Page 164 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 8: Supply Chain Management

Self Assessment Notes

Fill in the blanks:
7. Value engineering is used as a ……………term and generally includes value analysis.
8. Value engineering is performed before the ……………. stage, and is considered a cost
avoidance method.
9. Value Engineering starts with the ………………and identification of a product, service or
system.

8.4 Vendor Relationships

Supply Chain relationships have their historical origins in the Japanese keiretsu structure.
Keiretsu is an example of a group of firms using supply chain strategies to achieve a common
purpose. Suppliers, with some degree of vertical ownership with the manufacturer, enjoy high
volume and long-term supply contracts. The keiretsu did not need to have a typical cross-
organizational structure because of its traditional relationship. However, the keiretsu offers an
insight of how suppliers enjoy close ties with manufacturers. Firms establish ties with each
other on the basis of a mutual belief - exchange personnel; share technology and information; in
effect sharing both the risk and rewards of the relationship.
The supplier-buyer relationships have seen a paradigm change in the transition from Materials
Management to Supply Chain Management. The supply chain structure has been sculpted on the
Japanese keiretsu. But, Japan has a culture where the keiretsu is possible. How does this reflect
on SCM in general? Before we discuss this question, the question we need to focus on first is:
What are the different types of supplier-buyer relationships?
There are three types of relationships:
 Transactional
 Collaborative, and

 Alliance
These are described in greater detail below:
8.4.1 Transactional Relationships

The most common and most basic type of relationship is “transactional.” Virtually, all buying
firms will have transactional relationships.

Example: Directorate General of Supplies and Disposal (DGS&D) is a government
organization under the Ministry of Commerce. The organization provides procurement services
to Central & State Government Departments/Organizations, Public Sector Undertakings and
Autonomous Bodies, by placing Rate Contracts for common user items and contracts against
their ad-hoc demands. This is a typical transactional relationship. This type of relationship
simply means that neither party is especially concerned with the well-being of the other. It is
neither good nor bad. Transactional purchases lend themselves to e-procurement and, in some
cases, reverse auctions.

Characteristics of Transactional Relationships

Transactional relationships have several characteristics. To start with, the relationship is formal.
It is characterized by an absence of concern by both the buyer and the seller about the other

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