In pursuit of purchasing excellence: How buyers
use sourcing tactics to support their objectives
Master’s Thesis
MSc. Supply Chain Management Faculty of Economics and Business
January 28, 2019
Luuk Hazeleger – s2217317 l.w.hazeleger@student.rug.nl
Thesis supervisor: Dr. K. Scholten Co-assessor: H. Dittfeld
Word count: 13.092
Acknowledgements:
Abstract:
TABLE OF CONTENTS
1. INTRODUCTION ... 4
2. THEORY ... 6
2.1. PURCHASING OBJECTIVES ... 6
2.1.1.SINGULAR PURCHASING OBJECTIVES ... 6
2.1.2. Cost ... 8
2.1.3. Quality ... 8
2.1.4. Innovation ... 8
2.1.5. Delivery performance ... 9
2.2. MULTIPLE PURCHASING OBJECTIVES ... 9
2.3. TACTICAL SOURCING LEVERS ... 10
2.3.1. Existing conceptualizations of tactical sourcing levers... 10
2.3.2. Volume bundling ... 11
2.3.3. Price evaluations ... 12
2.3.4. Extension of supply base ... 12
2.3.5. Product optimization ... 13
2.3.6. Process optimization ... 13
2.3.7. Optimization of supply relations ... 14
2.4. COMBINATIONS OF TACTICAL SOURCING LEVERS ... 14
2.5. CONCEPTUAL MODEL ... 15
3. METHODS... 16
3.1. RESEARCH DESIGN ... 16
3.2. RESEARCH CONTEXT ... 16
3.3. CASE SELECTION... 17
3.3.1. Case selection for interviews ... 17
3.3.2. Survey sampling ... 18
3.4. DATA COLLECTION ... 18
3.4.1. Qualitative data collection ... 18
3.4.2. Quantitative data collection ... 19
3.5. DATA ANALYSIS ... 20
3.5.1. Qualitative data analysis ... 20
3.5.2. Quantitative data analysis ... 22
4. RESULTS ... 23
4.1.1. Volume bundling ... 25
4.1.2. Supply base extension ... 26
1. INTRODUCTION
Traditionally, buyers have resorted to portfolio models as tools for categorizing purchase items and differentiating sourcing approaches. Modern sourcing behavior, however, tends to strongly refute the prescriptions in these models (Cox, 2015). Nowadays, firms may manage hundreds of sourcing categories, varying along numerous dimensions (Van Weele, 2010). By compressing these categories into four quadrants with set tactical prescriptions, portfolio models hardly account for the distinct approaches often required within a single quadrant. In reality, buyers combine tactics across all portfolio areas, with varying degrees of success (Ateş, 2014; Hesping & Schiele, 2016; Lee & Drake, 2013). A distinctive classification is thus required that assists buyers in choosing coherent sourcing tactics for a purchase (Luzzini, Caniato, Ronchi, & Spina, 2012). Since sourcing behavior is strongly driven by the purchasing objective that is pursued (Krause, Pagell, & Curkovic, 2001; Pagell, Zu, & Wasserman, 2010; Ateş, 2014), it may be more insightful to classify tactics along this factor than along the portfolio dimensions that buyers largely disregard in practice.
A purchasing objective specifies what the buyer wishes to accomplish with a purchase given the existing contingencies (Hesping & Schiele, 2015). According to portfolio principles, the objective for a purchase can mostly be derived from the item’s features and its supply market characteristics (Kraljic, 1983). In the eyes of a purchaser, however, a portfolio area is not necessarily dictated by a single, broad objective. As purchasing has become increasingly strategic, buyers not only aim for cost efficiency, but also quality, innovation and delivery excellence (González-Benito, 2010). Even within a portfolio quadrant, competitive priorities may differ largely for distinct purchasing categories (Luzzini et al., 2012), while category strategies possibly emphasize various objectives simultaneously (Ateş, 2014). As it becomes clear that objectives are most accurately studied at micro levels and across a wider range, it remains unknown which activities are then to be used to achieve these goals. Taxonomies exist in which groups of similar activities (called ‘tactical sourcing levers’) are defined and operationalized (Schuh & Bremicker, 2005; Schumacher, Schiele, Contzen, & Zachau, 2008; O’Brien, 2012). Yet, these rarely state how such tactics – ranging from volume bundling to relationship optimization – can be implemented in support of distinct purchasing objectives.
tactics. Little is known about possible trade-offs between distinct objectives (for which the associated tactics are incompatible in practice) or which configurations of tactics allow multiple objectives to be pursued in a mutually reinforcing way. This research has explored these interrelationships by examining how buyers use tactical sourcing levers given their projected objective(s), with what outcomes. The following question was addressed: How does the objective of a purchase differentiate the tactical sourcing levers applied by buyers?
2. THEORY
2.1. Purchasing objectives
2.1.1. Singular purchasing objectives
With the rise of new facets of competitiveness, the purchasing function has broadened its traditional cost-oriented outlook and now proactively contributes to innovation practices, delivery performance and quality sourcing (Gelderman & Van Weele, 2005). This means that buyers increasingly need to engage with suppliers and internal functions, as illustrated by trends such as global sourcing, design for procurement and buyer-supplier alliance-building (Schoenherr & Mabert, 2011). As compared to the rather uniform, administrative tasks in traditional practice (Gelderman & Van Weele, 2003), the wide range of competitive priorities in modern purchasing necessitates a stronger differentiation of sourcing approaches.
Purchasing objectives are in fact claimed to predict differences in the purchasing practice selected by buyers (Hesping & Schiele, 2015). It is only after choosing which objectives to emphasize that purchasers can effectively implement tactics to support these aims (Olson, Slater, & Hult, 2005). Before planning which actions to take – e.g. whether or not to share expertise with suppliers, audit their processes or include contractual incentives (González-Benito, 2007) – a first step in approaching a purchasing situation would thus be to define the objective for the purchase in question (Watts, Kim, & Hahn, 1992).
Krause et al. (2001) were the first to argue that purchasing objectives can be articulated according to the competitive priorities in operations management (Hayes & Wheelwright, 1984): cost, quality, innovation, dependability and flexibility. Later, also sustainability has been added (Walker, 2009). Recent works further draw on these objectives, expanding on each in both scope and detail (Table 1). Based on the overlap among the existing conceptualizations, this study has identified and comprehensively defined four relevant purchasing objectives: cost, quality, innovation and delivery performance.
innovation is prevalently linked to a buyer’s intent to improve the introduction rates and timing of new products and services (González-Benito, 2010; Luzzini et al., 2012; Ateş et al., 2018), as well as contributions of suppliers to this process (Krause et al., 2001; Lee & Drake, 2010). Ultimately, measures such as flexibility, availability, dependability (Lee & Drake, 2010) and speed (Luzzini et al., 2012) are often (interchangeably) used to express a supplier’s ability to deliver accurately and on time (Ateş, 2014). It follows that buying firms should opt for improvement in these areas to enhance the overall delivery performance for a purchase. Below, each of the four purchasing objectives will be further discussed in detail.
