Commodity-Procurement Strategies of Food Companies: a Case Study Kraig Jones, Kellie Curry Raper, Judith M

36 November 2007 Journal of Food Distribution Research 38(3)

Commodity-Procurement Strategies of Food Companies: A Case Study Kraig Jones, Kellie Curry Raper, Judith M. Whipple, Diane Mollenkopf, and H. Christopher Peterson

This research evaluates the main characteristics considered in commodity-procurement decisions made by food manufacturers. Procurement characteristics are examined and a framework is developed which classifies procurement characteristics into three categories: product constraints, company constraints, and service constraints. A case-study approach is used to determine the importance of various procurement characteristics and their impact on the buyer’s procurement-mechanism choice. The research also examines the strategic role that a commodity-procurement department plays within a corporation and how that role relates to the three commodity-procurement decision classifications.

Today’s dynamic food industry generates a highly being sought, as defined in the overall business competitive environment for food manufacturers strategy” (Monczka, Trent, and Handfield 1998, and food retailers alike. Part of this ever-changing p. 183). Since an average manufacturer spends environment includes consolidation, new retail for- “55 cents out of every dollar of revenues on goods mats, and globalization. Food manufacturers must and services,” the impact of an effective procure- also contend with power shifts in the channel that ment strategy on company performance is easily favor retailers and create pressure on manufactur- observed (Monczka, Trent, and Handfield 1998, p. ers to increase service while reducing costs. Food 2). Furthermore, companies have increased the use manufacturers therefore face a challenging prospect of outsourcing considerably over the last decade, where service level, quality, and price expectations thereby increasing the need for procured materials from retail customers and end consumers are high and services (Leenders et al. 2006, p. 7). and continue to rise—while pressure exists to keep A food manufacturer typically procures two prices stable or even to reduce them. Purchasing, if types of goods: commodity and non-commodity managed effectively, offers opportunities for better goods. Seitz (1994) defines commodity goods as cost control while improving service levels (Koca- “widely traded raw materials and agricultural basoglu and Suresh 2006). products such as wheat, corn, and rice” (p. 435). Many food manufacturers concentrate on devel- Commodities must meet minimum quality stan- oping effective procurement strategies in efforts dards to be classified in a certain grade or standard to remain competitive. An effective purchasing category of that commodity, e.g., #2 yellow corn strategy is “one that fits the needs of the business (Seitz 1994). However, there is no differentiation and strives for consistency between the firm’s in- between a commodity that just reaches the mini- ternal capabilities and the competitive advantage mum standard within a grade and a commodity that just misses the next higher grade. Conversely, non-commodity goods are highly differentiated, Jones is a commodity buyer, North American Trading and branded, and/or have value-added characteristics. Logistics. Raper is an assistant professor, Oklahoma State For example, marinated chicken breasts may be University, Stillwater. Whipple is an associate professor differentiated by flavor and/or have added value and Peterson is a professor and Nowlin Chair of Consumer- Responsive Agriculture, Michigan State University, East provided by pre-cooking. Lansing. Mollenkopf is an assistant professor, University of While both commodity and non-commodity Tennessee, Knoxville. goods are important to manufacturers, the pro- The authors of this article would like to thank the curement literature focuses on non-commodity participants of this research. This research project was partially procurement since its costs are relatively high for supported by the Innovation and Organization Change (IOC) Program of the National Science Foundation, Grant #0122173, most manufacturing firms. Further, non-commod- and the Michigan Agricultural Experiment Station, located in ity procurement is usually contract-based and can East Lansing, Michigan. include highly specific requirements. Non-com- 38 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 39 modity procurement is considered to be more pact commodity-procurement strategy, develops complex and thus has garnered more attention a classification scheme for these characteristics, within procurement departments as well as in the and evaluates the importance and impact that each academic literature. characteristic has on commodity-procurement deci- The literature on commodities has historically sions. Our findings lead to a proposed model of the focused on selling or marketing commodities from strategic role of commodity procurement. a producer perspective. A key element of effective selling is an understanding of the customer (e.g., Commodity Procurement their wants/needs, important buying characteristics, the procurement process), yet literature on buyers’ The most basic function of a food manufacturer’s perspectives on commodity procurement is notice- commodity-procurement department is to maintain ably scarce in both the general procurement and commodity supply in order to meet production de- the commodity-marketing literature. This is perhaps mands. Managing supply risk is an essential element due in part to the assumption in operational purchas- of this function and is critical to successful supply ing models (e.g., Economic Order Quantity) that the management (Zsidisin and Ellram 2003). The com- price of material is “known and fixed” regardless modity-procurement department’s second function of purchasing policy—however, when large price is cost minimization (Hayenga 1979). Commodity fluctuations occur for input materials (as can oc- buyers accomplish these two functions by develop- cur in commodity procurement), purchase price ing an optimal procurement strategy for each com- becomes more important and “must directly affect modity depending on a variety of factors such as the purchasing policy” (Simon 2005). Commodity volume needs, associated risk, and potential costs. procurement, however, is an important consid- The commodity strategy “provides the specific de- eration. A recent study of mid-sized companies tails and outlines the actions to follow in managing indicated that “a lack of sourcing and commodity the commodity for the long term” (Monczka, Trent, skills” was rated as a top challenge, as companies and Handfield 1998, p. 187). In this study, com- often lacked expertise in key supply markets at a modity-procurement strategy primarily describes time when pressure to reduce cost is mounting and food manufacturers’ choices regarding the timing many commodity prices (e.g., oil) are increasing and method of commodity purchases used to meet dramatically (Aberdeen Group, Inc. 2005). specific needs of the firms. It embodies the firm’s Commodity procurement has unique charac- overall decision with respect to managing the com- teristics that add complexity to the procurement modity-procurement process. The two primary cat- function. In dealing with food commodities, buyers egories of commodity-procurement strategies are face not only the risk of inadequate supply but also (1) spot-market (i.e., cash) transactions, and (2) the price risk inherent in seasonal and potentially forward purchasing mechanisms. Both categories volatile commodity markets. For example, seasonal- are examined below. ity and the need for buying products globally (e.g., coffee or cocoa) extends the lead time between Spot Market when the purchasing commitment could be made and when the actual product is needed/used. This The spot (cash) market is the traditional commodity- extended lead time increases price risk but also in- procurement instrument, where buyers purchase the creases the need for assurance of supply (Leenders commodity in a predefined, general quality category et al. 2006, p. 214). Perishability and quality add on the cash market, immediately take possession, risk components as well. Hayenga (1979) points out and have no direct contact with the supplier (Fer- that the timing of commodity purchases can have a ris 1997). Spot markets “offer products at essen- significant influence on unit costs for a firm. Com- tially negligible lead time,” but this flexibility often modity procurement therefore represents an area on comes at a higher price and incurs greater price un- which food manufacturers should focus in order to certainty (Seifert, Thonemann, and Hausman 2004). improve profit, service, and/or quality and to with- In food manufacturing, this strategy is employed as stand pressures to reduce price. a simple replenishment strategy—e.g., when inven- This research examines characteristics that im- tory drops below a pre-determined threshold level, 38 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 39

