Buyer And Supplier Relationship

Running Head: BUYER SUPPLIER RELATIONSHIP IN SMEs 1

Buyer Supplier Relationship in SMEs

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BUYER SUPPLIER RELATIONSHIP IN SMEs 2

The Small medium-sized enterprises popularly known as the SMEs are independent firms

which employ a minimal number of employees than a given figure of employees for a company

(Simchi-Levi et al 1999, pp.104).

The numbers range from 1 to 500 depending on the country. For instance, in Europe, the

limit is 250, in United States being 500 while in other countries having a limit of 200 employees

per enterprise.

In SMEs, two important players are involved who make the business prosper;

1. Buyer

2. Supplier

Buyer

A buyer is any individual or organization that purchases its products or services from a

main source, suppliers. In this case the SMEs (Small and Medium Enterprises) are the buyers

who buy items from renowned suppliers (Bowersox et al, 2002, pg. 47). Can be a manufacturer

purchasing raw materials or a normal retail business which depends on manufacturers for

business products.

Qualities of a good buyer

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1. Solid history – No one who would wish to provide goods or services to

someone who has no a concrete history in business. If anyone would wish to supply him

or her with goods, he or she will enquire more information on the buyer’s qualifications.

The supplier will be willing to know what the reputation of the buyer in the industry is.

Apart from business capabilities, the suppliers also follow closely too on educational and

employment history. If at all the buyer had poor standard before, the suppliers will

definitely evade him or her.

2. Should have capital and reliable sources of money – No supplier who is

just so ready to start a relationship with a buyer where he or she is expected to deliver

goods or services or credit terms. Lack of enough funds before the suppliers, make them

(Suppliers) belief that they are transacting business with a pauper. That makes them sense

loss and hence evade the particular buyer by all means (Lei et al, 1999, pg. 23).

3. Should understand the product or service acquisition process – A buyer

out to understand well the processes which are entailed in acquisition of goods and

services for his or her business. Every supplier would wish to deal with a diligent sound

buyer whom they can be able to reach into an agreement.

4. Honest- No one who would wish to deal with a dishonesty person in any

business. Every player likes to transact business with a trustworthy business partner.

5. Good communicator – Business is all about communication, the ability to

network and argue your point before other business people whom you would wish to

work wish.

Supplier

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A supplier is a person or manufacturer who provides goods and services for an SME. The

supplier coordinates with the buyer on well laid terms to deliver goods or services to the buyer.

There are three types of suppliers;

 Commercial Suppliers –They deliver goods only on agreed terms of

business

 Preferred suppliers – Is a group of suppliers who have a mutual

relationship (Friendship) with their buyers.

 Supplier partners – They are actively involved in the development of new

technology, products and business opportunities

Qualities of a good supplier

i. Remains compliant with industry standards

Every SMEs business enterprise depends on the supplier to thrive. All the trust is put on

the supplier that he or she must maintain the market standards. If at any time the supplier decides

to deliver substandard products, then no buyer will order anything from him or her (Lee et al,

1997, pp. 546-558). The supplier has the responsibility to make sure that he or she maintains the

profile of quality products.

Buyers tend to be particularly wary of smaller contractors' ability to meet the terms with up-to-

date legislation, so it's vital for suppliers to demonstrate that they are on top of this game.

ii. Keeps information up-to-date always

Secondly, in the eyes of the buyer, a great supplier should always ensure its records are

up-to-date especially concerning the line of his or her products. He should be the one informing

his buyer on new market or technological trends (Chopra and Sodhi, 2004, pp.53). He or she

BUYER SUPPLIER RELATIONSHIP IN SMEs 5

must be up to date prices. This assists him or her in making sound decisions which will reflect

the same to his or buyers.

iii. Strives to continually improve

A good supplier is never contented with his or her current situation. He or she strives

much to improve his products and services. This is because every supplier is fighting for the

same buyers and that shows if he or she gets strayed in slumber, the buyers known to him will be

picked by other active buyers and through that he or she will definitely vanish from the market.

By demonstration to buyers that he or she is committed to making his or her products new now

and then, making them more appealing, then the supplier will be able to maintain his or her

customers.

iv. Demonstrates innovation

A good supplier is always innovative in urge to please his or her buyer throughout. He or

she should show the customer that his or her products are the best in the market by continuously

advancing them.

Innovation is a key supply chain trend currently, and buyers want to see signs of this

from the suppliers they work with because it could be what gives your customer an added

advantage (Li, D. and O’Brien, 2001, pp.29-39).

Buyers want their suppliers to be ahead of the game, always looking to better than they are

currently, while remaining compliant. Therefore, it's essential for contractors to bear in mind that

buyers will be looking for signs of innovation, but they'll also be seriously probing for compliant

suppliers.

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5. Has a proactive attitude

 Last but not least, the perfect supplier should have a proactive attitude.

