The Commercial Environment in the Modern World - Term Paper Example

Commercial Management Name Tutor Date Introduction Buyer and supplier relationship in a business environment involves a cross-function management of the flow of unprocessed goods through an organization, the processing of these unprocessed goods into reedy products and later moving these finished goods to the end consumers. The ownership of raw materials source and distribution channels for organizations reduces when they focus on competencies and try to be more flexible. The functions are later dominated by other organizations that can perform better or more cost effectively. The net effect is therefore to increase the number of organizations that involved in customer satisfaction and reducing the management control of daily logistics operations. The purpose of buyer supplier relationship is to improve the trust and collaboration among the partners thus improving the speed of inventory movement (Harland, 1996). Discussion Purchasing in the past was considered as a simple clerical or administrative function (Mentzer, et al, 2001). The objective of the purchasing partner was to make orders and get good at the least price possible from the supplier. The commercial environment in the modern world is changing and is characterized with stiff competition and this calls for change in sector such as the purchasing. There is need to come up with creative solutions to cope with the new challenge in the commercial environment. Companies have realized that they use the same resources and as a result there are competing supply chains. This competition in the supply chain has made companies to see the effect of the purchasing factor to the company’s core objectives. In the modern competitive commercial environment what make a company more successful is the quality of goods that it produces and the price of the product. Therefore two companies can manufacture the same product but if one of the company gets the product done faster and at a cheaper cost then, it dominates the market over the other company and sells the product easily. In the commercial environment, organizations often depend on effective chain supplies and networks in order to compete in the global market and networked economy. This concept of business relationship extends from the ordinary businesses and seeks to organize all other business processes throughout multiple companies. Solid collaborative supply networks in the commercial environment can be achieved by employing factors such as, globalization, outsourcing and information technology whereby each specialized business partner focuses on only a few key strategic activities, these factors have been tried by organization such as Dell and Hewlett Packard to achieve their success (Mentzer, et al. 2001). The inter-organizational supply network can be considered as a new form of organization. This is because the despite the complicated interaction of suppliers and buyers the network structure does not fit the market or hierarchy category. However, performance impacts of different supply network structures on firms cannot be clearly identified and not much is known on coordination conditions and trade offs that may exist among partners. For instance a complex network structure can be decomposed into individual component firms. This differs with the traditional supply networks whereby companies concentrated on the inflow and the outflow of the processes and had less interest on the interior running functioning of other entity players. It is therefore worth to note that the choice of an internal management control structure can impact a local firm performance. Changes in the business environment have contributed to the development of buyer and supplier relationship in the 21 st century. To begin with, globalization and proliferation of multi national companies, joint ventures, strategic alliances and business partnerships have contributed a lot to these changes. Secondly, the technological changes, for instance the fall in information communications costs which are significant factors to transaction costs have reduced the cost of coordination among buyers and the suppliers. Researchers have recognized these kinds of buyer and supplier relationships as a new form of organization. However such forms of organizations can be defined as “a group of semi-independent organizations, each with their capabilities which collaborate in ever-changing constellations to serve one market in order to achieve some business goal specific to that collaboration” Few decades ago the buyer-supplier relationship was only considered on transaction relationship in most companies (Kaushik, 2000). In the relationship the buyer was focused on getting goods at the cheapest price while the supplier was interested to fetch a high enough prices to cover his cost and make profit from the business. This transaction implied that one side of the trading party won while the other one lost and therefore the transaction relationship made a zero-sum game between the trading parties. The two sides worked against each other meaning that there was no one time that the two sides would remain happy. The result of this transaction was that the buyer had no trust if the supplier would convey the goods as specified. The buyers had the chance of choosing among many suppliers the one to trade with and at if the supplier did not give the buyers the preferred price the buyers would go to any other supplier in the database. In the modern world the buyers and the suppliers have realized the importance of collaboration instead of working against one another. When the two sides work together they form a supply network. When