Reference K ra u se et al . (2 0 0 1 ) Go n zá lez -B en ito ( 2 0 1 0 ) Lu zz in i et al . (2 0 1 2 ) Dra ke & Lee (2 0 1 0 ) A te ş et al . (2 0 1 8 ) Purchasing
objective Definition Underlying goal (indicator)
Cost
The aim to decrease the unit prices of a purchase, reduce total cost of ownership, and to improve efficiency and increasing asset utilization.
Reducing unit price(s) of purchase • • • •
Reducing total cost of ownership of purchase • • •
Reducing (internal) purchasing process cost • •
Reducing asset utilization of purchase (category) • • Enhancing productivity and utilization of purchasing resources •
Reducing purchasing, inventory and quality cost of purchase • • Improving supplier’s ability and willingness to share cost data •
Quality
The aim to assure and improve the features, functionality, durability, reliability and sustainability of a purchase.
Improving conformance quality of purchase • • • • Improving specifications and functionality of purchase • • • Improving component durability and reliability • • Enhancing supplier’s efficacy in attending to complaints •
Reducing ecological impact of the purchase •
Improving supplier’s compliancewith socialorethical guidelines •
Innovation
The aimtoimprovethe cycletimeand intro-duction rates of new products and services and enhance suppliers’ innovativecapabilities.
Improving time-to-market of new products with suppliers • • Improving introduction rate of purchase (part) • • • Enhancing supplier’s ability to (re)design products and processes • • • Enhancing supplier’s ability and willingness to share key
technological information; •
Enhancing supplier’s technological capabilities • •
Delivery
perfor-mance
The aim to achieve short delivery times and fulfilment of either set or flexible
schedules and delivery terms by the supplier.
Improving supplier’s lead-time •
Improving supplier’s conformance to delivery terms • • • Improving supplier’s volume(capacity)or modification flexibility • • • Improving delivery speed, reliability and development speed • • Enhancing supplier’s ability and willingness to change order
volumes or fulfil rush orders •
Enhancing supplier’s ability to provide just-in-time delivery •
2.1.2. Cost
Buyers that are keen on cost-efficiency seek to minimize the price, transport and inventory costs of an item (Krause et al., 2001), while increasing the efficiency of the (human) resources devoted to the purchasing process (González-Benito, 2010). As such, purchasers do well to strengthen their bargaining power, e.g. through economies of scale, competitive bidding and benchmarking (Johnsen et al., 2014). From a total cost of ownership (TCO) perspective, additional costs of (preventing) supplier non-conformance and customer returns should be considered and, if transparent, the cost structures of suppliers (Krause et al., 2001). A cost focus usually applies to standardized items in a context of technological and supply market stability, yet with high price and volume volatility (Luzzini et al., 2012).
2.1.3. Quality
A quality objective is about reaching and upholding high levels of functionality, durability and reliability of a purchase, its conformance to specifications as well as the supplier’s efficacy in attending to complaints in these areas (González-Benito, 2010). Increasingly reliant on the supply base for competitive success, quality-minded firms closely evaluate, train and monitor their suppliers (Slack & Lewis, 2011). Sustainability standards are enforced similarly (Johnsen et al., 2014). Beyond quality assurance, buyers and suppliers can jointly improve the quality of purchase features, for instance by merging their expertise in new product design (Mitra, 2016). Strategic collaboration is a preferred approach for high-quality sourcing, not only to leverage customization and supplier expertise, but also to mitigate the risk of quality incompliance and excessive supplier power (Luzzini et al., 2012).
2.1.4. Innovation
2.1.5. Delivery performance
The aim for delivery performance is about obtaining purchased products accurately and on time (Ateş, 2014). To that end, buying firms seek to enhance their supplier’s ability to meet short delivery times, set or flexible schedules and other delivery terms, such as location, quantity and format (Maestrini, Luzzini, Caniato, & Ronchi., 2018). In contrast to functional purchases, for which delivery reliability is most important, innovative products rely on short lead times and flexibility of suppliers in terms of capacity (volume) and adaptability (variety; Krause et al., 2001). Strategic, strongly customized supplies necessitate close buyer-supplier collaboration (Fisher, 1997), whereas the availability of less critical items can be better assured through inventory buffering or multi-sourcing approaches (Zsidisin, Ellram, & Ogden, 2004).
2.2. Multiple purchasing objectives
Amongst these purchasing goals, cost and innovation aims have been studied most (Baier, Hartmann, & Moser, 2008; Ateş et al., 2018), albeit mainly separately. Such a focus on singular objectives adheres to trade-off theory (Hayes & Wheelwright, 1984), in which the pursuit of merely one or few consistent goals is deemed appropriate. More recently, however, cumulative theory suggests that buyers can aim for different yet compatible competitive priorities simultaneously (González-Benito, 2010). Purchasers in fact emphasize singular and multiple objectives variably for distinct purchases with different levels of relative importance (Ateş, 2014), intensity and proactivity (Schoenherr & Mabert, 2011). As such, approaches such as supplier integration in new product development could either contribute to either cost, quality or innovation, but also a combination of these (González-Benito, 2010).
It can be expected, however, that buyers prioritize one aim most (Doha, Das, & Pagell, 2013). This order winner logic implies that their dominant objective may vary between seemingly homogeneous purchasing items (Ateş et al., 2018) but also across the life cycle of a single product (Birou, Fawcett, & Magnan, 1998). Albeit beyond the scope of this study, product life cycle dynamics clearly illustrate that buyers need to reconfigure their tactics as competitive priorities shift (Hesping & Schiele, 2016). At an early growth stage, buyers typically pursue innovation and supply availability through close ties and collaborative operations with few suppliers. However, the cost pressures of a mature market possibly cause a need to exploit and switch between various suppliers (Doha et al., 2013).
incompatible in practice. Intuitively, aims for cost minimization and quality excellence – not to mention sustainability – are bound to conflict (Gao & Tang, 2003). Yet, sourcing high quality inputs could also reduce inventory or compliance enforcement costs (Johnsen et al., 2014). Similarly, end product quality is positively associated with innovative inputs (Drake & Lee, 2013). As such, objectives can be pursued in a mutually reinforcing way. It follows that the (in)compatibility of purchasing objectives in terms of performance outcomes strongly depends on which set of sourcing practices, i.e. tactical levers, is implemented to support these objectives.