Joining an Achilles community demonstrates to buyers that suppliers are serious about

meeting buyer and industry requirements.

However, just joining isn't enough. Remember to engage with your customers outside of

the Achilles platform and, your own marketing team or the person responsible for

marketing to promote your organisation’s achievement. This can be done on their

company website, social media, exhibitions, and email signatures – get as creative as you

like.

BUYER-SUPPLIER RELATIONSHIP

Buyer-Supplier relationships are commercial transactions done between two or more

business organizations for the purpose of acquisition and supply of goods or services. In every

business, a good relationship between the buyer and the supplier is vital for the business to

prosper. It is an uneasy relationship which needs honesty since both (Buyer and Supplier) wants

to maximize profit and good use of time and resources; the competing business priorities which

strain the relationship to its furthest end (Council, 2008, pg.53-57).

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The mutual relationship between the two partners can be either long-term or short-term

depending on the business terms. Both short term and long term relationships between the buyer

and the supplier have merits and demerits. Short term relations can be more positive when a

degree of elasticity is required. For instance, a short term contract give the buyer the choice to

switch suppliers for their next purchase and gives him/her room for service comparison among

the suppliers. They can also be advantageous in markets where the prices of materials or services

regularly change and long-term commitments are not suitable.

The disadvantage with short-term buyer-supplier relations is that it only provides for a

very short scope for payment and order flexibility. The problem with that is driven by lack of

enough trust between the players, they fear each other.

Long-term relationships are characterized by long mutual relationships between the two

partners involved. Here are some of the advantages of having long-term business relationships

between the buyer and the supplier;

 Reduced costs- In most of large contracts, the initial cost of setting up the

‘friendship’ is high and it takes months to mature. All parties involved contribute towards

this. Despite the fact that both parties try to evade this cost due to unsure opportunities

ahead, both parties are usually actively looking forward to a productive relationship

(Bensaou, 1999, p.35). Some of the costs arise from re-tendering, re-negotiating,

friendship building among other ‘unnecessary’ expenses which they may thinly notice

but ignore because they are optimistic of a brighter business future. But at long run, when

the relationship is completely established, the parties will not incur costs like tendering,

marketing among others. This is an advantage.

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 Increased efficiency and better communication – The more a supplier

provides services for a certain buyer, the more he or she will have an understanding of

the customers’ main market, business and the business processes involved. This is

facilitated by the long term relationship that encourages open communication between

the two players. The buyer is always free to inform the supplier of the market situation

and likewise the supplier to the buyer. Consequently, this means an improvement in

service delivery and hence becoming more efficient and more so effectively handling

arising issues.

 Pricing volatility mitigation- In long term relations, the prices rarely

change within overnight. This is because price changes needs careful examination in

consideration to the contract lengths, volumes and the significance of the product to the

buyer. Constant prices help a business enterprise to plan well for its goals.

 Supply Chain Consolidation- The more the bond between the buyer and

the seller is becoming strong, the more the buyer understands the suppliers models,

products and services. On the other side, the supplier gets to know more about the

buyer’s business needs. This makes the parties look for the core areas of consolidations

across the existing products or services and the potential of coming up with a new

product or services. For buyers, consolidation allows him or her to focus on one or two

suppliers hence creating a more efficient, smooth supply chain.

 Outsourcing - These are relationships with trusted suppliers which

enables buyers to outsource non-critical behavior, allowing them to take advantage of

specific industry and/or product or service expertise, whilst concurrently reducing

internal workloads and increasing efficiencies in delivery.

BUYER SUPPLIER RELATIONSHIP IN SMEs 9

 Continual Improvement - Are long term relationships which provide the

opportunity for buyers to continuously bond with suppliers in a process that leads to

continual improvement of both goods and services from the supplier. This can be

realized through product development, new process development and procedures.

The disadvantage with this form of relationship is that it makes the players dormant.

They don’t look for new opportunities because they believe already they have got what they

need. Again, the long-term relationships are expensive at the begging since everyone has to

invest in the friendship and thus it scares away the financially pressed starters.

In general, most enterprises will have a common balance of both the long term and short

term relationships with their buyers or suppliers. The balance reduces the risks which are found

in both two types of relationships.

The relationship between the two business players is bound by the following four

elemental dimensions which determine the type of relationship; long-term or short-term.

a. Trust

Trust is an important business value in maintaining the complex business network and in

turn contributing to the success an enterprise. Trust indicates one’s ability to be confirmed honest

in business dealings building confidence to the other business players (Humphreys et al, 2001,

pp.152-162). For example, if the supplier has a reputation that he/she delays delivery of services

or goods, there is a big possibility that no buyer will reach him/her or retain the supplier name in

the list of suppliers. Trust facilitates long-term relationships Trust breaks long-term business

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relationships whereby the partners share information, forecasts, knowledge and even customers

because they trust each other and believe no in failing one another.

