This document discusses strategies for managing supplier relationships to reduce the bullwhip effect in supply chains. It defines the bullwhip effect as increased demand variability amplified at each stage of the supply chain. Key points made include: - Categorizing suppliers as strategic, preferred, or transactional based on impact of late/poor quality deliveries. - Countering the bullwhip effect through close communication, rate contracts, optimizing lead times, and supplier partnerships. - Steps for a supplier relationship management program including supplier categorization, identification of critical items, and establishing contracts by strategy. - The benefits of mutual commitment between organizations and suppliers through performance metrics and support for best practices.

1. Beyond Procurement :
Understand Bullwhip effect
Strategic Supplier Relationship Program for non-strategic materials
To Build Competitive Differentiation
By
Deepak Ramawat
d.ramawat@emal.ae

2. Outline
• Understanding Bullwhip effect specially in manufacturing
Industries
• How to establish a strategic supplier relationship
management program specially for non-strategic materials at
grass root level
• Sharing a mutual commitment towards performance
excellence
• Involvement of Internal Stakeholders & Taking ownership of
their support

3. Definition
A Bullwhip effect occurs when
change in customer demand,
causes larger and larger
inventory swing
Demand order variability in the
supply chain amplified at each
stage with information flow

4. Example of Bullwhip Effect
400
350
300
250
Monthly Demand
200
Material Planning
Avg Demand
150
100
50
0
1
2
3
4
5
6
7
8
9
10
11
12

5. What Causes Bullwhip Effect?
Lack of Communication
Price Variations
Lot Ordering
Supply-Demand Constraints

6. Counteracting the Bullwhip effect
Close and Open Communication
(Reducing Uncertainty)
Sharing correct information along the whole supply chain
cycle by providing each stage with correct information on
actual customer demand and reducing reliance on
forecasting. This can be done by
• Meeting on regular intervals
• Define requirement and Sharing
• By use of communication channel
• Discussing future requirement, projects, and
development plans

7. Counteracting the Bullwhip effect
Rate and Blanket Contracts
(Reducing Variability)
By reducing periodic price discounting, keeping
consistent pricing strategy, which means offering a
price as low as possible everyday, without periodic
price promotion.

8. Counteracting the Bullwhip effect
Optimizing And Analyzing Lead Time
To optimize lead time in supply chain we need to concentrate on
below points
• Expected Demand
• Service level requirement
• Replenishment method (Lot ordering, Single item ordering etc)
• Replenishment / lead time
This will help to decide when to place the order and when it
become available to satisfy demand

9. Counteracting the Bullwhip effect
Supplier Partnership
For Countering Bullwhip effect, Supplier Partnership is effective
tool. Adopting SRM, for sharing information and effective
inventory management along the whole Supply Chain can
significantly reduce the bullwhip effect.

10. Supplier Relationship Management
Supplier Relationship Management is working collaboratively with those suppliers that are vital to the success of
an organization to maximize the mutual values from those relationships – importantly, it need not always done
at corporate level, start at buyer levels;
Do you hear the following from your buyers:
•
•
•
•
•
•
Our suppliers do not listen / respond to us;
Our suppliers do not deliver us what we request;
Our suppliers would rather work with competitors rather than me / us;
Our customers and system makes it difficult for my vendors;
Our Accounts payable are slow, it does not help
Our suppliers contact users directly, what can I do

11. Steps in Relationship Management
Relationship
Management
Contracts By
Strategy
Strategic Supplier
Categorization
Identification
of Critical
Spares

12. Relationship Management
Supplier categorization
As a buyer, have you realized or asked yourself these questions:
•
•
•
•
•
If this supplier delivered late, would it shut my customer’s production line down?
If this supplier delivered late, would it affect my company’s obligations to customers ?
If this supplier provided unacceptable quality, would it reflect failure of my company?
If this supplier raised prices, would my company still purchase from same supplier?
If this supplier provided poor service or response, would it affect my company ?
Hence, to have answers for above questions there is a need for SRM and to facilitate
our study we further extend our questions like




Which supplier?
What category of material?
Who are stake Holders?
What will be the potential impact?

