Eskom Procurement Book 2015

SUPPLIER RELATIONSHIP MANAGEMENT

SYNOPSIS In this chapter, several topical supplier-oriented issues are discussed, namely supplier selection and evaluation, Supplier Relationship Management (SRM), supplier development, supply-base localisation, the Black Business Supplier Development Programme (BBSDP) and dispute resolution. The chapter aims to provide a solid foundation for the implementation of these aspects of procurement. 5.1 INTRODUCTION Procurement has undergone substantial changes in almost all of its sub-areas over the past few decades and whether or not it is effectively implemented can have profound outcomes for any organisation. Some of the areas that have emerged as important involve relationships with suppliers since, without proper supplier-related structures, the procurement department will be ineffective. This is because suppliers can significantly contribute to the competitive advantage of an organisation in areas such as performance, cost base, profitability, points-of-difference and even the value of the brand. It is therefore important for supply management practitioners to have an adequate working knowledge of the supply side of procurement in organisations. 5.2 SUPPLIER SELECTION AND EVALUATION For obvious reasons, supplier evaluation and selection precede supplier relationship management. After all, it is not possible to manage suppliers that have not yet been selected. Supplier selection is one of the most important responsibilities of supply managers and commodity teams. This process is too often an afterthought performed by buyers who are measured by their ability to obtain the lowest price rather than the lowest total cost or highest value. With a growing reliance on fewer suppliers to provide greater value-add, and with the use of longer-term contracts continuing to grow, the cost of making an incorrect selection decision can have long-lasting consequences. As external suppliers begin to command 50% or more of a firm’s total revenue, the logic behind creating a world-class evaluation and selection process becomes even clearer. Besides the obvious impact on cost, suppliers affect a broad range of end-customer requirements. Too many leaders have viewed suppliers and the process for selecting them with relative indifference. Purchasing simply was not part of the executive radar screen. Astrategic emphasis on core capabilities and competencies, which often results in the outsourcing of major requirements, now makes supplier evaluation and selection a critical organisational process.

92 CHAPTER 5