Here are some of the advantages of building enough business trust between the players;

 Leads to decrease on transaction costs

 Reduce the risk of one of them adopting an opportunistic behavior

 The players are always having the will to engage in any future

business opportunity

 Facilitate cooperative business transactions

In general, trusts make the buyers and the suppliers to focus on the long-term benefits of

the relationship and finally enhance the performance outcomes in supplier-buyer relationships,

including firm competitiveness and decrease in cost of transactions (Smeltzer, 1997, pp.40-48).

It is only business trust that immensely influences long-term relationships, has the

strongest effect on achieving collaboration in relationship.

There are two major aspects of trust;

1. Personal trust – A Personal trust usually plays a major role in the

founding of a partnership. A personal trust is a mutual trust between two parties

businesswise. The formal contracts signed by the two partners are just as a backup of

legal loyalty. It is trust based on individual level.

2. Organizational trust- If any supplier has a good name in his history of

dealing with the other business firms; trust and integrity are easily built consequently.

That is what is referred as the organizational trust. The business players usually evaluate

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how each organization has been performing business transactions then from there; they

build their trust with each other (Leavy, 1994, p.47). If any business enterprise doesn’t

keep its word, it, loses its trust and thus no any other organization will be ready to

transact any business with it.

b. Communication

Communication involves sharing of information between two businesses. Effective

communication plays a critical role in social and business relationships. The ability to share

information between the two players is determined by the mutual relationship between them.

For instance, if the two players don’t trust each other, they will automatically hold

information (Doney and Cannon, 1997, pp.35-51).

What encourages communication is a deep trust between the players, levels of

satisfaction, commitment level how each player performs in the relationship.

Regular and good communication between the main players; buyers and suppliers can

lead to accurate response to unstable market, and reduce the costs and impact of inaccurate

predictions. For instance, if the business is between a miller and a wholesaler, when the demand

of the miller’s products has gone down, the wholesaler will inform the miller to reduce the

quantity of the products as he/she ups the game. This protects the supplier against unnecessary

losses due to proper communication.

Poor communication networks between the two players contribute to huge losses and

miss of large profitable business opportunities.

c. Interpersonal Relationship

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Interpersonal based relationship is a concept of making connections or networks, a

process which involves reciprocal obligations and special treatment between two parties in both

personal and business dealings.

Mostly, business transactions are done in terms of friendship or family relations who

keep off ‘unknown’ people in the business line. As in communication, businesspersons believe in

their relatives and friends that anybody else despite how untrustworthy they might be. This plays

a bigger role in growing businesses whereby the players may come together in a way to “raise”

their friend or relative partner at expense of other better proposed partners who could have done

better.

The advantage with focusing on interpersonal relationships in that it highly favors

opportunistic partners who always wait for the other party to open the ‘gates of opportunities’.

The disadvantage with basing business on interpersonal business relationship is that one

becomes too blind to see other arising opportunities around him or her (Heide, and John, 1990,

pp.24-36). For instance, if a buyer supplier depends on a list of buyers based on family or

friendship line then they happens to change their line of business, he or she will be doomed

businesswise because it will take ages for him or her to create a good network with new buyers.

d. Cooperation

Cooperation is mutual relationship whereby the main players have similar or

complementary coordinated actions in an interdependent relationship to get mutual or singular

benefits with expected reciprocation over time. The level of cooperation between the two

players predicts the span of the relationships and reflects the expectations of working together in

achieving a goal individually or jointly as a partnership (Hsuan, 1999, pp.197-209).

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This form of relationship is usually based on the trust level among the partners. Without

any close relationship, the suppliers or buyers will not share vital information and have less or no

intention to cooperate.

There are two main types of Buyer-Supplier relationships namely;

i. Transactional relationships

ii. Collaborative relationships

iii. Alliance Supply relationships

i. Transactional

This is the most common type of business relationship. In this type of relationship, the

partners are never concerned with the wellbeing of each other. It is characterized by;

 There is no concern between the two parties; both the buyer and the

supplier. In short, what one party wins, the other loses it definitely.

 Each transaction is independent and is never bound to the previous.

 No information shared between the two about costs, data and forecasts. Is

a matter of do or don’t according to your business conscience.

 Price is definitely the focus of the supply-buyer relationship. Getting the

best price is the focus of the transaction.

Since there is no mutual relationship needed to be created, the prices are agreeable only

in a short period.

The Transactional Relationships’ advantages

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 Less effort and time needed to establish the prices of the goods and

services. Only little purchasing time and effort is needed since the market forces of

supply and demand are the ones which determine the price during procurement.

 Lesser skilled procurers are needed since only low levels of judgments and

predictions are made.

