The Impact of an SRM System on the Supply Chain and a Company's Performance

Table of Contents

Abstract

Table of Contents

List of Figures

List of Tables

1 Introduction
1.1 Background to the Research Topic
1.2 Research Topic
1.3 Background to the Research Area
1.4 Research Aims and Objectives
1.5 Dissertation Structure

2 Literature Review
2.1 Introduction to the Literature Review
2.2 Supply Chain Management
2.2.1 Introduction
2.2.2 Supply Chain Management Definitions
2.2.3 SCM Practices
2.2.4 Measure System
2.2.5 Supply Chain Collaboration
2.2.6 Results from previous Studies
2.3 Strategic Supplier Partnership
2.3.1 Buyer-Supplier Relationships
2.3.2 Strategic Buyer-Supplier Relationship
2.3.3 Transaction Cost Theory
2.3.4 Factors to measure the Success of a Buyer-Supplier Relationship
2.3.5 Results from previous Studies and Critics
2.4 Supplier Relationship Management
2.4.1 Supplier Relationship Management System
2.4.2 The Process of Supplier Relationship Management
2.4.3 Summary and Literature Limitations

3 Methodology
3.1 Introduction
3.2 Research Philosophy
3.3 Research Strategy
3.4 Interviews
3.5 Interview Questions
3.6 Sampling
3.7 Ethical Consideration
3.8 Limitations
3.9 Data Analysis
3.10 Summary

4 Research and findings
4.1 Introduction
4.2 Organisational Problems without an SRM System
4.3 Process changes after the Implementation of an SRM System
4.4 Organisational wide Changes with the Implementation of an SRM System
4.5 Criticism of the implemented SRM System
4.6 Buyer-Supplier Relationship
4.7 Strategic Supplier Management

5 Conclusion
5.1 Introduction
5.2 Aims and Objectives revisited
5.2.1 Disclose the different Buyer-Supplier Relationships and build a Connection to the use of an SRM System
5.2.2 Identify the main organisational Challenges without an implemented SRM System and the main Drivers to initiate a Change Process
5.2.3 Identify the Impact of an established SRM System on the Supply Chain
5.2.4 Determine if an SRM System has a positive Impact on the Company’s Performance
5.3 Limitations
5.4 Future Research
5.5 Summary

6 List of references

7 Appendices
A. Reflective Statement
B. Interview Template
C. Coding Template

List of Figures

Figure 2.1: Supply chain with integration (Chen & Paulraj, 2004)

Figure 2.2: Measurement system (Terpend et al., 2008)

Figure 2.3: Supplier relationship management process (“Supplier Management Systematics,” n.d.)

List of Tables

Table 2.1: Supplier selection strategies (adapted from Park, Shin, Chang, & Park, 2010)

Table 3.1: Ethical consideration

Table 3.2: Methodology summary table

Table 4.1: The participants of the semi-structured interviews

Abstract

DEGREE BA (Hons) International Business Administration

DISSERTATION TITLE The Impact of an SRM System on the Supply Chain and Company’s Performance

DATE

KEYWORDS BUYER-SUPPLIER-RELATIONSHIP

SUPPLIER-RELATIONSHIP MANAGEMENT

IT-BASED-SRM-SYSTEM

Abstract

Over the last few decades, the status of a supplier changed from a simple supplier of goods to a strategic partner. Numerous companies have recognised this development and drive for collaboration with their suppliers, in order to enable mutual growth.

The literature review will firstly discuss supply chain management in general, followed by a presentation of the different SCM practices for supply chain improvement. The strategic supplier partnership will be further discussed, and the different buyer-supplier relationships will then be presented. Multiple studies will be listed which disclose the positive impact of a successful and long-term buyer-supplier relationship. Nevertheless, should exceptional long-lasting buyer-supplier relationships not be seen as a universal key to success, therefore a management system for supplier relationships will be introduced. The results from the literature review will be compared with the collected primary data. The primary research consists of 5 semi-structured interviews with representatives from global acting companies, which have an implemented SRM system.