2.3. Tactical sourcing levers
2.3.1. Existing conceptualizations of tactical sourcing levers
Traditionally, sourcing tactics have been mainly studied either selectively – i.e. one or a few tactics in detail, varying from supply base reduction (Choi & Krause, 2006) to international sourcing (Schiele et al., 2011) – or from a portfolio view (Hesping & Schiele, 2015). Portfolio models prescribe broad purchasing objectives and corresponding tactics exclusively for a single quadrant (e.g. ‘exploit purchasing power’ and ‘spot buying’, respectively; Kraljic, 1983). Yet in reality, buyers are inclined to ‘cherry pick’ sourcing approaches from whatever portfolio area, for example to shift a power scenario or strategic orientation (Cox, 2015). It appears that portfolio models hardly account for modern purchasing scenarios, which are characterized by greatly dissimilar sourcing categories and distinct (combined) objectives per category item. Before different classifications can be proposed that better reflect these dynamics, purchasing strategies need to be examined at micro levels as well (Ateş et al., 2018; Hesping & Schiele, 2015).
Transaction-oriented levers (volume bundling, price evaluation and supply base extension) are mainly identified as cost-centered tactics largely applied by purchasing personnel alone (Schiele et al., 2011; O’Brien, 2012; Hesping & Schiele, 2015). Contrarily, relationship-oriented levers are associated with value creation efforts that require close collaboration with suppliers and personnel from other functions, such as engineering or logistics (Schiele et al., 2011). These methods relate to the optimization of products, processes, buyer-supplier relationships and cross-category sourcing.
This study complements the classification above with additional indicators that are prevalently mentioned in other references relating to tactical sourcing levers. Table 2 outlines the conceptual content of six out of the seven core levers as specified in existing literature1. Although Schiele et al. (2011) may suggest a strict dichotomy between cost- and innovation-oriented levers, this overview demonstrates that the activities associated with a single sourcing lever often vary largely, while the content of separate levers may partially overlap. Underlying dimensions are added to generate a finer differentiation of the somewhat broadly labeled sourcing levers, i.e. to explicate the differences between and within these. At this level of detail, it can be revealed how distinct expressions of a single sourcing tactic may support a purchasing objective to a greater or lesser extent.
2.3.2. Volume bundling:bundling internally, supplier consolidation and co-sourcing The leading motive for aggregating multiple products or services into a single bundle and transaction is to achieve cost savings through economies of scale (Schoenherr & Mabert, 2008). First, a company can consolidate volume internally for a given set of suppliers, for instance by coupling high- with low-volume items, or new allocations with existing volumes (Schoenherr & Mabert, 2008). This is possible across projects, product groups, business units, sites or subsidiaries (Schiele et al., 2011). Another method, supplier consolidation, means eliminating smaller suppliers and concentrating volumes on larger, strategically important ones (Choi & Krause, 2006). Beyond price discounts (Schuh et al., 2012), these policies can yield better delivery performance and quality through richer buyer-supplier information exchange, dedicated investments and joint operations (Ogden & Carter, 2008). Yet, supplier consolidation may also reduce flexibility and induce supply or price escalation risk (Choi & Krause, 2006). With co-sourcing, different firms pool their demand to increase their buying power with suppliers (Arnold, 1999), either for a particular project (buying consortium) or permanently
‘category-(sourcing community; Schuh et al., 2012). Increased rates of innovation can be attributed to knowledge spillovers between these parties (Linder, Jarvenpaa, & Davenport, 2003).
2.3.3. Price evaluations: cost analysis, price analysis and continuous improvement Purchasers use price evaluation methods primarily to realize a fair deal in terms of cost and price (Ellram, 1996). Cost analysis techniques are applied to establish price targets based on the estimated or calculated cost of a purchasing item. Cost relationships between the various specifications of an item and its end price can be dissected through methods such as cost-regression analysis (Hesping & Schiele, 2015). Value analysis helps identifying which unnecessary costs – not adding value to product or service quality, reliability, et cetera – to cut without compromising quality (Ellram, 1996). Buyers, then, use price analysis techniques to compare these cost calculations with offered prices. A common process is tendering (Schuh et al., 2012). After identifying potential suppliers through supplier market research, buying firms collect and evaluate their information and competitive bids (e.g. through price benchmarking). Ultimately, they negotiate with selected suppliers, possibly by way of reverse (online) auctions (O’Brien, 2012). Unlike the other methods, strategic cost management techniques involve joint cost reduction between buyer and supplier (Ellram, 1996). Examples of these reciprocal techniques are open book approaches (Agndal & Nilsson, 2008) and strategic cost management tools such as TCO analysis and supply chain-wide cost modeling (Schuh et al., 2012).
2.3.4. Extension of supply base: increasing sourcing options and global sourcing
embeddedness (Steinle & Schiele, 2008), but also on external sources of innovation on a global scale (Legenvre & Gualandris, 2018).
2.3.5. Product optimization: product (re-)specification, standardization, customization and supplier or network integration
Design modifications can make a purchasing item cheaper and easier to produce, more innovative and less logistically complex (Schiele et al., 2011). It could thus be in the interest of the purchasing function to engage in product (re-)specification in terms of design and functionality (Hesping & Schiele, 2015). Buyers may participate in cross-functional product development teams (‘design for sourcing’) and benchmark certain product features (Schuh et al., 2012). With product standardization, custom specifications of a purchase item are replaced for standardized parts or modules (Hong & Hartley, 2011). This allows buyers to purchase larger quantities at lower rates, with less risk (Luo, Kwong, Tang, Deng, & Gong, 2011), since more suppliers are stimulated to bid competitively and assure availability. Custom built purchasing items (product customization) arguably cause the opposite effect by raising entry barriers for new suppliers, yet may also exhibit superior functionality and innovativeness (Ateş et al., 2018). Ultimately, the external expertise of suppliers and the know-how of other network partners can be integrated into the product development process (supplier or network integration; Schuh et al., 2012), potentially supporting all four objectives.
2.3.6. Process optimization: collaborative operations, EDI and process control
2.3.7. Optimization of supply relations: Relationship commitment, supplier incentivization, supplier qualification and relationship marketing
In the contractual sphere, expressions of relationship commitment (Johnsen et al., 2014) such as dedicated investments signal a long-term commitment to a relationship and are often accompanied with other (formal) commitments to safeguard these investments (Nyaga, Whipple, & Lynch, 2010). Besides buyers can express their interest and satisfaction in economic terms through supplier incentivization, including favorable payment terms for the supplier, profit-sharing or reward clauses (Nyaga et al., 2010). More in terms of capacity building, supplier qualification requires direct involvement in supplier training, quality dialogues or other joint initiatives (Hesping & Schiele, 2015; O’Brien, 2012). Over the long haul, relationship marketing methods serve to sustain the buyer-supplier bond in terms of stability and satisfaction (Leenders, Johnson, Flynn, & Fearon, 2006). Stability is practiced through frequent field contact and financial reliability, whereas mutual satisfaction builds on exclusive access to capabilities, resources and other preferential treatments (Hüttinger, Schiele, & Veldman, 2012). Although close ties are often positively associated with innovation performance, they may also cause a status quo in which a supplier lacks incentives to innovate and the buying firm cannot leverage new partnerships for radical innovation (Ateş, 2014).
