Discuss the development of the buyer/supplier relationship in an increasingly competitive and sophisticated commercial environment. Consider current and future business trends illustrating your discussion with relevant cases or examples. In your paper include a critical review of contracting/tendering framework and key aspects of the negotiating process in organisation(s) and/or industry sector(s) with which you are familiar.
Budget and Commercial Management
Budget is defined as monetary plan for a set define time interval, generally a year. It includes the sales volume and revenues generated, acquisition of resources, occurrence of cost in addition to expenses, valuation of various asset, liabilities as well as cash flows (Blumentritt, 2006). It is used prepared by many users for the fulfilment of their varied interest and develop deliberate plan of activities or events. However, it may also be said as allocation of money for a definite purpose and the brief summary covering the intended expenditures. Whereas, Commercial management is the development and recognition of available business opportunities and drawing of profits from the stage of inception till completion. It is applied at policy level. The policies are laid down which govern the rules or practices to be followed in realistic terms in both internal and external environment.
The commercial environment is moving on high pace in terms of competition. The market dominates by increasing number of buyers and sellers for a particular product. This outcome has brought down significant change in the buyer and supplier relationship with the passage of time. The choices, demand and preferences of buyers are paid due concern. In this kind of highly competitive environment, sellers usually do not engage in price war instead focus upon the quality to be served i.e. value addition. Building up of good relationship with the targeted buyers is the crucial focus after profit. Buyers enjoy the privilege of choosing from wide array of suppliers distinguishing the identity. The demand from buyers involves definite proportion of quality at reasonable price. In order to remain competitive in long run and generate profit without halts, continuous innovative measures are required so that it could yield better results (Tanskanen & Aminoff, 2015). Hence, capturing huge market share by building strong relationship with buyers. This report emphasizes upon the fact that buyer and supplier relationship undergoes many phases in highly erudite and modest business environment.
During the past era, managers have increased the attention on studying the dimensions governing the relationship of buyer and seller in competitive market. The increased number of buyers and sellers have given the rise to alternatives. The manufacturing business has become highly pigeonholed by vertical specialisation which states that not only the purchase quantity is increased instead grown more complex as well (Dekker, Fleischmann, Inderfurth & van Wassenhove, 2013).As a result, there has been a significant impact on buyer supplier relationship as the purchasing firms analysed that suppliers impact could steadily affect the competitive position and success.
Buyer and Supplier Relationship in a Competitive Environment
The strategy of durable transaction investment which is specific in nature is considered one of the major outcome of aforesaid relationship. The timely adaption is the prerequisite for the continuity of business. The relationship between buyers and sellers covers various parameters such as product delivery, price negotiation and social meeting (Joseph & William, 1999). The flow of relationship have the effect from various internal and external rivalry forces. In order to characterise the relationship the below mentioned path of development unfolds.
In the foremost initial stage, buyers do not prefer to be engage in transactions of high risk with suppliers. Moreover, defendants indicated that factors like reliability and competence are considered in context of suppliers before entering into partnership. It is mainly compelled by the cooperative efforts on the end of logistics. Suppliers tend to be in partnership if manufacturing process are in close relation with the buyer’s processes and requirements. The logistic consistency should be high of supplier. It should match the delivery of agreement on right time along with right quality and quantity. The emphasis is laid on price competitiveness prevailing among suppliers. The dominating group here forms of buyers and formulation of adversarial attitude. The final selection among supplier is on grounds of competitive bid and usually contracts are of short term.
At this time purchasers interact with potential suppliers regarding negotiating or needed specification. Suppliers also grant sample delivery to its regular buyers and even discounts are availed on repetitive purchase. Supplier also become premeditated resource in the process of designing. Because of the relationship grown, buyers perceive that the relationship is constituting minimum risk to the firm (Raškovi? & Mörec, 2013). This stage have further classification
Experience: During this stage, the parties involved get limited view of the necessities required by other party.