The findings of the research show, that all of the involved organisations see their suppliers as strategic partners, but at the same time allocate different relationship types to their different suppliers. In addition, the numerous processual and organisational impacts on the supply chain after the implementation of an SRM system have been disclosed. These include the centralisation and standardization of processes and supplier data as well as a significant increase in companywide transparency. Furthermore, a positive impact of an SRM system on the company’s performance has been identified, throughout the completion of the research project. Therefore, an SRM system should be seen as a tool that promotes and extracts the benefits of a successful buyer - supplier relationship.

1 Introduction

1.1 Background to the Research Topic

The modern economic environment is characterised by rising complexity and competition. In addition, due to major drivers like globalisation, marketplaces are facing continuous change and increasing pressure caused by new market entries. In order to stay competitive, companies have to increase the efficiency in all management areas, including the supply chain management. Strategic partnerships are a key element of success supply chain management since companies are buying more components and services from suppliers than in the past (Liker & Choi, 2014). An increasing number of firms are recognising this process and entering close relationships with their suppliers in the interest of gaining competitive advantage (Liker & Choi, 2014). In order to advantageously manage the firm`s suppliers, the significance of the purchasing department increases, and software tools are on the rise to support the purchasing processes (Park, Shin, Chang, & Park, 2010). A supplier relationship management (SRM) system aims to successfully classify and organise the different relationships between the organisations and their suppliers and therefore to create a positive impact on the company’s performance.

1.2 Research Topic

The research topic for the purpose of this dissertation is to analyse the impact of an implemented supplier relationship management (SRM) system, on a company’s supply chain and overall company’s performance.

The dissertation will aim to illustrate the specific changes in the supplier chain after the operative use of an SRM system and to analyse the effects on the company’s performance. Additionally, it will aim to build a connection between the different buyer-supplier relationships and the use of an SRM system.

In order to gain valid information from the industry, the research area will involve multiple customers of the company XXXXXXXXXX XX XX, which have an SRM system in place.

1.3 Background to the Research Area

The research topic was chosen as a result of the researcher’s interest in technology and more specifically in the evolution of e Procurement and e Sourcing. The relevancy of the purchasing department has significantly increased over the last decade and multiple software tools have been developed to support the business processes. The author chose to involve the company XXXXXXXXXX due to their outstanding market position in digital procurement solutions (Bergfors, Wilson, & Edwards, 2017) and due to the author’s personal involvement within the company over the last four years. In addition, XXXXXXXXXX has a large customer base, which is operating the cloud-based SRM suite on a daily basis. Therefore, it was possible to involve the actual end user in the research project, to obtain new insight into the impact of an SRM system on the company as a whole.

1.4 Research Aims and Objectives

The following aims and objectives have been identified and will be covered by the research project:

1) Disclose the different buyer-supplier relationships and build a connection to the use of an SRM system
2) Identify the main organisational challenges without an implemented SRM system and the main drivers to initiate a change process
3) Identify the impact of an established SRM system on the supply chain.
4) Determine if an SRM system has a positive impact on the company’s performance.

1.5 Dissertation Structure

This dissertation is divided into five chapters including the Introduction, which first contains background information. Furthermore, the introduction discusses the research topic, and clearly states the research aims and objectives. The introduction is revealing the purpose of the dissertation.

Literature Review – This chapter comprehensively and critically analyses secondary data relevant to the research topic. The literature review provides an in-depth study, of supply chain management practices, the strategic supplier partnership, and a supplier relationship management system. In addition, it provides the basis to build upon in the following chapters and to solve the research question.

Methodology – This chapter compares the different research philosophies and research strategies. In addition, this chapter describes and justifies the process of data collection with a semi-structured interview. The key areas of sampling, ethical consideration and limitations have also been discussed.

Research and findings – This chapter combines the findings from the secondary data inside the literature review with the primary data from the semi-structured interviews. The findings from the primary research are presented and analysed and connections are drawn.

Conclusion – This chapter will conclude the dissertation. The findings from the previous chapter will be compared to the initially defined goals and objectives. In addition, the chapter will discuss the limitations of the research project, alongside further research topics.