2.4. Combinations of tactical sourcing levers
Considering the diverse content and purposes of tactical sourcing levers, it becomes apparent that these tactics are not necessarily applied as strict alternatives. Rather, buyers have to choose a mix of internally consistent sourcing levers which, when aggregated, support a projected purchasing objective (Hesping & Schiele, 2015). As such, “research would profit from avoiding inquiries into any single lever […] without taking the other levers into consideration” (Schiele et al., 2011: 332).However, it turns out that existing works hardly take this perspective and rather describe how single tactical sourcing levers may support certain purchasing objectives.
Tactical sourcing lever
Definition (based on
Hesping, 2015: 49) Underlying
(sub)dimension Associated activities (source)
[The purchaser’s engagement in …] TR A N SA C TIO N -O R IEN T E D Volume bundling “… consolidating demand and increasing purchasing volume per request for quotation.”
Internal volume consolidation
Bundling several (complementary) requests into a single, large-volume package (1) Linking new allocations with current volumes (1)
Consolidating demand across product groups, business units, sites, regions or subsidiaries (1; 17) Bundling across series of (future) projects (17)
Supplier consolidation
Single sourcing approaches (4) Reducing suppliers or sources (4; 17)
Concentrating volume on one or few suppliers (1)
Co-sourcing Bundling in purchasing group or buying consortium (3; 16) Taking part in sourcing community (17)
Price evaluation
“… forming price targets and analyzing suppliers’ bids and cost structures.”
Price analysis techniques
Tendering: RFIs/RFQs; competitive price comparison (2; 16); reverse (e-)auctions (15) Gathering additional offers and specifications (1)
Supplier market intelligence (16); industry analysis (17); detailed market research (18)
Price benchmarking (16); comparison to market indexes, historical data or similar purchases (17) Spot buying; leverage market imbalances (17)
Cost analysis techniques
Target pricing with cost-based price modeling, cost-regression analysis or factor cost analysis (16) Cost estimates and ‘should cost analysis’ (17)
Total cost modeling; life cycle costing (LCC) analysis (17) Analysis of supplier cost breakdowns (17)
Value analysis (value stream mapping) (17) Strategic cost
management techniques
Target cost analysis (17)
Total cost of ownership (TCO) analysis; total cost modeling of the supply chain (2) Competitive assessment (17)
Open book policies and spend transparency (6; 15)
Supply base extension
“… increasing the number of sources and bidders per request for quotation.”
Increasing sourcing options Multi-sourcing approaches (7) Extending sources and competition; adding new suppliers in bidding process (1; 15) Outsourcing decision (‘buy’ over ‘make’) (15)
Global sourcing
R E LA TIO N SHI P -O R IEN TE D Product optimization “… making modifications to the design, functions and materials of the purchased items.”
Product (re-)specification
Purchasing integration in new product development (2) Value engineering (10)
Product benchmarking or product teardown (16) Functionality or specification assessment (16) Design for sourcing or invention on demand (16) Supplier or network
integration
Supplier integration in (collaborative) new product development (1; 10) Requesting technical alternatives and innovative solutions from suppliers (1) Leveraging innovation and R&D network (16)
Product standardization
Reducing product or service variants (11) Technical simplification (1)
Modular product design (10)
Product customization Enlarging product/service variants and functionalities (2); widen product specifications (16)
Process optimization “… optimizing processes related to the buyer-supplier interfaces.”
Collaborative operations Collaborative logistics and capacity management (1; 12; 15) Joint planning, forecasting, replenishment and resource sharing (1)
Vendor managed inventory (VMI), JIT and other value-adding services (18) Electronic data exchange Electronic data interchange (EDI), e-procurement and e-billing (15; 1) Process control Quality management (1) Contingency plans and risk analysis (18)
Control of vendors, volume insurance and security of stock (18)
Supply relationship optimization “… establishing and maintaining effective relationships
between buyer and suppliers in the market.”
Relationship commitment Dedicated investments (13)
Contractual commitment in terms of volumes, spend or contract duration (15) Supplier incentivization
Rewards and certifications (2) Profit-sharing clauses (2)
Tailoring contract conditions to supplier (1) Offering favorable payment terms (16) Co-development
Supplier capacity-building (development) (1) Joint working teams, actions and events (2)
Setting joint improvement objectives and tracking compliance (15)
Table 2: Sourcing levers: definitions, sub-dimensions and associated activities
further insights on how buyers combine tactical sourcing levers in practice and which trade-offs or fruitful configurations of tactics they identify fordistinct objectives.
2.5. Conceptual model
The variables and interrelationships under study are graphically depicted below. The framework represents the premise of this study, that is, that the purchasing objective is the key determinant of the tactical decision-making of buyers. It includes the notion of relative importance of (possibly multiple) objectives and combinable tactical sourcing levers. Currently, the main challenge lies in the right half of the model, as extant theory and practical tools hardly instruct buyers on which tactics to combine in order to reach a specific objective. It is expected, however, that the practitioners’ reflection on real-life purchases, tactical approaches and their outcomes in terms of goal attainment will yield clearer guidelines for this decision-making process.
Figure 1: Conceptual model
References: (1) = Hesping (2015); (2) = Schiele et al. (2011); (3) = Wang & Archer (2007); (4) = Wagner & Bode (2006); (5) = Weber et al. (2010); (6) = Kulmala (2004); (7) = Whitney et al. (2014); (8) = Wagner & Johnson (2004); (9) = Handley & Benton (2012); (10) = Hong & Hartley (2011); (11) = Schoenherr & Mabert (2008); (12) = Cao & Zhang (2011); (13) = Nyaga
3. METHODS
3.1. Research design
Since purchasing objectives and tactics likely vary on an item level (Ateş, 2014), the level of analysis of this study is the individual purchase. In order to investigate how purchasers differentiate between sourcing tactics given their objective for a particular buy, a multiple case study research design was adopted (Eisenhardt, 1989). The research is exploratory, given the scarcity of empirically verified research on tactical sourcing levers and their relevance for distinct purchasing objectives. Two complementary methods were used to further investigate this relationship: semi-structured interviews and a survey, both targeted at professional purchasers. The informal reality of these complex sourcing decision-making processes can only be perceived from the inside, that is, in its real-life context (Gillham, 2010). Unlike research that strictly relies on survey or experimental methods, case study research allows for such detailed contextual analysis (Barratt, Choi, & Li, 2011).