The Disadvantages of Transactional Relationships Include:

 There is high potential of communication breakdowns and

misunderstandings

 Considerable investment in monitoring and follow up are required to

guarantee timely delivery of the exact quality of products and services.

 Transactional relationships are not flexible when flexibility may be being

required. For instance, when there is change in technology or market conditions can

require flexibility in the any of the party but in this case, it is impossible for any to adopt

the changes.

 Transactional procurements tend to have delivery problems. This is

because, friends always look out for their fellow friends, and not opportunistic bunch of

buyers or suppliers.

 Transactional suppliers tend to provide a poor quality service against

expectations of the buyer.

 Buyers a left frustrated by their suppliers who feel they have nothing to

lose from an unsatisfied buyer.

 The buyer is liable to be ‘conned’ by the supplier since there is no that

mutual bond and relationship between the two.

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Collaborative and Alliance Relationships

This is a relationship whereby different players come together for a mutual benefit.

Different from the transactional type of relationship, in this type the players are aware of the

interdependence and the need of cooperation. This is a relationship build by all elements of

guidance including communications, trust building, joint efforts, planning, and fostering

interdependency, which heightens the competitive ability in the relationship.

In this type of relationship, both parties are aware that money can only flow in the supply

chain if at all the end products or services are cost competitive.

Since both partners recognize the urgent need of interdependency, the buyer enjoys the

benefits of early supplier involvement.

The end purpose with continuous progress is a decline in total costs. The good thing with

this type of relationship is that it cushions the partners when hardy times hit them. This is

because both the supplier and the buyer are attached by common values of concern for each other

based on long-term relationships and respects thus they can come together and assist each othe in

times of crisis unlike in transactional relationship. This leads to reduced costs.

The major disadvantage of this collaborative and alliance relationship is that; the amount

of time, resources, and energy needed to foster and run the relationships is very high.

The Supply Alliances relationship type

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The primary difference between supply alliances and collaborative relationships is the

existence of business trust in the case alliances. The failure to build up and handle well the

business trust is the main reason that so many of the supply alliances fail at the end.

Supply alliances reap unbelievable benefits due to physical asset specialization and by

extension, human specialization.

Physical asset specialization usually allows goods differentiation and may develop a

general quality by increasing the product reliability.

Human specialization – Is the relationship-specific know-how accumulated by individual

people through a long-lasting relationship. In other words, people across the partisan companies

have significant experience of working together and have been loaded with special information

and also language that allows them to effectively communicate and harmonize with each other.

They are less likely to have communication deadlocks that usually result in errors; and this in

turn results to higher quality, and faster development times at very low costs.

The Primary Benefits of Supply Alliances Include:

 Lower total costs- Synergies can be formed in alliances that cannot

normally happen in transactional or even the so known collaborative relationships. They

result in reductions of both direct and indirect expenses connected with labor, materials,

machinery and operating cost.

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 Reduced time to market. Reducing the time any of them needs to design,

develop, and at last distribute goods and services is a vital driver that leads to enhanced

market share and huge profit limits.

Factors that lead to a poor buyer –supplier relationships

Lack of Communication

Communication is completely essential for lots of aspects of business. A supplier might

not understand the company’s strategic goals that may realize the needs and requirements due to

poor results. Maintaining a good contact with the known suppliers can promote the business in a

big way.

Non-Transparency of Processes

Most a times, non-transparency of the supplier’s progression creates huge gaps in the

company-supplier relationship. Technology can also play a fundamental role to seal this gap. Try

to analyze the whole process more efficiently by use of online purchase order and invoice

management tool.

Stressed Supplier

Some suppliers do their business transactions with many diverse organizations at once.

Oftenly, delivery of the order is done late by the supplier because of unavailability of the

product. These types of late deliveries usually weaken the relationship (Siguaw, 1998, pp.99-

111). Predicting the necessities of the business can assist in running the SRM process smoothly.

Damaged Delivery

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Sometimes, the product delivered turns out to be spoiled or faulty. Quick steps at such

times can indeed ruin a strong relationship. One should inform the supplier politely and ask him

to replace it. A fit balance should be maintained while taking actions against under-performing

suppliers. A good healthy balanced relationship uplifts under-performing suppliers.

The Need to Nurture

A healthy and good relationship only develops when the two business sides stay together

for quite a long time.

Leaving the suppliers at that particular time of success may create stress in any business

relationship. To prevent this, the buyer should include his or her supplier at every milestone and

victory celebration of his or her business.

Disloyalty

If long time passes without recognition or encouragement, the supplier definitely

becomes unfaithful to the buyer. Trying to change the supplier can never be the solution. This is

because in such a situation, one will consume so much money than expected. One can only gain

the loyalty of supplier by encouraging him or her with incentives.

Contract Conflicts

By signing any biased form of contract can be so horrible for a supplier. Every supplier

should make sure that no one is more favored by the contract. It is favorable for all.