a repurchase order is generated and carried out in “the timing of commodity purchases has a signifi- the spot market. cant influence on a firm’s costs” (Hayenga 1979, The spot market is widely used for several rea- p. 351). For example, suppose a commodity price sons. First, as a procurement strategy, it does not is forecasted to increase. If storage costs for that involve sophisticated tactics or market analysis, period are less than the forecasted price increase, a but merely involves monitoring current supply and forward buy lowers per-unit commodity cost. How- reordering (Arthur 1971). Spot-market purchases ever, price risk is inherent in a forward buy since also minimize inventory costs, since no storage is the commodity price may not move as predicted needed if the purchase is tightly coordinated with after the forward purchase. production needs (Arthur 1971). Furthermore, Variations exist on forward buys that affect who the spot market is an applicable tool when there takes physical possession of the commodity at the is little price movement, and hence little risk of time of purchase. This is a major consideration, price fluctuation, or when price movement cannot especially if storage space is limited (Kingsman be predicted, limiting the ability to minimize price 1985). If storage is limited, for example, it is advan- risk through other strategic means. tageous for the manufacturer to have the supplier While use of the spot market is often a viable retain possession until the manufacturer requests commodity-procurement mechanism, exclusive use delivery. of the spot market does have disadvantages. There is the inherent risk that a manufacturer may not be Forward Contracts able to procure the necessary volume when needed, A second forward purchasing mechanism used by leading to inefficiencies in manufacturing (Arthur manufacturers is a forward contract with a supplier 1971). Furthermore, relying on only the spot market that specifies delivery of a commodity at a certain may eliminate opportunities to purchase commodi- future date (Ferris 1997). Such contracts typically ties at lower prices, since the buyer is assumed to stipulate all of the transaction’s details, including be a price-taker in the spot market. the quantity to be traded, the quality of the commodity, delivery time and place, and price determination. Forward Purchasing Mechanisms Forward contracts offer the opportunity to procure commodities with the desired qualities for future Commodity-procurement instruments are some- processing without holding physical inventory times used by firms to secure commodities needed and with little or no required payment in advance for future production. These can be categorized as of delivery. A disadvantage of forward contracts forward purchasing mechanisms, including forward is the possibility that the supplier fails to deliver buys and forward contracting. Each requires the either the desired quality or quantity. However, the buyer to project future quantity requirements. Firms likelihood of contract default is small and legal also may reduce price risk by hedging spot-market recourse is available. purchases in the futures market. We do not discuss the use of futures markets in detail here since they Commodity-Procurement Characteristics are unavailable for the commodities considered in this research. Given the lack of previous research in the procurement literature specific to commodity-procure- Forward Buy ment decisions and buying strategies, we relied on A forward buy is a natural extension of spot-market characteristics that were shown in the commodity- procurement. Manufacturers purchase and take pos- marketing literature to affect marketing choices for session of a commodity in advance of manufactur- commodities. The general proposition guiding this ing needs when spot-market prices are favorable. research is that characteristics which play a role As Hayenga (1979) discusses, manufacturers can in commodity-marketing decisions will also play then establish a per-unit commodity price, set final a role in commodity-procurement decisions. The good prices and, hopefully, capture desired profit general procurement literature was also reviewed, margins. It may be advantageous to establish per- and where characteristics relevant to commodity unit commodity cost on anticipated volume since procurement were found, those characteristics were 40 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 41 included. A thorough review of the commodity- others are related to economic characteristics of the marketing literature and the general procurement commodity’s market. Characteristics derived from literature suggests that the following characteristics product constraints include market efficiency, per- are important in commodity-procurement decisions: ishability, seasonality, storage requirements, and market efficiency, perishability, seasonality, storage the commodity cost share in the final product. Each requirements, commodity cost share, budget con- characteristic is discussed briefly below. straints, cooperative involvement, limited supply, Market efficiency refers to the speed at which price risk, storage availability, traceability, and commodity markets react to and incorporate new in- volume. Additionally, insights provided by discus- formation into market prices. Petzel (1997) indicated sions with commodity professionals and academics that “Market information is an important economic completed prior to the case interviews indicated good that is valuable to the immediate participants that characteristics not previously discussed in the in a trade and to others who operate in related areas. literature also affect procurement decisions, such Good information guides efficient production and as sales forecast accuracy, special promotions, allocation decisions” (p. 256). A market with a high and supplier service level. We discuss the nature degree of market efficiency reacts very quickly to of each characteristic below and provide examples new information. Forward purchasing mechanisms from the literature. are less likely to be implemented in more efficient The characteristics described above can be di- markets, since a commodity-procurement depart- vided into three broad categories which provide a ment would have limited ability to “beat” the market. potential framework for understanding and investi- In less efficient markets, a commodity-procurement gating commodity-procurement decisions: product department may hold an asymmetric information constraints, company constraints, and service con- advantage and may execute a forward purchasing straints. Product constraints are those characteristics mechanism, such as a forward buy or a forward that derive either from the physical characteristics contract, before the market is able to react. An of the commodity itself or from the economics of information “advantage” can occur through “ordi- the commodity’s market. Company constraints are nary business activities” that enable a firm to better those characteristics which are created by financial, predict “input and output price movements more managerial, or organizational characteristics of the accurately than other market participants” (Knill, firm. Service constraints are related to the manu- Minnick, and Nejadmalayeri 2006). facturer’s relationships with buyers of the finished Perishability refers to the length of time before good as well as with purchasers of the commodity. the commodity decays or spoils and can no longer As one goal of this research is to better understand be used in production. A high degree of perishability the nature of commodity-procurement decisions, refers to a commodity with a relatively short shelf- adding a level of explanatory power by creating life before spoilage and thus a higher associated potential higher-order factors in these category transaction cost. Since companies move away from classifications was important. Figure 1 illustrates open markets when transaction costs are high (Wil- the three commodity categories and the factors that liamson 1975), it is unlikely a manufacturer will use affect decisions in each category. A discussion of the spot market for highly perishable commodities. the characteristics within each category follows, High perishability also discourages a standard for- including the expected affect of each characteris- ward buy that requires the buyer to secure storage. tic on procurement strategy (e.g., spot market or When commodities are highly perishable, it is forward pricing mechanism), assuming all other likely that the manufacturer will develop forward characteristics were held constant. contracts with a supplier to ensure fresh supply is delivered when needed to minimize risk. Product Constraints Seasonality is the degree to which historic price swings (highs and lows) occur across growing sea- Product constraints are related to the distinct charac- sons. A high degree of seasonality implies a strong teristics of the commodity that may require special and predictable pattern for the commodity’s prices attention. Some product constraints derive from within a year. Seasonality in prices can stem from physical characteristics of the commodity, while growing patterns on the supply side (e.g., sweet corn 40 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 41

