The Supplier Relationship Continuum Partnering is a term to widely used! Can you place any of our purchasing arrangements on the continuum? SPOT BUY no REGULAR TRADING specials CALL-OFF CONTRACT water ampoules FIXED CONTRACT IVIg

Kraljic Matrix (modified) High Purchasing's Leverage products Competitive bidding Strategic products Partnership Impact on Cost low Routine products Systems contracting Critical products Secure continuity of supply low Supply Risk high Leverage products High or low unit cost Higher expenditure Low risk if unavailable Many suppliers Many near substitutes Routine products Low unit cost Low expenditure Strategic products High unit cost High expenditure High risk if unavailable Few suppliers Few near substitutes Critical products Low unit cost Low expenditure Traditionally in manufacturing / profit making – modified for not-for-profit ROUTINE PRODUCTS You can always use something else – use someone else e.g. bottles and cartons (set up contract that requires little attention) CRITICAL PRODUCTS Few suppliers often because of low profitability Pay more to assure supply, closely monitor stock e.g. IV Ergometrine, paediatric metabolic products LEVERAGE PRODUCTS Opportunity to reduce costs Economies of scale, amalgamated buying power, 14 day clause e.g. oral generics STRATEGIC PRODUCTS High set-up costs – lots of time and resource to identify and secure supplier. Difficult to find an alternative speedily. e.g. LMWH (financial savings but considerable set-up of protocols etc), IV ward order assembly

Competitive versus Collaborative Relationships Competitive Criteria Many competing suppliers Standard products Wide supply markets No need for high degree of trust No supplier power, switching suppliers is easy Competitive bidding for contracts Collaborative Criteria Creation of supply chain synergy - rather than individual links in the supply chain Joint and mutual search for greater efficiency and competitiveness Agreed shared objectives and planning for the future Elimination of waste Equality of relationship - openness and transparency, understanding of expectations, needs met Effective exit strategy STANDARD PRODUCTS - easily substituted COMPETITIVE BIDDING – Good prices available CREATION OF SUPPLY CHAIN SYNERGY – must be information rich JOINT AND MUTUAL – e.g. ecommerce versus data entry ELIMINATION OF WASTE - muda EQUALITY OF RELATIONSHIP – both equal, trust in place EFFECTIVE EXIT STRATGEY - plan for change, can’t stop overnight

Supplier perception Matrix high Attractiveness Develop the business Core business of business low Ignore the business Exploit the business low Spend Having identified which type of relationship best suits our requirements with our chosen supplier We must consider whether the supplier will be interested in developing that relationship with us. The supplier perception matrix can aid this decision and should be considered before resources are committed to any relationship. This matrix / concept is a complete shock to non-procurement staff! Can you identify which boxes we fall into with some of our suppliers? What effect do you think NICE has with a positive appraisal? Which quadrant might a product move from and to when the patent expires?

Stages of Supplier Integration into the Buying Organisation Aspects Supplier Preferred supplier Supply partner Design partner Relationship Characteristics Operational Tactical Strategic Time Horizon From order to order 1 year 1-3 years 3-5 years Quality As requested by buyer QC by buyer QC by buyer & supplier ‘Sign-off’ by supplier QA by supplier (process quality) ‘Sign-off by supplier’ ESI QA by supplier (design quality) Logistics Orders Annual agreements & call-off orders Periodical scheduling of requirements by buyer Electronic vendor managed inventory Contract Annual agreement Greater than 1 year Quality agreement Design contract Price & cost Price Price + rebate Price + cost reduction targets Price based on open calculation Continuous improvement The table illustrates stages of supplier integration into the buying organisation (manufacturing focussed) As relationship develops so does the level of trust / commitment between the two parties This is demonstrated by increasing sophistication of business activities Discuss QC versus QA – green lane receipting Price – opportunity to reduce price by driving out costs Where are we?

Usually, to increase profit Usually, to achieve defined service levels Area of difference Private sector Public Sector Objectives Usually, to increase profit Usually, to achieve defined service levels Responsibility Buyers are responsible to directors, who in turn are responsible to shareholders Buyers are responsible ultimately to the general public Legal Restrictions Activities are regulated by company law, employment law, product liability law etc. As for private sector, but also additional regulations e.g. compulsory competitive tendering Competition Strong competition between firms No competition Publicity Confidentiality applies in dealings between suppliers and buyers Confidentiality is limited because of public interest in disclosure Budgetary Limits Investment is constrained only by availability of attractive opportunities; funding can be found if prospects are good Investment is constrained by externally imposed spending limits Information exchange Buyers do not exchange information with other firms, because of confidentiality and competition Buyers are willing to exchange notes Defined procedures Buyers can cut red tape when speed of action is necessary Buyers often constrained to follow established procedures Public and private sector purchasing –why is it different for us? Discuss Publicity – confidentiality Information exchange – really useful and supportive Defined procedures EU procurement directives are considered by many to impede development of collaborative commercial relationships However, EU directives only set out a framework for contracting They don’t deter use of innovative techniques and relationships within the framework Competition should not be viewed as a threat to collaborative relationships.

Mini Case Study Zoo Buyer