Chapter 5 Purchasing and Supply Strategy

Slide 5.
Chapter 5
Purchasing and supply strategy
© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Slide 5.2
Key Questions
• What is purchasing and supply strategy?
• What should we do and what should we buy?
• How do we buy; what is the role of contracts and/or relationships?
• How do we manage supply dynamics?
• How do we manage suppliers over time?
• How do we manage supply chain risks?

Slide 5.3
Issues Covered in Purchasing and Supply

Strategy
Resource usage
Issues include,
Quality • What is purchasing and supply
Market competitiveness
strategy?
Performance objectives
• What should we do and what

Speed
should we buy?
• How do we buy; what is the role of
contracts and/or relationships?
Dependability • How do we manage supply
dynamics?
• How do we manage suppliers over
Flexibility time?
• How do we manage supply chain
Cost risks?
Capacity Process Development

strategy Supply networks technology and
organisation
Decision areas

Slide 5.4
What is purchasing and supply strategy?

Slide 5.5
Dyadic relationships in a simple supply

network and example
Dyadic Dyadic
interaction interaction
Supplier Focal
Customer
operation
Dyadic Dyadic
interaction interaction
Washing
Electric motor
machine Retailer
manufacturer
maker

Slide 5.6
Triadic relationship and example

Focal operation/
buyer
Triadic interaction
Supplier Customer
Airline
Triadic interaction
Baggage
handling agent Passengers

Slide 5.7
Why adopt network perspective?

• A key insight derived from adopting a network perspective is the recognition that
different organisations in a network relate to each other in a range of different
ways. These include ‘classic’ interactions, such as upstream and downstream
market linkages (i.e. buying and selling from each other), and competition (i.e.
ultimately, a whole range of performance attributes – such as price – will be
driven, even if indirectly, by competitor offerings).
• But a broader network perspective also reveals that organisations, many of them
direct competitors, frequently collaborate; it is increasingly common, for instance,
for groups of organisations to combine together into consortia when buying goods
and services, or to work together on ‘pre-competitive’ research and development.
Moreover, many organisations’ value propositions are also dependent on
complementors – other businesses providing complementary services and
products.

Slide 5.8
A network perspective enhances understanding of

competitive and cooperative forces
The value net (based on Brandenburger and Nalebuff)
Competitors
Focal company
Operations Market
Suppliers Requirements Customers
Resources
Complementors

Slide 5.9
The 80,000-kilometre journey of Wimbledon’s tennis

balls
• The Wimbledon ‘Grand Slam’ tennis tournament is a quintessentially British
occasion, and Slazenger (a UK sports equipment manufacturer) has been the
official ball supplier for Wimbledon since 1902. Yet those balls used at
Wimbledon, and the materials from which they are made, will have travelled
81,385 kilometres between 11 countries and across four continents before they
reach Centre Court. Dr Mark Johnson, of Warwick Business School, said:
• ‘It is one of the longest journeys I have seen for a product. On the face of it,
travelling more than 80,000 kilometres to make a tennis ball does seem fairly
ludicrous, but it just shows the global nature of production, and in the end, this
will be the most cost-effective way of making tennis balls. Slazenger are locating
production near the primary source of their materials in Bataan in the
Philippines, where labour is also relatively low cost.’

Slide 5.10
The 80,000-kilometre journey of

Wimbledon’s tennis balls
• The complex supply chain is illustrated in Figure 5.5. It sees clay shipped from
South Carolina in the USA, silica from Greece, magnesium carbonate from Japan,
zinc oxide from Thailand, sulphur from South Korea and rubber from Malaysia to
Bataan, where the rubber is vulcanised – a chemical process for making the
rubber more durable. Wool is then shipped from New Zealand to Stroud in the
UK, where it is weaved into felt and then flown back to Bataan in the Philippines.
Meanwhile, petroleum naphthalene from Zibo in China and glue from Basilan in
the Philippines are brought to Bataan, where Slazenger manufacture the ball.
Finally, the tins that contain the balls are shipped in from Indonesia and, once the
balls have been packaged, they are sent to Wimbledon. ‘Slazenger shut down the
factory in the UK years ago and moved the equipment to Bataan in the
Philippines’, says Mark Johnson. ‘They still get the felt from Stroud, as it requires
a bit more technical expertise. Shipping wool from New Zealand to Stroud and
then sending the felt back to the Philippines adds a lot of miles, but they
obviously want to use the best wool for the Wimbledon balls.
Slide 5.11
Wimbledon’s tennis balls travel over 80,000 kilometres in

their supply network

Slide 5.12
Inter-operations arrangement in supply networks:

