MANAGING RELATIONSHIP

Relationship Marketing

All marketing activities directed towards establishing, developing and maintaining successful relational exchanges.

Morgan and Hunt, 1994

ROLE OF RELATIONSHIP MARKETING IN SCM

Effective SCM requires partners to build and maintain close long term relationships.

SCM puts more emphasis on a partnership approach or relationship orientation.

Relationship marketing through close inter-firm relationships such as partnerships, strategic alliances and joint ventures- should increase inter firm cooperation – one of the main components of implementation of SCM, including joint inventory and cost reduction and joint planning.

ROLE OF RELATIONSHIP MARKETING IN SCM

To be successful, the enterprise must be committed to effective relationships that enable the entire supply chain to respond quickly to ongoing changes in the product and service needs.

Whereas on one hand, there has been an immense growth in the power of the customer to determine the shape and mechanics of the marketplace, entering into strategic alliances with the suppliers has become imperative to gain competitive advantage in the supply chain through customer value and satisfaction.

Role of marketing in SCM

(Min & Mentzer, 2000)

Integrative Model

MANAGING RELATIONSHIP WITH SUPPLIERS

SUPPLIER RELATIONSHIP

MANAGEMENT

MEANING

SRM is the creation of cooperative alliances formed to exponentially expand the capabilities involved in materials requisition, procurement procedures and efficiencies, and product information exchange.

SRM is about structuring win-win relationships, mutual commitment to sharing information and resources to achieve common objectives, and engagement in a long-term strategy for mutual competitive advantage.

OBJECTIVE

To transform suppliers from adversaries into upstream channel partners where they act more like an arm of the procurement organization rather than an outside entity.

It aims at deconstructing traditional attitudes and practices concerning quality and reliability, delivery, price, responsiveness, trust, the sharing of research and development plans, and financial and business stability.

Traditional Approach SRM Partnerships

Adversarial relationshipsMany competing suppliersContracts focused on price

 Proprietary product informationEvaluation by bid

 Supplier excluded from design

processProcess improvements intermittent

and unilateralQuality defects reside with the

supplier

•Clear boundaries of responsibility

Collaborative partnershipsSmall core of supply partnersContracts focused on long term

quality, mutual benefitsCollaborative sharing of informationEvaluation by commitment to

partnershipReal-time communication of designs and specificationsClose computer linkages for design

and replenishment planningMutual responsibility for total

quality management

•“Virtual organizations”

SRM COMPONENTS

ValueDiscovery

IntegrativeTechnologies

InfrastructureAnd

Operations

StrategicSourcing

SRM

Components

Value Discovery

Cost savings Process efficiencies Inventory optimization Process optimization

Strategic Sourcing Program

“identifying the business requirements that cause you to purchase a good or service in the first place, conducting market analysis to determine typical cost for goods/services within a particular supply system, determining the universe of suppliers that best meet your requirements, determining an overall strategy to procure items in that category , and then selecting the strategic supplier(s)”. – Hirsch and Barbalho

Integrative Technologies

Telephone Fax Electronic data interchange Internet – e-SRM

E-procurement – the utilization of web toolsets to automate the activities associated with purchase order generation, order management and procurement statistics.

E-sourcing – the utilization of web to develop long-term supplier relationships that will assist in the growth of collaborative approaches to joint product development,negotiation, contract management and forecasting.

Infrastructure and Operations

“It entails the establishment of effective procurement functions capable of being rapidly deconstructed and rebuilt to match changing customer requirements and cost and continuous improvement processes”.

MANAGING RELATIONSHIP WITH CUTOMERS

CUSTOMER

RELATIONSHIP

MANAGEMENT

MEANING

CRM is a complete system that– Provides a means and method to enhance the experience of

the individual customers so that they will remain customers for life,

– Provides both technological and functional means of identifying, capturing, and retaining customers, and

– Provides a unified view of the customer across an enterprise.

CRITICAL PERSPECTIVES OF CRM

Customer management as an activity – product development, pricing, order processing, billing, product returns and claims etc.

Customer performance measurement – “percent of orders delivered to the customer within ten days of order receipt”.

Customer management as a philosophy – positioning customer management as an element within the overall corporate strategy of the enterprise.

Objective

To provide a 360 degree perspective of the customer.

To employ today’s internet enabled technology toolsets to create an infrastructure that spans supply chain boundaries in the search to identify, capture and retain customers.

To architect synchronized, integrated supply chain processes that can provide a seamless appearance to the customer.

