Intended learning outcomes: Present target area strategies for the traditional market-oriented relationship, and disclose possible supply chain risks entailed.
The traditional market-oriented relationship is determined by the law of supply and demand. Suppliers are chosen on the basis of low prices. Cost reductions are achieved as suppliers play off one another.
Market-oriented relationships show low intensity in terms of entrepreneurial cooperation. In principle, the duration of the relationship is indefinite, but in fact it is calculated to be short term: the supplier network is flexible, and any relationship may be replaced with another. Related to the entrepreneurial objectives in Figure 1.3.1.1, strategies arise between the producer as buyer and the producer’s suppliers as shown in Figure 2.2.2.1.
Fig. 2.2.2.1 Target area strategies for the traditional market-oriented relationship.
In sum, price and quality arguments, or productivity in the narrow sense, determine supply and demand. Where friction loss is too high, the customer tends to use insourcing. This is also why there has been a trend in the past toward large and even multinational corporations.
The market-oriented relationship tends to have the following supply chain risks, which on the whole have to be smaller than the risk of over-dependence on one supplier:
- Relatively high costs for the order process, due to the great expense of frequent information gathering and contract negotiations. The selection of the supplier must be made within a short time and based on fewer criteria.
- For custom material, changing the supplier can result in significant adaptation costs on the buyer side; for example, the cost of changing production or logistics processes. For this reason, companies should purchase only commodity material via the marketplace whenever possible.
- In a buyer’s market, the suppliers can absorb the pressure to lower prices by drastically reducing costs on their side. They minimize costs via lower quality, long delivery times, and low delivery reliability. This can impact the buyer’s service level. Therefore the buyer, even though dominant, cannot push prices down too low.
Continuation in next subsection (2.2.2b).
Course section 2.2: Subsections and their intended learning outcomes
2.2 Strategic Procurement
Intended learning outcomes: Produce an overview on strategic procurement. Differentiate between traditional market-oriented relationship and Customer-Supplier Partnership. Describe strategic procurement portfolios. Explain strategic selection of suppliers. Present basics of supplier relationship management and e-procurement solutions.
2.2.1 Overview on Strategic Procurement
Intended learning outcomes: Disclose the supplier structure follows the product structure. Differentiate between direct material, indirect material, commodities, and various demand patterns. Describe various traditional procurement strategies.
2.2.2 Traditional Market-Oriented Relationship
Intended learning outcomes: Present target area strategies for the traditional market-oriented relationship, and disclose possible supply chain risks entailed.
2.2.2b Customer-Supplier Partnership
Intended learning outcomes: Identify the concept of customer-supplier partnership and disclose adequate target area strategies, and disclose possible supply chain risks entailed.
2.2.3 Strategic Procurement Portfolios
Intended learning outcomes: Explain the supplier portfolio describing the degree of mutual dependence between buyer and supplier. Present procurement strategies for material groups in dependency on their logistics characteristics.
2.2.4 Strategic Selection of Suppliers
Intended learning outcomes: Describe possible supplier-evaluation criteria for each target area. Explain the score and the gap method for supplier evaluation, using an example with two suppliers. Disclose possible supply chain risks entailed using these methods.
2.2.5 Basics of Supplier Relationship Management and E-Procurement Solutions
Intended learning outcomes: Produce an overview on several categories of e-procurement solutions.
2.2.5b Sell-Side Solution, Buy-Side Solution, Electronic Marketplace: Classifications of an E-Procurement Solution
Intended learning outcomes: Describe various classifications of an e-procurement solution according to the institutional provider, the degree of “openness”, and the range.
