Introduction
In today’s contemporary world, business environment is quite competitive and more sophisticated than it was in the twentieth century. Successful business organisations need strong external relations to gain competitive advantage. Various foreign relations that are attached to enterprises should always be good for the success of enterprises.
However, supplier and buyer relationship is the most essential as it comprises all factors that determine the success of a company’s external relationship. The relationship falls in the docket of an enterprise’s procurer who studies supplier relations and ensures that a business contributes to the growth of vendor’s enterprise as well.
Such mutual growth portrays the contribution of procurement manager in company’s growth. On the other hand, supplier studies the buyer’s market and ensures an excellent relation for mutual benefits in their engagements.
Buyer/Supplier Relationship
In business environment, buyers have various definitions depending on the nature of their businesses in relation to target customers and intended purposes of goods or services. Businesses may acquire products and services and sell them straight to consumers. Such businesses are known as retail enterprises.
Alternatively, they can supply products to other businesses. In such a case they are referred to as distributors. In addition, companies may acquire products from suppliers for the purpose of converting them into other final products. In that case, the companies are referred to as manufacturers.
In all these cases, suppliers have a constant definition. A supplier is defined as seller of products or services to businesses regardless of what enterprises intend to do after acquiring the merchandises (Gebert, 2013).
Both buyers and suppliers have individual needs that determine the nature of their relationship. Customers need reliable suppliers for them to run their businesses without interruptions due to shortage of requisite goods and services.
A company hardly earns supplier’s reliability because there are some technicalities involved before a good relationship is realised (Gebert, 2013). Both buyer and supplier need to understand the nature of each other’s business and the reputation that each has to the public.
Successful enterprises have reliable suppliers. The enterprises do not run short of goods and services even when they are under difficult situations. Suppliers play a significant role in issuing good and services on credit because of the trust they have for each other.
A buyer takes time to study suppliers before making the first move. Gebert (2013) allege that a potential supplier has to meet buyer’s requirements before the two get into serious business. A buyer has confidence in suppliers who have been in business for a long time and nurtured a good reputation.
A business does not earn a good reputation easily. Hence, a good reputation acts as an assurance of a trustworthy supplier to the company. Consumers praise their merchants if they realise that the merchants are conscious of their wellbeing in terms of quality, price, and availability of goods and services.
Therefore, a buyer needs a supplier who offers high-quality products and services. The majority of the world’s businesses fail because of ignoring the quality of products and services they provide to their customers. Consumers focus more on quality than anything else that a product or service comprises.
Quality determines the value of customer’s money as it guarantees satisfaction. Many consumers are willing to purchase expensive goods and services in pursuit of quality. They only go for low-quality products when they experience financial difficulties.
Businesses that sell inferior goods and services suffer from bad reputation (Turner, 2011). Hence, buyers mind about the quality of their goods and services. Failure to consider the quality of supplier’s goods and services can have adverse effects on a company’s reputation.
Acquiring substandard products and services and distributing them to other firms or consumers may affect a business negatively. Such a mistake makes buyers to shift their focus to other suppliers.
Additionally, a buyer looks for a supplier who offers goods and services at reasonable prices. Pricing is a complex process because it involves considering various factors such as quality, market price, nature of the business environment, and nature of target customers among others (Turner, 2011).
Hence, a buyer goes for suppliers who offer reasonable prices relative to the above factors. They do not go for the least prices offered. Failure to review pricing factors can make a buyer go for cheap suppliers who guarantee maximum profit but offer substandard goods and services.
In addition, a buyer looks for a supplier who cannot fail his/her business due to lack of goods. A reliable supplier produces goods in large quantities and waits for orders from buyers rather than taking orders and then manufacturing products.
However, this works in cases where buyers require stocking their stores before looking for customers. Therefore, buyers prefer to work with suppliers who guarantee regular and timely supply of goods and services.
Buyers are attracted to suppliers who meet the requirements mentioned above. They are assured of a good relationship in future (Turner, 2011).
On the other hand, suppliers have requirements that promising buyers should meet for the two to have a good relationship. Supplier study buyers’ enterprises to determine if they can do business. In this case, suppliers view buyers as potential markets for their products and services.
Hence, they contribute to the growth of suppliers’ market share (Turner, 2011). Suppliers would wish to do business with buyers who have ready market for products.
They motivate the suppliers and encourage them to remain in business. Moreover, they make suppliers to ensure that their products are readily available whenever the buyers orders for them.
In case of Buyers who purchase goods from suppliers for manufacturing purposes, the suppliers have confidence in buyers who manufacture quality and fast moving products. Suppliers view the buyers as ready market for their products.
