Dependence on one supplier relationship

dependence on one supplier relationship

Work as hard on building a good supplier relationship as you do Competitiveness: They can give you the one-up on your competition based. Single source procurement is purchasing from only one vendor because they are company to be in, as they are so dependent upon the services of a single vendor. If vendor relationships become difficult, or either company experiences . Therefore, the presumed power symmetry of buyer – supplier relationships in the Although power and dependence are generally considered Kraljic's model In Section 2 a formulated strategic recommendations, resulting in one overall.

Sole & Single Source Procurement – Good or Bad Idea?

For this purpose we translated each M. Purchasing professionals were speci- comprehensive descriptions of real-life situations scenarios. Purchasing professionals The description of the four scenarios is given in Table 3. There- The survey adopts a repeated measures design, i. In the first two stages, the questionnaires were sent out perspective of the buyer. The distinct advantage of using a by postal mail.

The last stage consisted of an electronic mailing. Tests on the likelihood of a groups of respondents is taken away. Each of the respondents has non-response bias indicated no statistical significant differences to answer all questions in each of the four scenarios. Therefore, between the first wave and the second wave of respondents. Questionnaires that were that reply to the questions in each scenario. Hence, a repeated measures design, variability among groups of respon- total of 10 reactions were discarded due to incomplete dents is removed from the error term, which makes the design information.

In addition, all responses were removed that scored more powerful than randomized designs Stevens, A potential drawback of the adopted research method is that In this way, another 22 responses were omitted, resulting in an respondents might not be able to fully visualize themselves in the effective response rate of This can be proposed descriptions, resulting in unreliable answers. In this way we items, the questionnaire contained 8 pages with items in ensured the validity of the results.

The survey procedure included a pilot study aimed at enhancing the reliability and the validity of the questionnaire. Several issues were discussed during these interviews, In Section 2.

On account of the There is no general consensus in the literature on how pilot study several improvements have been made in the these two concepts should be operationalised. We have description and layout of the questionnaire items, response examined relevant academic contributions to the literature to options and scenarios. Table 3 Description of the scenarios corresponding to the Kraljic quadrants Scenario Characterization Corresponding Kraljic quadrant Scenario description 1 Maintain partnership Strategic quadrant Consider a product with a high purchasing risk and a high financial value.

You consider the supplier as an important partner with whom a satisfactory strategic relationship exists. The performance of the supplier is excellent. Both parties have an interest in continuing the relationship and the parties have a good mutual understanding.

Your firm is vulnerable regarding the supply of one supplier. You try to ensure a constant supply by keeping high stocks. The purchasing risk is low, while the product has a relatively high financial value. You let those suppliers prevail that offer the lowest price while guaranteeing quality and prompt delivery. Competitive bidding is one of your tactics.

You only allow short-term contracts. The product is not very critical for your company, but still it has to be purchased. You choose to buy the product as a part of a package of similar products from a certain supplier.

In this way it is possible to have only one supplier for several products. He points out that it is of primary importance money that is involved. On the absence of the resource. In essence, however, the concept is two- other hand, substitutability can be subdivided into 1 the fold in nature.

Are two vendors better than one?

On the one hand it refers to a need for availability of alternative sources and 2 the level of relation technological expertise of the partner, on the other hand it specific investments i. The need for technological expertise is critical In addition to these conceptual studies, several empirical for both parties, buyer and supplier.

In an industrial context, studies pay attention to the concept of organizational depen- companies rely more and more on technologically advanced dence. Most of these studies regard organizational dependence key suppliers.

Companies increasingly need the critical that have an influence on it. The few studies that try to explain expertise and specialized knowledge of their industrial the factors that influence organizational dependence e. In all empirical studies logistically compatible with its own production system. On the basis of answers concerning the statistical significance of the dimensions these considerations we have redefined the concept of resource of dependence. The related to dependence. With respect to the availability of alternative sources and switching costs the dependence positions of buyers and suppliers 1 the financial magnitude of the exchanged resources; are symmetrical.