Foremost, the case study interviews illuminated the tactical sourcing decisions taken by these buyers: why a tactical sourcing lever was used, how it was implemented and with what result (Yin, 2014). This in-depth approach made it possible to get ‘under the skin’ of buyers, thoroughly investigating their competitive priorities, tactical responses to these, possible trade-offs, underlying motives and pervasive or divergent response patterns (Yin, 2014). Additionally, statistical survey analysis was conducted. When used in conjunction, survey research complements the knowledge gained through case studies (Karlsson, 2016). In theory-building, this mixed method approach allows the ‘gaps’ in qualitative research methods to be filled or overlapped by quantitative techniques and vice versa (Barratt et al., 2011).
3.2. Research context
purchasers), that operates at every link in the energy value chain, holding a large, diverse client base. It specializes in utilities, energy infrastructures and maintenance. Because of their wide scope of sourcing items and competitive priorities, both firms are a highly interesting research setting given the focus of this study. They provide a suitable context to investigate the effect of purchasing objectives on the tactical approaches taken by buyers in practice, allowing for comparisons between the tactics and outcomes per (dis)similar objective and industrial context.
3.3. Case selection
3.3.1. Case selection for interviews
ss
Table 3: Case characteristics including primary (1), secondary (2) and tertiary objectives (3) 3.3.2. Survey sampling
The questionnaire was administered to the complete Dutch purchasing staff of both organizations. As such, total population sampling was used to include as many professional buyers within the scope of the case study as possible (Yin, 2014).
3.4. Data collection
3.4.1. Qualitative data collection
The qualitative data underlying this research was gathered from fourteen semi-structured interviews, held in November and December, 2018. These allowed, more than structured interviews, a balance between standardized inquiry and flexible use of (sub)questions, possibly varying in order and relevance per case (Blumberg, Cooper, & Schindler, 2014). After receiving written consent, the complete interview guide (Appendix A)
C Company Purchase Product/service Obj. 1 Obj. 2 Obj. 3 Time
1 ChemicalCo Part/component Product Quality Del. perf. - 40:15
2 ChemicalCo Transport item Product Quality Del. perf. Cost 25:48
3 ChemicalCo Part/component Product Quality Del. perf. Cost 42:09
4 ChemicalCo Chemical Product Quality Cost Del. perf. 50:51
5 ChemicalCo Transport item Product-service Quality Cost Innovation 35:06
6 EnergyCo Installation Product-service Quality Del. perf. Cost 30:10
7 EnergyCo Electronics Product-service Quality Del. perf. Cost 38:57
8 ChemicalCo Installation Product-service Quality Del. perf. Cost 36:28
9 ChemicalCo IT solution Product Innovation Quality Cost 31:09
10 ChemicalCo IT solution Product Innovation Cost - 27:10
11 EnergyCo Electronics Product-service Innovation Quality Cost 25:22
12 EnergyCo Installation Product-service Innovation Del. perf. Cost 25:46
13 ChemicalCo Part/component Product Innovation Cost Quality 41:20
14 ChemicalCo IT solution Product Innovation Quality Cost 38:30
15 EnergyCo Installation Product-service Cost Quality - 30:15
16 EnergyCo Installation Product-service Cost Quality Del. perf. 31:23
17 ChemicalCo Chemical Product Cost Del. perf. - 48:47
18 ChemicalCo Part/component Product-service Cost Innovation Del. perf. 34:29
19 EnergyCo Technical service Service Cost Quality Innovation 48:39
20 ChemicalCo Transport item Product Cost Quality - 34:38
21 ChemicalCo IT solution Product-service Cost Del. perf. Quality 43:08 22 EnergyCo Part/component Product-service Del. perf. Quality Cost 27:18
23 ChemicalCo Chemical Product Del. perf. Cost Quality 32:52
24 ChemicalCo Chemical Product Del. perf. Quality - 20:40
25 ChemicalCo Transport item Product Del. perf. Quality - 35:24
26 EnergyCo Part/component Product Del. perf. Cost - 48:19
27 EnergyCo Installation Product-service Del. perf. Innovation - 28:31
was sent by e-mail to each respondent three days prior to the interview. This protocol contained a written introduction to the research background and fundamental topics, preliminary interview questions relating to firm, department and function and, most essentially, two distinct sourcing situations. Each situation was discussed with the same set of questions, but focused on a distinct, predefined purchasing objective. A consent form was signed by both respondents and interviewers prior to the interview to safeguard anonymity and confidentiality.
During the interviews, open questions were used to inquire which tactical sourcing levers the respondents used in practice given the purchase at issue and the projected objective(s). Ultimately, the outcomes of these tactics in terms of goal attainment were reflected upon. This systematic approach enhanced the completeness and reliability of data, as well as cross-case comparability. About a half of the interviews was conducted face-to-face at the company sites, the rest by video call. The former method was preferred, since it enabled a better perception of the operating environment, a closer look on internal documents and unscheduled conversations with respondents’ colleagues. Each conversation was led by two researchers with adequate subject-related knowledge, communication and interview skills, allowing for in-depth inquiry and follow-up questions. The interview duration was about one hour on average. Upon consent of the respondents, all interviews were recorded, transcribed verbatim and translated within a few days after the interview ended. The respondents were debriefed by e-mail, enabling them to revise the transcript or clarify some content, if needed. Table 4 provides an overview on how validity and reliability were assured during the process.
s
Table 4: Validity and reliability (Yin, 2014) 3.4.2. Quantitative data collection
Parallel to the qualitative data collection, a link to a web-based questionnaire was sent by e-mail to all persons that were selected to participate in the survey (Blumberg et al., 2014). In a fictive case, the respondents were asked to act as a purchasing manager for a machine factory and source four components. For each of these, a different objective was leading (either
Criterion Accounted for by …
Construct validity use of triangulation of evidence (combining surveys and interviews); use of established constructs and indicators (survey); Internal validity pattern matching and rival explanations; cross- and within-case analysis;
External validity heterogeneous case characteristics for theoretical replication;
Reliability
use of interview protocol, audio tapes and transcript review by respondents; use of case study database;
quality, innovation, cost or delivery performance). In the survey questions that applied to this study, the respondents rated the importance of a particular tactical sourcing lever for these sourcing components. These questions were formulated uniformly: “When making sourcing decisions for ‘component x’ (focusing on ‘objective y’), how important is it to use ‘lever z’? Responses were expressed on a 7-item Likert scale, ranging from “Far below average” (1) to “Far above average” (7). Each of the six tactical sourcing levers was measured on a scale of three items. Hesping & Schiele (2015) established these relevant indicators by an extensive literature study and refinements together with purchasing professionals. It is the most advanced empirical measurement of tactical sourcing levers available to date. All items can be found in Appendix B. The components (and their corresponding objectives) were placed in a randomized order to mitigate the effect of decision fatigue on the responses. Ultimately, the response rate was about 70% for ChemicalCo (7 responses) and 56% for EnergyCo (45), amounting to a total of 52 of complete responses.