2 Literature Review

2.1 Introduction to the Literature Review

The aim of this chapter is to provide the literature related to supply chain management, strategic buyer-supplier relationships and SRM systems. The literature review will begin with an introduction of supply chain management followed by other various definitions. In section 2.2.3 different supply chain practices will be presented, which enable successful SCM and eventually lead to the predefined SCM goal. The analysis of previous studies (2.2.6) reveals certain limitations, as it remains uncertain to which extent the different SCM practices contribute to the overall operational performance. Due to this fact and the previously described critical role of the supplier, section 2.3 will focus on the strategic supplier partnership. The different buyer-supplier relationships will be thematised in section 2.3.1, whereas section 2.3.2 will conflate the characteristics of a strategic buyer-supplier relationship. Nevertheless, exceptional long-lasting buyer-supplier relationships should not be seen as a universal key to success. Therefore, a supplier relationship management system will be introduced in section 2.4. Finally, the different steps of the SRM process will be presented.

2.2 Supply Chain Management

2.2.1 Introduction

As competition in the 1990’s intensified and markets became global, organisations realised that it is not enough to just improve their efficiency but rather to make the whole supply chain competitive (Li, B. Ragu-Nathan, T. Ragu-Nathan, & Subba Rao, 2006). Furthermore, it has forced companies to improve the coordination of flows and to strive for a closer relationship with suppliers (Mentzer et al., 2001). Therefore, the supply chain management has been recognised as one of the most critical management practices in order to achieve competitive advantage (Prajogo, Chowdhury, Yeung, & Cheng, 2012). The term supply chain management was first introduced by consultants in the early 1980’ (Oliver & Weber, 1992), since then the prominence of this term has risen tremendously over the last few decades (Cooper, Lambert, & Pagh, 1997). The next paragraph will evaluate different definitions of supply chain management since there is no generally accepted definition in the literature (Feldmann & Müller, 2003).

2.2.2 Supply Chain Management Definitions

In order to define supply chain management (SCM), first, the term supply chain should be examined. A supply chain can be described as a network of organisations, that is directly involved in the flow of products, services, finances, and information from the source to the customer and thereby the processes that create value (Christopher, 1992; Mentzer et al., 2001).

There are numerous definitions of supply chain management in the literature which illustrate the involvement of multiple firms and business activities as well as the coordination of those activities across functions or firms. (Mentzer et al., 2001) Nevertheless after the consideration of those existing definitions, the Council of Logistic Management defines SCM as: “the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole“ (Mentzer et al., 2001, p. 18). The aspiration of the researcher is to establish this comprehensive definition among managers and future researchers.

2.2.3 SCM Practices

The goal of the SCM is, as already discussed, the seamless integration of information and material flows across the supplier chain. If successfully implemented, the SCM can be the key for sustainable competitive edge (Gebremichael & Rao, 2014).

In order to achieve the goal of a successfully implemented supply chain management, companies need to determine individual SCM practices.

SCM practices can be defined as the specific set of activities undertaken by an organisation to advocate effective management of its supply chain (Li et al., 2006). Additionally, it should be seen as a multi-dimensional concept and as an approach to improve both the upstream and downstream sides of the supply chain (Li et al., 2006).The suppliers should be involved in the decision-making process, encouraging information and looking for additional ways to integrate, in order to improve upstream integration (Chow et al., 2008). Concurrently, it involves the integration of downstream activities by developing customer contact and considering customer feedback (Chow et al., 2008).

Abbildung in dieser Leseprobe nicht enthalten

Figure 2.1: Supply chain with integration (Chen & Paulraj, 2004)

Numerous studies have been conducted in order to identify and validate SCM practices (Bayraktar, Demirbag, Koh, Tatoglu, & Zaim, 2009; Lenny Koh, Demirbag, Bayraktar, Tatoglu, & Zaim, 2007; Li et al., 2006; Tan, 2002; Zhou & Benton, 2007), nevertheless there is no generalized process of defining and measuring SCM practices.

Li et al. (2006) conceptualise SCM practices as a five-dimensional construct containing the strategic supplier partnership, customer relationship, level of information sharing, quality of information sharing, and postponement. Thereby the concept covers all aspects of the SCM, upstream (strategic supplier partnership) and downstream sides (customer relationship), the informational flow across the supply chain (level and quality of information sharing) and the processes (postponement) (Li et al., 2006).