The buyer depends as much on the supplier as 2 the criticality of the resources; the other way around. Both buying and supplying organizations 3 the availability of alternative sources; invest in the relationship with their trading partner. When the 4 switching costs, incurred when replacing a trading supplier develops and uses dedicated equipment assigned partner.

Table 4 the mutual dependence of the trading partners. If switching suppliers alternative buyers costs are low, the buyer will not experience any dependence on Switching costs buyer Switching costs supplier the supplier.

Note accounted for when analyzing the data. Model-repeated measures for the comparisons of the means in different scenarios. Bonferroni adjustments were made to 3. The last two columns in Table 6 show the resulting each construct as shown in Table 4 Cronbach, Table 5 findings for the power balance and total interdependence.

Note presents the results of the reliability analysis. Therefore, a negative sign for the power balance than 0. On a scale that runs convergent validity. Furthermore, we used explanatory factor analysis principal Several points emerge from Table 6.

These findings are in been executed. The factor solutions confirmed our expectations, accordance with our prior expectations. Column 2 in Table 6 i. Almost all items had factor loadings that on a 5-point scale. The same holds for the strategic quadrant, exceeded the recommended level of 0. Note that none of the items cross- scale. In other words, the items that should not bottleneck and the non-critical quadrant confirm our expecta- be related were indeed not related.

We can safely conclude that tions on the basis of the literature. We Differences with respect to interdependence between quadrants of Kraljic matrix will come back to this unexpected result in the next Results with respect to interdependence paragraph.

The literature puts a lot of emphasis on the - face higher switching costs than the suppliers; and idea that buyer — supplier relationships in this quadrant are - have fewer alternative trading partners than the supplier typically characterized as satisfactory relationships based on does.

The last column of Table 6 shows the level of total However, the results suggest that such satisfactory relation- interdependence in the various quadrants. This deviates consequently from what is expected from the literature, which indicates - low levels of interdependence in the non-critical quadrant. Several separate tests have been undertaken to determine Presumably, once a buyer has entered a partnership this whether total interdependence in one quadrant significantly ensures a disproportionate raise in the dependence of the buyer differs from total interdependence in all other quadrants.

The on the supplying partner. In INDEPlev and INDEPnon refer to total interdependence in the their belief a pre-contractual situation of balanced power shifts strategic, bottleneck, leverage and non-critical quadrant to a post-contractual situation of supplier dominance, when the respectively.

Total the buyer in. Other writers suggest that unbalanced relation- interdependence has its highest value in the strategic ships may not always be troublesome: A relative power position can be used to enhance the 2b and 3b respectively.

Consequently, the non-critical nature of relational exchange between trading partners.

Are two vendors better than one? - Achilles | Achilles

It quadrant contains the lowest value of total interdependence. Summary, conclusions and suggestions for further justified in the case of channel studies manufacturer — research distributorwhere relations often revolve around one major supplier.

However, the method is also often used in studies Purchasing practitioners maintain a variety of supplier relating to industrial relationships, in which the limitation to relationships with different suppliers, and the management of the dominant supplier is not a self-evident point of departure. On the important for understanding buyer— supplier relationships, yet basis of this study we conclude that neither approach provides these factors are often overlooked in empirical studies.

Little is a comprehensive insight into buyer — supplier relationships. We known about the role of power and dependence in buyer — have found evidence of the existence of four buyer — supplier supplier relationships from a purchasing portfolio perspective.

Second, we empirically tested relationships. This A comparison of the hypotheses with the empirical findings common practice among researchers should only be used if leads to the following results. The hypotheses that concerned the the research question specifically requires such a sampling relative power position of the buyer and the supplier in each method. In all other cases it should be discarded. Future and quadrant 1a — 4a were confirmed, except Hypothesis 1a. That further surveys can no longer ignore the large variety in is, we observed supplier dominance in the strategic quadrant, supplier relationships.