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Every contract should be reviewed thoroughly before reaching to finality.

Rules for a buyer to entice a supplier

1. Pay on Time

If there is something that kills a good relationship faster, it is dalliance to pay supplier

bills in time.

Don’t dare to abuse the set agreement made on payment terms once the deal is done.

Being flexible isn’t an option even though the supplier could have delayed you in delivering the

goods or services. Once you pay on time, the supplier will automatically be more able to deliver

with more punctuality. Make an effort to reach the supplier and be frankly honest about your

inability or ability to pay the debt, but learn to pay you debts in time.

2. Build the Relationship

Tightly bind the relationship through telephone and email communication as provided by

the internet social network. Don’t just be quiet to your suppliers; they are the basic source of

your ‘daily bread’. Pass by their offices, and invite them too to your office. Try to ask them to

attend your company’s social and business events so that they can know what you do and the

kind of business you are handling (Carr and Smeltzer, 2002, pp.293-304). The more you have

face t face meetings with the suppliers, the more your relationships become concrete.

3. Keep Them in the Loop

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This is another perfect way to keep your suppliers close to you for business opportunities.

Ensure that you keep in touch with your suppliers by constantly updating the about your business

and especially daily transactions.

Demonstrate to them that you value their relationship by keeping them updated about

your business. This does not only confirm a sense of collaboration but too you feel them, the

suppliers as part of you and your family. Whenever you happen to relocate or change phone

contacts, inform them because you might not know when golden opportunities arise. Take time

and share with them your potential business strategies like doing a promotion that can otherwise

rais your sales dramatically.

MEASURING BUYER-SUPPLIER RELATIONSHIP PERFORMANCE

It is always very important for every business enterprise to measure how its relationship

with its suppliers is. It is by evaluating the performance of the relationship that the business

organization will be able to determine the impact of the relationship to the business.

Supply chain performance is a very essential and multi-faceted issue in the management

of supply chain. Performance measurement is the piece of information concerning the processes

and goods’ results that permits the general evaluation and the inner comparison in relation to the

business goals, past results, patterns, and with other processes and products. It is of great

importance to identify the factors that determine the success of a supply and demand chain.

Here are some of the advantages of measuring the relationship performance;

1. Avoid supply chain risk and disruptions – If you are sure that you aren’t

familiar with the third- party vendors who make up your supply chain, it can be very

difficult to put some measures in place in order to put off regular interruptions and ease

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the incidence of any risk exposure (Beamon, 1995, pp.275-292). The management of

supply performance provides an in-depth visibility into the risk which a supplier may

create, so that the buyer can put measures in place to diminish or eliminate that risk as it

relates directly to your supply chain (Spekman, 2002, pp.41-55).

2. Protect and improve brand/reputation – A big number of those with

corporate brands have already been flawed due to the actions of their supporters. At the

time one realizes that their relationship isn’t at all favoring his or her brand, there is no

option apart from jumping off the ship, then trying to get a new partner.

3. Avoid costs and achieve savings –Complete lack of timely and right

vendor information can have vast numerous impact on expenses and that can prevent a

buyer from getting his or her own savings. One cannot only track the performance of a

supplier on cost related KPIs. The data that is provided by SPM system might contribute

to savings achievement and prevention of cost as it centralizes the supplier data in to a

single source or truth just for anyone interacting with vendors.

4. Segment and rank vendors – As it is in the point above, the management

of supplier performance is very useful even beyond the business supplier managers.

Procurement can just be done from data-based decisions but only if that the performance

of data in hand.

5. Collaborate with suppliers – In an intimate relationship between a buyer

and suppliers, one creates a new and a higher value of his or her business enterprise

(Spekman, 2002, pp.41-55). The supplier performance data collected for management

solutions can assist in initiating these conversations because the supplier gets the full

picture of what is of importance in the buyers’ business. The results are so much

BUYER SUPPLIER RELATIONSHIP IN SMEs 22

appealing due to continuous improvement of the supplies, a creation of reasonable

contracts which are based on the previous performances, more communication with the

suppliers, formation of basic ordinary goals and an established trust.

6. Improve internal processes – The creation of SPM process in an

appealing step in optimizing the supplier management program (Parlar and Wang, 1994,

pp. 34-41). The use of technology –based solution for SPM, by making use of a

technology-based solution for SPM makes a business enterprise to attain a standardized

and fully automated approach for creating scorecards, as well as issuing and tracking the

scorecards for general conclusion, in-depth reporting and analysis. When a buyer tracks

this onto an hand supplier information management which includes on boarding,

registration and qualification processes, the SPM data will contribute to a complete

supplier cycle of management.