Notwithstanding further factors, such as JIT production and delivery practices (Zhou & Benton, 2007) or procurement practices (Bayraktar et al., 2009) were identified in the literature. Even though the literature presents SCM practices from various perspectives, the common goal is the improvement of organisational performance and effectiveness.

2.2.4 Measure System

Due to the high complexity of supply chains, it is a challenge to create performance measures, which evaluate the efficiency and effectiveness of the supply chain management (Frederico & Martins, 2014). Additionally, the targets of the supply chain often conflict, since high levels of customer satisfaction and flexibility, or continuous improvement, require extensive financial resources. In the literature are numerous examples for performance management systems (e.g. Beamon, 1999; Bhagwat & Sharma, 2007; Holmberg, 2000), Brewer and Speh (2000) evaluated the performance based on the balanced scorecard and with the measures: customer’s value, level of services, collaboration, costs, processes, and partnership. Companies should establish a performance management system which fits their strategy and assess if the goal of the SCM can be achieved with the determined practices.

2.2.5 Supply Chain Collaboration

Stank, Keller, & Daugherty (2001) have researched and identified a positive impact of the relationship between collaboration (internal and external) and an improvement of service. The fundamental principle is the creation of synergies, as the performance of the entire supply chain could be higher than the sum of each company’s supply chain, in other words, to achieve a “collaborative advantage” (e.g. Dyer, 2000) in contrast to a “competitive advantage” (e.g. Porter, 1985). Yet, the theory of synergies often gets criticised, and its existence doubted (de Graaf & Pienaar, 2013).

Numerous studies have identified, commitment (Fawcett, Ogden, Magnan, & Bixby Cooper, 2006), integration (Ashenbaum, Maltz, Ellram, & Barratt, 2009) and trust (Yu, Liao, & Lin, 2006) as key elements of a successful supply chain management, which indicates the degree of participation and the strength of the relationship (Dolci & Maçada, 2014).

2.2.6 Results from previous Studies

Many studies evaluated the relationship between SCM practices and organisational performance and have commonly revealed a positive correlation. Chen and Paulraj showed the positive relationship between twelve SCM practices and various measurement dimensions, for instance, cost, flexibility, or customer satisfaction (Chen & Paulraj, 2004). Also Lie et al. (2006) showed that the five-dimensional construct has significant correlations with performance measures including quality, delivery, costs, innovation, and time to market (Li et al., 2006).

Nonetheless, these studies exhibit certain limitations. By bundling the different performance measures, these studies assume that SCM practices have more or less equal positive effects on different performance measures (Prajogo et al., 2012). Therefore, it is uncertain to what extent the different SCM practices contribute to the overall operational performance.

Due to the critical role of the supplier, which has been recognised in the literature as one, to expose the specific effect of this SCM practice on the supply chain, the future thesis will focus on the upstream site and therefore on the strategic supplier relationship.

2.3 Strategic Supplier Partnership

2.3.1 Buyer-Supplier Relationships

Over the last few decades, the role of suppliers has developed from a simple supplier of goods to a strategic partner, which has had a significant importance inside the value chain (Kwon, Joo, & Hong, 2010).

After his extensive research, Campbell (1997) defines four types of buyer-supplier relationships:

- Self-centred: Each firm is only concerned about its own interest. The transactions are not based on long-term commitments, and the price is the most important purchasing criteria. Buyers take advantage of their position of power and also split their buying requirements among a number of suppliers in order to get the lowest price. If the buyers are not satisfied with the supplier performance, they will not continue the purchasing process.
- Personal loyalty: The relationship is characterised, by a mutual sense of responsibility and commitment. Buyers and suppliers strive for shared problem solving, and open exchange of information since the relationship is based on trust.
- Mutual investment: Extreme close relationships and long-term commitment to create a mutual competitive advantage. This also involves open information exchange, joint problem solving and shared risk and benefits.
- Political control: High level of mutual dependence between the buyer and supplier with a significant level of integration. All major activities are collectively coordinated.

