Global Edition Strategic Purchasing: A Global Perspective B.Z. Apostolova, M.J. Kroon, M. Richter, I.M. Zimmer University of Groningen 2015 Strategic Purchasing: A Global Perspective Preface Whether we call it Purchasing, Procurement, Supply Management, Sourcing or Buying – it is evident that activities, tactics and strategies associated with such terms are of great importance to organizations. Looking at job advertisements, skilled and highly educated Purchasers and Supply Managers are in demand. Hence, academia and practice work together to further grow the function as there remain many challenges and possibilities for improvements. In line with the developments in the field, we asked 22 international MSc students to plan, write and deliver an academic book on aspects of globalization in relation to Strategic Purchasing. We proudly present the resulting E-book of this year’s project – Strategic Purchasing: A Global Perspective. Based on literature reviews as well as case studies and examples the students have worked on different themes with the joint ambition to describe and discuss the state of the art of Strategic Purchasing today. While the book focuses on the developments in Strategic Purchasing and Supply Management it might also provide a presentation of a coming generation of purchasing professionals. The course and the book could not have been realized without the support of the companies and people who kindly contributed their time for guest lectures and further information: Sander Koopmans (Adjust), Hans Bax (UMCG), Ad Weterings (Gasunie) and Bauke Wierda (Koopmans). Finally, we would like to thank all students involved. Your enthusiasm, curiosity, eagerness, cooperation and perseverance made it possible to carry out this book project (and in only 7 weeks)! Groningen, April 2015, Dr. Kirstin Scholten and Drs. Ing. Henk Faber Department of Operations, Faculty of Economics and Business ACKNOWLEDGEMENT We would like to thank, Dr. Kirstin Scholten and Drs. Ing. Henk Faber for the enormous help, support and feedback they gave. And the authors: Marc Broeckelmann, David Buitelaar, Alexander Emiljanow, Mafalda Ferreira Rodrigues, Katrin Gardlo, Jelle Hahn, Roderick Hamilton, Steven Künzli, Jolien Mennink, Pauline Moreau, Thom Neeleman, Ruben Oosterhoff, Isabelle Smits, Johan van den Hoorn, Arjen van der Meer, Roger van Griethuysen, Tobias van Leeuwen, and Martin Winters -The editorial team Brief table of contents Introduction……………………………...………………………………...1 Chapter 2 Internal Aspects………………………………………………...13 Chapter 3 Sourcing Strategies…………………………………………......41 Chapter 4 Supplier Relations and Contract Management…………...…….73 Chapter 5 Purchasing Professionalism……………………..………...…...105 Chapter 6 Services……………………………..……………………...…..129 Chapter 7 Sustainability…………………………………..………...……..155 Glossary………………………..…………………………………………..181 Table of contents CHAPTER 1 INTRODUCTION……………………………………………………..……..1 Introduction……………………………………………………………..……………..2 The changing role of purchasing…………………………….……….………..2 Strategic purchasing……………………………………..…………………….3 Globalization and strategic purchasing……………………..…………………………4 Case study: Microsoft………………………………...………………....……..5 Strategic purchasing process……………………………..………………………..…...5 Specification phase………………………………………………….….6 Selecting phase………………………………………………………....6 Contracting phase……...……………………………………….……....6 Ordering and expediting phase…………………...………………….....7 Evaluating phase…………………………………………………..…...7 Construction of the book………………………………………………...…………......8 Future of purchasing…………………..…………………………….…………8 Content……………………..…………………………………………….…….8 References………………………..………………………………………...…………11 CHAPTER 2 INTERNAL ASPECTS…………………………………………......……….13 Introduction……………..……………………….……………………………..……..14 Vertical internal alignment………………………………………..…………………..15 Organizational strategies…………………………………..………...………..16 Case study: Apple Inc……………………………………….…………..……17 Aligning strategies……………………..……………….…………………….17 Case study: Volkswagen AG……………………………………..…………..18 “Make – or buy” decision…………………………………...………………..19 Case study: Insourcing/outsourcing FlexCon………………………..……….20 Centralized or decentralized purchasing………………………..………….…21 Horizontal Internal alignment……………………………..…………………..……...21 Introduction to the value chain and position of the purchasing department….22 Case study: A critical role of purchasing at Manitowoc…………………...…23 Horizontal integration and the role of purchasing…………………………..………..23 Internal drivers of purchasing department…………………………...…….…25 Organizational performance and the purchasing department…………..….…26 Preventing a misalignment………………..…………………………….…….………27 Barriers to horizontal integration and purchasing involvement………………………28 Maverick buying………………………………………………………..….....31 Conclusion…………………………………………………..