in the Midwest) and seasonality in demand patterns be practical. Furthermore, relatively higher storage (e.g., turkey sales increase around Thanksgiving). costs may eliminate any financial gains generally When purchasing highly seasonal commodities, it is available from a standard forward buy. Thus the likely that manufacturers will use forward purchas- tradeoff between reductions in unit price and in- ing mechanisms, such as a forward buy, to obtain creases in storage costs must be considered, and is large volumes of commodities when prices are low likely to favor a spot market strategy or a forward and hold product in inventory (Kingsman 1985). contract where delivery is taken close to the time Storage requirements of a commodity focus on of production. the physical environment needed to preserve the The commodity cost share in the final product commodity’s quality (e.g., refrigeration). High is determined by the contribution of the commodity storage requirements imply higher storage costs, to overall final product cost. When commodity cost so commodities with high storage requirements are share is high, it is expected that manufacturers will less likely to be purchased with forward purchas- use forward purchasing mechanisms to minimize ing mechanisms, such as a forward buy (Kingsman price risk and ensure profit margins (Hayenga 1979). 1985). When a manufacturer cannot accommodate Forward purchasing mechanisms also allow a manu- special storage requirements, taking possession of facturer to set a stable final product price, avoiding inventory in advance of production needs may not radical price fluctuations for the final good.

Product Constraints Company Constraints Service Constraints •Market Efficiency •Budget Constraints •Special Promotions •Perishability •Cooperative/Investment •Supplier Service Level •Seasonality •Limited Supply •Traceability •Storage Requirements •Price Risk Strategy •Commodity Cost Share •Sales Forecast Accuracy •Storage Availability •Volume

Commodity Procurement Decisions

Figure 1. Commodity-Procurement Decision Categories. 42 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 43

Company Constraints Price risk refers to volatility of the commodity price over time. Volatility is measured in percent- Company constraints are those characteristics that age terms and annualized to evaluate the historical arise from the distinct characteristics or policies volatility of a commodity (Bittman 2001). Higher of the purchasing firm. Some company constraints volatility implies higher price risk. If the commod- stem from financial characteristics of the firm, ity price is relatively volatile, it is expected that a while others are rooted in the firm’s managerial manufacturer will implement a risk-management and organizational characteristics (e.g., policies, instrument in the form of a forward purchasing marketing strategies). The nature and size of mar- mechanism, such as a forward buy. Without an ad- kets in which the firm participates also play a role in vanced price mechanism there is a risk of paying creating company constraints. Budget constraints, a significantly higher price on the spot market. If cooperative involvement, limited supply, price risk, there is little price risk, the spot market is generally sales-forecast accuracy, storage availability, and sufficient. volume are all company constraints. Nearly all manufacturers base their procurement Budget constraints refer to the degree to volumes for input supplies, at least to some extent, which the budget for the commodity-procurement on the sales-forecast accuracy of final product. department is limited. In a strict budget environ- Sales-forecast accuracy refers to the degree to which ment, manufacturers are expected to be involved in forecast sales mirror actual sales. It is expected that fewer forward buys. Forward buys are expensive higher a degree of sales-forecast accuracy will lead to execute in the short run since the manufacturer to a higher likelihood of manufacturer use of forward has to pay for the commodity before it is needed purchasing mechanisms. Greater accuracy mini- in production (Kingsman 1985). Furthermore, mizes volume risk, so a manufacturer can be more when budget constraints are high, it is expected aggressive and focus on minimizing price risk. that commodity-procurement departments focus Storage availability is the amount of physical more on cost avoidance or cost reduction. When space available for commodity storage. It is hy- budget constraints are more relaxed, the commod- pothesized that manufacturers with relatively high ity-procurement department can focus more on storage availability are more likely to participate in profit or revenue generation as measured against forward buying activities since ample space is avail- price risk. able for storing the procured commodity (Kingsman Cooperative/common involvement refers to a 1985). Manufacturers with a relatively low amount situation where more than one entity is involved in of storage availability are limited to purchasing ac- the procurement decision. The most common form tivities that do not require taking possession of the is a farmer cooperative–owned plant that buys com- commodity in advance of production, such as spot modities from its members. Common involvement markets or forward contracts. can also occur when multiple manufacturers form Volume is the amount of a commodity needed a buying cooperative. Commodities procured under within a given time frame to fulfill manufacturing a common-involvement process are more likely to requirements. It is expected that a manufacturer be purchased through a forward price mechanism. would seek a forward purchasing mechanism for Nearly all of these cooperative involvements have high-volume commodities to avoid the risk of stock some form of contract that commits the parties in- outs. When manufacturers lack sufficient levels of volved to a given quantity of a commodity (Royer high-volume commodities, it delays production 1995). In this sense, the manufacturer is committed and incurs significant cost (Kingsman 1985). For to a future purchase, and thus will want to hedge low-volume commodities, it is more likely that a price risk via forward purchasing mechanisms. manufacturer will buy the commodity on the spot When a limited supply exists at a specific qual- market in order to save storage costs. ity level, it is more likely that forward purchasing mechanisms will be used. The primary benefit is the Service Constraints minimization of supply risk so that production can continue as planned and final product supply is not Service issues affect commodity-procurement de- affected (Hayenga 1979). partments in two ways. First, service can equate to 42 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 43

