With a smaller number of suppliers to manage, it becomes possible for buyers and suppliers to develop closer, longerterm relationships to increase competitiveness. There are three underlying reasons why stronger customer relationships can help to build competitive advantage:
It is sometimes useful to picture supplier relationships as a continuum; with four levels of engagement defined according to the contribution the relationship makes to the buyer’s competitiveness. At each relationship level, the supplier provides products and services as well as capabilities, such as R&D, risk management and training. However, as the relationship develops and there is increased interdependency, the offering becomes more weighted towards the supplier’s capabilities. Let us consider each relationship level in turn.
This basic level describes a traditional supplier who has a transactional relationship with the customer. The supplier sells specified products to the customer on the basis of price, service and quality. In most instances, the supplier adds limited value to the customer's overall competitiveness. This is a traditional buyer–seller relationship.
Here, the supplier works co-operatively with the customer to reduce total costs and to increase the customer's competitiveness. Procter and Gamble’s work with US food retailers on achieving everyday low price (EDLP) across its product portfolio is an example of this level of engagement.
Working in partnership with the customer, the supplier takes responsibility for a significant component of the customer’s value-adding capabilities. The customer will also be dependent on the supplier for innovation. Strategic sub-assembly deals in the automotive industry characterize this level of supplier relationship
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