involving people from diverse departments working together in a firm each aspect of the plan and the manufacture of a commodity are easily considered. The company is therefore able to assess the services and capabilities the company should consider when choosing supplier. The ultimate goal of buyer-supplier relationship is to have supply alliance. Companies are now working together with the same objective as one entity. Communication plays a major role in this case and is open, this make the interest of both parties to be looked at. The high level of trust between the two parties leads the supplier to be willing to make investment in equipments and technology that are important to the customers needs. Toyota Motor Corporation is a good example of how a company can be successful in forming strong supply chain alliances. The company has been so successful because it realized the importance of buyer-supplier relationship since it was started. The term keiretsu is used in Japan to mean a network of business whom own stake in one another as a means of mutual security is always in use in the country. Toyota is ready to cooperate with all suppliers according to an article by Lucia Ciferri as long as the following criteria are met: Quality Technological capabilities Commodities required delivered on time Cost Toyota products are of perfect quality having met the ISO standards required. Jeffrey H. Dryer in his book, ‘Collaborative Advantage: winning through extended enterprise supplier networks’, states that the key to Toyota success “is the practice of dedicating assets to customers”. Toyota achieves this in many ways like locating companies close to the customers, referring its own engineers to go and work at the customers’ site and investing customized- physical assets. Toyota decreases inventory costs by locating facilities close to one another and set that money on product development (Ciferri, 2007). Development of buyer and supplier relationship has grown over time and can be marked with six major eras namely: I. Creation era The recognition of the concept of buyer and supplier relationship was noted by a U.S industrial consultant during the early years of 1980s. Its importance was identified in the early 20th century especially during the creation of the assembly lane. This are was characterized by the needs for multiple changes, re-engineering, downsizing as a result of reduced cost programs, and wide spread focus on the Japanese management practice. II. Integration era Integration era was marked by the growth in electronic data interchanging in the early1960s and also developed through 1990s as a result of the introduction of an enterprise resource planning systems. This era has consistently developed in the21st century due to the expansion of internet based collaborative systems. This era of buyer and supplier relationship is characterized by value adding and cost reduction through integration. III. Globalization era This is the third era of buyer and supplier relationship in an increasingly competitive and sophisticated commercial environment. This era is characterized through considerations assigned to global systems in supplier relationships and expansion of supply chain across country bounders and into some other continents. The utilization of various global sources within the organization’s supply chain started several decades ago but it was in the late 1980s that many organizations started to integrate global sources into their core business. This era is therefore characterized by the globalization of the buyer and supplier relationship management in organizations with the aim of increasing their competitive advantage, value adding and reducing costs through global sourcing. IV. Specialization era-phase one: outsourced manufacturing and distribution Due to the increasing competitition in the 1990s industries looked forward for core competencies and therefore adopted a specialization model. During this era companies discarded vertical-integration, sold off operations which are not core and outsourced functions to some other companies. This resulted in extending the buyer supplier relationship well beyond company walls and distributing management across specialized buyers and suppliers. This transition resulted into each organization becoming brand owners that required deep insight into the supply base. Each organization required to control the intact supply-chain from above. The specialization-model for instance creates manufacturing-and-distribution networks made of many individual buyers and suppliers relationships specific to products, and suppliers, and the customers who labor together to plan, manufacture distribute, market, sell and service a product. During this stage the set of partners is expected to change according to different factors like; market, region or channel and this may result in a proliferation of trading partner environments, and each set will be expected to have its own unique characteristic and demands. V. Specialization Era—Phase two: buyer and supplier Management as a Service Specialization within the buyer and supplier relationship is believed to have started in the 1980s. This was as a result of beginning of transportation brokerage, management of warehouses, and non- asset-based carriers. This has now developed past transportation and the logistics into the aspects of supply planning, partnership, effecting and presentation management. During this era market forces would at any one time require changes from the suppliers, the logistics providers and customers and from whichever number among these particular participants like components of buyer and supplier networks. This will affect the buyer