the service that the manufacturers’ customers (e.g., in activities (e.g., cost-reduction programs) to en- generally retailers) demand; for this study, the cus- sure preferred-supplier status. Finally, since a spot tomer-service requirement examined is promotional market implies that no relationship exists between expectations that a retailer may have as part of its buyers and sellers, this procurement strategy will marketing strategy for the manufacturer’s finished not be as beneficial when a high level of service is product. Second, service can equate to the require- required. ments that the manufacturer sets for its suppliers, Traceability refers to the ability to trace the including supplier service level and traceability. source of a commodity and other pertinent product The first service constraint affects the manufacturer information such as where and how the commod- as the seller of a finished good, while the second ity was grown (e.g., what herbicides were used on service standard affects the manufacturer as a buyer the field). A high degree of traceability refers to a of a commodity product. Each of these constraints commodity that can be completely traced back to its is discussed below. origins and where many details about the production While most special promotions are based at the environment of the commodity are known. When retail level, the end result is an increase in production a high degree of traceability is required, a forward quantities for the manufacturer—translating into an purchasing mechanism, such as a forward contract, increase in the volume of the required commodity. is more likely to be used. While traceability is typi- Special promotions also put price pressure on com- cally considered a differentiating trait, it is also true modity-procurement departments. If the final prod- that the line between commodity and differentiated uct is discounted at retail, the base commodity must product becomes blurred when traceability is ap- be purchased at a lower price in order to maintain plied to commodity agriculture. In fact, it is the profit margins. Based on pre-test interviews, it was implementation of traceability that transforms an apparent that this is a key characteristic, particularly agricultural commodity into a differentiated prod- in highly price-competitive markets. A special pro- uct. We include it here as an important characteristic motion is expected to encourage a manufacturer to that may guide how some food manufacturers make investigate forward purchasing mechanisms. Two commodity-procurement choices. As traceability is reasons for more-advanced purchasing include the integrated into a commodity or is expected from a need to ensure sufficient supply exists to produce supplier, the transaction costs of maintaining trace- the desired amount of final product forecasted for ability increase (Hobbs 1996), moving a manufac- the special promotion; and the need to protect profit turer away from the spot market where commodities margin needed to make the promotion worthwhile do not have traceability attributes. and successful for both the manufacturer and retail customer. Methodology Supplier service level refers to services available from a commodity provider, and can range Case-study methodology was used for this study. from providing market forecasts to on-time de- Case studies are appropriate when exploring “what” livery. Monczka and Trent (1995) list the service and “why” questions, and when the researcher has no level of a supplier as one of the top five concerns control over the outcome (Yin 1989). As discussed of procurement. Commodities with a high service- by Sterns, Schweikhardt, and Peterson (1998), case- level requirement are more likely to be purchased study research is an increasingly important tool for through forward purchasing activities. A high ser- agricultural economists. The general design for case vice level implies that a relationship generally exists studies includes the following five components: the between the two parties and more information is unit of analysis, the research questions, the research shared, allowing for forward purchasing activities propositions, the logical process for linking the data to be executed (Kingsman 1985). It may indicate a to the propositions, and the criteria for interpreting higher level of trust and cooperation between the the findings (Yin 1989). For this research, the unit two parties. Thus manufacturers are more willing of analysis is food manufacturers and their choices to listen to supplier ideas with respect to forward with respect to procurement strategy. Since very purchasing opportunities. Also, suppliers are more little attention has been given in the literature to likely to work closely with manufacturers and assist food manufacturers and their commodity-procure- 44 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 45 ment strategies, case study is an appropriate meth- commodities. One company manufactures and odology, because the “what” and “why” questions markets its own national brand in a niche market are particularly insightful and may lead to further that includes both mainline and organic products. research streams. Another company primarily processes and packages A thorough literature review identified typi- for a top-selling national brand in its category. The cal characteristics that affect commodities. An third company is a leading broad-line foodservice open-ended discussion-based questionnaire was distributor that manufactures and markets its own developed to better understand “what” commod- branded products and/or outsources production of ity-procurement characteristics are important to its branded products to contract manufacturers. buyers and “why” those characteristics affect Specific company information is not disclosed here commodity-procurement decisions. As is standard due to confidentiality agreements; however, each in any questionnaire development, we pre-tested company is a leader in its segment and procures the case questionnaire with several academics and a broad range of food commodities. Additionally, industry representatives familiar with commod- there is overlap among companies in the types of ity marketing and commodity procurement in the food commodities procured, which increases the food industry. The pre-test phase resulted in the richness of the case-study results. addition of several characteristics which affect The three food manufacturers have similarly or- commodity procurement and have not previously ganized commodity-procurement departments. The been discussed in the literature. The discussion of basic structure consisted of one overall director of these additional characteristics was included in the commodity procurement, with specific commodity- previous section. The questionnaire is provided in group responsibilities assigned to buyers reporting the Appendix. to that director. In one company, a business-sup- The research propositions were exploratory port individual assisted each buyer. All participat- which, as explained by Yin (1989), focus mainly ing companies assigned buyer responsibilities by on the purpose of the study. As such, the research related commodities. For example, one buyer would propositions were focused on discovering whether have responsibility for all dairy commodities. Or- or not individual commodity characteristics were ganizing responsibilities in this way allows buyers important in a procurement decision, whether the to specialize in one commodity group and enables decision followed expected patterns as shown in food manufacturers to benefit from the buyer’s ex- previous literature (e.g., in a more efficient market, pertise. The firms employed between three and 12 are forward purchasing mechanisms less likely to buyers. In general, individual buyers had authority be implemented), and whether decision patterns are to make final decisions on commodity-procurement consistent across the buyers interviewed. strategy. The logical process for linking the data to the Twelve commodity-procurement personnel propositions and the criteria for interpreting the across the three food manufacturers were inter- findings were completed following pattern-match- viewed, including agricultural-commodity buyers ing logic. As stated by Yin (1989), pattern-matching and managers in each firm’s procurement depart- logic compares the patterns discovered through the ment. Table 1 reports the number of interviews at interview process to the predicted patterns. Through- each company as well as the positions held by the out the research, pattern matching was performed participants. Interviews were conducted on-site at and included cross-case pattern analysis. the firms’ facilities with two companies, requiring approximately one day on site. A third company was Participant Descriptions interviewed over the telephone. Individual inter- viewees were asked to answer the entire question- The participating companies are all involved in naire. As such, a multi-case design was employed food manufacturing, yet they each occupy a dif- and replication logic procedures were followed ferent strategic position. All three companies are whereby each case either provided support for medium- to large-scale food manufacturers that similar results or logically explained dissimilar re- use both spot market and forward purchasing sults. This number of interviews is higher than the mechanisms across different food and agricultural eight-respondent minimum suggested by McCraken 44 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 45