3.5. Data analysis
3.5.1. Qualitative data analysis
After transcribing the interviews, the data analysis process followed the structure of a) data reduction; b) multi-level coding; and c) the identification of prevalent mechanisms by which tactical sourcing levers support a certain objective (Miles & Huberman, 2014).
In the first stage, relevant interview quotes (first-order codes) were selected and listed per case group (i.e. per objective) in a spreadsheet. Most importantly, these quotes made reference to the use of tactical sourcing levers. Other significant statements could relate to background factors such as the case-specific purchase, supplier and outcome, or the relative importance of objectives. These were recorded as concise descriptive codes (second-order). As such, a broad scheme was made with both deductive (tactical sourcing levers) and inductive codes (other headings without theoretical underpinning; e.g. ‘Reflection on outcome(s)’). Besides – when applicable – a label was added with the objective that explicitly linked to these second-order codes (e.g. label ‘C’ for cost-cutting initiatives). On a more detailed level, third-level interpretative codes referred to specific activities, trade-offs or conditions as a way of capturing the essence of each quote.
the objective of cost. The excerpt of the coding tree in table 5 outlines this process. Consequently, these mechanisms were compared with those found in cases with another focal objective, with all data consolidated into a single coding tree. In this between-group analysis, patterns across the cases were identified, with a specific focus on the objective as a differentiator of sourcing tactics used by buyers. The main findings of this analysis will be presented in the next section.
Table 5: Coding tree (excerpt for a section of the ‘volume bundling’ sourcing lever, for quality)
Quote (first order): Obj.: Descriptive code
(second order):
Interpretative code (third
order):
Mechanism:
"There were colleagues from engineering, technology; there were two projects with two project leaders. Those project leaders were colleagues from engineering. Together they were in charge of the two projects. We have bundled these projects into one purchase." (C3)
C (VB) Bundling across projects and/or regions Consolidation of project volumes Bargain prices "… you also asked if you could negotiate the volume of
these valves? These are all distinct valves with varying specifications, so sometimes bundling works fine, but for some parts, yet these still are all different valves." (C3)
C Trade-off with
customization "... when they say to me: "You can wait another 2 to 3
weeks", [then] I will hold such an order in the meantime. If a new order comes in, I [decide to] bundle it then [so that] I have an increase in scale, I can put away 3 tons instead of 1 ton, then there is an [cost] advantage to be gained." (C6)
C Economies of
scale
"... when it comes to specifications, we try to bundle some [orders] with each other. But if the planning is really tight, then price remains important but we then abandon [these bundling, economies of scale opportunities]. Then it is true, the customer that needs to be served." (C6)
C+D
Trade-off with delivery (lead)
time "Because simple things, like boxes for example, I really
don't need to have them on the terrain [like the storage containers]. That's also allowed a few kilometres further [outside the chemical park]. After I challenged him to do this, it became even cheaper. I think we've been around the table regularly for three quarters of a year: how can we improve even more? (C5)
C+I (VB) Supplier consolidation Shift to local sourcing Access to supplier expertise "… since he offers all these things in one place, I don't
have to go to those four other companies anymore." (C5)
Q “In terms of costs we actually got a machine that fits better with our other installation, as we have more from this other supplier.” (C8)
Q Alignment with
infrastructure Technical ‘fit’ "Well in [terms of] volume, I specifically looked in this
contract at what the other four companies had in volume, I bundled that, and well: "This is what you get, so here is a picture of what the other suppliers still leave, so be aware of that." (C5)
C From multi- to
single-sourcing
Supply base reduction
“Only if you look at maintenance, and [total] cost of ownership, it got better. In addition, our purchase price was also even lower." (C8)
C+Q
Complementary (technical)
service
3.5.2. Quantitative data analysis
A pre-processed SPSS data set with complete and valid survey responses was the basis of the quantitative data analysis in this study. First, the relevant data (i.e. about the use of tactical sourcing levers) was extracted and reorganized into four groups; one for each objective. Within these groups, mean scores were calculated of the perceived importance of each tactical sourcing lever for the group-specific objective (aggregate scale level), as well as an overall means of all separate levers. The indicators of the tactical sourcing levers were included for further analysis as well (item level). Before independent t-tests could be conducted to assess whether the means of one sourcing lever, or underlying item, significantly differed from the overall means of all sourcing levers for a given objective, some assumptions needed to be verified.
4. RESULTS
In order to explore how the objective for a purchase impels buyers to not only choose different tactical sourcing levers but also execute these in various styles, the results of 28 purchasing situations (cases) and survey data have been compared. As for the interviews, it was reviewed how buyers apply tactical sourcing levers differently to achieve a purchasing objective, hence concerning distinct levers as well as distinct applications of a single lever. Alternatively, the survey data explained more about the relative importance of the tactical sourcing levers for each objective.
For the transaction-oriented levers it was found that buyers predominantly use volume bundling to bargain prices. Yet, several cases were reported in which supplier consolidation in fact enhanced performance on the other objectives, through various mechanisms. Supply base extension was largely applied in support of delivery performance (increasing sourcing options) and cost aims (competitive bidding). Statistical data confirmed the relative unimportance of this lever for quality and innovation objectives. Beyond strictly cost-minded price evaluations, buyers also applied strategic tools, such as total cost of ownership and lifecycle cost analysis, to critically review maintenance and lifespan improvement (quality), or to promote an innovative business case.
As for the relationship-oriented levers, product optimization was mostly used in the quality- and innovation-oriented cases, in particular through evidence-based approaches (e.g. pilot testing) and co-development. Cost-efficient and delivery-oriented designs were pursued to a lesser extent, although survey results indicated that particularly product standardization is a significant tactic to support these objectives. Process optimization tactics were predominantly aimed at superior logistics and inventory management. However, process control and early buyer involvement in projects were key practices for all four objectives, albeit through different mechanisms. Relationship optimization was not strictly used for quality (joint buyer-supplier improvement initiatives) or innovation (preferred access), but also long-term cost and delivery benefits were attributed to relationship commitment and relationship marketing, respectively. However, this last claim could not be traced back in the survey findings.
Table 6 (Underscored cases focused on the specific objective (see column); cases in italics focused on another objective but clearly featured the use of the tactic (row) as a means to achieve the column-specific objective. The * sign indicates that more cases were found for the mechanism, but not added due to space constraints.)