13. Relationship Management
Strategic Supplier Categorization
Rating Guideline
It will be transaction orders if it is 0-3 (depending on area and product/service specific)
It will be preferred orders if it is 4-7 (depending on area and product/service specific)
It will be Strategic orders if it is 8-10 (depending on area and product/service specific)
Sr. No
Evaluation Criteria
1
2
3
4
Supplier Name and Rating
5
6
7
8
9
10
1
If this supplier delivered late, would it shut my company’s production line
down?
No but may affect schedule
will directly delay the maint or oper schedule
Result in stoppage to an extent
2
If this supplier delivered late, would my company be unable to meet its
obligations to its customers or otherwise lose sales?
not directly relevant to sales
will affect work in progress and morale
will affect our organization
3
If this supplier provided a product or service that was of unacceptable
quality, would it shut my company’s production line down?
No but will affect productivity
Will affect overall efficiency and downtime
directly afffect plant operations
4
If this supplier provided a product or service that was of unacceptable
quality, would it result in a failure of my company to meet the quality
standards of its customers?
Yes but replacement will help
Yes but depends on replacement time/process
Yes specially as time is limited
5
If this supplier raised prices, would my company continue to purchase the
same products or services from that supplier, resulting in a reduction of
profit?
No, diff vendors/models avail
No but alternate source will take time & cost
Yes but flexible to negotiate
6
If this supplier provided poor service (e.g., failure to promptly answer a
question), would it result in my company providing unacceptably poor
service to its customers (e.g., failing to promptly answer a customer’s
question)
not directly relevant to FG
will affect work in progress and morale
will affect our organization
7
What will be the Potential impact on current and future costs?
2-5% increase/<USD 10,000p.a. & One time
5 -10% increase/<USD 50,000p.a.
> 10% increase/<USD 100,000p.a.
8
What is the Expected length and continuity of contract?
One time - less than 6 months max
One year; multiple qualified vendors in market
One year & more; Limited vendors
9
Is the alternative avaialble in the market with the same setup / capability?
Low; In specific areas
Medium, multiple times
High and continuously dependent
10
How much dependency we have on this contractor
Limited / Not very important
Limited / Not very important
Limited / Not very important
11
Our influence on contractor's strategy and directions on their overall
business & EMAL
Low; In specific areas
Medium & limited to EMAL
High and continuously evolving
Overall Rating

14. Relationship Management
Below is the result of Supplier categorization
Total number of Supplier considered
120
Total Supplier Screened
75
No. of Supplier selected
20
Time Period for Evaluation
1 year

15. Results
• Vendor feedback to Customer
• Vendor – Customer meeting frequency
• Value additions by vendors (Maintenance
Support / extender Services)
• Payment cycle (concerned by vendors)
• Supplier confidence
• Improvement to Customer Service, Profits,
cost
2011
Critical SKUs plant wide identified
No. of contracts for SKU established
Total Line covered under above contract
No. of Zero stock outs during the year
Payment in Day
2012
2013
218
17
7867
146
90
1419
32
16943
91
80
3912
78
22198
27
40
30000
25000
20000
15000
10000
5000
0
2011
2012
2013
2014*

16. MUTUAL COMMITMENT WITH STAKEHOLDERS
INVENTORY
KPI – Reduced
Inventory;
Improved
convenience
FINANCE
Facilitating
improvised P2P
Performance
Excellence
MAINTENANCE
Joint vendor
audits &
assessments
Support for best
practices
OPERATIONS
Signed SLAs
with Deliverable

17. CONSTRUCTIVE PARTNERSHIP ROLES BY STAKEHOLDERS
Collective approach = Value realization
Complete and
consistent support to
pursue this
relentlessly – often it
is time consuming;
Encourage
consistent team
efforts from
Customer
(Operations as well
as Maintenance),
Warehouse,
Inventory, Finance,
led by Buyers;
Realizing the NEED
to have relationship
management –
Apart from ensuring
availability, SRM
takes care of the
ripple periods in
operating cycles
Deliverable and
expectations of all
stakeholders are
different but each of
them is important –
necessity to align
them to the overall
bottom line concept
Supplier Relationship Management
Have a set off for
value realizations
from SRM based
approach;

18. Potential Benefits - Contracts By Strategy
• Vendor Consignment Contracts
•
•
Fixed Rate Contracts
Quantity contracts
Time based contracts
Vendor managed warehouse contracts
Indenter stock holding contracts
•
Just in Time supply contracts
•
Low Value High Consumption
contracts
•
Time motion driven local business
contract
•
“U” type SAP Contracts
Temporary Lease contract
Freight Contracts

19. Positioning for future - Relationship Management
Supplier Relationship Management
Strongly recommend that each Buyer must set up their own SRM with their key
suppliers at their levels;
Strategically set, Relationship enhancement meeting (to be) thereafter
conducted periodically with all stake holders (Customer, Warehouse, Inventory
and Finance)
This is nothing but setting roots of a relationship management with their
(target segment) suppliers that drives “value” system upwards to
Organizational model ;

20. Thank you