Burt DN, Dobler DW, Starling SL (2003). World Class Supply Management: The Key to Supply
Chain Management, 7th ed., McGraw-Hill, New York, NY.
 Christopher M, Juttner U (2000). “Developing strategic partnership in the supply chain: customer
satisfaction and firm performance. Supply Chain Management: Int. J., 6 (4):174-188
 Donalson B, Toole T (2000). “Classifying Relationships Structures: Relationships Strength in
Industrial Markets,” J. Bus and B2B, 15(7): 491-506.
 Erridge A, Nondi R (1994). “Public Procurement, Competition and Partnership.” Eur. J. Purch.
Supply Manage, 1(3):169-179.
Course evaluation:
 CATS and Assignments
= 30%
 Final Examination
=70%