Samenvatting Purchasing Management

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Contracting (Chapter 4&5) + papers Faems (contracts and trust) and Lumineau (contracts and negotiation)

Purchasing of services is more complicated than the purchasing of goods because:

- The specification of the service is more difficult than with goods

- Evaluating the services beforehand (selection) and afterwards (performance evaluation) is more difficult

- Capturing the service in the right type of contract

- High interdependency and interaction between buyer and seller

- Diverse performance on services

- Continuous cost focus

Principal-agent theory suggests two basic types of contracts:

- Behavior-based contracts: input/throughput specifications (process)

- Outcome-based contracts: output/outcome specifications (results)

Selection of one of the two depends on:

- Degree of programmability: can the buyer clearly specify want they want from the service? When they can they are more likely to use a behavior based contract

- Outcome measurability: Is the outcome of the service measurable? When it is measurable then companies will probably use a outcome-based contract

- Outcome uncertainty: Can the supplier perform the task? With high uncertainty companies would like to use outcome-based contracts.

Performance-based contracts (PBC): a contract that focuses on the outputs, quality and outcomes of service provision and may tie at least a portion of a contractor’s payment.

- Low term specificity

- Pay-for-performance

PBC is often perceived as risky and costly and the specifications have to be very clear. The use of outcome-based specifications leads to more responsibilities (and risk) for the supplier.

Contract Management: refers to the process of systematically and efficiently managing contract creation, execution and analysis for the purpose of maximizing financial and operational performance and minimizing risk

Component services: are aimed at the customer of the buying firm and are delivered directly to this end-customerInstrumental services: are aimed at the buying firm and influence their primary processesConsumption services: are aimed at the buying firm and do not influence their primary processes

Two main views on the relationships between contracts/trust and outcome

- Substitution view (Dyer and Singh; Gulati et al.): trust or contracts lead to desired outcome

- Complementary view (Luo; Poppo and Zenger): trust and contracts jointly produce the desired outcome

Purchasing strategies in practice (1) (Boeing case)

Purchasing process:

- Specification

- Selection

- Contract

- Purchase order

- Invoice

- Payment

Possible 7th step is evaluation.

Steps 1, 2 and 3 are tactical (sourcing) and steps 4, 5 and 6 are operational (buying)

Purchasing categories: define purchasing categories by looking upstream/market to understand the supplier market.

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Table is about the purchasing options in business units of a single company, should they purchase together or separate.

Supplier power centralization (local-global)

Standardization of purchased items (different-same)

Lead buying means that one of the business units provides a lead buyer (expert) that purchases the products for all the business units

Coordinated: the specifications for the specific type of product is made centrally but the purchasing of those products is done locally, since the suppliers are located locally.

Purchasing objectives:

Business goals -> Purchasing objectives & strategies -> category sourcing strategies (plan) -> supplier selection criteria -> Contract performance terms -> supplier performance criteria

Purchasing objectives can be: growth (quality/secure supply/time to market), margin (exclusivity/efficiency/innovation), Cash (payment terms/assets/payables) and relationship

Differentiation is needed between the different product groups for sourcing strategies.

To find out what strategies work for what type of products use the model of Kraljic and the 2 2 tango (supplier’s perspective).

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With these two table the Dutch windmill can be created as shown on earlier page. So it is also important for buyers to be interesting to their suppliers, include suppliers into your evaluation as a partner (supplier event or supplier survey).

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Supplier relationship management I (Chapter 9) + paper Bensaou (portfolios) and paper Gulati & Sytch (dependence)

Purchasing in a coordinating role (ideal situation, clear specifications), in general it is a bowtie with purchasing of the firm talking to the salespeople from the supplier.

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Global versus local sourcing: international supplier orientation (cost reduction) necessary or is local orientation (close to market, reliable) sufficient?

Single versus multiple sourcing: purchase the product from one or more supplier? (Dependency or loss of economies of scale)

Partnership or competitive bidding: Buy from supplier with whom a partnership is preferred (strategic) or keep the supplier at distance (routine)?

Supplier Relationship Management (SRM): developing