Tactical sourcing lever
used with a focus on: Quality Innovation Cost performance Delivery
V olu me bu nd lin g Bundling purchases
across projects or regions – –
bargain prices (3; 6; 15; 16;22) – Concentration of volume on one/few supplier(s) enhancetechnical ‘fit’ (8; 13; 18; 19) enhance access to expertise (5; 11; 13) enhance return on investment (18) enhance supply availability (25; 28) Suppl y bas e ext ens ion Contracting or developing additional supplier(s) extend
high-quality sources extend sources of innovation (13)
shift the power balance (13;23)
extend (back-up) supply options
(1; 3; 4; 19) (5; 6; 23; 24; 25)
Adding candidates to the bidding process modify product design (20) – modify prices or payment terms (7; 16; 18; 20) modify delivery terms (26) Pri ce ev al uat ions
Price analysis techniques
(e.g. tendering) – –
benchmark and evoke competition (3; 5;10; 16-20; 25)*
– Trade-off flexible (F)with
fixed budgets (and P4P) –
advance R&D (F) (9; 12)
control costs (P4P)
(12; 15; 18; 21) –
Total cost of ownership and lifecycle analysis
assess quality-in-use (1; 6; 8; 21) assess business case (11; 13; 14; 21) assess efficiency-in-use (18; 19; 21; 22)* – Supply chain and value
analysis – – eliminate non-essential inputs (4;5;10;17; 20;28)* eliminate supply chain complexity (16; 23; 25; 27) Product o pt im izat
ion Functionality or specification assessment test specifications (1; 2; 3; 4; 20; 25)
pilot innovations (9; 11; 13; 14; 18) support value analysis (15; 17; 20) – Supplier (network) integration in product development co-design for superior quality (5; 6; 7; 8) co-innovate (9; 10; 12; 13) co-design for input substitution (18; 20; 21) co-design for delivery (25; 27) Trade-off standardization (S)withcustomization (C)
achieve ‘fit for purpose’ (C) (1; 3; 4; 5; 8) achieve tailor- made solutions (C) (9; 10; 13; 14) achieve low- cost design (S) (7; 18; 20; 21) achieve simplified logistics (S) (22; 25; 27) Proces s o pt im izat
ion Process monitoring and control measures
screen, audit and test (1; 2; 3; 5; 6; 19)
control project scopeandplanning
(9; 11; 21)
control budget constraints
(15; 16; 19)
control stock, lead time and clause (3;
7;17;22;23;27;28)*
Logistics integration (e.g.
JIT) and data exchange – –
coordinate (demand) planning
coordinate value-adding logistics (8; 17; 25) (16; 27; 28) Early project involvement
and buyer as leading supplier contact
assess in- and external demand (1; 2; 3; 6; 7; 8; 9)*
manage change and property (10;11;13;14;18;27)
evaluatebudgetand/
or reorganize tasks (7;12;15;16;21; 22)* anticipate supply needs (3; 22; 27) Rel at ionshi p opt im izat
ion Relationship marketing
and frequent field contact
seek quality dialogues (1; 2; 3; 5; 6; 7)
seek preferred ac-cesstoinnovation
(11; 13; 22)
– seek proactive contact with suppliers - (23; 24; 25) Relationship commitment
and continuity focus
stimulate joint problem-solving (1; 2; 5) stimulate preferred status (11; 13; 22) stimulate supplier investments (16; 17; 18; 19) stimulate logistics coordination (6; 22; 28) Selecting suppliers for
their adequate level of…
experience and qualifications (1;
4; 5; 6; 7; 12)*
capacity
4.1.1. Volume bundling
Volume bundling methods were used for all objectives, but particularly to achieve cost advantages. As such, the bundling of volume across projects and regions was strictly applied for cost purposes, as a means to bargain prices. For the other objectives, buyers generally did not see any possibility to use this tactic, or considered it inapt. However, the concentration of volume on one or a few supplier(s) (i.e. supplier consolidation), applied to all objectives, yet with subtle differences: either to enhance the return on investment (cost). ‘technical fit’ of a purchase (quality), access to supplier expertise (innovation) or supply availability (delivery performance).
By consolidating the purchase volume of multiple similar projects or different regional divisions into one large order, cost-minded buyers allowed suppliers to run larger lot sizes, lower transaction costs and achieve economies of scale. In turn, price discounts could be arranged: “You can make the volume more interesting for the supplier [by saying]: "I'm providing you with an opportunity, you could talk to your supplier and perhaps we could negotiate certain volume discounts with each other” (C16). In the cost-related cases, this tactic was either used for project-related purchases (e.g. C3) or for large quantities of standardized items that were routinely purchased from the same supplier (C20). In contrast, the high level of customization (e.g. C1), low purchase volume (C9) and time pressure (C22) that typified most quality, innovation and delivery performance cases, respectively, made it complicated for buyers to combine multiple purchases into a larger order. With price as a non-essential factor, other methods were preferred to achieve these objectives.
bring a number of benefits to the organization. […] We’ve been doing business with each other for years, [they] know the organization, [and] the expectation pattern” (C8).
In several innovation-related cases, supplier consolidation was about long-term engagements as well, yet specifically aimed at the access to supplier expertise. It was mentioned that the shift from multi-sourcing to one local supplier with a wide range of competences provided a circumstance in which more frequent, personalized buyer-supplier contact could take place. More than in the previous situation, innovative ideas and improvement initiatives could be shared on a regular basis (C5). Another buyer planned to build up a partnership and gain exclusive access to a supplier-owned innovation by providing a pilot and commitment in terms of (future) volumes (C11). From a delivery performance perspective, it was found that in tight markets (C25; C28), devoting sufficient volume to few suppliers rather than spreading volumes across a large supply base was a significant tactic to uphold the willingness of suppliers to deliver readily: "The danger is, if you don't give anything [to a supplier], he’ll say in a year or two: ‘We won't make that product for you anymore’” (C25).
4.1.2. Supply base extension
In the first place, supply base extension was about contracting or developing additional suppliers to extend high-quality sources and back-up supply options (delivery performance). For cost aims, it was used to shift the power balance in favour of the buyer. Secondly, adding candidates to the bidding process was used as a lever in negotiations to pressure suppliers to lower the price (cost), modify delivery conditions or adapt product design (quality). The innovation objective was hardly accommodated by supply extension methods (except for C19; extension of sources of innovation).
base: "Yet we still have contact with this [not-contracted runner-up] supplier to reflect on: well, if we need more control valves in the future, do we already want to do a trial run now?” (C3). This tactic was considerably less associated with innovative purchases. Cases with this objective largely revolved around a single (IT) system (C10; C14) or buyer-supplier co-development (C9; C11; C12). Since these purchases necessitated large dedicated investments, intensive collaboration and a close regard for intellectual property protection, a single supplier was deemed most appropriate. Supply base extension was only applied once, for a relatively low-cost, high-volume bottleneck item. A second supplier was included in an advanced stage of a development trajectory, to further work out an innovative machine component and mitigate future risks (C13).
