Chapter 9, Problem 1DQ

Summary Introduction

Interpretation:

The effect of supplier position and supplier preferencing model on plans of doing business for purchasing requirement.

Concept Introduction:

A supplier position model places the suppliers on a matrix based on supplier vulnerability and annual expenses. A supplier preference model places the suppliers on the matrix based on the supplier’s view on the attractiveness of the contract and the value of the business for a supplier.

Explanation of Solution

Under supplier position model, the purchasing manager decides how much a supplier is valuable for the organization.

Underthe supplier preference model, the purchasing manager considers how much the organization’s contract is valuable to the supplier. In the case of a large supplier, it may be that contract value is not attractive to the supplier and they may think that the maintenance cost of the contract is huge compared to the benefit and they don’t actually need the contract. In such cases,the supplier may exploit the contract or will not provide adequate customer service. Such suppliers will not be good for awarding contracts although they may be placed higher in the supplier position matrix.

There could be opposite cases also where a supplier is placed higher on the supplier preferencing matrix but lower on the supplier position matrix. This case is also avoidable.

Thus purchasing manager need to consider all factor based on the organizational need and finalize supplier for long term partnership and maximizing the company’s benefit.