Chapter 13 Managing Inter-Firm Relationships
In the private sector we are in the business of making as much money as possible to satisfy our
shareholders and increase firm profits. In the public sector it could be argued that we are in the
business of saving money. The business of procurement is the same: to achieve the best deal for
your organization.
Relationship management can be viewed from a variety of perspectives: from the level of the firm,
from the level of a particular project or group within and between firms, and of course, at the level
of the individual. When we consider the concept of inter-firm relationships we should think of all
three levels, and what’s more, not just between firms but also within firms.
We define relationships as processes, much the same as culture and communication.
Processes have several important properties – firstly, they require inputs in the shape of resources
and secondly, they will require an output. They also should have an outcome focus.
1
, Processes need to be viewed as both efficient (how quickly they are conducted) and effective (how
well they meet the strategic focus of the firm). To make a process efficient it is important to consider
the allocation of resources to the expected output. It is also important to make sure that the firm
had the requisite resources to manage the process.
Effectiveness means delivery to the strategic objectives of the ‘firm’, which in essence means making
sure that the relationships are business focused on a series of outcomes that are expected by both
parties within the relationship.
Naturally the cost of the resources will escalate depending on the complexity of the relationship
output. It is therefore important to realise that there is a cost-benefit analysis equation that will
need to be balanced when deciding on various relationship strategy approaches.
Interfirm business relationships: a set of complex business processes that require resource
allocation from the buyer and supplier to achieve a set of complex outputs. These outputs
and inputs may be asymmetrical depending on the desired outcomes for the buyer and
supplier. In addition, these relationships will be influenced by their respective external
environments and constrained by the parties’ strategies, goals and power mechanisms.
Successful relationship management has been demonstrated to lead to lower costs, higher quality,
greater product innovation, reduced risks and even enhanced market value.
Supply chain management (SCM): the integration of business processes from end user
through original suppliers that provides products, services and information that add value
for customers.
The literature takes three distinct themes:
1. Specific strategies employed by the Purchasing function
2. Purchasing’s role within those strategies
3. Purchasing as a strategic function within the firm
The overall consensus is that supply should be seen as ‘strategic’, as integral to the decision-making
mechanisms of the firm, although more rigorous empirical work is required. It is widely agreed that
the involvement of Purchasing in a strategic context can enhance a company’s financial performance
and improve the firm’s overall competitive position.
Regulating the relationship is an integral component of managing sourcing strategies. This discourse
clearly shows that there is a variety of ways of viewing relationship management; however, the key
question appears to remain the same: how should a firm organise to manage its complex
relationships?
Whilst this question sounds very simple, the answer to it is in fact very complex. This complexity is in
part caused by the fact that relationship strategies are only one dimension of a much more
sophisticated management system. The management of business relationships must be considered
in conjunction with other elements of the supply process.
Firms that are cost focused will require the supply activity to deliver a range of business and
marketing benefits that will put the firm into a stronger cost management position (i.e. savings). The
key focus for the firm has to be on competing based on cost reduction.
2
In the private sector we are in the business of making as much money as possible to satisfy our
shareholders and increase firm profits. In the public sector it could be argued that we are in the
business of saving money. The business of procurement is the same: to achieve the best deal for
your organization.
Relationship management can be viewed from a variety of perspectives: from the level of the firm,
from the level of a particular project or group within and between firms, and of course, at the level
of the individual. When we consider the concept of inter-firm relationships we should think of all
three levels, and what’s more, not just between firms but also within firms.
We define relationships as processes, much the same as culture and communication.
Processes have several important properties – firstly, they require inputs in the shape of resources
and secondly, they will require an output. They also should have an outcome focus.
1
, Processes need to be viewed as both efficient (how quickly they are conducted) and effective (how
well they meet the strategic focus of the firm). To make a process efficient it is important to consider
the allocation of resources to the expected output. It is also important to make sure that the firm
had the requisite resources to manage the process.
Effectiveness means delivery to the strategic objectives of the ‘firm’, which in essence means making
sure that the relationships are business focused on a series of outcomes that are expected by both
parties within the relationship.
Naturally the cost of the resources will escalate depending on the complexity of the relationship
output. It is therefore important to realise that there is a cost-benefit analysis equation that will
need to be balanced when deciding on various relationship strategy approaches.
Interfirm business relationships: a set of complex business processes that require resource
allocation from the buyer and supplier to achieve a set of complex outputs. These outputs
and inputs may be asymmetrical depending on the desired outcomes for the buyer and
supplier. In addition, these relationships will be influenced by their respective external
environments and constrained by the parties’ strategies, goals and power mechanisms.
Successful relationship management has been demonstrated to lead to lower costs, higher quality,
greater product innovation, reduced risks and even enhanced market value.
Supply chain management (SCM): the integration of business processes from end user
through original suppliers that provides products, services and information that add value
for customers.
The literature takes three distinct themes:
1. Specific strategies employed by the Purchasing function
2. Purchasing’s role within those strategies
3. Purchasing as a strategic function within the firm
The overall consensus is that supply should be seen as ‘strategic’, as integral to the decision-making
mechanisms of the firm, although more rigorous empirical work is required. It is widely agreed that
the involvement of Purchasing in a strategic context can enhance a company’s financial performance
and improve the firm’s overall competitive position.
Regulating the relationship is an integral component of managing sourcing strategies. This discourse
clearly shows that there is a variety of ways of viewing relationship management; however, the key
question appears to remain the same: how should a firm organise to manage its complex
relationships?
Whilst this question sounds very simple, the answer to it is in fact very complex. This complexity is in
part caused by the fact that relationship strategies are only one dimension of a much more
sophisticated management system. The management of business relationships must be considered
in conjunction with other elements of the supply process.
Firms that are cost focused will require the supply activity to deliver a range of business and
marketing benefits that will put the firm into a stronger cost management position (i.e. savings). The
key focus for the firm has to be on competing based on cost reduction.
2