and supplier relationship starting the establishment layers of developing and the management of electronic-communication between the supplier and the buyer to other tasks like the processes as well as flows of work that are vital to the management the relationship itself. This era is important to companies on that it enables them to improve the competencies and gather the best partners to contribute to a value relationship. VI. Supply Chain Management 2 The era is marked by the use of World Wide Web which is used for information sharing, increase creativity and enhances collaboration between the buyer and the supplier. The core objective of this era is to bring everything on the Web so that it will be easy to get what is being sought by the trading parties (Burt, Dubler, Starling, 2000). The Web forms a mixture of processes, the methodologies, tools and the delivering options to direct companies towards their results quickly. This enhances speed in communication as order to avoid the effects of world competition, rapid price fluctuations, short products life cycle and expanded specialization. The overall competences of companies improve through chain supply specialization just the same way as in outsourcing manufacturing and distribution does. Chain supply- specialization drives companies to make focus on the core competence and assembles networks of definite, best partners to make contribution to the on the whole chain itself there fore improving the overall efficiency and performance. Supply-chain -specialization is becoming important to companies due to its ability to swiftly obtain and organize this specific chain-supply expertise exclusive of forming and maintenance of a completely unique as well as complex competency in house. The success of buyer and supplier relationship in a commercial environment heavily depends on integrating all the activities into a key chain process other than the activities being managed individually by the parties. For instance of an institution; the procuring department should place orders of the goods needed to be supplied. The marketing department of the institution should respond to the customer demand by communicating to distributers or retailers while at the same time try to determine the way to satisfy this demand. The marketing department communicates to many suppliers in order to determine the one to offer quality and cost effective goods. The best distributer who meets the conditions as prescribed by the institution is then allowed to supply the goods. Integration in buying and supplying involve working together for both the supplier and the buyer in many of the works including; joint product development, common systems and sharing information. A successful supply chain results from integration of activities rather than managing individual functions. The success of a company in the competitive business environment depends there on the company’s change from the traditional form of trade where the trading parties did not jointly involve in the supply chain to the buyer-supplier relationship where both parties actively gets involved in the supply chain. In such a supply chain information flow is viewed as an important aspect to enhance the efficiency. The results of an effective supply chain are characterized by; Internal and external collaboration, lead time reduction initiatives, tighter feedback from customer and market demand as well as customer level forecasting. Cooper and Lambert (2000) indicate that operating an integrated supply-chain needs a constant flow of information. Lambert uses seven procedures to illustrate how integration in supply chain management should be done: a) Customer service management process This refers to the relationship that any organization has with its customers. Customer service in any organization provide all the necessary information to the customer, it is at this stage that the customer gets to know of the commodity availability and information on the scheduling of the product. This is therefore an important stage for both the supplier and the buyer and it determines whether the buyer will agree to purchase the product at the organization or not. It is therefore advisable for a company to build a good customer relationship and this can be done by; establishing and maintaining customer rapport, showing positive feelings in the organization and the customer and by determining the mutually satisfying goals for the organizations and the customers. b) Procurement process This is the stage when the buyer orders a commodity from the supplier. Firms draw strategic plans to support the manufacturing flow management process and to help in the development of new products. During this procedure both the supplier and the buyer should get satisfaction during the development of the product in that not a lot of time is wasted and therefore firms that operate globally should have sourcing managed on global basis. The purchasing party is also expected to communicate on time to convey the message of requirement and can send details via electronic data interchange or internet. There is the need consider factors like; resource planning, supply sourcing, order placement inbound transportation storage in case of obtaining materials from outside supplier. c) Product development and commercialization This stage calls for the supplier and the customer to be integrated into this process of product development; this is important in order to reduce the time to the market. The appropriate product should be developed and launched successfully with the minimum time possible for it to remain competitive. Lambert and Cooper (2000), indicates that the managers of the product development