Uncertainty: At the time of uncertainty, investment is made in human resource which have the repercussion on fluctuating future cost and evaluation of potential rewards.
Commitment: Both the parties to the contract are committed on the part for degree of risk involved. The resulting evidence on the grounds of judgment in context of partner’s commitment is nil.
Distance: The efforts are directed towards minimisation of distance amidst the parties.
The contribution of the suppliers towards competitive position results in consideration of the former as actual deliberate partners. The partnership of this nature is completely technology driven in as well as aims at optimisation of design. The supply partners should deliver the quality of world class, high performing and alert on economic grounds (Nagati & Rebolledo, 2013). The benchmark should be meet on satisfactory performance of price. The style followed is collaborative one. The key factors contribute to be mutual trust, commitment and transparency in flow of information which implies high risk. Howsoever, the benefits driven later are commendable and valuable for parties.
Stages of Buyer and Supplier Relationship
At this phase, the buyer is dissatisfied with the services and performance delivered by supplier. The latter is believed to be unsuccessful in maintaining the relationship which shows lack of obligation and adaptive conduct. The key concern arises up is suppliers do not work for mutual growth and co development anymore which was agreed previously. The interest of both the parties are no more in parallel ways. Hence, therefore arises the switching cost and investment which are relation specific. This results in locked partnership because the supplier are performing low and showcasing poor attitude towards laid partnership.
This is the last enduring stage of partnership. It is the outcome of unacceptable and inveterate nature of supplier’s performance. The relationship now experience the terminal stage. Meanwhile, buyers will invest the time and resources in the findings of alternative solution so that the present undesirable situation can be eliminated. The partnership deed can be terminated only in the case where buyers seek for remedies in the locked up situation (Pauliina & Hanna, 2018). Some of the remedies are less complexion of product, search for alternatives and initiative towards development of suppliers.
The importance of justifying supply risk have been emphasized by the impact and dimensions of international events. Suppliers tend to gain the leverage by the exclusive and preferential supplier agreement. In this preconceived world of buyers, this approach focus upon repossessing the expertise within the suppliers so that it could help in expansion and innovation of a newly embedded market. The new entrants in the market looks for the supplier with best of quality served in relation with price and holds a goodwill in the respective zone.
This process is expected to become more complex in nature because of the rate of increasing competition along with product differentiation at global level. In future, the pricing techniques is anticipated to yield higher amount of transparency as a result of growing online communities and interchange networks. These networks are responding collaboration of much more effectiveness (Schneider & Spieth, 2013). The up gradation in technology has occasioned faster and secure gateways to collaboration which will definitely leave its foot trace in the change of relationship.
Procurement is defined as the process of finding, acquiring goods and services from an external source generally through the process of competitive bidding and tendering (Kelvin, 2010). The major focus is granted towards the fact that buyers receives products at reasonable price, quality, quantity and location desired. Acquisition covers a wider concept and usually spans the complete life cycle of assimilated systems. The major factors include design, conceptualization, testing, manufacturing, contracting, adaptions, logistics support along with supplies and services supportive in the defined mission (Rushton, Croucher & Baker, 2014). This summarises the set series of phase where technology is matured and defined into concepts. Therefore, it assist in the determination of the manner which will further allow for the timely delivery of product and within reasonable budget.
Impact of Supplier on Competitive Position
In the procurement management, logical order is commonly followed. A set defined plan of action is formulated which states the order of contract and then displays the channels and method of executing it. The details of the aforesaid requirement are passed onto the supplier’s, thereafter arising the bids from the supplier’s side. The bid which serves the best of interest is finalised and parties enter into contract on legal terms (Qrunfleh & Tarafdar, 2014). After the contract is signed, buyer monitors regularly the process of work so that the needed specification could be made appropriately. On the completion of work, contract comes to end.
