The Role Of Supply Strategy In A Company

A good relationship with suppliers is a vital parts of successful business. Suppliers does not only provide the goods and services the company needed, they are also major source of information's, advices and trade credits. As a consequence, a company needs to make a good and close relationship with suppliers and maintain them which is beneficial for their company. The advantages and disadvantages of building long term and close relationship with suppliers are given below:

Advantages

1. A company can lessen unacceptable risk by maintaining close and long term relationship with suppliers. For example, a company can achieve substantial savings through the use of annual agreement exclusively through long term contracts (Karljic 1983).
2. Pricing volatility is very sensitive issue for the company. If a company maintains close and long term relationship with suppliers, it gives them to be in a much better negotiating position with both parties actively looking to avoid unnecessary cost which may arise from re- negotiating, re-tendering or being forced to exit an existing contract (Karljic 1983).
3. The main advantages of building close and long term relationship with suppliers is it allows both company and suppliers to work cooperatively and co-ordinately(Gadde and Hakanson). Therefore, it causes the reduction of total purchase cost and joint technical development with suppliers. Disadvantages: As good as a long and close relationship with suppliers may seem, there are some disadvantages to those type of relationship also.

1. One of the biggest disadvantages is negotiation. Because being negotiator means, a company has to give up a lot of their bargaining power when they want to deal with their long term partner.
2. As a result of maintain close and long term partnership, both company and suppliers grow some kind of personal relationship which also creates barriers because much power as a negotiator comes from when one party has little information's about another party.
3. Another disadvantage is chronic overcapacity of suppliers. For that situation, it preferable for company to find outsource (Karljic1983). We can relate the use of supplier relationship with Karljic matrix in that way: The Karljic matrix helps to develop a purchasing strategy for the products and services the company consumes. It minimizes supply vulnerabilities and make the most of their potential buying power. In his articles, he proposed four stages approach for developing supply strategy for a company. Such as:

• Strategic Items(high profile impact, high supply risk): It includes long term supply relationship, analyzing and managing risks regularly etc. For example, a company may need to support supply decision of strategic items with a large battery of analytic technique including market analysis, risk analysis and other economic analysis. This strategic items provides handful suppliers but ensure predictable and long term relationship with suppliers.
• Leverage items(high profile impact, low supply risk): It includes purchasing power, replacing products or suppliers and placing high volume orders. Vendor and value analysis, price forecasting models and decision models are required. For this items, buyers have more power over the suppliers. On the other hand, suppliers can easily substitute buyers as much their offerings.
• Bottleneck items(low profit impact, high supply risk): Over ordering and control of vendors are included. It may require specific market analysis and decision for resolution. Here, the power is in the suppliers hand and the market are consist of fewer suppliers.
• Non- critical items(low profile impact, low supply risk): Using standardized products, monitoring order volume and optimizing inventory levels are included. Simple market analysis, decision policies and inventory optimisation are required. There is a balance power between company and suppliers. The Karjic matrix works by mapping the product and weaknesses on identifying suppliers. It provides a necessary approach for managing company's many suppliers as well as it helps a company or buyer to figure it out which supplier relationship are most important.