They offer the literature. It indicates that partnership is perceived to be satisfactory from the perspective suppliers are perceived to dominate satisfactory partnerships. Industrial marketers should be aware that All hypotheses concerning the level of total interdepen- professional purchasers feel dominated by them, even in dence in each quadrant 1b —3b were confirmed. Table 9 satisfactory relationships. Possibly this finding could entice summarizes the differences between the expectations on the marketers to try to exploit their power and to skim off the basis of the literature on power and dependence, and the market surplus.

dependence on one supplier relationship

However, marketers should be aware of the results from this study. In fact, a The theoretical contribution of this paper lies primarily in situation in which the buyer feels dominated yet satisfied is the notion that future research can no longer assume that desirable, since the buyer will not search for alternatives buyer —supplier relationships in the strategic quadrant of the suppliers or products.

Therefore, marketers should nurture Kraljic matrix are necessarily characterized by symmetric these kinds of relationships. When we combine this result with the high For professional purchasers the managerial implication of total interdependence reported in this quadrant, we arrive at a this study is that they should be aware that dependence more refined theoretical implication of this study.

Buyers should ask themselves whether studies should take into account that a relationship which is there are sufficient benefits attached to the relationship to characterized by a high involvement of buyers and suppliers offset the obvious disadvantages of such a vulnerable and does not necessarily imply a balanced power position between dependent position towards a supplier. In addition, purchasers the parties, but can yet be satisfactory, at least from the point of should assess the risks that are harbored in this kind of view of the buyer.

In other words, even in research, which pertains to the sampling method in survey- satisfactory relationships, buyers should explore the market based studies. Many studies ask respondents to express their by scouting for alternative suppliers and determining their opinions on their relationship with a single type of supplier, competencies. Furthermore, professional purchasers should usually the key or the major supplier. This approach is become aware of their own power basis.

They should investigate to what extent the perceived supplier dominance Table 9 is based on an objective assessment of the relationship. Comparison of relative power and total interdependence in the Kraljic matrix: Despite the rigor of the analysis, this study contains several theory and practice limitations that might entice further research.

One of the Relative power Total interdependence limitations of the study concerns the fact that the survey was Expected Observed Expected Observed confined to the perspective of the buyer. Yet, buyer — supplier Strategic Balanced Supplier dominance Highest Highest relationships are dyadic in nature. Suppliers might have different Bottleneck Supplier dominance Supplier dominance Moderate Moderate opinions on the power and interdependence structure of the Leverage Buyer dominance Buyer dominance Moderate Moderate various buyer —supplier relationships.

Although the sample included a wide in this study could serve as a promising point of departure for range of industry sectors, the generalizability of the results further quantitative research to the issues of power and would benefit from the inclusion of firms in the service sector, dependence in buyer — supplier relationships.

The level of as well as other Dutch and international companies. This might relative power might be related to the sizes of the buying and be the object of a further study.

Alternatively, network positions or With respect to additional issues for further research we the positions in the supply chain could be included as a propose the following. The finding that buyers feel dominated determining factor of relative power.

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Increasing mail survey response rates procurement and supply competence. Journal of Supply Chain Manage- from an industrial population. Industrial Marketing Management, 31 1ment, 37 28 — Exchange relationships and interfirm Nellore, R. Portfolio approaches to procurement: However, if you're dealing with a sole source options are much more limited since it is very difficult to change suppliers unless your radically change your requirements.

But if you are dealing with single source procurement, your options are much less restricted, since it is less difficult to change suppliers.

dependence on one supplier relationship

For example, in some cases, particularly with government contracts, great care has to be taken to ensure that no charge of corruption can be levied at either party. It is for this very reason that many governments insist on competitive tendering and the removal of any monopolistic tendencies. Many countries rigorously review their purchasing strategies to ensure that this does not happen. Many governments publish quite stringent regulations that must be adhered to before a single source procurement can be authorized.

The Vendor Client relationship - in real world situations

This was the case with Sky when they bought out Amstrad who were the suppliers of the set top boxes. Be Ready with an Alternative Source This is much easier with single source procurement but not sole sourcesince other similar suppliers should be able to supply similar products with more or less that same quality as the previous suppliers.

The suppliers would know this as well, and they would be more flexible when negotiating and more accommodating to terms. One word of caution: Single Source Contracts for Small Companies With small companies, single source procurement is quite common and is an inherent weakness of running a small business. It is rarely cost effective to purchase the same small set of product requirements from more than one vendor.