Buyer and supplier relationships denote the trade-related collaborations between companies around the procurement of goods or services. Relationships between buyers and suppliers have evolved over time. Buyers and suppliers presently prefer collaborative relationships that are more likely to yield benefits than purely competitive ones. In understanding the main incentive for supplier and buyer relationships, a closer assessment of the reasons for supply chain relationships is critical. An exploratory study of the most prevalent buyer and supplier relationship drivers finds that these partnerships develop due to reasons such as reducing operational expenditure, enhancing customer satisfaction, and optimizing inventory. Additionally, such relationships form due to the need to improve performance (growth), innovation, and demand optimization.
Across diverse literature perspectives, the most common buyer and supplier relationship drivers are:
- Reduction of operational expenditure
- Enhancing customer satisfaction
- Optimizing inventory
- Improving performance (growth)
- Optimizing demand
Reduction of Operational Expenditure
One of the reasons for the prevalence of partnerships among organizations is reduced operational expenditure. Organizations face considerable costs, including packaging, transportation, data gathering, and price reduction strategies. Collectively, the costs mentioned result in very high expenditures for companies. As a result, cost reduction is one of the critical reasons for partnerships among organizations or buyers and suppliers. Gottfredson et al. (2005) also reveal that shrinking costs remained an essential incentive for partnerships between businesses, validating that expenditure reduction is one of the main drivers of supply chain partnerships. Additionally, partnerships have the potential to minimize company operational costs by enabling them to share technology and other possessions that might be more expensive to obtain. Diverse companies have unique resources that would benefit them if they collaborated rather than developed or acquired their unique resources. As a result, the reduction of operational costs remains one of the critical drivers of partnerships between organizations or buyers and suppliers.
Enhancing Customer Satisfaction
Suppliers also engage in partnerships with buyers to enhance customer satisfaction. The two organizational functions that are likely to interact more frequently with customers include the promotion or sales function and the procurement or logistics function (Rezaei et al., 2018). The procurement or logistics function will often contact the customers to ensure they receive their inventory. Customers look forward to the efficient delivery of orders, which entails precision of supplies and surety of continued supplies. Efficient delivery, as mentioned above, improves the effectiveness of the outbound logistics functions. As a result, customers receive accurate and continuous supplies leading to higher customer satisfaction. The promotion and sales function is equally important as it gathers data essential to the supply of customer orders. As illustrated, suppliers equally engage in relationships with buyers to improve customer satisfaction.
Buyers and suppliers or supply chain partners equally collaborate to optimize inventory. An organization involved in production receives parts from other supplying organizations. This entails the inbound logistics function or the purchase and movement of parts into the organization. At the same time, finished products leave the organization for delivery to other suppliers or customers through a process known as outbound logistics. Various functions of a single firm, such as procurement coupled with logistics and production, interact with the same functions in other companies (Rezaei et al., 2018). Optimization of inventory is essential as the above functions interact across diverse firms. Optimization of inventory includes any inventory optimization activities such as accuracy, replenishment times, and minimization of inventory costs and turnover (Rezaei et al., 2018). Achieving the above inventory optimization improvements requires partnerships between supply chain partners. Hence, inventory optimization is equally one of the critical buyer and supplier relationship drivers.
Improvement of performance or growth is also a critical reason buyers and suppliers form relationships. Firstly, the reasons mentioned above pinpoint that firms engage in partnerships for performance improvement or growth. These reasons include, among others, cost reduction, customer satisfaction, and improvement of inventory collectively geared towards performance improvement. A collective consideration of the above goals reveals that the principal reason that buyers and suppliers form partnerships is to enhance performance. Besides, Rezaei et al. (2018) also report that small to medium-sized enterprises (SMEs) form partnerships for growth objectives. They observe that SMEs form partnerships for performance improvement purposes to grow their trades. As a result, this leads them to pursue other strategies for growing sales, such as expanding production and research and development (R&D) initiatives. For the reasons mentioned above, it seems fitting to surmise that buyers and suppliers additionally form partnerships to improve their performance.
Another possible reason buyers and suppliers form partnerships is to enhance innovation performance. Innovation remains a critical area of focus for supply chain partners for various reasons, including performance growth. According to Belderbos et al. (2004), firms may collaborate to exploit the power of innovation in their production system or final products. Therefore, innovation is equally an important reason that different partners may collaborate. As already mentioned, collaborating in innovation enables them to improve their production systems and final products. This enables them to improve performance or experience growth on many fronts, including geographic coverage and overall sales.
The other critical reason buyers and suppliers engage in partnerships is to optimize or stabilize the demand for their offerings. Some markets characterize very high levels of fluctuation. This has the potential to result in a mismatch between demand and supply. Predicting and meeting the demand for products that are irregular in demand may be problematic for some companies. Partnerships between companies have the potential of optimizing supply to help tackle uncertain demand. Companies can collaborate on various fronts, including marketing and sales or production. Therefore, as illustrated above, buyers and suppliers also collaborate to optimize demand.
In sum, relationships between buyers and suppliers have undergone significant changes over time. Unlike in the past, when companies preferred competitive relationships, firms presently prefer to collaborate on various fronts to remain competitive. This research surmises that buyers and suppliers form relationships for various reasons, including minimizing operational costs, improving customer satisfaction, inventory optimization, performance improvement, innovation, and demand optimization.
Belderbos, R., Carree, M., & Lokshin, B. (2004). Cooperative R&D and firm performance. Research Policy, 33(10), 1477–1492. https://doi.org/10.1016/j.respol.2004.07.003
Gottfredson, M., Puryear, R., & Phillips, S. (2005, February 1). Strategic sourcing: From periphery to the core. Harvard Business Review. https://hbr.org/2005/02/strategic-sourcing-from-periphery-to-the-core
Rezaei, J., Ortt, R., & Trott, P. (2018). Supply chain drivers, partnerships and performance of high-tech SMEs. International Journal of Productivity and Performance Management, 67(4), 629–653. https://doi.org/10.1108/ijppm-01-2017-0017