…………………………33 Future section……………………………………………………………………….…35 References. ………….……………………………………………………………..…36 CHAPTER 3 SOURCING STRATEGIES………………………………………………..41 Introduction……………………………………………………………..……………..…….42 Introduction to sourcing strategy in the corporation………………………….…..….42 Place sourcing strategy in the corporation………………………..………….42 Global sourcing……………………………………………..………………….…….43 Category management……………………………………………...……..……….…45 Portfolio models……………………………………………………………………...……..46 Kraljic matrix………………………………………………………..…..…….……..47 Case study: “Pro-boat” Boat manufacturer……………………………….……..49 Exploit strategy…………………………………………………………..….……..50 Diversify strategy……………………………………………………………….….51 Balance strategy……………………………………………………………...51 Case study: “Pro-boat” Boat manufacturer…….…………………………….….52 Effects of Globalization…………………………………………………………..…...…..53 Negative aspects Kraljic matrix………………………………………….….54 Best value procurement…………………………………….……….……….55 Case study: Plus Supermarket……………………………………….……....56 Movements inside Kraljic matrix……………………………………………57 Case study: Rijkswaterstraat…………………………………………….…..57 Supplier selection…………………………………………………………...………..59 Sourcing and scouting for suppliers…………………………………….……59 Supplier base…………………………………………………………………..……60 Single vs multiple sourcing……………………………………………………..……62 Case study: Negative examples of single sourcing…….………………...…..63 Selection criteria…………………………………………………………...………64 Conclusion…………………………………………………………….……….…….65 Future section……………………………………………………….………………………66 References. ………………………………………………………………….……….67 CHAPTER 4 SUPPLIER RELATIONS AND CONTRACT MANAGEMENT……….72 Introduction…………………………………………………………………………………73 Supplier relationship management………………………………………………………..73 Dyadic relationship………………………………………………………………..76 Supplier classification………….…………………………………………………77 Case study: Counterproductive buyer-supplier relationship in the UK automotive industry……………………………………………………78 Supply chain networks…………………………….…………………………………80 Supplier involvement……………………………………………….………………..81 Joint problem solving………………………………………………….….81 Relative power…………………………………………………..……82 Supplier integrative capability…………………………………..……83 Supplier relationship portfolios………………………………..……..83 Techniques………………………………………………………....…85 Case study: Stocking closets………………………….……………………………...86 Contract Management……………………………………………………………………………...86 Case study: Producing lean……………………………………………………….....88 Supplier evaluation and relationship models………………………………………..89 Evaluation and monitoring………………………………………….89 Models of buyer-supplier relationships……………………………..90 Drivers and Barriers…………………………………………………………………92 Trust…………………………………………………………………93 Global trust………………………………………………………………..94 Case study: Trust relationship differences between the automotive industry in Japan and the USA…………..…………………………………….….95 Culture………………………………………………….……………96 Communication…………………………………….………………..97 Top management involvement. ……………………………….…….97 Long-term commitment and relation-specific investments………......97 Shared strategic goals and mutual benefits………………………….97 Conclusion………………………………………………………………….………………………98 Future section……..………………………………………….…………………………….98 References……...…………………………………………………………………………..99 Appendix 1…………………………………………………………………………………104 CHAPTER 5 PURCHASING PROFESSIONALISM………...........................................105 Introduction……………………………………………..………………………………..…106 Purchasing profession………………………………………………………..……...106 Case study: Job description – Purchaser Manager……………………...…..108 Skills……………………..………………………………………………………………….110 Case study: Koopmans Koninklijke Meelfabrieken BV…………………..…..113 Development of skills for a purchasing department……………….…………………...113 Developing professional purchasing skills with HR Management……...…..113 Case study: Developing skills………………………………...……………..117 Alignment with strategy through performance measurement…………….....118 Going Global…………………………………...……………………………………119 Cultural differences and consequent skills needed…………………...……..119 The purchasing department status and professionalism around the world….121 Case study: International Procurement offices. ………………………….…124 Conclusion…………………………..……………………………………………....125 Future section………………………………………………..……………………...125 References………….……………………………………………………………….126 CHAPTER 6 SERVICES………………………………………………………………...129 Introduction………………………………………………………………….……..130 The process of purchasing services. …………………………………….…………130 Importance of purchasing services…………………………….……………...……131 Make- or buy decision in services…………………………………….……….…...132 Value of service purchasing……………………….…………………………….…132 Case study: Koudijs Consultancy and Management (KCM) ……….……..134 Key challenges…………………………………………………….……….135 Globalization process………………………………………………….…………...135