Manufacturers who produce substandard products can quickly deteriorate a supplier’s business because to low demand of their products. Therefore, they are not reliable markets for supplier (Turner, 2011).
There are numerous factors that buyers should meet in a bid to have a viable relationship with suppliers. The factors include have a promising business in terms of market size, reputation and financial position.
A supplier trusts buyers with large market sizes for his/ her products. In case a buyer is a distributor, a supplier demands that he/she must have ready market for distribution. The quantity of products being ordered and sold at a given period determines the market size of a distributor.
A supplier’s business needs to have a significant market share for it to thrive (Turner, 2011). Consequently, a supplier prefers distributors who assist to maintain and increase the market share. For instance, Coca-Cola Company is the world’s largest supplier of carbonated soft drinks.
The company has a large number of distributors worldwide who are responsible of marketing its products. Although the company invests heavily in product promotion and advertising, its success relies heavily on reliability on its distributors.
They are in a good position to retain and increase market share in their distribution duties. Distributors meet new customers, thus helping Coca-Cola Company to increase its market share.
Apart from depending on buyers and distributors, suppliers do marketing in an effort to sell their products and services and grow the market share, which are key determinants of business’s performance in today’s competitive world. Hence, suppliers cannot depend on distributors to have a guaranteed market share.
Instead, they have a duty to carry out product promotion and ensure that distributors add value in terms of retaining and increasing the market share (Turner, 2011). In addition, suppliers should not rely on distributors who also deal with competitors’ products.
Instead, they should work hard to acquire distributors who can help to market their products only. Coca-Cola Company has acquired a big market share due to dealing with distributors who market its products only.
Suppliers have confidence in buyers whose businesses have excellent reputation. A good reputation acts as a guaranteed market share since consumers are attracted to companies that have superior reputations. It ensures mutual benefit between suppliers and buyers.
Buyers and suppliers collaborate to ensure that their products sell. A procurement manager plays a significant role in ensuring that a company deals with trustworthy customers. There are instances when suppliers have multiple orders. In such circumstances it is worth to prioritize requests from the most to least trusted buyer to establish a long-term relationship.
Moreover, suppliers have great confidence in buyers whose businesses are in good financial positions. Enterprises exist for purpose of making profit. Therefore, they rely on buyers who are capable of clearing their credits upon delivery of products and services.
Suppliers count on buyers who clear their credits promptly and have promising businesses as far as their financial positions are concerned (Turner, 2011). In some instances, suppliers issue goods to buyers on credit and allow them to continue with their business and pay at a later date.
In such cases, suppliers consider credit worthiness of buyers in terms of market share and size of business. The two features guarantee that the buyers are capable of settling the credit without risking financial position of the suppliers (World Bank, 2015).
Therefore, a lasting relationship between buyers and suppliers is determined by the trust that the two have for each other after consideration of the aforementioned requirements, which each party has to meet.
Contracting/Tendering Framework
Contracting/ tendering framework refers to a business structure where a buyer/client outsources goods and services from a supplier/contractor. A client is assumed to have no past relationship with a contractor (Uher & Davenport, 2009).
Therefore, a client invites interested contractors to tender application after advertising goods and services that are in tendering process. The applicants are supposed to be conversant with the contracts that they are likely to be awarded. Applicants should demonstrate that they can deliver goods or services without problems.
Besides, they should be willing to sign and commit to a legal agreement that guarantees the success of a contract (Uher & Davenport, 2009). A client feels assured of quality services and timely delivery of products once they enter into a contract agreement with a contractor.
Failure to deliver as per the agreement may prompt a client to file litigation for compensation.
Contracting/ tendering framework is important for business growth and development. There are numerous services that are required for a business to develop. In some cases, an enterprise may lack expertise to offer services. Hence, it may outsource the services to other companies or individuals with requisite skills.
Additionally, a company may opt to outsource services as a strategy to reduce operation costs. Outsourcing process involves two parties.
It involves a client and a contractor whereby the client needs the contractor’s services in terms of expertise, manpower, and machineries required to create a product or infrastructure necessary for the development of the business (Uher & Davenport, 2009).
A client draws the attention of a contractor by advertising for tendering process. The advertisement contains relevant information needed for selection of potential contractors. Besides, it outlines all the requirements that interested contractors should meet for them to qualify.
Upon seeing the advertisement, a contractor reacts to it by evaluating his or her ability to finish the project by utilising necessary resources. The contractor assesses the complexity of the task and evaluates his/her ability to accomplish the mission by mobilising necessary resources.