More in the context of negotiations, supply base extension was used to realize cost savings in two ways. A few buyers claimed that contracting additional suppliers was useful as a remedy against price escalation when the dependency on one powerful supplier was large: “For the valves [we depend on this one supplier], yes. But in terms of the repairs and maintenance, this can still be done by other parties […]” (C3). However, more prevalently, in situations where buyers held a relatively strong bargaining position and did not pursue any form of strategic collaboration, extra candidates were added to the bidding process to mobilize existing suppliers or bidders to offer more competitive prices or favourable payment terms: “No, we did not [work towards a partnership]. I wanted to have maximum freedom […] to play the game of negotiation with the suppliers [...] reasonably hard (C16).” Sporadically, a similar ‘spot buying’ approach was used to enforce delivery terms (C26) or to prompt an inert supplier to adapt a product design (quality-related; C20). Yet, given the restricted supplier choice in most of the quality- and delivery-oriented purchases and the dominant single-sourcing focus for the innovative buys, generally no such tactic was used in these cases.
4.1.3. Price evaluations
cost-analysis and supply chain assessment were clearly linked to cost and delivery performance aims, as means to eliminate non-essential inputs and supply chain complexity, respectively.
In cases where relatively low-complexity items were purchased with numerous supply options available, cost-minded buyers used methods such as tendering to benchmark prices, evoke competitive bidding and select (candidate) suppliers effectively: “[In the tender phase,] I received a call from a competitor of those two parties, who was very keen to do the job. […] He [bid] thousands of euros lower. We don't want to make things more complicated than they are.” (C15). For quality- and delivery-oriented purchases, tendering was common practice as well, yet with a focus on other criteria than price (e.g. supplier certifications or delivery conditions, respectively).
In several other cost-oriented cases, buyers expressed to rather look beyond the lowest price and consider additional, indirect cost factors. This particularly applied to less straightforward purchases, such as capital investments (C18) and products with complementary technical services (C19). The importance of TCO calculations was emphasized in virtually all cases (for all objectives), but related to cost factors in the first place. As such, the efficiency in use of a purchase was thoroughly estimated, including factors such as supplier productivity (C21) and the long-term costs of maintenance: "I don't go for the lowest price […]. When you need service and maintenance, or when there's a change and a supplier starts writing more work, then it backfires” (C6).
In quality-related cases, however, methods such as TCO and LCC analysis were more used to evaluate apparent trade-offs between cost savings and aspects such as safety (C1), lifespan (C8) or user experience (C14). Quality in use was thus assessed to come to a sourcing decision, e.g. whether to buy a new (IT) solution or to modify the existing system (C21). For purchases with a focus on innovation, similar methods were applied to review the viability of innovative business cases (e.g. of a more durable machine component; C13), and to promote these among in- and external customers (i.e. to “land an innovation”; C11).
budget. That [work prior to payment] is just the investment that the supplier has to make” (C15).
Other cost-related cases demonstrated that value analysis not only served as a technical measure to eliminate non-value adding product components and achieve cheaper designs (C14), yet also as a lever in negotiations. As such, the costs relative to the gains of suppliers were critically discussed: “You should also look at […] that by-product. And what does that [total] 'package' yield in return?” [The supplier] may claim that everything will be more expensive, but also […] profits from that by-product (C17)". In cases with considerable buyer-supplier interdependency and rigid price negotiations, this tactic was used to stress that a ‘no deal’ would compromise the interests of both parties (C16; C20). Comparably, the attractiveness of the buying firm as a ‘low maintenance’ customer or technical frontrunner was stressed (C17) and suppliers were urged to co-finance testing programs that could provide them with valuable information (C21).
Furthermore, buyers achieved cost savings by bypassing intermediaries in the supply chain, negotiating favourable prices with manufacturers directly (e.g. C17). From a delivery performance perspective, this tactic of direct buying was used to eliminate complexity and bottlenecks in the logistics process: “I tried to intervene […], because what value did that technical wholesaler add? It only went from trays in boxes and [vice versa], disturbing the logistics.” (C27). No explicit reference was made to value or supply chain analysis for the other objectives, arguably due to the need for strict adherence to product specifications (quality) or uncompromisable functionality (both quality and innovation).
4.1.4. Product optimization
Tactics relating to product features were driven by all objectives, but strongest by quality and innovation. The importance of testing quality specifications and piloting innovations was widely recognized. Additionally, test output was used to support value analysis from a cost perspective. Through joint buyer-supplier development, co-designs targeted to superior quality, innovation, input substitution (cost-related) and delivery excellence could be made. Furthermore, it was found that customization allowed for ‘fit for purpose’ (quality) and tailor made solutions (innovation), whereas low-cost design and simplified logistics (delivery performance) relied on standardization.
handling, etc.] were part of the evaluation. The trial setups helped us to check the requirements even better!” (C3). Similarly, for innovations, pilots or demos served as a test case of implementing new (IT) solutions and reviewing their functionality: “A proof of concept is more and more of our time, [to] try it out on a small scale: is it successful […]? You can also do multiple […] at the same time, which you can compare […]” (C21). From a cost perspective, testing provided input to value analysis and product simplification: “Only by means of those tests you can prove to a supplier that a lesser quality suffices” (C20). Delivery performance, however, was safeguarded by means of process- rather than product-related tactics.
For the development of novel, complex or customized items, a more active role of the buying firm was favored. Again, quality- and innovation-oriented buyers used a similar approach, both opting for co-development with a supplier or third party. In these situations, product optimization called for the exchange of complementary know-how and resources between buyer and supplier: “We found out that the complexity was so high that we couldn't put it down on paper ourselves, while they couldn't come up with the final result themselves” (C9). Both quality- and innovation-minded purchasers generally took on a coordinating role between in- and external R&D. Principally, this was done to accurately specify and transmit the needs of the (internal) customer (C3), monitor supplier compliance (C9) and protect the legal and commercial interests of the buying firm (C13).
This method also applied to cost-oriented cases, yet to a lesser extent. In some cases, technicians of the buying firm and the supplier jointly conducted value analysis and substituted costly product inputs with cheaper alternatives (C7), possibly originating from another supplier of the buying firm (C18). Yet, several cost-minded buyers with a restricted budget considered this approach inapt: “Development always costs money, so you have to stick to the specifications in the drawings […] When you do more, it'll cost more.” (C15). Supplier integration only led to superior delivery-oriented designs for non-temporary and technically advanced purchases, as illustrated by the ‘conference’ in C27, when a group of suppliers was challenged to redesign a data installation with special regard for logistics.