In order to attain the above solutions, one must undergo a certain process to

identify the whether the relationship is building his or her business or the relationship is

just a liability. Here are some of the tools used to collect information from the other

party;

1. Questionnaire

2. Scorecards

3. Site visits

4. Third party certification

Questionnaires

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Questionnaires are forms with questions in which the person doing the research fills in

the report given by the respondents, and then later compiled to give a full analysis for

determination. The questionnaires can have open ended questions where the respondent is free to

give an explanation or a closed format whereby the questions have already predetermined

choices for the respondent. It is after that, the results are compiled for a report to be given out

(Wilson, 1995, pp.335-345.

Here are some of the advantages of using this tool for collecting data;

1. It is more of practical with the least levels of exaggeration expected

2. The questionnaire is efficient since it can collect large volume of data

within a short period.

3. It is a cheaper method of data collection since only issuing and collection

of the questionnaires is required

4. It is easier to quantify the results by using a certain software package.

5. Can be well analyzed and in a more 'scientific way' than any other tool of

research.

6. Quantitative data collected using this too of research can be used to

measure the change. It is a benchmark tool.

Disadvantages

1. The report given by the respondent depends on his or emotions, behavior

and feelings.

2. It is impossible to tell how truthful a respondent is

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3. The respondent may be forgetful or not serious when answering the

questions, just doing for the sake.

4. There is danger of misinterpretation because every respondent will answer

the question as he or she understands. That shows that the one looking for information

should not be guaranteed of results.

Score cards

This is a performance indication card which graphically represents the information

collected over a certain period of time. It is usually done annually after some year of determining

ones performance. For instance, if the business had a certain plan in a span of three years, the

scorecard is used to measure what it attained businesswise for those three years (Barratt, M.,

2004. pp.30-42).

By using this kind of a research tool, a buyer or a supplier will be able to evaluate his or

her business relationships.

The advantage with a balanced scorecard is that it clearly provides a broad consideration

of all aspects of business aspects, human and financially.

After balancing the scorecard and putting it well in place, the scorecard can be well used

to evaluate and monitor continuous goals.

This tool is challenged due to the fact that it doesn’t singly analyze and evaluate and

individual. It can only do well when analyzing collective data. It is warned that the card can be

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misrepresented and misused as a monitoring tool instead of it being used as a company

performance tool. At last, the numerous numbers of variables taken into consideration to form a

viable scorecard can be burdensome and result into another job.

Site Visits

For a developed business enterprise which has hugely embraced technology, a website is

usually a big marketing tool. Through the website, one can know when he or she is losing the

market or gaining popularity businesswise. The hits on the websites show that customers are

looking for some information about your products and services (Selnes, F., 1998. pp.305-322). If

the number of hits is too low, that shows that the business is at danger of vanishing from the

market. The advantage with this measurement tool is that it is close to accurate because a website

hit shows that the customer has some desire for your products or services. The challenge with

this tool is that it needs expertise to monitor the progress and thus it is expensive if one needs to

hire a specialist

Measures used to evaluate Performance of business relationship

In order for one evaluate the efficiency and success of supply chain performance, the

following performance measures are used for evaluation. The evaluation performance measures

are classified in to two classes;

1. Financial measures

2. Non-Financial measures

1. Financial measures

BUYER SUPPLIER RELATIONSHIP IN SMEs 26

This is determined from the growth of a company in terms of sales rate and its

profitability which basically are used to predict the financial enterprise performance. The Sales

growth rate is measured by calculating the percentage change in annual sales in a period of the

last three years.

On the other side, profitability is average retail profits which the enterprise makes

regularly.

2. Non-financial measures

These are measures characterized by customer services and the flexibility in the supply

chains. Flexibility in this case is the capability to make goods or services available in order to

meet a particular customer demand (Henry Xie, 2010, pp.858-877). It is mostly regarded as a key

measure in the supply chain performance which is said to be the reaction of environmental

uncertainty.

The factors considered under this class of measures are;

a. Supply flexibility – Is a measure on how one has been satisfying his or her

customers even to the products or services with the least demand. In one doesn’t wisely

respond to the customer inefficiencies, he or she might find that the business is over

stocked or understocked.

b. Product exchange and return- These are some kind of businesses where

one is given a product to sell, if it doesn’t do well in the market, it can be returned and

exchanged for another one.

c. Delivery efficiency – This is a key measure of any supply chains especially

on the timeliness of delivery and how quality the product or service is delivered. Actually

it is the driver to customer satisfaction.

BUYER SUPPLIER RELATIONSHIP IN SMEs 27

d. Product availability. Availability of a product to the customer is another

determinant on how efficient the supply chain is. This is because, when customers are in

high demand of a product or a service then it is not satisfied.

e. Product quality. The quality of the product that reaches the customer

reflects directly to the brand name of the product. Quality products always have positive

impacts to the customers and the company since even if the product is expensive,

customer will always come for it.