Campbell's research showed that both buyers and suppliers would most likely consider their partnership as personal loyalty (buyers: 42.1%; suppliers: 57.2%) followed by mutual investment (buyers: 32.5 percent; suppliers: 35.7 percent) (Campbell, 1997).

2.3.2 Strategic Buyer-Supplier Relationship

As already discussed, the relationship between buyers and suppliers can vary from adversarial (self-centred) to cooperative (personal loyalty, mutual investment), whereas adversarial relationships are characterised by purchase transactions with low priority, and high availability and cooperative relationships are seen as a transaction with significant priority and limited supply (Carr & Pearson, 1999).

Strategic supplier relationships can be defined as a long-term relationship with the intent to create a win-win situation between a firm and its supplier instead of an adversarial relationship (Li et al., 2006; Paulraj & Chen, 2005). It furthermore provides a pivotal prospect for firms to develop a strategically competitive advantage (Sillanpää, Shahzad, & Sillanpää, 2015)

Based on literature review Ellram (1995), expounds, that buyers tend to prefer closer relationships, if they wish to control the dependability to improve the quality or delivery of services and to reduce cost. On the other hand, suppliers may be motivated to seek for long-term stability and reliable markets. (Kannan & Choon Tan, 2012).

Additionally it can be stated, that firms that conduct long-term planning and consider purchasing to be strategic, are more likely to build cooperative relationships with its suppliers since short-term orientated adversarial relationships are not consistent with this strategy. (Carr & Pearson, 1999)

2.3.3 Transaction Cost Theory

Each effort of continuous improvement entails costs. The “cost for running a relationship” (Frazier, Spekman, & O’neal, 1988, p. 65) between buyers and suppliers are described as transaction costs. Williamson (1975) established the transaction cost analysis framework which encompasses the costs which are associated with the negotiation, implementation, coordination, monitoring and adjustment of exchange agreements. The theory indicates that if a firm should produce their own inputs and expand their boundaries through vertical integration or purchase the product in the market space (Carr & Pearson, 1999). The transaction costs should thereby rise, if the uncertainty in the environment or the transaction frequency increases, and the assets are getting unique for the relationship (Williamson, 1985). The transaction cost theory can provide insights if the previously described long-term relationship with the supplier is cost efficient or if vertical integration or adversarial purchasing from the marketplace is preferable. Still, the transaction cost theory often gets criticised, since it is difficult to measure the specific transaction costs and also because of being based on assumptions as well as the exclusive focus on cost minimization (Ghoshal & Moran, 1996; Hodgson, 2010).

2.3.4 Factors to measure the Success of a Buyer-Supplier Relationship

The buyer-supplier relationship was analysed by Terpend, Tyler, Krause, & Handfield (2008) over the last decades by executing an extensive literature review. The analysis clarifies, that one can measure the success of a buyer-supplier relationship with various different measurement criteria. The easiest way to evaluate the relationship is with performance measures such as quality, cost or flexibility. Nevertheless, these factors implicitly incorporate the effects of factors other than those related to the relationship itself. (Kannan & Choon Tan, 2012) It is extremely difficult to measure how the performance can be attributed to specific initiatives and actions, therefore it makes sense to evaluate the performance of a whole supplier relationship management system. Watts and Hahn (1993) defined the supplier performance improvement indicator as the most important and meaningful dimension in order to measure the success of a buyer-supplier relationship or management system. Humphreys, Li, & Chan (2004) presents three comprehensive dimensions to identify the success of a supplier relationship management system:

1. the supplier performance: the perception of the buyers about performance measures such as quality, cost, delivery and flexibility.
2. buyer’s competitive advantage: which includes for example market share gains, cost reduction, quality, and quick product development
3. improvement of the buyer-supplier relationship: which include the improvement of open information exchange, joint problem solving and involvement in joint activities

Abbildung in dieser Leseprobe nicht enthalten

Figure 2.2: Measurement system (Terpend et al., 2008)

2.3.5 Results from previous Studies and Critics

Numerous studies have identified the linkage between buyer-supplier relationships and a company’s performance. The results of multiple empirical studies disclose a positive effect on a firm`s performance due to successful buyer-supplier relationships (e.g. Frohlich & Westbrook, 2002; Petersen, Ragatz, & Monczka, 2005). Furthermore, supplier performance and capabilities have a significant effect on a manufacturing company’s competitive advantage (e.g. Humphreys, Shiu, & Chan, 2001).