Types of supply arrangement
Long-term virtual
Vertical integration
few suppliers operation
Close –
‘Partnership’ supply
Type of inter-firm contact
relationships
Market relationship
Transactional –
many suppliers
Traditional market
supply
Virtual spot
trading
Resource scope
Do nothing Do everything
The character of internal operations activity

Slide 5.13
Do or buy? The Vertical Integration Decision
• The decision whether to do (i.e. create, deliver, design etc.) something within the
organization (‘in-house’), or buy it from external suppliers (outsource it) is
arguably the most fundamental purchasing and supply strategy issue. Too often
the decision is made on narrow, short-term cost savings, with firms who are
struggling to be price competitive and searching for ways to shift their cost base –
often by using global suppliers.
• Whilst efficiency maximization should be a central feature of any ‘do/buy’
analysis, it is a profoundly strategic decision and its results will affect the
operations performance objectives in a number of complicated ways (see
Table 5.1).

Slide 5.14

Slide 5.15
Vertical Integration
• Vertical integration is the extent to which an organisation owns the network of which it is a part. It
usually involves an organisation assessing the wisdom of acquiring suppliers or customers. Vertical
integration can be defined in terms of three factors.
• 1 The direction of vertical integration – should an operation expand by buying one of its suppliers or
by buying one of its customers? The strategy of expanding on the supply side of the network is
sometimes called backward or upstream vertical integration, and expanding on the demand side is
sometimes called forward or downstream vertical integration.
• 2 The extent of vertical integration – how far should an operation take the extent of its vertical
integration? Some organisations deliberately choose not to integrate far, if at all, from their original
part of the network. Alternatively, some organisations choose to become very vertically integrated.
• 3 The balance among stages – is not strictly about the ownership of the network, but rather the
exclusivity of the relationship between operations. A totally balanced network arrangement is one
where one operation produces only for the next stage in the network and totally satisfies its
requirements. Less than full balance allows each operation to sell its output to other companies or to
buy in some of its supplies from other companies. Fully balanced networks have the virtue of
simplicity and also allow each operation to focus on the requirements of the next stage along in the
network. Having to supply other organisations, perhaps with slightly different requirements, might
serve to distract from what is needed by their (owned) primary customer. However, a totally self-
sufficient network is sometimes not feasible, nor is it necessarily desirable
Slide 5.16
Example

Slide 5.17
The Process of Do or Buy Analysis

• If an activity has long-term strategic importance to a company, it is unlikely to outsource it. For
example, a retailer might choose to keep the design and development of its website in-house, even
though specialists could perform the activity at less cost, because it plans to move into Web-based
retailing at some point in the future.
• Nor would a company usually outsource an activity where it had specialized skills or knowledge. For
example, a company making laser printers may have built up specialized knowledge in the production
of sophisticated laser drives. This capability may allow it to introduce product or process innovations
in the future. It would be foolish to ‘give away’ such capability.
• Obviously, if its operation’s performance is already too superior to any potential supplier, it would
be unlikely to outsource the activity. But also, even if its performance was currently below that of
potential suppliers, it may not outsource the activity if it feels that it could significantly improve its
performance.
• A strategic approach to do/buy decisions requires the firm to reflect on its own relative capabilities
and their contribution to competitive advantage. Insights from the resource-based view of the firm
are potentially valuable here. Having identified those operations in which the firm has neither any
meaningful competitive advantage nor critical strategic need, the analysis also has to look for the most
effective sourcing arrangement. In determining what is effective, the firm must pay full attention to
the possibility of opportunistic supplier behavior. Insights from transaction cost economics are
extremely valuable here.
Slide 5.18
The decision logic of outsourcing
Is significant
Is activity of Does company Is company’s operations Explore
strategic have operations performance
performance improvement outsourcing of
importance? No specialised No No No
knowledge? superior? likely? this activity
Yes Yes Yes Yes
Explore keeping this activity in-house