Table 1. Job Responsibilities for Survey Participants. Personnel position Commodity Company 1 Head of procurement Wide range of fruits and vegetables; popcorn Company 2 Procurement director Packaging procurement director Buyer Fruits & Vegetables Assistant buyer Fruits & Vegetables Buyer Meats, Grains, & Oils Assistant buyer Meats. Grains, & Oils Company 3 Commodity-procurement director Lead buyer of soft commodities Wheat, flour, soybean oil, orange juice, coffee Dairy buyer Eggs, cheese, butter, milk, also some fruit and vegetable Meat buyer Beef and pork Meat buyer Chicken, poultry, and seafood

(1988) and highlights the ability for this exploratory dividual buyers or managers varies, likely due to study to provide insights into commodity-purchas- the nature and diversity of commodities included in ing strategies. The breadth of companies and the the study. Many participant responses confirm the diversity of the commodities involved in the study expected relationships with some variation across increases the likelihood of generalizability outside participants. Results for each group of constraints of this particular sample. are discussed below.

Research Results Product Constraints Buyer responses were mixed as to which product- Study respondents shared information on company constraint characteristics they considered when structure, perceived roles of commodity-procure- choosing a commodity-procurement strategy. ment departments, the commodity-procurement Perishability and seasonality were considered characteristics, and the choice of commodity-pro- by all twelve of the participants, while ten of the curement strategy. Their responses are summarized twelve considered market efficiency in their deci- below. sions. Buyers indicated a greater profit opportunity exists in relatively inefficient markets. Storage re- Procurement Characteristics and Strategy quirements and commodity cost share were considerations for only a few of the buyers (three and Table 2 summarizes the number of buyers assigning two, respectively). Storage requirements were only importance to individual commodity characteris- considered by buyers who were procuring frozen or tics in the procurement decision (holding other refrigerated goods where storage space is relatively characteristics constant), the expected procure- limited and expensive. Other buyers indicated that ment strategy, and the consistency of respondents’ storage considerations did not enter the strategy de- procurement strategies with the expected strategy. cision since storage space is generally available and The importance of individual characteristics to in- inexpensive (though the authors argue that buyers 46 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 47

Table 2. Procurement Characteristics: Rate of Consideration and Agreement with Hypothesis. # of buyers Buyer agreement assigning with expected Procurement characteristic importance Expected strategy* strategy** Product constraints Market efficiency 10 Spot market 10 Perishability 12 Forward purchasing 12 Seasonality 12 Forward purchasing 12 Storage requirements 3 Spot market 3 Commodity cost share 2 Forward purchasing 2 Company constraints Budget constraints 5 Spot market 5 Cooperative/common involvement 1 Forward purchasing 1 Limited supply of specified quality 3 Forward purchasing 3 Price risk 12 Forward purchasing 10 Sales-forecast accuracy 12 Forward purchasing 12 Storage availability 0 Forward purchasing 0 Volume 7 Forward purchasing 7 Service constraints Special promotions 9 Forward purchasing 9 Supplier service level 12 Forward purchasing 0 Traceability 3 Forward purchasing 3

*Expected procurement strategy assuming the level of characteristic is high (e.g., if market efficiency is high, the spot market is the expected strategy). **Based on the buyers who agreed that the characteristic is important. NOTE: N=12

are implicitly considering storage but that it is not a in the market, as described by Carlton and Perloff binding constraint in these cases). Most buyers paid (1989). This expertise facilitated more opportunities little attention to commodity cost share, indicating to optimally time purchases through forward buys that their primary focus was procuring the appropri- or forward contracts. Greater market efficiency ate volume at the lowest possible cost. dissipates the asymmetric information advantage, When buyers considered a product constraint leading to spot-market procurement. as important in choosing a procurement strategy, For the buyers who considered storage require- they were also in full agreement with the expected ments as important (recall these were primarily strategic choice. The buyers, indicating that market buyers of frozen commodities), the spot market efficiency and storage requirements were impor- was generally used to avoid the search costs of tant considerations, also indicated that the optimal finding additional storage and the high cost of procurement strategy given high levels of these leased storage. Regarding perishability, seasonal- characteristics would be the spot market. In the ity, and commodity cost share, buyers agreed that case of market efficiency, buyers believe they hold high levels of these characteristics would result an asymmetric information advantage over other in some type of forward purchasing mechanism players in inefficient markets, likely attributable rather than spot-market usage. When commodities to expertise gained from frequent participation are highly perishable, buyers prefer to implement 46 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 47

