Academic journal article Journal of Purchasing & Materials Management

Cooperative Buyer/seller Relationships and a Firm's Competitive Posture

Academic journal article Journal of Purchasing & Materials Management

Cooperative Buyer/seller Relationships and a Firm's Competitive Posture

Article excerpt

Cooperative Buyer/Seller Relationships and a Firm's Competitive Posture

The purchasing function of U.S. manufacturing firms has long relied on price-driven tactics to acquire an uninterrupted flow of intermediate-products from suppliers. These tactics help reduce direct material costs for the buying firm, and allow the purchasing function to support the firm's strategic posture of overall cost leadership. Some purchasing managers, however, have begun to use "cooperative buyer/seller relationships" with a few preferred-suppliers; this approach enhances the purchasing function's ability to support several strategic postures available to a manufacturing firm. Cooperative buyer/seller relationships allow purchasing managers to better manage the interdependent tasks of the buying and selling firms, and to become conduits of information between the manufacturing firm and its preferred-suppliers. This article presents a general description of cooperative buyer/seller relationships, contrasts the attributes of such a relationship with traditional acquisition options (i.e., open market bargaining and vertical integration), and suggests the contributions to a firm's strategic posture available from cooperative buyer/seller relationships. While the findings presented in this article have not been tested empirically for their descriptive or predictive ability, they are based on data gathered from field interviews completed with 50 purchasing managers representing a cross-section of organizational responsibilities and standard industrial codes.

INTRODUCTION No matter how a manufacturing firm defines or measures its success, success for the firm does not occur automatically.[1] In part, success occurs because of a manufacturing firm's strategic posture, which permits it to cope with the competitive forces in its industry.[2] Success is also partly due to the tactics used by functional managers to carry out their daily activities.[3]

To attain success while coping with its competitive forces of (1) threats of new entrants, (2) threats of substitute products, (3) bargaining power of consumers, (4) rivalry among competitors, and (5) bargaining power of suppliers, a manufacturing firm will choose one or a combination of the following strategic postures: overall cost leadership, product differentiation, or market-segment focusing.[4] Overall cost leadership allows a manufacturing firm to position itself as the low cost producer in its industry (e.g., Briggs and Stratton's low cost position in the small horsepower gasoline engines marketplace). In contrast, a manufacturing firm, choosing a strategic posture of product differentiation, will offer products or services unique to its industry (e.g., Caterpillar, with its dealer network and excellent spare parts availability). Alternatively, by choosing a strategic posture of market-segment focusing, a manufacturing firm copes with its competitive forces by serving only a narrow market-segment (e.g., Illinois Tool Works concentrates on specialty fasteners, and Howard Paper narrows its product range to industrial-grade papers).

The chosen strategic posture, however, only provides a guideline for the actions and the procedures employed by functional managers in their work. In other words, the strategic posture of a manufacturing firm does not designate specific functional tactics. Accordingly, purchasing managers should understand and interpret their firms' strategic posture before deciding on the specific tactics to use in acquiring intermediate-products from suppliers. In practice, however, U.S. manufacturing firms typically have acquired their intermediate materials and products by "open market bargaining" and "vertical integration."[5] And these two acquisition options influence the tactics and the support the purchasing function can give to the firm's strategic posture. Of these two acquisition options, the purchasing manager has relied primarily on "open market bargaining," since the decision to vertically integrate is a strategic choice usually outside the control of purchasing managers. …

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