Mistakes made in measuring the buyer performance

Measuring buyer performance can be a bit tricky. When the buyer is evaluating himself

or herself, he or she needs to avoid the following mistakes which may make him or herself be a

failure.

Having cost savings being the lone metric – Most businessmen like saving even and

making it as a barometer for success. By the fact that it is one of the most important metrics, it

doesn’t necessarily mean it should be the only one to be used throughout.

If the buyer decides only to use cost savings as a performance measure, he or she might decide to

do that at the expense of quality, timeliness of delivery or the service of the supplier for lower

prices. The measure should be balanced by other measures mentioned above (Bell et al, 2002,

pp.65-78).

Not using net cost savings as a metric - Price increments should be subtracted from price

reductions to have a "net" cost savings number when one is calculating cost savings. One of the

BUYER SUPPLIER RELATIONSHIP IN SMEs 28

main reasons for doing this is because the top management always expects reported cost savings

to be equal to actual profit made. By counting gross cost savings only, buyers may ignore

opportunities to minimize the price, which increases on large spend categories while focusing

their time on less critical categories where price reductions are very much possible. This result to

relatively lower positive impact on the profit made.

Risk in the supply chain

In every type of relationship, there are risks taken by each player. In order for one not to

be frustrated afterwards due to business failures, one needs to undertake the risk management

process. Here are some of the risk categories which one has to consider before he or she pumps

something into the supply chain;

1. Financial risks

These are risks that can range from what is totally not expected or not favorable change

especially rates of exchange to a supplier’s complete bankruptcy.

Some of the financial risks are finding constructive changes; missed milestones, budget

overruns, the limitation, and which require additional funding. The financial risks can also

include all the unexpected cost overruns and those that may be connected to other risk factors

such as changes in the work scale required to effectively complete the given activity.

2. Scope of schedule risk

This is as a result of poorly defining a project or poorly writing a statement of work. They

are all major risks that put much pressure the timeline, but just as previously notes, they also may

have implications on cost.

BUYER SUPPLIER RELATIONSHIP IN SMEs 29

Changes in schedule often result from the natural disasters lik hurricanes, flood, and fire

or due to disobedience issues provoked by the supplier (Liu, 2012, pp.355-367). The risk scope

also occurs due to changes that are essential when the original declaration of work (SOW)

becomes impracticable or due to changes of technology.

3. Legal risks

Constructional and legal risks are usually connected to disputes which are disputes for

one not meeting the basic requirement included in the laid terms and conditions. Use or misuse

of intellectual property can also be taken to be a legal risk, especially when copyright

infringement is of a great risk. We can also include infringement of laws, as well as public

lawsuits in this category.

4. Environmental risk

It is always important to weigh up the risk to the environment contributed by the supplier

or your contractor. Environmental risks includes the business’ negative impacts on water, the air,

and even the soil due to discharges, or emissions, and many other forms of human waste..

5. Project organization risk

These are generally as a result of having the wrong people or equipment in the right place

and at the right time. This can also be considered as a planning risk.

6. Human behavior risk

Surprisingly, human behaviors are the most difficult risks to assess in the business field.

BUYER SUPPLIER RELATIONSHIP IN SMEs 30

Sometimes, a project or an activity may be put in danger due to an illness or injury or

even due to the departure of important personnel. Sometimes, it may be the result of

misjudgment or very poor decisions.

Also, apart from the categories just outlined above, the general risk assessment should

identify if the risks to be considered are either internal risks (related to our own operations) or

external risks which are related to conditions outside the particular organization, such as market

factors,, economic ,climate, regulatory environment, political circumstances among others.

 Internal risks are the type of risks that one can control or influence. They

include cost estimates, staff assignments, schedule delays, and also product design.

 External risks are the type of risks that one as a contract manager can’t

have power over or influence. External risks include governmental actions relating to

taxes that could affect a financial contract, whether delays that could have an effect on a

construction contract, and a change in currency rates that could influence the value of an

international contract.

What can actually be done to manage the risk in the supply chain?

First, everyone in the supply chain must ensure that there is visibility and a configuration

of the value chain towards the ultimate goal of supplying the customer with the goods or

services. Visibility largely requires a complete understanding of the chain flow all along. It

requires a clear view of what product looks like, what achievement is and how it can be

calculated, and what can really prevent that accomplishment from happening (Zaheer et al, 1998,

pp.20-26). Organizational needs, in effect, to recognize the weak links in the whole process, and

BUYER SUPPLIER RELATIONSHIP IN SMEs 31

take the most suitable action. This could be a risk assessment adds up the risk and justifying

actions or specific resolutions (Shin, 2000, pp. 317-333).