Nevertheless, studies can be found in the literature which consider the “dark side of relationships” (Leonidou, Aykol, Fotiadis, Christodoulides, & Zeriti, 2017, p. 2), especially components like opportunism, uncertainty, tension, and conflict which can negatively influence the relationships between buyer and supplier (Nguyen, Simkin, & Canhoto, 2015). In addition, research exposed, that long-lasting relationships are not necessarily profitable (Aurier & N’Goala, 2009; N’Goala, 2010).

The critics show, that exceptional long-lasting relationships between buyers and suppliers should not be seen as a universal key to success. Therefore, companies should use a supplier relationship management system in order to successfully select, classify and develop their suppliers. The limited resources of the companies should be focused on suppliers which provide the biggest benefits, and different types of relationships should be selected for a supplier with low priority. The following paragraph will consequently describe the structure and process of a supplier relationship management system.

2.4 Supplier Relationship Management

2.4.1 Supplier Relationship Management System

Supplier relationship management can be defined as a process of finding and managing preferred suppliers, pooling buyer experience, and extracting the benefits of long-term supplier partnerships (Choy, Bun Lee, & Lo, 2010; Herrmann & Hodgson, 2001).

A supplier relationship management system is often IT-based and provides an integrated and holistic set of management tools in order to simplify and automate exchange and communication with suppliers (Choy et al., 2010). In the following thesis the term SRM System will refer to this IT- based SRM solution. Even though there are initial costs for purchasing and implementing an SRM system, these costs contrast with the reduction of transaction costs and the benefits of an improved relationship.

2.4.2 The Process of Supplier Relationship Management

The literature often analyses the supplier selection, evaluation, classification and development separately. Nevertheless, supplier relationship management should be seen as an integrated and flexible process.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2.3: Supplier relationship management process (“Supplier Management Systematics,” n.d.)

2.4.2.1 Supplier Selection

The supplier selection is a complex and critical decision which heavily influences the overall performance of the supply chain and is decisive for a successful relationship. The literature proposes numerous different approaches for supplier selection, for example, the analytic hierarchy process, genetic algorithms or the simple multi-attribute rating technique (Omurca, 2013). Thus, the first step of the supplier selection is to choose and develop a suitable method which illustrates the company’s needs (Chen, Lin, & Huang, 2006). Concurrently, the criteria used to select the suppliers should be identified and determined. Several studies have been conducted to examine the different selection criteria (e.g. Ellram, 1990; Williamson, 1985). The studies conclude, that the price, quality, delivery, and reliability are still the most important factors, especially for short-term and low priority transactions. Yet, in the context of a cooperative relationship, criteria such as flexibility, technical capabilities, and the willingness to work and adapt in collaboration should be considered and prioritized (Kannan & Choon Tan, 2012). The task of a strategic purchasing department seldomly is to select the supplier based on the lowest price, but more so to consider the wide objectives of the firm. The different supplier selection strategies are summarized in the table below:

Abbildung in dieser Leseprobe nicht enthalten

Table 2.1: Supplier selection strategies (adapted from Park, Shin, Chang, & Park, 2010)

2.4.2.2 Supplier Evaluation

The supplier evaluation is another important part of the supplier management process and should be conducted on a regular basis. It can be defined as “the process of quantifying the efficiency and effectiveness of supplier action” (Hald & Ellegaard, 2011, p. 890) and provides continuous insights about the performance delivered by the suppliers (Sillanpää et al., 2015). The exposed strengths and weaknesses are furthermore the basis of the supplier classification and the measures that are defined in the supplier development step. Evaluation practices, therefore, can be used as an instrument to influence supplier action or to initiate a change in behaviour (Neely, Richards, Mills, Platts, & Bourne, 1997). Based on previous findings from Bourne, Neely, Mills, & Platts (2003), Hald & Ellegaard (2011) developed the three-phase model of supplier evaluation:

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