Slide 5.19
Transaction Cost Economics

TCE assumes that most people can’t remember everything and often can’t figure out what to do with the
information they do have (i.e. they exhibit bounded rationality), and exchange partners aren’t always
completely honest about their intentions (i.e. they may act opportunistically); as a result, transaction costs
emerge. For example, in any real buying activity, lack of information about alternative suppliers often leads firms
to pay too high a price for something they purchase. The most pragmatic contribution of the theory comes from
the dimensions that are used to characterize the nature of different transactions:
• Frequency. Why would a firm choose to bring ‘in-house’ the provision of a good or service that is very
rarely used? For example, most firms don’t have their own legal department because this is a highly
specialized and infrequently used resource.
• Asset specificity. In general terms, when transactions involve highly specific assets, such as dedicated
production facilities, transaction costs are likely to be higher in a market exchange.
• Uncertainty. The greater the duration of a transaction (e.g. contract period) the more difficult it is to envisage
all potential eventualities that might occur during the course of the transaction. For example, if entering into a
long-term arrangement with a supplier – how do you know if it will still be in business?
Finally, although TCE is very useful it does have limitations. For example, it is often very difficult to measure
transaction costs in practice. Equally, although TCE assumes bounded rationality, it doesn’t consider other factors
such as power, reputation and trust, which affect supply-related decision making. The interaction of these two
dimensions suggests a range of generic outsourcing options (see Figure 5.8).

Slide 5.20
Figure-5.8 Generic sourcing strategies

critical INVEST TO PERFORM PERFORM INTERNALLY TO
INTERNALLY DEVELOP
(if high potential for opportunism) (if high potential for opportunism)
OUTSOURCE OUTSOURCE
CONTRIBUTION
COMPETITIVE
ADVANTAGE
(if possible to mitigate risk of (if possible to mitigate risk of

opportunism) opportunism)
TO
OUTSOURCE
(if possible to mitigate risk of
OUTSOURCE opportunism)
(if possible to mitigate risk of Keep internal
not critical
opportunism) (if lack of capable suppliers and

spin-off not feasible)
RELATIVE CAPABILITY
weaker stronger
POSITION
Source: Adapted from McIvor, R. (2008). ‘What is the right outsourcing strategy for your process?’, European Management Journal, 26, 24–34.

Slide 5.21
Contracting and Relationship

• There are two basic ingredients of any supply
arrangement: they are ‘contracts’ and
‘relationships’. Whatever arrangement with
its suppliers a firm chooses to take, it could
be described by the balance between
contracts and relationships (see Figure 5.9). .
Moreover, what is clear from the do/buy
typology is that effective supply management
– effective in the sense that it maximizes the
benefits to the buyer whilst protecting against
opportunism – will require a range of
different approaches in different capability
and market contexts. If a very strong trusting
relationship can be built with a supplier, then
the risk of outsourcing even very critical
capabilities might be acceptable. In the
absence of this trust, even the most
sophisticated contractual form may be felt to
afford insufficient protection – for example,
against intellectual property rights (IPR)
infringements.
Slide 5.22
Contracts and Contracting

• Contracts are those explicit (usually written, often detailed) and formal
documents that specify the legally binding obligations and roles of both parties
in a relationship. Using the logic of transaction cost economics (TCE), contracts
are intended to both reduce uncertainty (e.g. by providing a clear specification of
what is and what is not allowed within a relationship) and minimize the risk of
opportunism (e.g. by enforcing legal rules, standards and other remedies implied
in law).
• For a buyer to be able to achieve effective control of its supply by using contracts,
three underlining conditions need to be fulfilled.
• Codification. Formal contracts are reliant on tasks working broadly to plan and
the ‘up front’ measurability of outcomes.
• Monitoring. Formal contracts require monitoring to determine supplier behavior
with regards to the rules set out in the contract.
• Safeguards. For effective control there need to be structures in place to enforce
the contract – it has to be worth the paper it’s written on!
Slide 5.23
Partnership Supply relationships
Partnership relationships can be viewed as strategic

alliances that have been defined as ‘relatively enduring inter-
firm cooperative arrangements, involving flows and linkages
that use resources and/or governance structures from
autonomous organizations, for the joint accomplishment of
individual goals linked to the corporate mission of each
sponsoring firm
Partnership relationships are seen as desirable because they can

reduce the transaction costs of doing business

Slide 5.24
Elements of process partnership

relationships
• Figure 5.10 identifies some of the major elements that contribute to the closeness
that is necessary for partnership and divides them into those that are primarily
related to the attitude with which the customer and supplier approach the
relationship, and those that relate to the actions undertaken by both parties.