The management of materials takes into account campus planning in addition with design building for free flow of materials as a tangible component in supply chain. The material management consist of broaden framework which includes activities for the coordination of finding, buying, planning, storing, moving and regulating materials in prerequisite manner so that the benefits of buying at lower cost could be realised. For the uninterrupted production, the need is for the continuous supply of materials required for production. In the event of non-occurrence of above, it can lead to frequent breakage of halts, shortage in quantity produced, premium freights etc. (Heizer, 2016).On the parallel end, resource management is systematic acquisition of resources so that they can be used in an efficient and effective manner. Some in this may include production resources, financial resources, inventory, information technology or set human skills (Marler & Fisher, 2013). Planning is the foremost specification which play a significant role in management of resources so that right task could be profited by right resources. The techniques involved for such management includes budgeting and preparation of schedule for the interest of various people.
Furthermore, it includes the outline of information as well as communiqué technology which plays strategic role in leveraging and supplementing resources and materials. The records are kept in order to prevent any occurrence of errors or frauds. It also initiates in keeping overall transparency within the system. The measurement of performance through technology and varied techniques helps in evaluating the human skills and resources of production, hence contributing towards efficiency.
The broaden view demonstrates that relationship between buyers and supplier is the victim of many legal prospectus. It may prove to be unjustified for the parties when the contract is biased one. This serene is the outcome of benefits affecting party of one side. Some of the frequently occurred issues are legal complication of contract time period, renewal and termination of contract, conjoint bonds, sealed in period, affective obligation and various other terms and conditions (Bai, Sheng & Li, 2016). The professionals in this industry face hard core problems in dealing with ethical and community responsible issue in addition to the absence of ethical codes and practices.
Justifying Supply Risk
Moreover, in the event of occurrence of an unexpected event the contract may even come to an end which further leads to defending the party from the raised obligation. The decision for termination of contract may even be on mutual grounds i.e. by the voluntary means. The contract is also dismissed when there is breach of contract that is the obligations which were supposed to be fulfilled, were not realised in realistic terms. The biased terms and circumstances may affect the smooth functioning, therefore generating the environment of distrust and fraudulent activities.
The degree of risk for buyer is also at great pace which is realised at later stage. Outwardly, for the minimization of risk certain activities needs to be implemented which include timely delivery, ethical code of conduct, title passing, terms and conditions of payment, rejection, quality check, insurance in event of loss etc. (Wagner & Bode, 2014). The mutual agreement should be signed after consideration of above specification.
Framework agreements are basically the arrangements between buyers and suppliers which forecasts the terms leading towards the established contract for a certain amount of time interval, in particular to price and quality envisaged. The place of delivery of goods may also be included in above context. Generally named as master ordering or blank purchase agreement. These agreements are intended to provide commonly used prompt ordering such as low price purchase and off the shelf properties (Lewis, 2015). Examples include stationery, supplies of printing and pharmaceutical etc.
Now a days, framework agreements are gaining momentum in the manufacturing establishment wherein the procuring of required materials from suppliers takes place so that the initiative for the methodology of manufacturing could be started early. It however facilitates the perks and discounts of bulk purchasing. These agreement eventually save the cost and time of sourcing process as the repetitive negotiation are avoided, instead standardisation is implemented. In the long run, it contribute towards improved relationship between the parties with the prospective of delivering customized solutions. Buyers prefer long term relationship with the suppliers, which in turn creates more conducive commercial environment reducing waste and resources. The companies implementing the framework agreement have shown tremendous upstroke up to 10% of improvement in regards of cost and time. The further enhancement consist of e purchasing systems (Khorana, Ferguson?Boucher & Kerr, 2015).
Negotiation is termed as the process where buyers and supplier put forward the conditions on a common platform for entering into a mutual agreement before the final signing of contract. It refers to availment on discount on the major complexities of capital purchase made. The outcome are reflected in finalisation of deals at best price and best conditions. The companies look forward for minimisation of expenditure in addition to the increase in purchasing power (Rhode, Schönbohm & Vliet, 2014). The bid for negotiation takes into consideration increased quality and service.