Secondly, there are needs which are said to be in full possession of the whole chain in

such a way that they allow the risks along the chain to be very well handled and managed

(Lascelles and Dale, 1989, pp.10-19). There is enough proof that supply chains are regularly

managed functionally with metrics, systems and behaviors; all geared to managing the

performance of a particular area. Even if the detailed functional knowledge and understanding

are important to delivering a quality product, a narrow view can lead to a possible misalignment

of the different elements of the chain in attaining the end goal. Top management needs to ensure

that decisions which are taken at the top are not sub-optimized in the operational level of

execution. In practical terms, this means that a real transformation in how measurement systems

are made and implemented to ensure that there is full understanding of how the business

interlinks. Individual incentives and achievements need to be associated with the achievement of

overarching goals, not purely functional merit.

Thirdly, the skills and the abilities across the supply chain should be purely secured. This

starts with the functional skills in each area to provide the depth of executing a certain process.

Then there is the ability to see beyond the purpose and see the holistic relationship of an action

taken in one area and the impact in another. True development of the organization can be

measured in terms of how top down and across the organization the supply chain is rooted, how

the supply chain is really performing at every stage, and how risk is being assessed and acted

countered on a daily basis. Also, ability in managing the data requirements and using ICT

systems is in need pf close attention. The return on any systems implementation is merely

BUYER SUPPLIER RELATIONSHIP IN SMEs 32

achieved when all people are fully using the potential of the system to manage the whole

process, predict risks and aggressively make decisions at the right time.

We shall now look at a basic model that will help a buyer to better understand how a

supplier is likely to perceive the buying organization’s business and hence the degree of

motivation it is likely to have in terms of doing business with the organization (Bell, 2002,

pp.65-78).

Factors which attract a supplier to work with a certain buyer

1. The value of the business to the supplier: This is a reflection in supplier’s quantity of

turnover which is accounted for by the products or services procured. Information about this is

usually obtained from the supplier. All suppliers analyze their buyers, what they purchased from

them annually, and that is what they used to see if they can continue working with the buyer or

not.

2. The level of attractiveness of the business to a supplier: This is a reflection of the

overall outcome of other several factors that will persuade for a supplier’s motivations. For

example; ease of doing business, payment record, compatibility with the buyers business policy,

with the buying enterprise, any intellectual affinities which might exist between the product

supplier and the buying business, levels of trust and personal relationships between them and the

buyers, the buyer’s potential in business development and the apparent supplier image of being

attached to the buying business.

In this quadrant in, the supplier who is usually situated on the model will mirror the kind

of feelings he or she has towards the buying organization that it is likely to have:

BUYER SUPPLIER RELATIONSHIP IN SMEs 33

a. The nuisance quadrant: It happens that suppliers might treat the buyers’ businesses as

insignificant if the procurement values are too down. Suppliers in this quadrant usually grade the

business as lowest on their list of priorities. The buyer can also expect no interest from them in

creating any form of co-operation.

b. The exploitation quadrant: Here, the procurements are usually essential to the groups

of suppliers, but the buyer’s business for one or other reasons is not very good-looking to them.

In this quadrant, they are mostly likely to keep the business relationships as long as it does not

engage them so much (Miyamoto, T. and Rexha, N., 2004, pp.312-319). If they consider that the

business is safe, they may try to exploit the buying organization, for example by raising prices.

c. The development quadrant: In this quadrant, the suppliers always consider the buying

business to be more enticing, although its value could be currently fairly low. Suppliers are

usually fascinated here by perceptions that the future business will be potential. As a result, they

are usually too ready to invest in time and effort at developing the buyer’s business keeping in

mind that they will reap much from the enterprise almost twice in future.

The evaluation team should be aware of this link when appraising suppliers.

CONCLUSION

In conclusion, the Small and Medium Enterprises grow due to the good relationship of

the buyer and the suppliers. The strength of the supply chain is squarely bound to trust, time,

quality and respect between the two players. Generally, the value of the supplier is highly felt in

the supply chain because much revolves around him or her despite the fact that he relies on the

buyer for his business to grow. There are some rules which the buyer should keep in mind when

dealing with the suppliers in order to make sure they will wish to supply him or her with goods

BUYER SUPPLIER RELATIONSHIP IN SMEs 34

or services next time. Some factors like timely payments and constant contacts are too important

for any serious business player who is optimistic to reap much businesswise. The buyer should

also ensure that he or she informs the suppliers about his or her businesses so that they may feel

esteemed in the business. In short, the buyers should be actively looking for the suppliers in

order for them to well thrive in the business otherwise they end up being bankrupt.

For the supplier too, he or she needs to be more concerned about the buyer. Goods

procured should be delivered in time and in the agreed condition in order to encourage the buyer

to call him or her again for business. The supplier should not even at one time try to overlook

the presence of his or her clients despite being seen more superior in the business.

Since both play an important role in the supply demand chain, they should work together

for the betterment of the SMEs.

BUYER SUPPLIER RELATIONSHIP IN SMEs 35

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