forward contracts with specific delivery times to in procurement-strategy choice also chose pro- avoid as much storage as possible. Alternatively, curement strategies consistent with the proposed some buyers pursue forward buys for perishable choice with the exception of the price-risk charac- commodities, but with much shorter time horizons teristic. The majority of participants (ten of 12) in than for non-perishable commodities. All buyers the study agreed with the expectation that a high were concerned about over-purchasing for actual degree of price volatility would encourage a for- production needs, given the perishable nature of ward purchasing strategy assuming other factors, the commodity. such as perishability, are not contradictory. Those Buyers agreed that a high degree of seasonality disagreeing viewed price risk as a distraction to would lead to procurement with forward purchas- forward buying for fear of improperly timed buys ing mechanisms. Seasonality can affect both com- (e.g., when prices may be higher). These buyers modity availability and price risk for commodity believed that using the cash market was the best buyers. Buyers serve the supply-assurance func- way to minimize risk. tion by forward contracting or making forward The three buyers who considered limited supply buys to ensure that adequate volumes are available of a given quality to be important felt that obtaining for future production. Buyers minimize price risk the desired quality level gave their firm a competi- by timing purchases to take advantage of seasonal tive advantage for the final product. They agreed price swings. that forward purchasing mechanisms were the best way to ensure that adequate quantities of that Company Constraints quality were available. Buyers agreed that budget In general, buyers gave less weight to company constraints would encourage spot-market procure- constraints than to characteristics in the product ment to postpone the purchase as long as possible, constraint and service constraints categories. Only conserve cash flow, and reduce the chance of over- price risk and sales-forecast accuracy were consid- purchasing. Buyers also indicated that accurate erations for all 12 of the buyers in the study. Volume sales forecasts allow them to be more aggressive was a consideration by seven of the 12, while budget with buying strategies and that forward purchasing constraints, cooperative/common involvement, and strategies are more likely when sales forecasts are limited supply of a specific quality were consider- regarded as more accurate. Accurate sales forecasts ations of less than half of the buyers (five, one, and also help buyers better time purchases since the three, respectively). Buyers were more concerned quantity needed for each period is known. with obtaining an adequate return, so budget con- For the seven buyers who considered volume as straint was not an issue. The primary reason given an important determinant of procurement strategy, for the lack of cooperative consideration was high it was clear that higher volume encourages forward transaction costs, including high coordination cost, buys. Generally, these buyers found high-volume high cost of developing common buying plans, and commodities were usually core ingredients for fi- philosophical differences regarding how the com- nal products, so the goal became maintaining sup- modity should be procured. In essence, the transac- ply. Several respondents indicated that they first tion costs were too high to make cooperative buy- concentrated on larger-volume commodities since ing a profitable option for the participants in this these commodities potentially have the highest study. Most buyers indicated that limited supply of impact on profitability. In cases where profit was a specified quality did not have a significant impact the strategic role of the commodity-procurement because they were buying commodities that meet department, buyers were more likely to develop a basic standards. None of the 12 buyers explicitly unique buying strategy for large-volume purchases. considered storage availability as important to the The five buyers who did not consider volume to be procurement-strategy decision. However, as with important viewed all commodity purchases as profit storage requirements, it does seem that buyers are opportunities and were focused on return on invest- implicitly considering storage availability, as their ment. These buyers also noted that commodity value general assessment was that storage space was was more important than commodity volume alone. available, whether owned or rented, if needed. When value was high, these buyers were more likely Buyers who considered company constraints to use forward buys. 48 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 49

Service Constraints for their finished product, traceability became, in Service constraints include special promotions, part, the responsibility of the commodity-procure- supplier service level, and traceability. Each of the ment department and led to a different procurement nine buyers indicating that special promotions play choice (a forward contract) that would ensure sup- a role in their commodity-procurement strategy also ply traceability. said that special promotions would lead to using The second primary insight is that the role of forward purchasing mechanisms. Knowledge of the the commodity-procurement department can vary special promotion with sufficient advance notice al- and may follow an evolutionary process. This is lows the buyer to take advantage of more innovative demonstrated in part by the fact that there was little strategies, and to use accurate sales forecasts and consistency across buyers regarding the commodity- projected margins. Generally, buyers who consid- procurement department’s strategic role. Perceived ered special promotions in their procurement strat- strategic objectives included controlling supply to egy were more likely to use a forward purchasing the production plant, minimizing inventory, finding mechanism, avoiding the risk of spot-price increases new suppliers, assisting the marketing department, between the promotion proposal and the promotion improving/maintaining quality standards, assuring implementation. traceability, reducing cost, serving as a profit center, A major finding of this research is that while providing service or value to customers (e.g., retail- all 12 buyers agree that supplier service level is an ers), minimizing risk, and taking advantage of op- important consideration in choosing a procurement portunities in volatile markets. At first glance it may strategy, none agreed with the hypothesis that higher be troublesome that such wide arrays of objectives supplier service levels would encourage the use of are perceived by buyers in these three companies’ forward purchasing mechanisms. Instead, they commodity-procurement departments. However, viewed adequate supplier service level as a basic these various strategic roles can be organized into prerequisite to a business relationship with their three main categories: supply-maintenance–fo- firm. Services expected by buyers included supply cused, profit-focused, or relationship-focused. maintenance, on-time delivery, market knowledge, Supply-maintenance–focused commodity-pro- buyer-firm familiarity, exhibiting cooperation, and curement departments are primarily concerned with offering market opinions. Buyers will not procure maintaining supply to the production facility. Profit- products from suppliers that do not provide ad- focused commodity-procurement departments equate service levels (as defined by the individual seek potential profit opportunities in the market by buyers and/or company). making well-timed purchases. Relationship-focused Only three of the 12 buyers considered trace- commodity-procurement departments concentrate ability, but those three buyers indicated that trace- on providing value to their customers (generally ability was a very important characteristic. These to retailers) which also may be accomplished, in firms market traceability in their final product and part, by forming close-knit relationships with key use forward contracts to ensure that the commod- suppliers. ity meets traceability specifications. As such, trace- Further discussion with these commodity-pro- ability is a key role in the strategic direction of this curement professionals suggests an evolutionary commodity-procurement department and plays a path with respect to the strategic role of a company’s role in this firm’s service requirements. commodity-procurement department. This sequen- tial path is visually presented in Figure 2. The wide Additional Insights from Case Studies arrays of responses above suggest that buyers are Further insights were gathered beyond the study’s at different stages in the evolutionary process with initial objectives, which is not uncommon in case- respect to the commodities that they procure. study research. Two primary insights relate to the Given this evidence, we propose that a commod- roles of commodity-procurement departments. ity-procurement department has three strategic lev- Buyers recognized that the commodity-procure- els: supply-maintenance–focused, profit-focused, ment department’s role often strongly affected the and relationship-focused. Furthermore, each level procurement strategy selected. For example, when is associated with a corresponding commodity- a company used traceability as a marketing tool decisions classification (e.g., product constraints, 48 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 49

company constraints, and service requirements, role triangle does not negate the importance of the respectively). A firm must first reach a minimum prior level, but instead builds on competency at the standard at the lowest level of the triangle before it prior level. In fact, competency levels may continue proceeds to higher levels. For example, buyer and to increase at previous levels as new competencies management responses to this study indicate that are built at the next level, presuming that the firm’s the chief objective of any commodity-procurement minimum standard at the previous level has already department must be to secure adequate supply, and been attained. That is, the strategic levels should be that only when this minimum standard is met can considered as building blocks rather than stepping buyers begin to focus on increasing profit. When stones. It also implies that a commodity-procure- a firm’s commodity-procurement department ment department provides increased value to the becomes proficient at increasing profit (through competitive nature of the firm as its role move up various “sub”-strategies), buyers can then focus the triangle. Each level of the strategic role triangle on relationship-building. It is important to note is discussed in depth below. that attainment of the next level in the strategic The research showed that ensuring sufficient