Future of Pricing Techniques
Formerly, companies used to invest limited time on negotiating the least possible price (Ribbink & Grimm, 2014). The only solution left was comparative assessment of list of prices from different suppliers catalogues and decision were based on the presented information. This trend has been modified and rationalize by the supplier’s base, hence entering into contracts of long term with single sourcing. As a result, this cut down the searching and purchasing cost raised from separate vendors. The negotiated contracts have proved as more of partnership between buyers and suppliers. The gateways of mutual interest are applied and promoted which ensure guaranteed sales in long run. The representative of purchasing staff should enter into negotiations with well-defined objectives. It increase the possibility of significantly raising price, service and quality. However, the objectives should have some flexibility and not absolute. Negotiation is the easiest way undertaken for the goals of redefining the relationship between the parties to contract. The equation of power is composed and strategic partnership is stimulated.
The non-government department prefers to offer a diversified range of vendors a request for quotation (RFQ) in the areas of good and services which is subjected to purchase (CME, 2018). Thereafter, the evaluation is made among the bid prices and conditions, leading to final decision. The vendor and purchasing department negotiates on other aspects than price, which includes the specification of product and services to be extended like for say warranty, technical assistance, transportation services, payment plan and alternative packaging style etc. The items of higher cost requires extended benefits at several stages. The staff or professionals are required to be trained in this process of bargaining as it is prominent content of prevailing economic climate.
The below mentioned are principles of negotiation in addition to their specified application
Research of the other party
The prior research is must before entering into process of negotiation. The opposite parties interest, individual background and the committee beforehand should be carefully scrutinized (Rubin & Brown, 2013).
Consideration of alternatives
Due consideration should be paid to the outlining of available alternatives. This will eventually protect the buyer from accepting the offer of poor interest and value, hence building up stronger negotiating position (Geneletti, 2014).
Unbundling of items to be negotiated
The distribution of items into smaller parts in the order of their preference and value say for e.g. compensation could break down into variables like salary, bonuses, health benefits, reimbursed expenses such as fuel and cell phone. This tactic helps in covering every minute specification which could affect in every possible way (Lagace, 2006).
Anticipation of need and wants of other party
The top issues of other party to contract are likely to be considered. This in turn helps in strategizing the route map to be followed for the negotiating activity so that the latter could have upper hand. The negotiation becomes easier because of the fact that values of the other party are clearly known.
Establishment of bargaining range and leveraging points
Setting of an optimistic, minimum and targeted goal is must. The range should have the extension from low to high wherein at least point the chances of not entering into contract and vice versa. The starting point is optimum and target denotes the end point after negotiations.
The areas of not much interest should be given upon as leverage in order to negotiate for the priorities (Glozman, Barak-Corren & Yaniv, 2015). Both the parties have diversified interest associated with, hence the least important should be kept at stake for the gaining of vital areas of immense value.
The examination of the importance and use of budgeting and control measures in the organisation highly conclude that it is of indispensable source for any organisation to prepare the outlining of budget as it further helps in decreased cost and increased profit generation. The relationship of buyer and seller is affected by numerous rivalry forces starting from birth till death of partnership. This report has shed light upon the acquisition and procurement of management process in context with relevant strategies. The degree of complexities of the relationship between the parties to contract is never ending area , yet the grounds of mutual interest, trust and benefit are favoured so that the proceedings carries in ethical manner and safeguarded by the code of conduct and policies underlying.
The negotiation process results in long term and transparent relationship between the parties. Also the contracts entered have fair view of price, quality and quantity. The decision maker or representative of negotiation process should take into consideration the key areas mentioned above. Some other dimensions include conveying of confidence, putting forward open ended questions, proper listening and reaffirm comments, using of leverages, reach closure, non-issuance of ultimatum and weightage to clues which are nonverbal in nature. The relationship between the supplier and buyer keeps on building in between of entering into contract till termination
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