Supply chain integration – as the relationship with the supplier’s increases, buyers understanding regarding the suppliers business, services and product increases. The supplier also develops an understanding of the need of the customers. It allows the parties concerned to explore areas for consolidating existing products, as well services. It also helps in the potential addition of new products.
Outsourcing – Relationship with committed suppliers can render capability to organizations in outsourcing uncritical activities, allowing the buyers to harness the specific product, along with reducing the internal workloads and increasing the efficiencies.
For buyers, integration allows for reduced supplier numbers, creation for more streamlined and efficient supply chain. This helps in reducing internal loads and costs while enabling increased opportunity to minimize cost through scale’s economy . It requires accurate weighting of the cost predictability against the length of the contract and its volumes along with the procured material to the organization. For many firms, it is important to establish the volume of volatility that can be absorbed. The reverse is sometimes also true for the supplier, as it will allow the supplier to commit for more modest pricing models, usually for a long time contracts, to minimize the risk and also exposure. By taking the margins and interest into account, the profitability of the business can be ensured. A policy of open book and negotiated margin are ideal conclusion to allow the both parties to reap the benefit from the up and down in pricing.