alue

etitive Nature Relationship mp -Focused sing Strategic V ea m’s Co Incr

To Fir

Profit-Focused

Supply Maintenance-Focused

Figure 2. Evolution of Strategic Roles of Commodity-Procurement Departments. 50 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 51 volume to fulfill manufacturing demands was of- modity-procurement departments must first be ef- ten the buyer’s first concern. In order to maintain ficient in maintaining supply and being profitable. If supply, the commodity-procurement department a commodity-procurement department cannot fulfill must reduce the risk of stocking out. In this sense, these first strategic roles, then is it unlikely they characteristics considered under product constraints can successfully provide value-added services for may more prominently drive procurement deci- their customers. This requires commodity buyers to sions. There are many ways to manage this task, and focus on characteristics associated with service con- commodity-procurement personnel will continue to straints. An example demonstrated in this research find more innovative and cost-saving ways of pro- is food manufacturers working with retail customers tecting supply. A popular means of obtaining this on special promotions. Food-manufacturer repre- goal is to have contracts to ensure supply. In some sentatives, including a commodity-procurement cases, the contract price is set when the contract is buyer, help the retailer design and implement the signed. Others included some type of formula that promotion. The role of the commodity-procurement tied the contract price to the market price of that representative is to ensure that the increased quan- commodity at the time of delivery. The formula tity demanded is attainable at a price that allows the contracts allow commodity buyers to ensure their promotion to be profitable. supply while also developing buying strategies that can be profitable. Conclusions When commodity-procurement departments are more profit-focused, they must focus beyond just This research uses an exploratory case-study ap- eliminating or protecting against supply shortages. proach to empirically evaluate the influence of vari- Commodities, by their nature, do not generally fol- ous characteristics (classified as product constraints, low stable prices, resulting in inherent price risk. company constraints, and service constraints) on A commodity buyer must design a plan to increase commodity-procurement decisions. Characteristics profitability without increasing supply risk. Buy- evaluated in the study include those described in ers must evaluate the risk-reward tradeoff and previous literature and new characteristics garnered determine how much price risk they are willing to from interviews with commodity professionals. take in order to achieve expected profits. In most Second, the study empirically evaluates those cases, it is nearly impossible to consistently buy characteristics as to their importance in selected a commodity at the lowest market price, and also firms’ commodity-procurement departments. Some to consistently avoid buying when the market is of the factors that the literature suggested are impor- at its highest. If the strategic role of commodity- tant in commodity marketing and/or procurement procurement department is to be a profit center, decisions were very important empirically across buyers are more likely to take additional price risk all participants. Other factors that the literature to try to maximize profit opportunities in the mar- indicated are important in commodity marketing ket. As such, buyers may begin to focus more on and/or procurement decisions varied greatly across characteristics associated with company constraints this study (e.g., storage costs). in an effort to manage/calculate risk. Alternatively, This research also provides a framework for clas- if the commodity-procurement department is more sifying commodity-procurement strategies as well risk-averse, buyers are less likely to seek maximum as insight into a potential model for examining the returns on a commodity purchase and more likely evolving role that commodity-procurement depart- to stay at the supply-focused level. ments can play within corporate strategy (Figure 2). The relationship-focused strategy is potentially The classification framework would illustrate that the most advanced strategic level. Under this strat- commodity-procurement decisions occur across egy, food manufacturers seek to develop closer three categories: product constraints, company relationships with their customers and suppliers constraints, and service constraints (as shown in in order to ensure the commodity-procurement Figure 1). The potential model for examining the department is integral to the cross-functional team role of commodity procurement within corporate working on the customer account. In order to strategy (as shown in Figure 2) implies that a com- implement additional services to customers, commodity-procurement department must first focus on 50 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 51

supply maintenance. Once a commodity-procure- References ment department has mastered maintaining supply, it can progress toward more profit–focused strate- Aberdeen Group, Inc. 2005. Strategic Sourcing in gies. The final evolution moves toward development the Mid-Market Benchmark: The Echo Boom in of a relationship-focused strategy. This model may Supply Management. Boston: Aberdeen Group, allow managers to determine the strategic role of Inc. commodity-procurement departments, help the Arthur, H. B. 1971. Commodity Futures as a Busi- commodity-procurement department prioritize ness Management Tool. Boston: Harvard Busi- which characteristics to focus on, and consider ness School, Division of Research. how a commodity-procurement department can Bittman, J. B. 2001. Trading and Hedging with add additional value to the company. Agricultural Futures and Options. New York: McGraw-Hill. Research Limitations and Future Directions Carlton, D. W. and J. M. Perloff. 1989. Modern Industrial Organization. Glenview, IL: Scott, Qualitative research has its place in conducting Foresman and Company. problem-solving research and developing new Ferris, J. N. 1997. Agricultural Price and Commod- theory (Sterns, Schweikhardt, and Peterson 1998), ity Market Analysis. New York: McGraw-Hill. but certainly further quantitative research methods Hayenga, M. L. 1979. “Risk Management in are important. This research is a first step of trying Imperfect Markets: Commodity Procurement to understand the “what” and “why” of commod- Strategy in the Food Manufacturing Sector.” ity procurement since so little information exists American Journal of Agricultural Economics regarding this activity. However, further research 61(2):351–357. needs to be conducted. Hobbs, J. E. 1996. “A Transaction Cost Analysis of Replication of the research using a larger sample Quality, Traceability and Animal Welfare Issues size would provide additional insights on commod- in UK Beef Retailing.” British Food Journal ity procurement for food manufacturers. In addition, 98(6):16–20. this study did not evaluate different-sized commod- Kingsman, B. G. 1985. Raw Materials Purchasing: ity groups and different dollar values across com- An Operational Research Approach. New York: modities. Examining food manufacturer’s procure- Pergamon Press. ment decisions relative to the amount spent on each Knill, A., K. Minnick, and A. Nejadmalayeri. 2006. buy would provide “rules of thumb” concerning “Selective Hedging, Information Asymmetry, the risk-return trade-off that must be evaluated and and Future Prices.” Journal of Business 79 (3): could provide answers regarding when it is worth 1475–1501. developing an advanced buying strategy. Kocabasoglu, C. and N.C. Suresh. 2006. “Strate- Perhaps the most intriguing future research gic Sourcing: An Empirical Investigation of the direction is to further develop the commodity-pro- Concept and Its Practices in U.S. Manufacturing curement decision framework in order to test for a Firms.” The Journal of Supply Chain Manage- higher order factor across product constraints, com- ment 42(2):4–16. pany constraints, and service constraints. Further Leenders, M.R., P.F. Johnson, A.E. Flynn, and research could also examine and test the existence H.E. Fearon. 2006. Purchasing and Supply of an evolutionary commodity-procurement strat- Management, 13th edition. Boston: McGraw- egy and its role in corporate strategy. Additionally, Hill Irwin. the relationship between the procurement decision McCraken, G.D. 1988. The Long Interview. New- framework and the strategic value of commodity bury Park, CA: Sage Publications, Inc. procurement (e.g., would product-constraint–ori- Monczka, R. M., R. J. Trent, and R. Handfield. ented decisions more likely be used in a supply- 1998. Purchasing and Supply Chain Manage- maintenance–focused strategy, while perhaps ser- ment. Cincinnati, OH: South-Western College vice-constraint–oriented decisions may more likely Publishing. be used in a relationship-focused strategy?) would Monczka, R.M, and R. J. Trent. 1995. “Purchasing offer an additional research area. and Sourcing Strategy: Trends and Implications.” 52 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 53