must; work jointly with the customer relationship management to identify what the customer expects, coordinate with the procurement team to choose the materials and come up with the production technology in manufacturing and to integrate in the best supply chain flow for the product. d) Manufacturing flow management process This process needs to be flexible since it produces and supplies products based on past forecasts. This plays a rather significant role in responding to market changes and to accommodate mass customization. Improved responsiveness and efficiency in meeting the customers demand can be achieved by changes in the manufacturing flow that can lead to shorter cycles. Planning activities to be considered at this stage are; scheduling, supporting manufacturing operations, storage, handling transportation and inventory at the manufacturing site. e) Physical distribution After manufacturing stage the finished product is to be delivered to the buyer. The buyer receives the product from the final channel that is marketing. It is also at this stage that customer service is an important part to be exercised because it links the marketing channel and the buyer; it therefore determines if the buyer has appreciated the product and there fore the relationship between the parties can continue. f) Outsourcing/partnerships The company needs to subcontract or outsource some of its services to specialists who can do better, some of the services are, transport, warehousing and inventory control. Therefore there is the call for both central and local involvement in managing and controlling such a network of suppliers and logistics partners. The benefit of outsourcing to the company is that it considers the activities with more advantage in the supply chain to be done in-house and outsource the others. In the modern competitive commercial environment companies have recognized that they are able to some things better than others, these are their core competencies and that is what they concentrate on. They have also identified that there are some of their business they do well but some other company can do better and cheaper. The companies therefore utilizes the expertise of these companies through outsourcing and the main advantage is that companies do not make huge capital investment any time they invent a new product. These responsibilities are therefore outsourced to other organizations that have knowledge and capabilities to do the job (Axelsson, Frank& Finn 2005). The changes that have taken place in the competitive business environment have lead company’s to adopt this concept of supply chain management in order to compete with other companies. The relationship with the suppliers is therefore important and it depends upon the capacity of the purchasing-professional being able to preserve this relationship. g) Performance measurement Normally in buying and supplying relationship there is integration to the profitability and market share for the supplier and the buyer. Experts found out that there is strong correlation to the firm due to the supplier’s capability and a long supply chain perspective in the customer relationships. Logistics measurements therefore become important factor in creating and maintaining the competitive advantage in the business environment and therefore the difference between profitable and unprofitable operations become narrow. To determine this internal measure are collected and analyzed from a firm, they are cost, customer service, productivity measures, asset measurement, and uality. The existence of buyer and supplier relationship in competetitive commercial environment is supported by a broad theoretical perspective. For instance the resource-based view theory, according to this theory, firms achieves a competitive advantage that they try to sustain over time. The theory considers internal resources of a firm as strategically important in the creation of competitive advantages. Lavassani (2008) considers two assumptions of the resource-based view of the firm, first he assumes that there is a heterogeneous distribution of resources across firms and secondly there is the possibility of transferring these productive resources from firm to firm without incurring costs. The theory considers resources and capability as the two major components that cause competitive advantage in a sophisticated commercial environment. Resources include both tangible and the intangible goods in a firm which are finance, technology, knowledge and human resources. While as capability is defined as the dynamic routine that a firm acquires pertaining to is management capacity to improve the effectiveness and the performance of the firm. Therefore in order to develop and sustain a competitive advantage through capabilities the firms are required to fully exploit valuable, heterogeneous, rare, and inimitable resources. Firms assume that their inter-industry and intra-industry demand are heterogeneous and dynamic in order to emphasize on a market base economy. A comparison of resource advantages and identification of market positions of competitive advantage in some segments by firms help to achieve the firm’s financial performance (Dryer, 2000). Market segments in this case refers to groups of consumers whose tastes and preferences with regard to an industry’s out put are homogenous with each group but the same taste and preferences are heterogeneous across other groups in the same market . Dryer considers resources and market positions as the components of resource advantage theory. This theoretical model is composed of three parts, resources (independent), financial performance (dependent variable) and the market position which is