Neterama is engaged in the manufacture and supply of mobile and fixed communications networks. The company is based in Australia and has two manufacturing plants, one in Sydney and other in Adelaide. Over the past two years there have been financial pressures on the company due to the wash-up from the global financial crisis. This has led to weaker markets in which the company operates and reduced revenues. The Chief Executive Officer has addressed this with a revised strategy aimed at improving the profitability and performance of the company.

You are the newly appointed Purchasing Manager and have been asked to submit a paper to the next Company Board Meeting.

You begin to reflect on how suppliers are currently managed and decide to put your thoughts into list. These are:

a) There are no formal partnerships in place with any suppliers.

b) All key items are duel sourced for supply security.

c) All key items are tendered at least twice a year.

d) Reverse auctions have been introduced.

e) Generally relationships with suppliers are "adversarial".

f) Benchmarking shows that purchase prices are competitive.

g) When a supplier delivers late on three occasions they are dropped.

h) Supplier meetings only take place when there is a problem.

i) Technical staff do not trust suppliers enough to be open with them about Neterama's technological ideas.

j) No supplier contracts commit to quantities.

k) Payments to suppliers have recently been moved from 30 days to 90 days without consultation.

l) Some products previously that were contracted out for manufacture have been brought in-house to ensure that the company's production staff are gainfully employed.

m) The company has threatened to move purchases to China and India.

n) The general business stance is to keep suppliers "on their toes" using a variety of tactics, including threats to force prices to drop by six percent in the next six months.

You decide to meet your four Chief Buyers and share your thoughts. At the same time you will produce a response for the CEO. There are obviously opportunities to change many practices, but which and how?

Requirements

1. What are the issues related to the way purchasing is currently carried out in the company and what are the likely consequences? To answer this question you should address each of the items in your list a) to n) above. Note that some company board members are not familiar with the purchasing/procurement area and sufficient explanation should be provided for them to grasp the ideas and concepts e.g. ideas and terms like "tendering" "reverse auctions" "formal partnership" require to be explained briefly.

2. How can supplier relationships be improved?

3. What financial benefits will accrue?

4. Explain how an effective supplier relationship strategy should be developed?