Besides, a contractor weighs if s/he can complete the task on time. However, there are some ambitious contractors who bid for complex contracts, which later overwhelm them leading to subcontracting. Such bids are unlawful and punishable by the law.
Hence, it is mandatory that a contractor bids for the projects that s/he can finish easily without compromising quality or exceeding the given timeline.
After contractor realises that a project is within his/her ability to execute and complete within the given time, it is important to do budgeting. Budgeting plays a significant role in decision making. It helps a contract to project returns from the project. One should not bid for a project that does not yield substantial returns.
Budgeting is the most complex part of a tendering framework. A contractor has to consider all relevant factors that a project entails and price them. Every project has constraints that a project manage needs to examine.
The constraints have to be considered so as to have a budget that does not put a contractor into financial risk in the course of a project. A contractor should have a higher budget that can cushion business against risks than have a low budget intended to appease clients and put a business at risk (Uher & Davenport, 2009).
In most cases, clients do not go for the lowest bidders because they are presumed to have less expertise and not qualified for the project. Interestingly, such bidders are viewed as less confident of their ability to complete a contract. Thus, clients avoid them because they are considered as a high risk to the business.
On the other hand, there are numerous factors that a client needs to consider when awarding a tender. The factors are double-edged since they affect both the client and the contractor. They include finance, time, and legality of the project. Finance is a crucial element in the success of a project.
Hence, clients need to consider financial position of a contractor before signing a contract agreement (Lowe, 2013). Clients need to budget for a project before advertising for tender applications. The budget is used as a tool for determining the most successful tender applicant.
A successful bidder has to have a bid price that is within the allocated budget. Hence, finance is a key negotiating instrument for contract between client and contractor.
In addition, a contractor should have adequate financial resources to facilitate the success of a project. Project requires reliable expertise and machineries. Consequently, it is worthy for a contractor to invest in reliable knowledge and machineries before getting into contract with a client (Uher & Davenport, 2009).
In many circumstances, clients demand that a project kicks off immediately after contract agreement. As a result, contractors do not have enough time to source for funds to finance the project.
In other circumstances, clients may delay to pay for projects. Therefore, contractors should prepare for such eventualities long before the contract agreement (Lowe, 2013).
Time is an essential factor in contract agreement between a client and a contractor. A project has to be finished on time as this is the only way to guarantee good relationship between a client and a contractor. A client estimates the duration that a project is expected to take.
Therefore, a contractor who wins the tender must assess his/her ability to complete the project within the given time before committing him/herself to the pact. A contractor also uses the given timeframe as a basis for determining the complexity of the project (Lowe, 2013).
Besides, a contractor uses it to assess financial position of the client. Complex projects take long time to finish and require high budget allocations.
Lastly, clients and contractor have to sign legal agreements to guarantee smooth discharge of a project. Legal requirements should be considered before signing a contract agreement between the two parties. Failure to go through the requirements may put a contractor at risk.
The legal bindings require a contractor to finish a project within a specified timeframe. Thus, a contractor needs to gauge his/her capacity to complete the project before the deadline elapses. In addition, a contractor is required to ensure that s/he completes the project by utilising financial resources that are within the quoted bid price.
Hence, a contractor needs to ensure that the bid price does not put his/her business at risk once they sign a contract agreement. There are exceptional conditions where a client may come up with new requirements, thus needing more money. Such circumstances are addressed outside the legal agreement.
The legal agreement defines the beginning of a project as the time when both parties sign a contract agreement. Additionally, it defines the end of a contract as the time when a customer signs a contract agreement to signify that s/he is satisfied with the contractor’s job (International Association for Contract and Commercial Management, 2011).
Conclusion
In conclusion, the success of a business is depends on the reliability of trade relations. The relations take the form of buyer/supplier relations whereby the two have individual requirements that each must meet for them to have a lasting rapport. Contracting/tendering framework works in similar way like buyer/supplier relationship.
Clients and contractors get into contract agreement and are legally bound as long as the contract is on-going.
References
Gebert, K. (2013). Performance control in buyer-supplier relationships: The design and use of formal management control systems. Oxford: Springer Science & Business Media Publishers.
International Association for Contract and Commercial Management, (2011). Contract and commercial management -The operational guide. Amsterdam: Van Haren.
Lowe, D. (2013). Commercial management: Theory and practice. London: Wiley Publishers.
Turner, R. (2011). Supply management and procurement: From the basics to best-in-class. New York: J. Ross Publishing.
Uher, T. & Davenport, P. (2009). Fundamentals of building contract management. Los Angeles: UNSW Press.
World Bank, (2015). The World Bank Group and public procurement: An independent evaluation. Washington D.C.: World Bank Publications.