Good SRM means cheaper prices

6 November 2007
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06 November 2007 | Rebecca Ellinor in Brussels

Strong supplier relations result in better prices. At least that's what Professor John Henke thinks he and his team are on the cusp of proving.

The lecturer and consultant from Oakland University in the US leads an annual review of tier one suppliers of car manufacturers - Chrysler, Ford, General Motors, Honda, Nissan and Toyota.

Having studied 15 years' worth of data from the Working Relations Index (WRI) - which scores companies' supplier relations from 0-500 with a rating above 350 considered strong - Henke told delegates at Procurecon in Brussels: "We think when the WRI goes up 10 per cent the cost of goods comes down 1 per cent. This is preliminary research but even if it's half wrong it doesn't matter because we're talking about millions of dollars and the cost of good supplier relations doesn't even come close to the savings you can make."

He added that being the customer of choice is becoming increasingly important to companies because: "Most competitors are roughly equal so supplier relationships can give you sustainable competitive advantage."

He concluded that if you go about supplier relations in the right way, you can push for even better prices and quality improvements. In return suppliers need some guaranteed business and the assurance they won't be dropped at the first sign of trouble.

Henke's annual study of automotive supplier relations earlier this year found Japanese automakers had more successful relationships with vendors than their American counterparts (International news, 21 June).

SMnov2007

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