Don’t Shoot The Messenger
An assignment submitted in partial fulfillment of the requirement for MGT 608 School of Business Management
In June 1998, Billings Equipment Inc. formed a new business unit and opened a plant in Seattle to produce a new line of earth-moving machines for the construction industry. The organization had a history of impeccable ethical treatment of suppliers and was considered to be a leader in the industry. Early supplier involvement in prototype and testing activity was cultivated to encourage active participation in the development of this new product line by all that had a vested interest in its future. Everyone involved, including suppliers, invested personal time and effort toward meeting the market timelines. Purchase agreements were negotiated, and parts now were being received to support production ramped-up toward market introduction. The push to production forced acceptance of early design of many components, which inhibited additional cost reduction. As designs became frozen and cost information became more complete, the projected total costs were going to exceed target levels by as much as 20 percent. The general manager realized the rising cost situation was beyond recovery and would impact the market pricing and success of the entire product line. A letter was sent to suppliers on declaring the regrettable necessity to reduce prices by 10 percent within 30 days. Buyers were to follow up immediately by contacting their top 30 suppliers. Noncompliance could result into the re-opening of previously negotiated agreements, possible cancellation of the product line altogether, or the consideration of other sources of supply. Everyone was uncomfortable moving the supplier relationships from a cost-based approach to a simple request for price reduction. Shortly thereafter, the general manager made an announcement during a strategy meeting with buyers to push for an additional 5 percent price reduction; suppliers had already complied with the 10 percent price reduction. The implications of the latest price reduction request landed Jeff in a predicament of his responsibilities to the general manager against developed supplier relationships.
If you were in Jeff’s position, what would you have done to preserve relationships?
A good buyer-seller relationship is a partnership, a win-win situation over the long run. A supplier who is treated with courteousness, integrity, and fairness will deliver a superior product at the best price. They will also provide good service, and will be receptive to emergency situations and special requests. A supplier who is treated fairly and well is likely to communicate his positive experiences with your organization to his associates. The following are guidelines for successful Supplier Relationships (Smeltzer, L. 1997): Use established supplier partnerships to best leverage the collective volume Be fair. Give all qualified suppliers an equal opportunity to compete for business. Maintain integrity. A supplier’s pricing is confidential and should never be shared with another supplier for any reason. Be honest. Never inflate requirements to obtain better pricing. Negotiate in good faith. Don’t change the requirements and expect the supplier to hold his pricing. Be ethical. Procurement decisions should be made objectively, free from any personal considerations or benefits. Be reasonable. A supplier is entitled to a fair profit.
Pay promptly. The purchase order you issue to the supplier is your promise to pay for the goods and services you buy in a timely manner (usually within 30 days). Businesses are increasingly relying on their suppliers to reduce costs, improve quality, and develop new processes and products faster than their rivals’ vendors can. Organizations have started to evaluate whether they must continue to assemble products...
References: Choi, T. & Liker, J. (2004). Building Deep Supplier Relationships. Harvard Business Review. Retrieved from: http://hbr.org/2004/12/building-deep-supplier-relationships/ar/1
Eckerd, S. & Hill, J. (2011). The buyer-supplier social contract: information sharing as a deterrent to unethical behaviors. International Journal of Operations & Production Management. Retrieved from:
Hughes, J. (2008). From Vendor to Partner: Why and How Leading Companies Collaborate with Suppliers for Competitive Advantage. Global Business and Organizational Excellence, Vol.27(3), 21-37. Retrieved from: http://onlinelibrary.wiley.com.ezproxy.nu.edu/doi/10.1002/joe.20201/abstract;jsessionid=109BF799E6DBF6A0CB31FC4699463158.f04t04
Lockamy,Archie, I.,II, & Smith, W. I. (2000). Target costing for supply chain management: Criteria and selection. Industrial Management + Data Systems, 100(5), 210-218. Retrieved from http://ezproxy.nu.edu/login?url=http://search.proquest.com/docview/234926664?accountid=25320
Smeltzer, L. (1997). The Meaning and Origin of Trust in Buyer‐Supplier Relationships. International Journal of Purchasing and Materials Management, 33(1). Retrieved from:
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