Tempe, AZ: Center for Advanced Purchasing Food. New York: McGraw-Hill. Studies, Arizona State University. Simon, J.T. 2005. “Competitive Purchasing Policies Petzel, Todd E. 1997. “Informational Needs of Under Price Volatility.” Advances in Competi- a Changing Agricultural and Food Sector” in tiveness Research 13(1):95–100. Food and Agricultural Markets: The Quiet Sterns, J. A., D. B. Schweikhardt, and H. C. Peter- Revolution. L. P. Schertz and L. M. Daft, eds. son. 1998. “Using Case Studies as an Approach Second printing. National Planning Association, for Conducting Agribusiness Research.” Inter- Washington, D.C. national Food and Agribusiness Management Royer, J. S. 1995. “Potential for Cooperative In- Review 1(3):311–327. volvement in Vertical Coordination and Value- Williamson, O.E. 1975. Markets and Hierarchies, Added Activities.” Agribusiness New York. Analysis and Antitrust Implications. New York: Volume 11. Issue 5. Sep/Oct 1995, 473–482. Free Press. Seifert, R.W., U.W. Thonemann, and W.H. Haus- Yin, R. K. 1989. Case Study Research. Newbury man. 2004. “Optimal Procurement Strategies Park, CA: Sage Publications. for Online Spot Markets.” European Journal of Zsidisin, G. A. and L. M. Ellram. 2003. “An Agency Operational Research 152:781–799. Theory Investigation of Supply Risk Manage- Seitz, W. D., G. C. Nelson, and H. G. Halcrow. ment.” The Journal of Supply Chain Manage- 1994. Economics of Resources, Agriculture, and ment 39(3):15–26.

Appendix Questionnaire

1. Could you please provide me with some back- changing in the next 5 years? Why? ground on your company’s procurement struc- 12. What do you see as the potential advantages/ ture and its relationship to overall company disadvantages of these future changes? structure? 13. What materials are you using to train employees 2. Describe how your commodity procurement on different buying strategies? group is organized and how buying responsi- 14. How is price risk involved in a procurement bilities are assigned. decision? 3. What strategic role does commodity procure- 15. If price risk is high what type of strategy does ment play with your company? this generally lead to? 4. Is the trend within your company to have more 16. How is volume of commodity purchased in- or less commodity buyers? Why? volved in a procurement decision? 5. Are the buyers organized by specific commod- 17. If volume of commodity purchased is high what ity groups or more decentralized across various type of strategy does this generally lead to? commodities? 18. How is commodity perishabilty involved in a 6. What are the different commodity buying strate- procurement decision? gies that you use? 19. If perishabilty is high what type of strategy does 7. Who decides what commodity buying strategy this generally lead to? is used? 20. How is the accuracy of sales forecast involved 8. What determines what commodity buying strat- in a procurement decision? egy is used? Why? 21. If there is a high degree of accuracy of sales 9. How have these commodity strategies changed forecast what type of strategy does this generally in the last 5 years? Why? lead to? 10. What advantages/disadvantages have you seen 22. How do special promotions become involved with these changes? in a procurement decision? 11. How do you see commodity buying strategies 23. If there is a large special promotion ahead what 52 November 2007 Journal of Food Distribution Research 38(3) Jones et al. Commodity-Procurement Strategies of Food Companies: A Case Study 53

type of strategy does this generally lead to? 36. How does traceability of a commodity involved 24. How does the amount of space required for stor- in a procurement decision? age of a commodity involved in a procurement 37. If the traceability is high what type of strategy decision? does this generally lead to? 25. If the storage requirements are high what type 38. How is cooperative involvement involved in a of strategy does this generally lead to? procurement decision? 26. How does the amount of space available for 39. If the cooperative involvement is high what storage of a commodity involved in a procure- type of strategy does this generally lead to? ment decision? 40. How does the value of the commodity in the 27. If the storage availability is high what type of final good involved in a procurement decision? strategy does this generally lead to? 41. If the value of the commodity is high in the final 28. How does the cost storage of a commodity product what type of strategy does this generally involved in a procurement decision? lead to? 29. If the storage costs are high what type of strat- 42. How is the service level of the commodity sup- egy does this generally lead to? plier involved in a procurement decision? 30. How does the efficiency of the market of a com- 43. What types of services do you expect from your modity involved in a procurement decision? suppliers? 31. If the price discovery mechanism for a com- 44. If the service level from the supplier is high modity is highly developed what type of strategy what type of strategy does this generally lead does this generally lead to? to? 32. How is a budget constraint involved in a pro- 45. How are quality specifications of a commodity curement decision? involved in a procurement decision? 33. If there is a tight budget constraint what type 46. If there is a very limited supply of specific qual- of strategy does this generally lead to? ity of a commodity what type of strategy does 34. How does seasonality of a commodity involved this generally lead to? in a procurement decision? 47. Are there any other major factors that you 35. If the seasonality is high what type of strategy consider when making commodity procurement does this generally lead to? decisions?