Slide 5.25
Elements of process partnership relationships

Slide 5.26
Cooper Bikes supply chain
Taiwan
Frame
Cooper 4PL agent builder
Bikes Initial Distribution Retailer
ATI Maxway assembly centre
Design
Tubing
Other Brooks
(some from
suppliers saddles
the UK)

Slide 5.27
Partnership relationships
There are strong forces acting against the

maintenance of trust

Slide 5.28
Degrees of trust
Calculative trust …trusting you is likely to Based on
give me more benefits than knowledge
not trusting you...
Cumulative positive
Degree of closeness
…I believe I can trust you
experiences
because I think I know you
Cognitive trust
enough to be confident you
Time
will behave as I would
wish...
…I trust you because I know

that you know that I wouldn’t
Bonding trust let you down and you know Based on
that I know that you wouldn’t feelings
either...
Slide 5.29
Limitations of Partnership
Relationship
• It is important to point out that trust ‘not only binds, but also blinds’ buyers and
suppliers.
• Long-standing relationships can result in a sub-optimal information search. That
is, organizations become ‘locked-into’ those relationships and thereby neglect to
obtain other relevant information from the market. Such information may, for
instance, prove vital for spotting shifting market trends or emerging innovative
technology.
• In summary, as with contracting, relationships (with trust as their key component)
are equally unreliable as a stand-alone supply management mechanism and
therefore some form of formal control is still needed to reduce the hazards of
opportunism. In other words, we need to proactively develop both contracting and
relationship building capabilities

Slide 5.30
E-Procurement
• E-procurement is the generic term used to describe the use of electronic
methods in every stage of the purchasing process, from identification of
requirement through to payment, and potentially to contract management.
Generally, the benefits of e-procurement are taken to include the following:

• It promotes efficiency improvements (the way people work) in purchasing
processes.
• It improves commercial arrangements with suppliers.
• It reduces the transaction costs of doing business for suppliers.
• It opens up the marketplace to increased competition and therefore keeps prices
competitive.
• It improves a business’s ability to manage their supply chain more efficiently

Slide 5.31
Electronic marketplaces
• E-procurement has grown, largely because of the development over the last ten
years of electronic marketplaces offering services to both buyers and sellers. They
are information systems that allow buyers and sellers to exchange information
about prices and product and service offerings, and the firm operating the
electronic marketplace acts as an intermediary. These firms can be categorised as
consortium, private or third party.
• A private e-marketplace is where buyers or sellers conduct business in the market
only with its partners and suppliers by previous arrangement.
• The consortium e-marketplace is where several large businesses combine to
create an e-marketplace controlled by the consortium.
• A third-party e-marketplace is where an independent party creates an unbiased,
market-driven e-marketplace for buyers and sellers in an industry.

Slide 5.32
Procure Electronically? Yes or No

• Four questions seem to influence whether e-procurement will be appropriate.
• 1 Is the value of spending high or low? High spending on purchased products
and services gives more potential for savings from e-procurement.
• 2 Is the product or commodity highly substitutable or not? When products and
services are ‘substitutable’ (there are alternatives), e-procurement can identify and
find lower cost alternatives.
• 3 Is there a lot of competition or a little? When several suppliers are competing,
e-procurement can manage the process of choosing a preferred supplier more
effectively and with more transparency.
• 4 How efficient are your internal processes? When purchasing processes are
relatively inefficient, e-procurement’s potential to reduce processing costs can be
realised.