CONSTITUENT PARTS OF CRM

CRM is supportive of the firm’s strategic mission. CRM is focused on facilitating the customer

management process. CRM is focused on optimizing the customer’s

experience, CRM opens a window into the customer. CRM assists suppliers to measure customer

profitability. CRM is about partnership management. CRM is a major facilitator of supply chain collaboration.

ARCHITECTING THE SUPPLY CHAIN

Strategic advantage Customer-centric Collaboration Agile and scalable Fast flow Migration to e-commerce

THE CRM-CENTRIC ORGANIZATION

Company-focused enterprises

Supply-chain focused

Virtual organization focused

Market focused

CRM COMPONENTS

Analytics

MarketingElectronic

BillPayment

SalesForce

Automation

Customerservice

PartnerRelationshipManagement

InternetSales

CRM

CAPTIVE BUYERS

In the captive buyer cell, while the buyer makes a high level of specific investments, the supplier's specific investments are low. The supplier has the controlling power, which enables it to switch to another buyer without incurring high costs.

On the contrary, it is vital for the buyer to maintain the relationship. The suppliers are few in the market, with their proprietary technology and strong bargaining power making it hard for the buyers to shift to others.

The products have a stable technology, though complex components require some customization. Despite the need for frequent information exchange, the relationships in this category are fragile due to high levels of distrust.

CAPTIVE SUPPLIERS

In the captive supplier cell, the supplier makes high levels of specific investments not returned by the buyer. The buyer is dominant and the supplier spends more effort to maintain the business with the buyer.

When the products are highly complex and based on new technology, they require high investments from the suppliers just to stay in the competitive market. Unless the suppliers keep pace with the fast evolving technology, the buyers have no difficulties shifting to other suppliers.

Although the level of information exchange is less compared to the other profiles, there exists a high level of mutual trust in captive supplier relationships. Visits and communication are for more complex tasks, rather than regular activities.

STRATEGIC PARTNERSHIPS

BENEFITS OF STRATEGIC ALLIANCES

Adding value to products Improving market access Strengthening operations Adding technological strength Enhancing strategic growth Enhancing organizational skills Building financial strength

SUPPLIER-RETAILERCOLLABORATION AND ALLIANCES

THE NEED

Successful supply chain management requires the effective and efficient management of a portfolio of relationships.

Strategic alliances lead to long-term strategic benefits for both partners.

TYPES OF RSP

Criteria

Type

Decision

maker

New skills employed by vendors

Quick response Retailer Forecasting

skills

Continuous

Replenishment

Contractually

agreed to levels

Forecasting &

Inventory control

Advanced

Continuous

replenishment

Contractually

Agreed to & continuously improved levels

Forecasting &

Inventory control

VMI Vendor Retail Management

REQUIREMENTS FOR RSP

Advanced information systems Top management commitment Development of trust

THREE SUCCESS FACTORS

Researchers Stanley and Pearson found that the three most important factors in a successful buyer-supplier relationship are:– (1) two-way communication, – (2) the supplier's responsiveness to supply

management's needs, and – (3) clear product specifications

NEW SKILLS AND ATTITUDES REQUIRED

Developing and managing collaborative and alliance relationships require supply professionals that possess the following skills and attitudes:– Recognize the benefits of collaboration– Ability to identify, obtain and use data– Able to work in chaos and uncertainty– Agile, flexible, and highly adaptive

ISSUES IN RSP IMPLEMENTATION

Performance measurement criteria – POS accuracy, inventory accuracy, inventory accuracy, shipment & delivery accuracy, lead times and customer fill rates.

Confidentiality Communication Cooperation Commitment to fast response to emergencies and

situational changes at the retailer.

STEPS IN RSP IMPLEMENTATION

Negotiating the contractual terms of the agreement – ownership, credit terms, ordering responsibilities, performance measures.

Development of integrated information systems for both supplier and retailer.

Development of effective forecasting techniques to be used by the vendor and the retailer.

Development of a tactical decision support tool to assist in coordinating inventory management and transportation policies.

ADVANTAGES OF RSP

• Reduction of risk for suppliers• Reducing total costs • Improvement of processes• Improvement of products• Better focus on customer needs• Reduced time to market • Improved quality • Improved technology flow from suppliers • Improved continuity of supply

DISADVANTAGES OF RSP

Expensive advanced technology. Difficulty in development of trust. Supplier has to add personnel to meet extra

responsibility. Expenses at the supplier increase as managerial

responsibilities increase.