considered as the mediator of the variables. In this model the resources are measured by comparative advantage, parity and comparative advantage, the market position is measured by competitive advantage, parity and comparative disadvantage, while the financial performance is measured by superiority, parity and inferiority. From this model firms get feedback to its operations through, financial performance, public policy, consumers and competitors. According to the feedback the firms can make efforts of managing existing resources or they can choose other ways to gain advantage either by, acquisition, imitation, substitution and product innovation. The theory therefore proposes that market and competition are heterogonous and static. The resource-based view theory explains business phenomena using business relationship. The business phenomena in this case include strategic alliance, inter-firm relationship, business group, inter-organizational linkages and buyer-supplier relationship. A good business relationship is an important tool to compete in the competitive commercial environment. To achieve this success organizational capability plays vital role. Combining requisite foreign and domestic resources can help firms to develop the capability in emerging economies. This combination has also helped to reduce production costs and increase the revenue base synergy and the overall firm performance. Capability to interact with other companies which is also called rational capability leads to knowledge access and transfer of relevant effects on the company growth and likelihood of innovation. The ability of firms to coordinate with their customers is also considered as an organizational capability, this leads to enhanced profit performance and help to realize competitive advantage over time. Firms should also make arrangements for direct involvement of activities among buyers and suppliers as this leads to performance improvement (Lavassani, Movahedi, Kumar, 2008). Human resources management by a firm is a major resource that enhances competitive advantage in a firm. Most firms develop human resource architecture in four employment modes which are: internal development, acquisition, contracting and alliance. Ongoing skill formation activities, spontaneous cooperation and tacit knowledge through intentional corporate behavior result to social architecture in human resource. Human resource management therefore helps to moderate relationships between strategy and performance in order to acquire the relevant competitive advantage in the commercial environment. Firms also acquire competitive advantage in the commercial environment by innovation. Innovation should apply to the technology whereby firms should apply modern technologies in the production processes and product development. Innovation in small firms can be marked by the characteristics of the owner and the manager and also the technological assets in use. The owners or the managers of firms determine resource accumulation and capability development. Capabilities should be integrated in a firm because it influences the products efficiency and effectiveness through the creation and utilization capabilities (Cox, Chris, Sanderson, 2004). Conclusion Buyer and supplier relationship should be in away that both parties participate fully in the supply chain if companies have to survive the modern competitive and sophisticated commercial environment. Companies that incorporate the trading parties in their operations like Toyota cited in the discussion have been found successful and able to survive the competitive world of business. This is different from the early days when the buyer was interested in buying products from any supplier at the lowest price possible without getting involved in the supply chain. Competitive advantage has forced companies to improve their performance through innovation to both the gods they manufacture and the technology they use in order retain their customers. Companies have also employed outsourcing as a way to improve their performance where by they specialize with the services they can undertake and outsource the rest to other firms that can perform better thereby widening their supply network. The trend of the buyer and supplier relationship in companies will continue by both parties participating in the supply network in order to face the market competition. References Axelsson, B, Frank R, Finn W 2005, Developing Sourcing Capabilities, West Sussex, John Wiley & Sons Ltd. Burt, D, Dubler, D, Starling, S 2000, World Class Supply Management, Seventh Edition, New Delhi, Tata McGraw-Hill Publishing. Ciferri, L.2007, “Toyota says it's open to 'any' supplier”, Automotive News Europe. http://search.ebscohost.com. Cooper, M, Lambert, D, & Pagh, J 2000, ‘Supply Chain Management: More Than a New Name for Logistics’. The International Journal of Logistics Management, 8, pp. 1–14. Cox, A, Chris L, Sanderson, G 2004, Business Relationships For Competitive Advantage, New York: Palgrave Macmillan. Dryer, J 2000, Collaborative Advantage: Winning Through Extended Enterprise Supplier Networks, Oxford, Oxford University Press. Harland, C1996, Supply Chain Management, Purchasing and Supply Management, Logistics, Vertical Integration, Materials Management and Supply Chain Dynamics, UK, Blackwell. Kaushik, K.D, Cooper, M 2000, Industrial Marketing Management, 29, pp 65–83. Lavassani, M, Movahedi, B, Kumar V 2008, Historical Developments in Theories of Supply Chain Management: The Case of B2b E-Marketplaces, Canada, Administrative Science Association of Canada (ASAC). Mentzer, J et al. 2001, ‘Defining Supply Chain Management’. Journal of Business Logistics, 22, 2, pp. 1–25. Read More