Slide 5.33
First-, Second-, Third- And Fourth-party Logistics
• An important decision for companies dealing in physical products (such as manufacturers) is how
much of the logistical process of organising the movement of goods to trust to outside service
providers. The extent and integration of this type of service provision is often referred to as first-,
second-, third- or fourth-party logistics (or 1PL, 2PL, 3PL, 4PL for short). However, the distinction
between the PL classifications can sometimes be blurred, with different firms using slightly different
definitions.
• ● First-party logistics (1PL) – is when, rather than outsourcing the activity, the owner of whatever is
being transported organises and performs product movements themselves. For example, a
manufacturing firm will deliver directly, or a retailer such as a supermarket will collect products from a
supplier. The logistics activity is an entirely internal process.
• ● Second-party logistics (2PL) – is when a firm decides to outsource or subcontract logistics services
over a specific segment of a supply chain. It could involve a road, rail, air, or maritime shipping
company being hired to transport and, if necessary, store products from a specific collection point to a
specific destination.
• ● Third-party logistics (3PL) – is when a firm contracts a logistics company to work with other
transport companies to manage its logistics operations. It is a broader concept than 2PL and can
involve transportation, warehousing, inventory management and even packaging or re-packaging
products. Generally, 3PL involves services that are scaled and customised to a customer’s specific
needs.
Slide 5.34
First-, Second-, Third- And Fourth-

party Logistics
• ● Fourth-party logistics (4PL) – is a yet broader idea than 3PL. Accenture, the
consulting group, originally used the term ‘4PL’. Their definition of 4PL is as
follows:
• ‘A 4PL is an integrator that assembles the resources, capabilities, and
technology of its own organization and other organizations to design, build and
run comprehensive supply chain solutions.’
• 4PL service suppliers pool transport capabilities, processes, technology support
and coordination activities to provide customised supply chain services for part or
all of a client’s supply chain. 4PL firms can manage all aspects of a client’s
supply chain. They may act as a single interface between the client and multiple
logistics service providers, and are often separate organisational entities founded
on a long-term basis, or as a joint venture between a client and one or more
partners. (See the example below on Cooper Bikes.)
• ● 5PL? – you guessed it: almost inevitably, some firms are selling themselves as
fifthparty logistics providers, mainly by defining themselves as broadening the
scope further to e-business. © 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved
Slide 5.35
Managing suppliers over time

Operations spend most of their supply chain effort in trying to overcome the worst effects of
supply chain dynamics. While the first step in doing this is clearly to understand the nature of
these dynamics, there are several, more proactive actions that operations take. These include
coordination activities, differentiation activities and reconfiguration activities
Coordination Efforts to coordinate supply chain activity have been described as falling into
three categories, as illustrated in Table 5.4.13 1
• 1-Information sharing – demand information, not just from immediate customers, is
transmitted up the chain so that all the operations can monitor true demand, free of the
normal distortions. Information regarding supply problems, or shortages, may also be
transmitted down the line so that downstream customers can modify their schedules and
sales plans accordingly.
• 2-Channel alignment – this is the adjustment of scheduling, material movements, pricing
and other sales strategies and stock levels, to bring them into line with each other.
• 3-Operational efficiency – each operation in the chain can reduce the complexity of its
operations, reduce costs and increase throughput time. The cumulative effect of these
individual activities is to simplify throughput in the whole chain.

Slide 5.36

• Differentiation – matching supply network strategy to market requirements Supply networks should
differentiate between different market requirements. Supply chains, just like operations, need to ask,
‘How do we compete?’ If the answer turns out to be, ‘We compete in different ways in different parts
of the market’, then the supply chains serving those markets need to be organised in different ways. If
a supply chain is organised in a standardised manner, notwithstanding the different market needs it is
serving, it results in the supply distortions described previously. Here we will take an approach
articulated by Marshall Fisher of Wharton Business School, who makes a connection between different
types of market requirements and different objectives for operations resources.
• Different market requirements Operations producing one set of products and services may still be
serving markets with different needs. For example, Volvo Heavy Truck Corporation, selling spare
parts, found itself with a combination of poor service levels at the same time as its inventory levels
were growing at an unacceptable rate. Market analysis revealed that spare parts were being used in two
very different situations. Scheduled maintenance was predictable, with spare parts ordered well ahead
of time. Emergency repairs, however, needed instant availability and were far more difficult to predict.
The fact that the parts are identical is irrelevant – they are serving two different markets with different
characteristics. It is a simple idea and it applies in many industries. Chocolate manufacturers have their
stable lines but also produce ‘media-related’ specials, which may last only a matter of months.
Garment manufacturers produce classics, which change little over the years, as well as fashions that
last only one season.
Slide 5.37

• Different resource objectives The design and management of supply chains
involves attempting to satisfy two broad objectives – speed and cost. Speed
means being responsive to customer demand within the chain. Its virtue lies in the
ability it gives the chain to keep customer service high, even under conditions of
fluctuating or unpredictable demand. Speed can also keep costs down. Fast
throughput in the supply chain means that products do not hang around in stock
and, therefore, the chain consumes little working capital. Other contributors to
keeping costs down include keeping the processes, especially manufacturing
processes, well utilised.
• Achieving fit between market requirements and supply chain resource policies
Professor Marshall Fisher’s advice to companies reviewing their own supply
chain policies is: first, to determine whether their products are functional or
innovative; second, to decide whether their supply chain is efficient or
responsive; and third, to plot the position of the nature of their demand and their
supply chain priorities on a matrix similar to that shown in Figure 5.15.
Slide 5.38
Source: Adopted from Fisher,M.C. (1997) “ What Is the right supply chain for your product?” Harvard
Business Review, March-April, pp. 105-116

Slide 5.39
Purchasing and Supply Chain Risk

• The increased significance of purchasing and supply strategies reflects the growing importance of
outsourcing and the reliance on global supply networks. We have already discussed the numerous
significant benefits associated with these trends (i.e. efficiency, improved business focus, reduced
capital investment, etc.) but, inevitably, increased dependency on suppliers increases exposure to
suppliers’ risk profiles.
• Consider the attractions of building a strong relationship with a single source of supply. This might
offer the buyer significant benefits – extra leverage in terms of volume discounts, easy sharing of
market and operational data, and so on – but for all the additional capability that such an
arrangement provides it also, as per our previous discussion of transaction cost economics, creates
extra rigidity and risk.
• Numerous events have had a major impact on global supply networks. But regardless of whether we
are discussing the September 11 terrorist attacks, the Severe Acute Respiratory Syndrome (SARS)
pandemic in 2002–2003, the Banking Crisis and subsequent economic recession, or the Icelandic
Eyjafjallajokull volcano that grounded flights across Europe for a week in 2010 – all of these events
produced significant disruptions for supply chains and produced major losses for many companies
involved. Even less severe events can trigger significant supply chain problems and have a
corresponding impact on financial performance: stock market reactions to announcements of supply
disruptions have resulted in market capitalisation declines of as much as 10 per cent.15

Slide 5.40
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Slide 5.

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Issues Covered in Purchasing and Supply

• What should we do and what

Capacity Process Development

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

What is purchasing and supply strategy?

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Dyadic relationships in a simple supply

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Triadic relationship and example

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Why adopt network perspective?

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

A network perspective enhances understanding of

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

The 80,000-kilometre journey of Wimbledon’s tennis

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

The 80,000-kilometre journey of

Wimbledon’s tennis balls travel over 80,000 kilometres in

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Inter-operations arrangement in supply networks:

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Do or buy? The Vertical Integration Decision

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

The Process of Do or Buy Analysis

The decision logic of outsourcing

Yes Yes Yes Yes

Explore keeping this activity in-house

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Transaction Cost Economics

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Figure-5.8 Generic sourcing strategies

(if possible to mitigate risk of (if possible to mitigate risk of

opportunism) (if lack of capable suppliers and

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Contracting and Relationship

Contracts and Contracting

Partnership Supply relationships

Partnership relationships can be viewed as strategic

Partnership relationships are seen as desirable because they can

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Elements of process partnership

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Elements of process partnership relationships

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Cooper Bikes supply chain

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There are strong forces acting against the

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

…I believe I can trust you

…I trust you because I know

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Generally, the benefits of e-procurement are taken to include the following:

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

Procure Electronically? Yes or No

© 2017, 2015, 2012 Pearson education, Inc. All Rights Reserved

First-, Second-, Third- And Fourth-party Logistics

First-, Second-, Third- And Fourth-

Managing suppliers over time